Wealth Strategies: Canada Child Benefit - More Bang for the Buck Than You May Realize

Canada Child Benefit - More Bang for the Buck Than You May Realize

The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age. To determine the amount of the benefit, CRA gathers information from your income tax return to calculate how much your CCB payments will be. To receive the CCB, you must file your return every year, even if you didn’t have income in the year. If you have a spouse or common-law partner, they also must file a return every year. Benefits are paid over a 12-month period from July of one year to June of the next year. Your benefit payments will be recalculated every July based on information from you and your spouse’s (if applicable) income tax and benefit returns from the previous year. 

The main criteria affecting the CCB calculation are as follows:

• age of the children
• how many children reside with the taxpayer(s)?
• adjusted family net income
• child’s eligibility for the child disability benefit (if applicable)

What we really want to draw your attention to, however, is the fact that the CCB is based on the family NET INCOME as opposed to GROSS INCOME. This means that you can reduce your gross income via RSP contributions and qualify for a higher CCB amount per child, even if you’re in a higher income tax bracket, thus reducing your taxes/marginal tax rate in order to receive additional CCB for your children. Below are the current benefit amounts and family net income thresholds, per CRA.

Basic benefit for July 2019 to June 2020 as per CRA:

We calculate the Canada child benefit (CCB) as follows:

• $6,639 per year ($553.25 per month) for each eligible child under the age of six
• $5,602 per year ($466.83 per month) for each eligible child aged 6 to 17
• We start to reduce the amount of CCB you get when your adjusted family net income (AFNI) is over $31,120. The reduction is calculated as follows:
• families with one eligible child: the reduction is 7% of the amount of AFNI between $31,120 and $67,426, plus 3.2% of the amount of AFNI over $67,426
• families with two eligible children: the reduction is 13.5% of the amount of AFNI between $31,120 and $67,426, plus 5.7% of the amount of AFNI over $67,426
• families with three eligible children: the reduction is 19% of the amount of AFNI between $31,120 and $67,426, plus 8% of the amount of AFNI over $67,426
• families with four or more eligible children: the reduction is 23% of the amount of AFNI between $31,120 and $67,426, plus 9.5% of the amount of AFNI over $67,426

For example, you can see by the above information what the minimum benefit of an RRSP contribution would be, in the case of a parent with one child over the age of five, earning $100,000/year and making a $10,000 RRSP contribution (bringing net income to $90,000). They would receive an additional $320 of tax free CCB the following year (an extra 3.2% tax free benefit by making that RRSP contribution). Obviously if you have more than one child and/or several under age 5, this will multiply itself considerably and lead to a significantly higher amount of CCB and additional tax savings.

CRA also provides an online calculator to determine the additional CCB benefit you can potentially receive. This is worth reviewing, especially for those families with several children and a parent in a higher marginal tax rate.