Author Topic: Canada Child Tax Benefits  (Read 5527 times)

BigBangWeary

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Canada Child Tax Benefits
« on: March 23, 2016, 05:06:42 AM »
Ok, now that Trudeau has introduced the modifications to the Canada Child Tax Benefits, am I right in my thinking here:

Family of 5
Income $30,000
3 Children under 6
$19,200 Tax free per year

This would be the case in all three scenarios below:

Scenario A - Dad works at the local garage
Scenario B - Family makes $30,000 per year in dividend income off their portfolio or is applying 4% rule
Scenario C - Family makes $30,000 per year off rental income

Throw in a paid off house for the wealthier B and C and you can see my confusion. Do you think this will remain a straight income-tested benefit? What about assets? Family B and C could own their home outright for example.

Scenario B seems to really benefit the most, especially if all or most is in dividend income and is effectively tax-free. Maybe $40,000-$45,000 after tax. No 'job' required.

Thoughts?

Ceridwen

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Re: Canada Child Tax Benefits
« Reply #1 on: March 23, 2016, 07:25:35 AM »
I have no comments on your question.  I just came in here to grumble.  I suppose I need to stop self-identifying as middle class, because clearly the government thinks my family is absurdly rich.  We are losing our child tax benefits, income splitting benefit, falling in a higher tax bracket, and on the provincial side (Quebec) our daycare costs have now tripled because of our high income. 

Bucksandreds

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Re: Canada Child Tax Benefits
« Reply #2 on: March 23, 2016, 07:39:08 AM »
I have no comments on your question.  I just came in here to grumble.  I suppose I need to stop self-identifying as middle class, because clearly the government thinks my family is absurdly rich.  We are losing our child tax benefits, income splitting benefit, falling in a higher tax bracket, and on the provincial side (Quebec) our daycare costs have now tripled because of our high income.

Such is the cost of a large social safety net.  Either you have one and the upper middle class and rich pay or you don't and the poor get less healthy, less intelligent and more dangerous.  It's a choice and we all know where each side falls, in the political spectrum.  Mustachians benefit (early retirementwise) from the latter approach.  Society may be long term doomed however, going down that road.

snacky

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Re: Canada Child Tax Benefits
« Reply #3 on: March 23, 2016, 07:46:34 AM »
Ok, now that Trudeau has introduced the modifications to the Canada Child Tax Benefits, am I right in my thinking here:

Family of 5
Income $30,000
3 Children under 6
$19,200 Tax free per year

This would be the case in all three scenarios below:

Scenario A - Dad works at the local garage
Scenario B - Family makes $30,000 per year in dividend income off their portfolio or is applying 4% rule
Scenario C - Family makes $30,000 per year off rental income

Throw in a paid off house for the wealthier B and C and you can see my confusion. Do you think this will remain a straight income-tested benefit? What about assets? Family B and C could own their home outright for example.

Scenario B seems to really benefit the most, especially if all or most is in dividend income and is effectively tax-free. Maybe $40,000-$45,000 after tax. No 'job' required.

Thoughts?

other than welfare, no poverty reduction policy I know of considers assets. the insane bureaucratic process needed to include assets would make the whole thing a disaster. plenty of people already think the government is too bureaucracy-heavy, but at least the tax benefits come at very little administrative cost, since it's basically just an add-on to the income tax process, which is already in place.

income tested benefits have always been available to some who don't need them, unavailable to some who do need them. it's not perfect, but it hits the majority of the right people the majority of the time, and given the scale of the program that needs to be good enough.

FrugalFan

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Re: Canada Child Tax Benefits
« Reply #4 on: March 23, 2016, 07:52:12 AM »
I have no comments on your question.  I just came in here to grumble.  I suppose I need to stop self-identifying as middle class, because clearly the government thinks my family is absurdly rich.  We are losing our child tax benefits, income splitting benefit, falling in a higher tax bracket, and on the provincial side (Quebec) our daycare costs have now tripled because of our high income.

We're in pretty much the same boat but I am okay with it. We will adjust. To the OP, I didn't actually think it through like that. Wow.

Le Dérisoire

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Re: Canada Child Tax Benefits
« Reply #5 on: March 23, 2016, 07:52:40 AM »
Such is the cost of a large social safety net.  Either you have one and the upper middle class and rich pay or you don't and the poor get less healthy, less intelligent and more dangerous.  It's a choice and we all know where each side falls, in the political spectrum.  Mustachians benefit (early retirementwise) from the latter approach.  Society may be long term doomed however, going down that road.

Mustachians might be better off with smaller taxes during the accumulation phase, but once retired, you’re much better off with a large social safety net.
When I FIRE, my income will be very low in part due to the fact that:
  • Only half of capital gain is taxed;
  • Some of my "income" will be withdrawn from non-taxable sources such as a TFSA account;
  • My income would match more or less what I spend, which is much lower than what I earn now.
I will then be considered poor by the government, will pay almost no tax, will have free healthcare and will benefit from all sort of advantages, despite the fact that I will probably be travelling full time on a very expensive and luxurious sailboat. That’s absurd.

Ceridwen

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Re: Canada Child Tax Benefits
« Reply #6 on: March 23, 2016, 08:12:47 AM »
Yes, I understand how the social safety net works.  I just thought we were already paying enough taxes towards it as it was.  And it's frustrating that with our household income (just above the 200k mark), we are in the same tax bracket as those who make 1 million + per year.  I wish there were smaller brackets.  It's the same with the Quebec daycare fees now tied to income (though the highest bracket there is even lower, at 120k). 

For sure, we'll be ok with these changes, especially because we live a fairly frugal lifestyle.  It's just disappointing to lose even more of our take-home pay.  And like I said, I guess more than anything it's a change in mindset that is hard to adjust too.  I really do identify as middle class.

So far my DH (who is the main earner, by far) is not at all convinced about early retirement (he's all for the frugal lifestyle and investment strategy, just not the early retirement end goal), so we will be paying high taxes for at least 25 more years.

snacky

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Re: Canada Child Tax Benefits
« Reply #7 on: March 23, 2016, 08:24:58 AM »
I think sometimes people lose sight of the purpose of the child tax benefit and subsidized childcare. They're meant to alleviate child poverty. if your children are not at risk of poverty you don't really need them, and it doesn't make sense to both still want the benefit and not want to pay so much tax.

Ceridwen

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Re: Canada Child Tax Benefits
« Reply #8 on: March 23, 2016, 08:29:43 AM »
I think sometimes people lose sight of the purpose of the child tax benefit and subsidized childcare. They're meant to alleviate child poverty. if your children are not at risk of poverty you don't really need them, and it doesn't make sense to both still want the benefit and not want to pay so much tax.

Subsidized childcare (in Quebec at least) was meant to encourage the lower income partner to return to work (and thus pay more taxes).  Changing it from a universal program to one based on household income totally transformed that goal.  I hate that it is based on HH income.  If it had to be based on income at all, why not base in on the lower partner's income? Because that's what most families consider when they decide whether one spouse should SAH with the kids or not.

Le Dérisoire

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Re: Canada Child Tax Benefits
« Reply #9 on: March 23, 2016, 09:29:07 AM »
I really do identify as middle class.

With a 200K household income (before taxes), you are definitely not part of the middle class in Quebec, statistically speaking. You are far above it.

Have you seen this report on the middle class?
http://www.usherbrooke.ca/chaire-fiscalite/fileadmin/sites/chaire-fiscalite/documents/Cahiers-de-recherche/La_classe_moyenne_au_Quebec.pdf
http://ici.radio-canada.ca/nouvelles/economie/2014/11/03/002-classe-moyenne-calculateur-graphiques.shtml


The income thresholds are household after-tax and transfers income, so be careful how you interpret it.

This is why politicians always target the middle class! Everyone think they are part of the middle class, even if they are far above it!

EDIT: In this report, middle class is defined as 75% to 150% of median after-tax and transfers household income. They calculate different thresholds based on the type of households (single, couple without child, couple with one child, etc.).
« Last Edit: March 23, 2016, 09:33:22 AM by Le Dérisoire »

south of 61

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Re: Canada Child Tax Benefits
« Reply #10 on: March 23, 2016, 09:57:53 AM »
Wow - 200K and you think you're middle class.

My family of 3 (one 3 year old) makes 70K and I think we earn too much to get all this child tax benefit money.

People's perceptions are so interesting!

WakaG

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Re: Canada Child Tax Benefits
« Reply #11 on: March 23, 2016, 11:32:53 AM »
Ceridwen - upwards of 200K in Quebec, even Montreal? you are a stratosphere above middle class.

We are a family of 5 (joint 130K) and I feel that we are upper middle class.  We lack for NOTHING.  I've not read studies on the various levels - this is just what my comfort level with our day to day living is...

However, I was a single mother of 2 at one time (<28K yr) and therefore the recipient of many, many of the discussed benefits...and I am totally fine with not receiving much gov't help today. We don't need it.

Change your thinking - how could you not be bitter, otherwise?

Ceridwen

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Re: Canada Child Tax Benefits
« Reply #12 on: March 23, 2016, 11:44:26 AM »
I'm not bitter.  I came on the thread to grumble, not to lash out against society.

Not that anyone is asking, but these are the reasons I identify as middle class:
- Raised in a low income HH
- Live in a middle class neighbourhood (modest townhouse in a suburb, we don't even have a backyard)
- One car household (2010 Mazda)
- Use public transportation daily
- Kids exclusively wear hand-me-downs
- No little luxuries like cleaning lady, eating out etc.

Of course, I recognize that these are mostly just sensible choices that we chose to make.  I'm just trying to illustrate why I don't identify as someone worthy of being in the highest tax bracket in the country (and in the highest taxed province, on top of that). 

The final thing is that DH's salary (which is 75% of our HH income and he has only been earning that much for a few years now) is in a very unstable industry, so we know it could be gone in a second. 

So yep, I guess we are not middle class.  Points taken.

TrMama

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Re: Canada Child Tax Benefits
« Reply #13 on: March 23, 2016, 11:47:49 AM »
Ok, now that Trudeau has introduced the modifications to the Canada Child Tax Benefits, am I right in my thinking here:

Family of 5
Income $30,000
3 Children under 6
$19,200 Tax free per year

This would be the case in all three scenarios below:

Scenario A - Dad works at the local garage
Scenario B - Family makes $30,000 per year in dividend income off their portfolio or is applying 4% rule
Scenario C - Family makes $30,000 per year off rental income

Throw in a paid off house for the wealthier B and C and you can see my confusion. Do you think this will remain a straight income-tested benefit? What about assets? Family B and C could own their home outright for example.

Scenario B seems to really benefit the most, especially if all or most is in dividend income and is effectively tax-free. Maybe $40,000-$45,000 after tax. No 'job' required.

Thoughts?

My thought is that Trudeau has a secret agenda to boost the birth rate among low income families. That's a ton of money at that income level. You're correct that B is the most beneficial in terms of helping FIRE'd families, however I think A is the most common scenario and will cause an uptick in both birth rates and the divorce rates among those families.

My other thoughts on the budget in general are just bitter. We're working on selling a piece of property this year that will result in a significant capital gain. This transaction is a once in a lifetime event for us. Even with only paying tax on 50% of it, our tax bill for 2016 will still be more than either DH or I make from working all year. Frankly, the timing is shitty. We should have sold it in December 2015 when we would have saved $20,000 in taxes. 2017 will see us return to our regular income level.

My other bitter thoughts are related to the rest of the budget released yesterday. I'm not pleased with the idea of simply giving more money to natives (that's never worked in the past), nor am I happy that planned military equipment purchases are being axed. I do think that low income, working families should get more and I also like that the children's fitness and arts credits are being cut. Those credits are an enormous PITA to calculate every year and result in insignificant tax savings.

Le Poisson

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Re: Canada Child Tax Benefits
« Reply #14 on: March 23, 2016, 11:51:33 AM »
I don't blame the poster who feels his $200K is in the middle class - depending on where your spending/lifestyle choices have taken you, the pinch can be felt in many income brackets, and really your social class is an extension of your degree of comfort in spending. Our HH income is similar to his, and I feel a lot of guilt for our spending patterns. I don't consider myself upper class, but I'm not poor either :)

I think Trudeau did an amazing job not defining the middle class while he was making election promises - an in Canada, EVERYONE believes they are in the middle class. I can't think of a family I associate with who will say otherwise. I'm guessing that a lot of folks are looking at the budget today and wondering why they aren't getting a hand while all the 'lower class' people are - after all wasn't the 'middle class' supposed to see a hand? I think its called myopia.

In any case, according to MacLeans/Moneysense, here is what the Canadian Middle Class really looks like:



Of course the income side of the equation means nothing if the expense side is out of control.

okits

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Re: Canada Child Tax Benefits
« Reply #15 on: March 23, 2016, 10:12:33 PM »
Ok, now that Trudeau has introduced the modifications to the Canada Child Tax Benefits, am I right in my thinking here:

Family of 5
Income $30,000
3 Children under 6
$19,200 Tax free per year

This would be the case in all three scenarios below:

Scenario A - Dad works at the local garage
Scenario B - Family makes $30,000 per year in dividend income off their portfolio or is applying 4% rule
Scenario C - Family makes $30,000 per year off rental income

Throw in a paid off house for the wealthier B and C and you can see my confusion. Do you think this will remain a straight income-tested benefit? What about assets? Family B and C could own their home outright for example.

Scenario B seems to really benefit the most, especially if all or most is in dividend income and is effectively tax-free. Maybe $40,000-$45,000 after tax. No 'job' required.

Thoughts?

I suspect not enough families will have the means or forethought to game the system this way to make it worth the trouble of closing the loophole.  Depending on which province you're in, scenario B might even result in a negative tax rate (if they're eligible dividends.)

Of course, the kids will grow up (or the subsidies may change in amount or eligibility), so you'd want to be sure that once you're no longer getting the CCB that you can live without the money or replace it with paid work that you're willing to do (and can get, after an absence from the workforce.)

On a personal level, I wouldn't feel right trying to scoop up the maximum government handouts meant for impoverished children when I have the ability to pay my own way and be a net-contributor to the social safety net.  Even though we have worked hard for what we have, we are certainly privileged in many ways (even just having the ability to perform decently-paid work is not an advantage everyone has.)  Quite possibly I'm a fool thinking I'd prefer to earn FIRE rather than game the system for it, but there it is.  (I am very open to arguments that I'm wrong on this point.)

BigBangWeary

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Re: Canada Child Tax Benefits
« Reply #16 on: March 24, 2016, 12:52:03 AM »
okis, I agree. I am certainly not advocating this, just pointing a perceived problem with the system. At the same time, as others have noted above, it is hard to make such a large program work for every situation.

I guess I feel the same way about OAS to an extent. There are plenty of seniors doing something similar to B and C that do not necessarily need the benefit, and plenty of people who are truly at the poverty line not getting what they need.

human

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Re: Canada Child Tax Benefits
« Reply #17 on: March 24, 2016, 04:44:19 AM »
I'm not bitter.  I came on the thread to grumble, not to lash out against society.

Not that anyone is asking, but these are the reasons I identify as middle class:
- Raised in a low income HH
- Live in a middle class neighbourhood (modest townhouse in a suburb, we don't even have a backyard)
- One car household (2010 Mazda)
- Use public transportation daily
- Kids exclusively wear hand-me-downs
- No little luxuries like cleaning lady, eating out etc.

Of course, I recognize that these are mostly just sensible choices that we chose to make.  I'm just trying to illustrate why I don't identify as someone worthy of being in the highest tax bracket in the country (and in the highest taxed province, on top of that). 

The final thing is that DH's salary (which is 75% of our HH income and he has only been earning that much for a few years now) is in a very unstable industry, so we know it could be gone in a second. 

So yep, I guess we are not middle class.  Points taken.

Adopting your logic Warren Buffet would be middle class because he still lives in that dumpy house he bought forty years ago. Get a grip your household income is in the top 10% maybe better. Disclosure my girlfriend and I are dinks with combined income of 230k or so.
« Last Edit: March 24, 2016, 11:22:15 AM by human »

RetiredAt63

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Re: Canada Child Tax Benefits
« Reply #18 on: March 24, 2016, 06:31:00 AM »
That maclean's article was interesting.  ExDH and I are each on our own in the top 20%, and together we were in the top 20%, and that was with the moaning and groaning about CEGEP salaries.  However, once we look at the provincial breakdown, in Ontario we are right in the middle - that is what happens when you work in a lower income province and live in a higher income province.  I would still be right in the middle in BC, and doing very nicely if I were in the Maritimes. 

I wish they had published the breakdowns for top 20%, top 10% and top 5% - income distribution is not a bell curve, it has a long right-hand tail.  I found this from Stats-Can for 2010:
High Income Group Highlights
According to StatsCan, 10% of Canadians had total incomes of more than $80,400 in 2010 based on the after-tax income of their economic families. To be in the top 5%, Canadians needed to have a total in-come threshold slightly above $102,300, and to be in the top 1% just over $191,100.
The top 10% of Canadian families (the top decile) made an average income of $134,900, with the top 5% making one third more at $179,800 and the top 1% almost triple that amount at $381,300.

Investment income is an important source of income for those in the top decile. 56.7% of all investment income reported was received by this group, while 11.3% went to those in the next highest decile.

Reading the report, the low income is skewed a bit (I have no idea how much) by teens, since 15 year olds are filing income taxes.  Anyone pursuing higher education (College, University) is most likely working but part-time so they also bring income down.  We can also see the right hand tail, as incomes jump in larger increments as we go into the top brackets.

And just for looking at data, isn't it convenient that we do individual income taxes instead of joint?  We can see individuals, whether they are single or married.  And because of the way some benefits are calculated, we can also see family numbers.

Kaspian

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Re: Canada Child Tax Benefits
« Reply #19 on: March 24, 2016, 10:56:23 AM »
I have no comments on your question.  I just came in here to grumble.  I suppose I need to stop self-identifying as middle class, because clearly the government thinks my family is absurdly rich.  We are losing our child tax benefits, income splitting benefit, falling in a higher tax bracket, and on the provincial side (Quebec) our daycare costs have now tripled because of our high income.

What?!  You don't like being punished for being successful?  Shame on you!  ;)

BigBangWeary

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lostamonkey

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Re: Canada Child Tax Benefits
« Reply #21 on: April 09, 2016, 04:37:35 PM »
That's a cool article.

If I was the fictional couple in the story I would just sell the house and collect my $1.7 million dollars in equity, and sell the dental practice, move to a lower COL city and retire though.

frugal_c

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Re: Canada Child Tax Benefits
« Reply #22 on: April 10, 2016, 11:06:35 AM »
I think it will almost certainly remain pure income tested.   This was not some oversight on the feds part, I think it was a nod to the right to ensure it keeps support across administrations.  They are trying to find a system that reduces bureaucracy and having to assess assets would not help.  I think it is modeled loosely on OAS which also just looks at your taxable income.  Since OAS has been structured this way for decades I don't see why child tax would have to change.   The actual payout amount/calculation formula could change depending on the country's finances but this is a straight-forward and easy to administer system.
« Last Edit: April 10, 2016, 11:08:38 AM by frugal_c »