04/05/2016 02:48 EDT | Updated 04/06/2017 05:12 EDT

Why You Should Start Preparing For Next Year's Tax Filing Now

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Young couple with children talking to financial advisor.

Why families need to start preparing for next year's tax season, now

The Liberal government unveiled its budget and, as presented, it seems to eliminate more credits, than it introduces.

First, the Family Tax Cut will be eliminated for 2016. It allowed couples with at least one child under the age of 18 to claim a non-refundable tax credit of up to $2,000 based on the tax savings that would be realized by splitting income between spouses.

Second, the Children's Fitness Credit and Arts Amount will be eliminated over a two-year period. This means that families can take advantage of the credits on their 2016 returns but at reduced amounts. The Children's Fitness Credit will remain refundable and be reduced from $1,000 to $500, with a resulting tax savings of only $75 per child. The Children's Arts Amount will be reduced from $500 to $250 and give filers a tax savings of $37.50 per child. In 2017, however, these programs, along with the supplemental amount for children eligible for the disability tax credit, will be removed from tax returns.

Third, the Universal Child Care Benefit (UCCB) program will be eliminated and that payments, which are taxable, will stop in June 2016.

And finally, the existing Canada Child Tax Benefit (CCTB) will be eliminated and replaced by the new Canada Child Benefit (CCB). The new CCB plan is more generous than the CCTB and has higher income thresholds so, for most families, it will provide bigger monthly payments. And of course, they are non-taxable.

So, if you're in the midst of filing this year's tax return, why should you be thinking about next year's return? Well, as I wrote earlier this month, a lot of families are coming in and being caught off guard because the Enhanced UCCB, combined with the disappearance of the amount for children, is putting people in a position where they may owe tax this year.

Take advantage of these credits while they're still available and remember that effective tax preparation and planning are year round activities.

And the same is potentially true for next year based on what was presented in the budget. Families will be getting more money and that's great news as the cost of raising a child in Canada is getting more expensive. But thinking bigger picture, people need to realize that if money is coming in, then it's being taken from somewhere else, making it all the more important that they examine their own situation.

Take, for example, a double income family making a total of $120,000 per year ($60,000 each) and let's say they have two children in high school. They would have been receiving $1,440 of UCCB and no CCTB due to their income level. If you deduct the taxes they would have paid on their UCCB payments, they would end up with $1,040. Under the new CCB benefit, the payments are more generous and income thresholds are higher so they'll get an estimated $2,940, which puts them $1,900 ahead. That's great news for a lot of families.

But then consider a family that has the same amount of income, but only one spouse earning it. Chances are they also qualified for the $2,000 Family Tax Cut credit. Next year when they file this will be gone.

The lesson in all of this? Take advantage of these credits while they're still available and remember that effective tax preparation and planning are year round activities. If your refund this year was based on the Family Tax Cut or the Children's Fitness/Arts amount you will need to start thinking about putting away some extra money to help safeguard against an unwelcome surprise in the spring of 2017.

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