The Canada Child Benefit (CCB) will increase this July for families that filed a 2017 tax return. However, the requirement to file a tax return is just one of the reasons why thousands of Canadians can’t access these generous, tax free benefits. The government will soon spend more on awareness; but the tax and financial services community can assist, too.
Recently, families have benefited greatly from these generous benefits. “Median income from government transfers rose from $5,800 in 2014 to $7,400 in 2016,” states the Canadian Income Survey released on March 13, 2018, “with about half of that coming from the Canada Child Benefit.” Median receipts (defined as the level of income at which half the population had higher income and half had lower) were as follows:
Canada Child Benefit Recipients
|Year||Couples with Children||Per Month||Singles with Children||Per Month|
|2015||$3,400 +36% since 2014||$283||$5,800 +13.7% since 2014||$483|
|2016||$4,000 +60% insce 2014||$333||$6,400 +25% since 2014||$533|
The CCB will continue to improve as a result of the newly indexed amounts implemented in July of 2017. But here’s the problem: this important benefit was missed by thousands of Canadian families and the federal government is now about to spend millions to fix that, at least for some of our most vulnerable families.
Specifically, the February 27, 2018 budget noted “Indigenous Peoples, living in remote and northern communities, face distinct barriers when it comes to accessing federal benefits such as the Canada Child Benefit.” The Government will spend $17.3 million over three years, beginning in 2018-19, to expand outreach to Indigenous communities, and to conduct pilot outreach activities for urban Indigenous communities to ensure they collect all their social benefits.
But the problem extends beyond the Indigenous community. Here’s why: the newly enhanced benefits depend on net “family” income, as declared on the tax return. It’s an income test that can be difficult for families in flux. Single parents involved in various types of conjugal relationships can find themselves looking straight into the eyes of the vigilant tax auditor, who has the power to cancel or delay the generous CCB.
So what’s at stake? For the benefit year starting July 2018, the maximum available Canada Child Benefit amounts are the following:
|Benefit for Children Under 6||$6,496 ($541.33 per month)|
|Benefit for Children Between 6 and 17||$5,481 ($456.75 per month)|
If you have three children under the age of six, for example, you could qualify for a tax-free monthly benefit of just under $1,624 dollars, or $19,488 annually. That’s significant, but there is a catch. When you have family net income above certain levels, a “clawback” is applied, as shown below:
|Family Net Income|
|Number of Children||Under $30,450||$30,450 to $65,975||Over $65,975|
|1||0%||7.0%||$2,486.75 + 3.2%|
|2||0%||13.5%||$4,795.88 + 5.7%|
|3||0%||19.0%||$6,749.75 + 8.0%|
|4+||0%||23.0%||$8,170.75 + 9.5%|
Note that if a child in the family is disabled, the Child Disability Benefit of $2,771 (in 2018) is also paid, in addition to the Canada Child Benefit amount. Again, the amount is reduced if family net income exceeds $65,975. The reduction rate is 3.2 percent for families with one child and 5.7 percent for families with two or more eligible children.
You can see, this is not easy math for most people. In fact, it’s punitive: the clawback creates a high marginal tax rate for families with rising incomes. It’s one of the reasons why those who have common law relationships prefer to report single status. But if this is false, it puts the benefits – and more - at risk.
A better strategy: file an accurate tax return and use some of the funds to make an RRSP contribution, which can help to reduce that net income below $30,450 or $65,975, and increase the benefits. A qualified tax and financial advisor can help.
There is an important opportunity for the tax and financial services community to work together with such families to make sure they are tapping into all their social benefits and leveraging those dollars into tax-efficient investments that will help grow even more security for the future. In fact, it's a wonderful way to give back with some “professional philanthropy.”
One could argue that removing the need to file a tax return to access government social transfers available, may not be the most effective income redistribution method. Especially for those who live remotely or on an isolated basis due to age or disability. Many of these same people are not computer-literate or do not have access to computers or the internet. This should not be a reason not to receive government benefits at all.
Additional educational resources: Learn how you can improve your clients’ access to the credits and benefits available – enhance your knowledge and become a Distinguished Financial Advisor – Tax Services Specialist today. Register before the June 15 deadline for tuition savings. A free trial is available.
Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too. Follow her on twitter @evelynjacks
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