Upcoming Benefit Changes for Canadian Families

In October the federal government announced four financial initiatives that may impact your family. The first of which is the new “Family Tax Credit”. This tax credit targets Canada’s progressive tax rates whereby two families that have the same household income could pay very different amounts of tax, depending on how their income is comprised. Families with two parents who earn unequal amounts tend to pay more tax than a family with two parents who earn similar amounts.

Families with corporations will not likely benefit from the credit since many already utilize the benefits of income splitting. However, the proposed enhancements for the Universal Child Care Benefit, Child Care Expense Deduction, and the Children’s Fitness Tax Credit will provide added benefit to all families with children.

What does the “Family Tax Credit” mean for you?

The new Family Tax Cut Credit will allow for two parent families, including married and common-law partners with children under the age of 18, to income split up to $50,000 in order to gain up to $2,000 in federal tax savings annually. Tax savings is realized when one spouse is in a marginally higher tax bracket and “transfers” income up to the $50,000 maximum to the other spouse who is in a lower tax bracket. The outcome is that one spouse, generally the higher income earner, can claim the family tax credit, which will reduce their taxes payable, while the lower income earner has the potential to use up any non-refundable tax credits with the notional transfer of income.

For example, if one spouse earns $75,000 per year while the other spouse stays at home with the children and has no income, the spouse earning $75,000 in the 22% tax bracket could transfer between $31,047 and $43,953 to their spouse resulting in both parents being in the 15% tax bracket.

You are eligible to claim the Family Tax Credit for a tax year if:

• You were a resident of Canada on December 31 of the year;
• You have an eligible spouse or common-law partner for the year who has not claimed the Family Tax Cut;
• You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your eligible spouse or common-law partner;
• You were not confined to a prison or similar institution for a period of at least 90 days during the year
• Neither you nor your eligible spouse or common-law partner elect to split eligible pension income in the year; and
• Both you and your eligible spouse or common-law partner file an income tax and benefit return for the year.

Universal Child Care Benefit

The second part of the new family friendly initiatives targets the current Universal Child Care Benefit (UCCB). Currently the UCCB provides families with children under the age of 6 with $100 per month ($1,200 annually), per child, up to the month that the child turns 6. In order to further help Canadian families the federal government has proposed an increase in this amount to $160 per month ($1,920 annually) per child under the age of 6. In addition a UCCB for children age 6-17 has been created that provides families with $60 per month ($720 annually) per child. This program change would be implemented January 1, 2015; however, the change in monthly payments would not be reflected until July 2015.

Child Care Expense Deduction

Child care expenses are incurred when an individual pays to have an eligible child looked after in order for the individual to earn employment or business income, attend school, or carry on research. The federal government has proposed to increase the amount of CCED that is claimable by $1,000. This would result in the CCED limit being increased to $8,000 per child up to age 7; $5,000 for each child between ages 7 and 16; and up to $11,000 for children who are eligible for the disability tax credit. Should this pass parliamentary approval, the changes will begin in the 2015 tax year.

Children’s Fitness Tax Credit

In a separate proposal on October 9, 2014 the government indicated their intention to double the Children’s Fitness Tax Credit (CFTC) from $500 per child per year up to $1,000. In addition, they intend to make this credit refundable in order to further benefit low income families. Should this idea also be approved, parents will be able to utilize this credit in the spring of 2015 for their 2014 tax returns.

Each of the proposed new initiatives as well as the implemented income-splitting opportunity may result in more of your income remaining within your household to foster your growing family. If you would like more information on any of the discussed topics, please do not hesitate to contact TPC Financial Group.