New Canadian Child Benefit (CCB) Assessment on what it is worth to you

[zurberts]

Hi everyone, this is my first post so hoping to make it a good one. For those not in Canada, this may be informative from the sidelines but won't impact you directly (I will say sorry at the risk of sounding like a stereotypical Canadian).

My wife and I checked our My CRA account yesterday when we were re-balancing our portfolio and noticed that the payment schedule for the new CCB was just rolled out. It didn't match the result spit out from the online calculator released after the federal budget. Turns out that we were entering our gross family income and the benefit is calculated based on net after deductions.  I found  this article which confirmed my suspicion after some reverse engineering from our last tax submission:

http://www.moneysense.ca/save/taxes/budget-winners-and-losers-child-benefit/

The article is quite useful in general though I don't know too many people who have 3 kids under 6 (those that do have more patience than me  - I have 2 daughters aged 2 and 4 and that is plenty, thank you). They suggest that having a family income of $70k is the point where you pay 0 net taxes when taking CCB into account.

What they didn't do is figure how the situation changes when your reduce your take home pay as you do smart things like dump more into your RRSP so I built the attached Excel sheet to do that. The results I got are a little different than the article. I used the CCB online calculator to determine payout for 2 kids under 6 (which matches my situation) and tax rates from iCalculator (links are in comments on the first worksheet). Note the CCB payment scales with # children under 6 so just change column 2 on the first worksheet. If you have kids between 6-18, you will have to go to their the calculator and run the results again. I show from $50k-145k in $5k increments.

I figure the effective tax rates and effective net incomes on the first worksheet. On the 2 worksheet are 2 tables. The first is the kickback you will get by taking your gross income (leftmost column) and reducing it to a livable income (topmost row). The second table is the % savings you will achieve by tax reductions and increased CCB payments. For example, cell B28 = 43% which means if you have $70k gross and reduce to $50k through RRSP contributions, daycare payments, charitable donations, whatever, you will get 43% back from finding $20k to put towards those deductions. The third worksheet just shows the same results but without considering the CCB payments.

I wanted to do this assessment since I see it as win-win-win:

1. You have a greater incentive to make RRSP contributions (marginal tax rate should be good enough but hey)
2. You get a good chunk of the RRSP contribution back in the following year so even if you have to scounge for the money, it is worth it (I don't know many other places that give you 40%+ right off the bat
3. this is a huge "work smarter not harder" situation.

As a disclaimer, I have to say, I am not suggesting that one should look at CCB as an opportunity for personal benefit at the expense of your kids. If you need that $ to take care of them, that is the spirit of why it is available. I just see this as $ otherwise left on the table and if you can find a way to squirrel away more into tax sheltered vehicles that reduce your net income, well, from what I have read on MMM, we are all trying to find ways to do that.

We typically use our child benefit payments to fund RESPs which I don't include in this assessment but the 20% grant up to $2.5k per child is an added perk!
 
Looking forward to any feedback you may have. Hopefully it is useful to others.

[zurberts]

I will also mention that the taxes are calculated in the province of Ontario.

[Prairie Stash]

http://www.cra-arc.gc.ca/bnfts/ccb/clcltyrccb-eng.html
Basic benefit for July 2016 to June 2017

We calculate the Canada child benefit (CCB) as follows:
•$6,400 per year ($533.33 per month) for each eligible child under the age of six
•$5,400 per year ($450.00 per month) for each eligible child aged 6 to 17

We start to reduce the amount of CCB you get when your adjusted family net income (AFNI) is over $30,000. The reduction is calculated as follows:
•families with one eligible child: the reduction is 7% of the amount of AFNI between $30,000 and $65,000, plus 3.2% of the amount of AFNI over $65,000
•families with two eligible children: the reduction is 13.5% of the amount of AFNI between $30,000 and $65,000, plus 5.7% of the amount of AFNI over $65,000
•families with three eligible children: the reduction is 19% of the amount of AFNI between $30,000 and $65,000, plus 8% of the amount of AFNI over $65,000
•families with four or more eligible children: the reduction is 23% of the amount of AFNI between $30,000 and $65,000, plus 9.5% of the amount of AFNI over $65,000

http://www.cra-arc.gc.ca/bnfts/ccb/ccb15byclc-eng.html -worksheet for those who like to calculate
These are the reductions, works out just like having taxes taken off. To use it you can add the reduction to your marginal tax rate to figure out what your RRSP return will be.

Last year we had the family split income (there was a ta advantage related to RRSP there as well), now we have the CCB reduction. It definitely adds a wrinkle into the TFSA/RRSP debate for middle income earners, it now depends on how many kids you have too.

[okits]

I've decided to stop de-registering RRSP investments until we are no longer receiving CCB (or until our AFNI drops below the clawback level).  In lower income years when we are empty nesters the effective tax hit, even when in the same bracket, will be lower.

Also note that you get disproportionately dinged on eligible Canadian dividend income, because it is grossed up 38%.