08/14/2015 08:26 EDT | Updated 08/14/2016 05:59 EDT

The UCCB Is Actually Helping Lower Income Canadians

Hongqi Zhang via Getty Images
happy mother and daughter shopping for clothes

Lower income families get to keep more of their benefits

On July 20, many parents across Canada were pleasantly surprised to receive a cheque from the federal government thanks to enhancements to the Universal Child Care Benefit (UCCB). The timing was highly questionable since an election is looming but most parents gladly cashed the cheques and the government could take their photo op with big cheques.

However, like most wild parties, there is a now a hangover effect as parents are realizing that the money they received through the UCCB is taxable. So although it was nice to have the money in July, there will be tax implications when it comes time to file your tax return.

While the UCCB benefit was enhanced in the last budget, the government also eliminated the amount for children under 18. This credit gave parents $339 in tax savings per child under 18 in 2014. It will not be on the 2015 tax return and it was not part of the government's advertising campaign.

Parents who were initially happy about their cheques are now concerned about tax season. It feels a little like bait and switch -- parents get more money now but they are going to have to pay it back in tax in April.

Whether you agree or disagree with the government changes or policy, there is one positive aspect of the enhanced UCCB that is not the same with the usual tax credits. That is, the people who benefit the most from the increased UCCB are lower income Canadians.

While the Child Tax Credit was a nice boost for parents at tax time, you had to have earned enough income to benefit from it. As a non-refundable credit, it meant you had to have paid tax during the year in order to claim it. So a low income family may not have been able to take advantage of the credit. They did not actually benefit from it. This will not be an issue with the enhanced UCCB.

If we look at the net tax savings based on a resident in Ontario, the people who get the most benefit are lower income Canadians. For a family on social assistance with a child over six, they get to keep all of their $720 UCCB benefits. That same family with one spouse working and earning $30,000 will see about $237 in tax savings. For a family earning $100,000 with one child over six, they will only receive $69 in tax savings thanks to the enhanced UCCB.

So the people who will get the most tax savings from the enhanced UCCB are lower income Canadians with kids. It is nice to see lower income Canadians get some help. They probably don't have enough income to benefit from the Children's Arts Credit or other non-refundable credits. And the Children's Fitness Tax Credit becomes refundable in 2015 but you need to be able to afford the registration fees.

I realize raising a family is expensive so you may argue that $100,000 is not that much money. But families earning $100,000 may be able to take advantage of the Family Tax Cut which does not benefit anyone in the lower income brackets as well as other non-refundable credits. When compared to qualifying for family income splitting, the enhanced UCCB seems fairer.

Raising a family is a challenge and getting a little help from the government is nice. So while you may be paying back some of your benefits when you file your return, lower income Canadians should receive a boost to their household income thanks to the enhanced UCCB.


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