New child benefits coming later in 2016 – after tax bill comes due on UCCB

It's a new year, with a new government and a promised new approach to government child care benefits. But until the Liberals roll out their new tax-free Canada child tax benefit, the old system remains in place — including a potential hit come tax time.

Liberals vowed to replace the Conservatives' universal child care benefit with tax-free benefit system

2015 brought higher universal child care benefit payments to Canadian families. But it also brings a higher personal income tax bill, as some of those benefits are clawed back. Another tax credit for dependent children was eliminated too. (Getty Images)

It's a new year, with a new government and a promised new approach to government child care benefits. But until the Liberals roll out their new tax-free Canada child tax benefit in July, the old system remains in place — including a potential hit come tax time.

The previous Conservative government also introduced its expanded universal child care benefit system in the middle of the year, with a lump-sum payment to parents to cover the first six months of the year, income that millions of Canadian families will now have to account for when they file their tax returns this year.

The details of the new plan may not be fully known until Finance Minister Bill Morneau delivers his first budget in the next few months, but the Liberals have said the amount of new child benefit payments will be based on a family's total income — and that it will be more generous than the suite of child benefits it is replacing. At least, it will be for families with income less than $150,000 a year.

The Conservatives' enhanced UCCB payments gave families $160 a month per child under six, an increase from the previous monthly benefit of $100. The UCCB also was expanded to include children between the ages of six and 17 — these families receive $60 a month for each older child.

The Liberals called the UCCB unfair because it provided the same help to families regardless of their income.

Tax-time implications

The Conservatives countered that because the payments were taxable, those at the highest income brackets would end up giving back a large portion of the money at tax time, while those with little or no income would keep virtually all of the money.

For those in between, the boosted 2015 UCCB cheques could mean an unexpected tax bill in April.

Justin Trudeau's election platform pledged to make a new child benefit package tax free, but that won't kick in until later in 2016. The Conservative changes are in effect for families doing their taxes this spring. (Paul Chiasson/Canadian Press)

A family with one child under six and another over six is getting $220 a month from the UCCB — or $2,640 for all of 2015. That amount is added to the income of the parent with the lower income. If he or she is already making more than about $11,000, they will owe at least about $400 on the payments — plus whatever is owed in provincial or territorial income tax.

At the lowest income bracket, it will mean an additional $105 for Nunavut residents, while Quebecers will be on the hook for $422 more in provincial income tax.

"And that amount goes up the higher the income of the parents," tax accountant Mitch Kujavsky said.

Even two-parent families living off one income are caught up by taxes with the UCCB. 

If one parent has no income, the other parent gets to claim the full "spousal amount" on their taxes — a deduction equal to the "personal amount" every taxpayer can claim. 

Former prime minister Stephen Harper bumped up the UCCB to $160 a month for children under six and $60 a month for children 7 to 17. (Nathan Denette/Canadian Press)

However, for every dollar earned by the low or no-income spouse — including from UCCB — the deduction for the other spouse is reduced.

"Because it is income in the hands of the lower-earning spouse, an amount comes off of the spousal credit," Kujavsky explains. "It is, in effect, a clawback of the spousal amount."

A family with one income earner is losing $288 worth of tax credits for every child under six, and $108 for every older child.

On top of that, the previous government eliminated a child tax credit of $2,255, which was worth $337.50 per child annually in 2015.

A family with two children where each parent is making about $45,000 could see their federal tax bill go up by more than a $1,000 in 2015, compared to last year, because of the changes to the UCCB and tax credits.

What's still unclear is how the new Liberal plan will treat the UCCB payments that are still set to go out this month and each month until the new system starts in July, including whether those payments in the first half of 2016 will be taxable — or whether the richer, tax-free benefits will be made retroactive come Canada Day.


James Fitz-Morris

Parliament Hill

James Fitz-Morris covered federal politics in CBC's Parliament Hill bureau from 2006 to February, 2016.