Don’t spend that cheque! You may need it next year at tax time.
This past week Canadian parents received a big cash payment, courtesy of the new “enhanced” Universal Child Care Benefit issued by the federal government. Ottawa announced last fall with much fanfare that it would increase the existing benefit from $100 to $160 for children under six, as well as create a new benefit of $60 for parents with children between six and 17. The result is an extra $60 a month for every child under 18, effective January 1.
But apparently the government was too busy to start sending out cheques when the new benefit went into effect, so lucky parents are now getting seven months’ worth of benefits all at once. For each child, parents received a $360 retroactive payment (plus $160 for July) and will receive another $60 per month for the rest of the year, for a total of $720 over what they got last year.
The lump-sum cheques conveniently started arriving in mailboxes and bank accounts several months before a federal election.
But parents would be well advised to hold off on spending that money for now, because there are some important details which were hardly front and centre as the government touted itself as Santa Claus bringing “Christmas in July.”
First we need to consider what the government took away. Buried in your tax return since 2007 has been the “amount for children born in 1997 or later,” a universal tax credit better known as the “Child Tax Credit” (not to be confused the means-tested Child Tax Benefit). This credit was available for the parents of every child under the age of 18 and worked out to $338.25 off your federal taxes.
The government scrapped the Child Tax Credit as part of its overhaul of benefits for parents, so if you factor the loss of that credit in, the net benefit of your $720 cheque is more like $381.75.
But it gets worse. That new money is taxable as well.
Figuring out how much tax it will mean for you depends on your income level and your “marginal tax rate,” or the amount of tax you would pay on the next dollar you earn. The marginal tax rate of a Yukoner making $50,000 a year is 31 per cent. So the tax on that $720 boost will work out to about $223.20. And unlike your pay cheque, where money is withheld at the “source,” no tax is withheld from the Universal Child Care Benefit, so you will have to pay it back next spring.
So once we factor in the tax on the new money and the elimination of the Child Tax Credit, that $720 is looking a lot more like $158.55, or about $13.21 a month.
But there is a final piece of bad news here in the Yukon, and while we can debate whether it is Ottawa’s “fault” or not, it is bad news nonetheless.
By default, Yukon’s income tax system follows what happens in Ottawa, unless the territorial legislature explicitly decides otherwise. So when the territorial legislature amended the Income Tax Act to implement the budget in the spring and didn’t act to preserve the child tax credit in the territory, it killed it by omission. That inaction will cost Yukon parents another $144.32 (an amount which, in fairness to the territorial government, will be offset by the broad-based tax cuts it did implement).
Now our benefit that started at $720 a year has shrunk to $14.23 a year, which works out to about $1.19 per month. So you can forget any “beer and popcorn” you might have hoped to buy with that money.
The Conservatives are obviously counting on the likelihood that many parents won’t examine the fine print attached to this new benefit until after the next federal election is safely in the rear-view mirror.
And that is if they notice at all. Many might note that their tax return is smaller than usual or that they’re paying more than expected but won’t examine why.
It is difficult to imagine a more cynically orchestrated and deliberately misleading ploy. Calling this sleight of hand “buying votes” wouldn’t do it justice. Giving parent’s money that you are planning to take back within a matter of months is something worse. It’s calling voters stupid.
The Conservatives are probably banking that the number of votes they will gain from those parents who are happy to have (what they perceive to be) a “few more buck in their pocket” will outnumber those who might have voted Conservative, yet are put off by such a blatantly manipulative move. The cynic in me says they’re probably on to something.
Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.