Impact of the 2016 Federal Budget on Families

Spring 2016 DFK Newsletter Article

Author: Beth Porter, CPA, CA, CFP, Partner, Noseworthy Chapman, St. John’s, NL, DFK Affiliate Firm

On March 22, 2016, the newly elected Federal Liberal Government tabled its first budget, bringing proposed changes to tax credits and benefits for Canadian families with children. The effects of these changes on families will depend on the number and ages of the children in the family, as well as the income of the parents.

Family Tax Cut Credit

Introduced in 2014, and providing limited income splitting to eligible families, the credit permitted a notional transfer of income from the higher income spouse (or common-law partner) to the lower income spouse. The maximum transfer was $50,000 of taxable income, which effectively reduced the family’s combined tax payable by $2,000. The Budget proposes to eliminate the family tax cut for 2016 and subsequent years.

Children’s Fitness and Arts Credits

These credits were introduced in 2006 and 2011 respectively and permitted a claim of up to $1,000 and $500 per eligible child towards qualifying expenses. For most Canadians, these credits were federal credits only, as the majority of provinces did not provide similar credits. These credits provided a tax savings of $75 per $500 of qualifying expenses. For example, if the maximum amount was claimed under both credits for one child, the family would see a tax savings of $225. The Budget proposes to reduce the fitness and arts credits to $500 and $250 respectively per child for 2016, and fully eliminate both for 2017 and later years.

Education and Textbook Credits

These long-standing credits are proposed to be eliminated effective January 1, 2017. Based on the proposed legislation, any unused credits from prior years may still be claimed. The Budget does not propose any change to the related tuition tax credit where students are able to claim/transfer eligible tuition amounts. As is the case with many provinces, the Alberta (AB) tax legislation refers to the Federal Income Tax Act and, therefore, the AB education amount will also be eliminated with this proposed change. A resident of AB enrolled for eight months as a full-time student would have realized a combined federal and provincial tax savings of $1,132 in 2016, with respect to the education and text book credits.

Canada Child Benefit (CCB)

The Budget introduced the new CCB, to replace the Universal Child Care Benefit (UCCB) and the Canada Child Tax Benefit (CCTB). The UCCB was a tiered taxable benefit based on a child’s age (children under 6, $160/month; children aged 6 to 17 years, $60/month), while the CCTB was an income-tested non-taxable benefit. As the CCTB was based on family income, the maximum benefit was reduced where family income exceeded $44,701, and a couple with two children would have received no benefit once the family income reached $118,250. The new CCB will be a tax-free benefit based on family income and age of the children.

To illustrate the impact of the changes, under the previous UCCB/CCTB program, consider an AB family with two children under age 6, with a family income of $400,000 ($200,000 earned by each spouse). In 2015, this family would not have received any CCTB due to high family income, but would have received a net UCCB after-tax amount of $2,304. Under the new CCB program in 2016, this family would not be eligible for benefits.

While the proposed changes may be wide-sweeping and appear to have a significant financial impact on Canadian families, some of the eliminated programs did not provide considerable after-tax assistance for those families having two spouses with high income.

To determine the amount of CCB that your family may be eligible to receive, please visit the website http://www.budget.gc.ca/2016/tool-outil/ccb-ace-en.html.

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