May 14, 2020

Tax Tips for Parents: Child Care Benefits

Richmond Tymchuk Family Law

The Canada Child Benefit or CCB is a non-taxable paid monthly benefit that is based on the net income and number of dependents in your family. Developed in 2016, the Canada Child Benefit (CCB) combined the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UBBC) into one monthly payment. The CCB is a non-taxable benefit that is paid monthly based on your household income and number of dependants. 

Under the new Canada Child Benefit, 9 out of 10 families are receiving more than they did on the previous tax system. On average, each family is receiving $2,300 more per month in tax-free benefits. This monthly stipend is adjusted for inflation. Most parents will use the majority of their Canada Child Benefit payments to cover daily living expenses but there are financial benefits to those who are able to reinvest their CCB.

If the increase in CCB payments has left you with a bit extra after you pay the bills, you can use these different investment opportunities to make those dollars go further.  

Maximizing Your CCB Benefits For Your Children

Many parents will use the majority, if not all, of their Canada Child Benefit payments to help cover daily living expenses. CCB payments can also be invested in long-term savings to benefit your child’s future. There are government offers and special exceptions to help you maximize your income. 

Registered Education Savings Plan

The Registered Education Savings Plan (RESP) is a system that allows you to save for your children’s education with a guaranteed return rate of 20% (up to an annual maximum of $500 per child). These contributions are eligible for the Canada Education Savings Grant (CESG), here’s how:

  • If you contributed $200 per month, you would collect the full $500 in CESGs for the year;
  • If you have not previously taken full advantage of your child’s RESP benefits in the years prior, you are able to pay more into your child’s RESP and retroactively claim up to an annual limit of $1000 in CESGs per child; and
  • Even if you have contributed the full amount to your child’s RESP, you are still able to contribute more as long as the lifetime contributions do not exceed $50,000. Once the child is ready to use these funds, they will be able to withdraw most, if not all, under their name.

Registered Disabilities Savings Program (RDSP)

If you have a child with special needs, you may also be eligible to invest in a Registered Disability Savings Plan (RDSP). This savings plan is a tax-deferred savings plan that is available to Canadian aged 59 and under. Saving $125 per month into a RDSP account could result in up to $3,500 of matching Canada Disability Savings Grants and $1,100 of Canada Disability Savings Bonds, depending on your household income. 

Investing in Your Children’s Names

Gifting money to your children can result in interest or dividends arising from gifted funds being taxable to the parent who gifted the funds. There are different rules if the money being invested in the child’s name originated from the Canada Child Benefits, as long as your child does not have another source of income. If you want to help your children save without opening yourself for increased taxation, this may be a solution for you. 

About Canada Child Benefits (CCB)

How Much CCB Am I Eligible For?

Canada Child Benefit Payments are broken down into two brackets based on your children’s age. Bracket one is for parents with children under the age of six, and the second bracket is broken down by parents with children aged 6 to 17.

The maximum Canada child benefit you can get per year for a child under 6 is $6,639. For a child aged 6 to 17, the maximum yearly amount you can get is $5,602. These maximum benefit amounts are gradually reduced based on two-income thresholds. The first income threshold rose to $31,120 while the second income threshold is $67,426.

Child Benefit Calculator 

Who is Eligible?

This new tax benefit is intended to help provide more financial aid to middle and low-income families. Nearly two-thirds of families receiving income from the Canada Child Benefit tax are single parents, 90% are single mothers. 

This monthly non-taxable income is paid to qualifying families with children under 18. To qualify for CCB, you must meet all of the following criteria:

  1. You must live with the child, and the child must be under 18 years of age.
  2. You must be the person primarily responsible for the care and upbringing of the child.

    Note
    If a child does not live with you all the time, see Do you share custody of a child?.
     
  3. You must be a resident of Canada for tax purposes. We consider you to be a resident of Canada when you establish sufficient residential ties in Canada. For more information, see Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status.
  4. You or your spouse or common-law partner must be any of the following:
    • a Canadian citizen
    • a permanent resident (as defined in the Immigration and Refugee Protection Act)
    • a protected person (as defined in the Immigration and Refugee Protection Act)
    • a temporary resident (as defined in the Immigration and Refugee Protection Act) who has lived in Canada throughout the previous 18 months, and who has a valid permit in the 19th month other than one that states “does not confer status” or “does not confer temporary resident status.” If this is your situation, do not apply before the 19th month
    • an Indian as defined in the Indian Act

These investment opportunities do not constitute legal advice or financial planning advice. For legal guidance please contact us. For investment planning please contact a certified financial advisor. 

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