Federal 2016 Budget Changes For Family Tax Credits, Benefits and other Thingamajiggies

The Federal Liberal Budget delivered on March 22, 2016 identified several areas of spending on infrastructure and programs, but buried within the details are a few key things that impact the tax credit and tax benefit claims of Canadian families within minor children.

Beginning in July of 2016, families with minor children will receive a New Canada Child Tax Benefit of up to $6,400 for each child under age 6 and up to $5,400 for children aged 6-17.  The amount will replace the existing Canada Child Tax Benefit and Universal Child Care Benefit (UCCB) payments.  The amount will also lead to the elimination of the Fitness and Art Tax Credits in 2017.

The new combined Canada Child Tax Benefit will be non-taxable.  However, it will also be means-tested:  only families with less than $30,000 of income would expect to receive the full New Canada Child Tax Benefit, whereas families earning over $150,000 in combination are expected to receive no amount of the New Canada Child Tax Benefit.

To understand what the New Canada Child Tax Benefit is trying to accomplish, and why the elimination of the Fitness and Art Tax Credit, I felt the need to walk down memory lane and remind myself of the various tax credit and tax benefit programs designed to encourage expense support and spending among Canadian families with minor children:

*In 1945, the Federal Government introduced the Family Allowance.  The amount was designed to help cover the cost of “child maintenance” for all Canadian families, without reference to a family’s income.

In 1972, the Child Care Expense Deduction was introduced.  Initially the deduction was targeted for women with earned income, or male single parents.  Later the deduction was re-tooled to be claimed by the lower income spouse, but limited to 2/3rds of that spouse’s earned income(e.g. Employment Income).  The credit was last increased in the 2014 Federal Budget, offering $8,000 of deduction for eligible child care expenses for children under the age of 7 and $5,000 for children aged 7 to 17.

*In 1978, the Family Allowance became linked to income as a means-tested benefit, with a vast majority of Canadian families receiving some amount of the newly retooled Family Allowance.

*In 1992, the Family Allowance was replaced by the existing Canada Child Tax Benefit.  The Benefit was tax-free and income tested, re-targeted for the low and middle class family only.

In 2006, the UCCB was introduced to help Canadian families try to balance their work/family life by offering money to support any child care choices a family would need.  UCCB payments were $100 per month for each child under the age of six, and were taxable.  UCCB was paid without a reference to an income test.  No payments were offered for children between the ages of 7 and 17.

In 2007, two additional Federal non-refundable tax credits called the Child Amount Tax Credit and the Children’s Fitness Credit was introduced.  The Child Amount Tax Credit gave families a Federal tax savings of ~ $340 (in 2014) per eligible child, whereas the Fitness Tax Credit offered an additional ~$150 tax savings (in 2014) for eligible fitness programs.  Both new Tax Credits were were not influenced by the level of a family’s income.

In 2011, the Art Tax Credit was introduced, in similar form to the Fitness Tax Credit.  The Art Tax Credit gave families an additional Federal Tax Savings of ~$75 for eligible art program taken by their minor children.

In 2015,  The UCCB was enhanced by paying $160/month per child aged 0 to 6, and a new $60/month per child aged 7 to 17.   In light of the enhanced UCCB, however, the Child Amount Tax Credit first introduced in 2007 was eliminated for tax years starting 2015.

So for those keeping score at home, we now have a  non-taxable New Canada Child Tax Benefit paid on an income basis test, targeted primarily to low and middle income families.

We continue to have the Child Care Expense Deduction that is in theory available to all Canadian Families with minor children regardless of family income level, but practically is claimed by those within the upper middle or high income family levels that have the disposable earned income to pay for child care and qualify for the deduction.

The good news?  This is a simpler set of programs for us Canadian residents to digest, and our tax returns have become quite a bit simpler to complete once all changes are in force!

The bad news?  Both programs are means-tested (income for the New Canada Child Tax Benefit, and earned income for the Child Care Expense Deduction).  When programs are means-tested, there are usually unintended results where deserving families within the middle class lose out on a portion of the New Canada Tax Benefit, and cannot afford the Child Care for claim under the Child Care Expense Deduction.

Why do I sense there may be another tweak to a Tax Credit, Benefit or other thingamajiggy coming up in the next Federal Budget…..

* Courtesy of Historica Canada (http://www.thecanadianencyclopedia.ca/en/article/family-allowance/ )::

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This post was written by Marco Faccone