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The new Enhanced UCCB – What you are really left with.


November 25th. 2015

Last fall, as part of their new measures to make life easier for family, the Conservative Government announced that it was proposing to replace the Child Tax Credit with the Enhanced Universal Child Care Benefit (UCCB). The new proposal has since received Royal Assent (June 2015) and is effective for 2015 and subsequent years.

 

As a background, the Child Tax Credit was a non-refundable tax credit available to parents of children under 18 years old at the end of the tax year. Basically, the Child Tax Credit reduced the taxes owing by 15% of the stated amount of the credit which was $2,255 per child in 2014.  This equated to a tax savings of about $338 per child ($2,255 x 15%).  With the change, this credit was eliminated (i.e. parents will not be able to claim this credit on their 2015 tax return) and replaced by the enhanced UCCB which essentially means that family saw their monthly UCCB payment increased.  Prior to 2015, families received $100 a month per child under the age of six.    However, as of January 2015, the enhanced UCCB is now $160 a month per child under the age of six.  In addition, under the enhanced UCCB, a new benefit of $60 a month per child between the ages of six to seventeen was introduced.  In July, families with children seventeen and under should have received a cheque for retroactive payments for the period of January to July 2015. This extra cash came at a great time, right in the midst of summer activities, and although families subject to the enhanced UCCB changes are better off than before, it may not be as significant a windfall as it first seems.  Don’t forget, the UCCB is taxable and must be included in the income of the spouse with the lower income.

 

So how much more is left in your pocket?

 

Let’s look at two scenarios to evaluate how much after-tax dollars will really be left in your pocket.

 

Scenario 1: Taxpayer earns $45,000 a year, has a child under six and pays tax at a marginal rate of 31% in Ontario. Under the enhanced UCCB, the taxpayer will receive an extra $720 a year ($60 additional per child each month), and will be left with $497 ($720 x 69%) after tax. After subtracting the loss of the Child Tax Credit of $338, the taxpayer is left with $159 more after-tax dollars at the end of the year than under the previous arrangement.

 

Scenario 2: Taxpayer earns $225,000 a year, has a child under six and pays tax at a marginal rate of 49.53% in Ontario. Under the enhanced UCCB, the taxpayer will also receive an extra $720 a year, and will be left with $363 ($720 x 50.47%) after tax. After subtracting the loss of the Child Tax Credit of $338, the taxpayer is left with $25 more after-tax dollars at the end of the year than under the previous arrangement.

 

Irrespective of your scenario, the enhanced UCCB provides some increase in your after-tax dollars at the end of the year; However, the increase may not be that significant.  Come tax time you will have to repay a big chunk of the lump sum payment that you received back in July.

 

The Liberal government has indicated that the enhanced UCCB will be eliminated and replaced by another program. Any changes will be announced in the next federal budget. Once the budget is announced, S+C Partners LLP will be hosting an evening where members of the community are welcome to come learn about the new budget and how any changes may impact them.

 

Please call S+C Partners LLP with any questions you may have. We are happy to help!


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