Families have started receiving the new Canada Child Benefit. The Federal government claims this new revamped benefit will mean more money for 90% of families. They are comparing it to the old benefits families were receiving under the former government’s plan. If you’re confused as to how it works here’s what you need to know.
It essentially replaces three benefits that families with kids under the age of 18 may have been already been receiving. The Universal Child Care Benefit, the Canada Child Tax Benefit and National Child Benefit supplement. The new benefit is paid monthly as long as parents have filed their 2015 income tax returns. If you already receive any family benefit you will be automatically enrolled for the Canada Child Benefit- there is no new application you have to fill out. As for parents of newborn children, they can apply using the Automated Benefits Application (ABA) service.
It's based on need, taking into account how many children you have, how old they are, and factoring in total household income. Generally speaking if your household income is more than $140,000 your benefit starts to shrink to less than what you were receiving in the previous program. After a household income of $200,000 you will receive no benefit under this program. But if you have an income of say $30,000 and have two kids under the age of 6 you are eligible to receive $1066 a month. That's a lot more than the previous government was offering for people in this income bracket.
The beauty of the Canada Child Benefit is it is calculated after deductions. That means your total income, minus RRSP contributions and any other deductions, like child care expenses. If you have room to contribute more to your RRSP and can make that happen, you could end up reducing your total taxable income for 2016. This will effectively do three things.
1. Increase the amount you are contributing to your retirement and give it more time to grow.
2. Result in a larger tax refund.
3. Put you in a lower tax bracket qualifying you for more Canada Child Benefit starting in 2017.
If you have some extra money to invest, you could use it wisely be making an RRSP contribution.
The tax situation for many Canadian families has changed dramatically in 2016 and will be changing even more in 2017. One example is the Children Arts Tax Credit and the Children’s Sport Tax Credit are both disappearing. If you have one, speak to your accountant about what you can proactively do to improve your tax situation. There are also great resources online at the CRA website you can look at. If you have signed up for online payments but still received a schedule in the mail, you will have to get in touch with the CRA to make arrangements to have it sent electronically starting next month. Also I highly recommend opening a My Account with the CRA, its free and will give you a fascinating amount of financial information including how much your benefits will be and when they will be deposited in your account.
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