This article is brought to you by insurance for children, Canada’s leader in financial planning for children and creator of Child Plan ™ the fastest growing alternative to the RESP. Child Plan, One Plan For Life.
The Canada Child Benefit (CCB) is a tax-free government benefit payable to the person in the family, who claims the children as a dependent on their annual tax return. While both parents or a single parent is always responsible for the welfare of the child, under Canadian tax laws only one person in the household can claim them as a dependent. But when it comes down to just how beneficial it is for you, and how to make the best use of this “free money”, it can start to get a little complicated. After reading this, you should find yourself better informed.
Who is Eligible for Canada Child Benefit?
To be eligible to receive this government benefit, parents must meet ALL these conditions:
- Be living with one child (or more) under the age of 18
- You must be the primary caregiver responsible for the care and upbringing of the child/children
- Be a tax resident of Canada
- You and your partner must both be either a Canadian citizen; a permanent resident; a protected person; a temporary resident who has lived in Canada for at last 18 months and will continue to do so; or an indigenous person as defined under the “Indian Act,” as an Indian.
When and How to Apply
You can apply for the Canada Child Benefit as soon as your child is born; when a child starts living with you or returns to live permanently with you after living elsewhere temporarily; at the start, end, or change of a shared custody arrangement; as soon as you get custody of a child; or when you or your partner meet the eligibility criteria (as explained above).
What’s the Difference Between Canada Child Benefit and Canada Child Tax Benefit?
The Canada Child Tax Benefit has now been replaced by the Canada Child Benefit. It used to pay up to $6,833/year for each child aged up to 6, and for each child aged 6 to 17, you would receive up to $5,765/year.
To receive the Child Tax Benefit, your after-tax income (taxable income) needed to be $32,028/year or less.
The Canada Child Benefit allows those responsible for the care of their child who has higher incomes to receive some financial assistance. Although the higher your income, the less you receive.
How Long will I get Canada Child Benefit for?
The Canada Revenue Agency (CRA) will pay you within 8 weeks of applying online, or 11 weeks if you applied via the post. The amount you are eligible for is paid out in 12 monthly installments. If your total is under $240 it is paid as a single amount in July.
If your situation changes in any way, you must let the CRA know. Your payments may stop if any of the following happen:
• Change of address, marital status, bank account, or residency status
• If personal information becomes out of date
• You leave a violent or abusive relationship
• In the event of death
• There is a change in the child custody arrangements, for example, if the shared custody agreement changes, even if it is only temporary, and when a child starts or stops living with you.
• And, of course, when your youngest dependent child turns 18.
How is my Canada Child Benefit calculated?
If you are eligible, how much you get paid will depend on your after-tax income and how many children you are claiming for.
You can estimate how much you might get by using the calculator located on this page.
Here are the results of a few simple example calculations. For information purposes, net or after tax income is your total family income after all taxes have been paid, either deducted at your work or if you’re self-employed after all expenses deducted and your income tax has been paid.
- After-tax income of $40,000/year with 1 child – $7,054.08 or $625.34/month
- After-tax income of $40,000/year with 2 children – $13,566.44 or $1,130.54/month
- After-tax income of $80,000/year with 1 child – $3,877.56 or $323.13/month
- After-tax income of $80,000/year with 2 children – $8,017.14 or $668.10/month
- If your After-tax income is over $200,000 a year, there are no CCB benefits
Whether you are single or a couple living together makes no difference, what you receive is based on your total after-tax income. So, if your total family income is $80,000/year, you would receive the same whether you are single or living with a partner.
Where the parents live apart, if they share custody on a 50/50 basis, they each receive 50% of the amount they would get but based on their individual incomes.
So, with one child, if both parents earned $40,000/year, they would both get 50% of $7,054.08, that’s $3,527.04 each.
But if one parent earns $40,000, they would still receive 50% of $7054.08, that’s $,3,527.04. If the other parent was earning $80,000/year, that parent would get 50% of $3,877.56, that’s $1,938.78.
What if you share custody of the children on a 70/30 basis? The parent with 70% of the childcare duties is the primary caregiver and therefore is eligible to claim 100% of the benefit based on their individual income. The other parent gets nothing!
What if your partner is ineligible? Then neither of you gets anything. You both must be eligible to claim the benefit.
Canada Child Benefit and taxes. How much will I pay in taxes for my Canada Child Benefit?
Canada Child Benefit is a tax-free benefit.
If you choose to use some of your Canada Child Benefit to invest in your child’s future, the returns on most investments will be taxed.
Child Plan ™, whole life insurance, pays annual tax-free dividends every year, for life.
The tax-free status of Child Plan ™ allows it to provide returns that are competitive with those of much riskier investments, and with greater simplicity. There is no need to consider Child Plan ™ when preparing your tax returns.
What Happens if I Don’t File my Taxes? Do I Lose my Canada Child Benefit if I Don’t File my Taxes?
If both parents do not file their taxes on time, the Canada Revenue Agency will not know what income figure to use to calculate your Canada Child Benefit.
Therefore, your Canada Child Benefit payments will stop until such time as both parents do file their taxes.
How Can I Use my Canada Child Benefit to Invest in my Child’s Future and Future Education?
If you are eligible to receive the Canada Child benefit, you have a regular income source, from the day of your child’s birth until they turn 18. Depending on your overall financial position, you may find that after paying all the expenses of your child, you regularly have some money left over.
It would be wise to put some of this money aside for your child’s future, but where?
You know that this income source will give you the ability to make contributions for up to 18 years. One of the most powerful concepts of investment is time. The longer you maintain an investment, the longer it has to grow in value. If you can continue making contributions over a long period, then this concept becomes even more powerful. Eighteen years is a very long investment period.
Wisdom would say that you want an investment that you can contribute to regularly, and that your child can make use of as soon as they turn 18 if they need it, perhaps for education expenses.
It also needs to be able to continue beyond that in case your child doesn’t need all the money at that time.
And of course, it needs to be an investment that can be used for any purpose.
A Child Plan ™ is a tax-free Whole Life Insurance plan with cash value. A parent, grandparent, or any relative can start a Child Plan ™ for a child. Both the sum insured, and the cash value increase each year through the addition of tax-free dividends.
When the child turns 18, you can change ownership of Child Plan ™ into your child’s name. Your child can access the cash value at that time, perhaps for education expenses, or they can let their Child Plan ™ continue longer.
You can choose to retain ownership and to continue making contributions if you wish. Or if your child has taken over ownership, they may choose to continue making contributions.
Your child may at some point want to use the cash value of Child Plan ™ for a deposit on their first home or to start a business. Or perhaps they will allow it to continue growing in value to be used for their retirement income.
Imagine the value of an investment that had 18 years of regular monthly contributions, then continued growing for a further 40 – 50 years. Your child could retire with an investment that they never put a single cent towards.
You can see for yourself how an investment into Child Plan ™ can grow by requesting a Child Plan ™ illustration.
Canada Child Benefit vs RESP: Is it wise to Invest your Canada Child Benefit into your child’s RESP? Is there another option?
An RESP is a Registered Education Savings Plan that you can make contributions to. You could use some of your Canada Child Benefit for this purpose.
You can start an RESP for one or more of your children. Contributions can continue for as long as 31 years after it started, and investment gains are non-taxable. Withdrawals can only be used for education expenses and after 35 years the RESP ends, and any funds remaining are returned to you. You retain ownership of the RESP throughout.
Child Plan ™ is an alternative to RESP. Its gains are also non-taxable, you can make withdrawals from the cash value after 18 years and have the option of continuing the plan, with or without regular contributions, until the death of the policy owner. Any time after your child turns 18, you can transfer ownership over to them. If the plan is still in place at the time of the owners’ death, Child Plan ™ will pay out the sum insured. The sum insured will be a far greater value than the cash value.
Request an illustration to see how the cash values and sum insured increase over time.
What Can I Use my Canada Child Benefit For?
You can use your Canada Child Benefit for any purpose. This may include the day-to-day costs of raising a child and those one-off expenses that come along like school trips, sports club memberships, school uniforms, etc.
Common sense and wisdom would suggest putting some of this “free money” you are receiving to good use for the future of your child by utilizing a safe, tax-free, low-risk, long-term investment. Preferably an investment that can be taken over by your child when they are ready, and that can continue for as long as it is needed, and just like the Canada Child Benefit, can be used for any purpose. Child Plan ™ is an investment that ticks all those boxes.
Request an illustration today and find out more about Child Plan ™.