Government Messaging On UCCB Cheques Incomplete

It’s too bad the messaging that came with the increased Universal Child Care Benefit (UCCB) was incomplete when the lump-sum bonuses were distributed on July 20. 

The messaging missed telling parents all the news on all the potential tax consequences, which would have been more responsible. It also did not communicate the complete picture on a really generous and multi-faceted package of changes for parents, which is a missed opportunity in tax literacy.

The facts: Effective January 1, 2015, the Universal Child Care Benefit was increased from $100 per month to $160 per month for each child under the age of 6. In addition, children between 6 and 17 years of age now qualify for a $60 monthly amount. The lump sum paid out in late July the enhanced amounts retroactively from January 1, 2015.

The message parents received with their retroactive lump-sum payment begins with the statement, “Canada’s new Family Tax Cuts and Benefits put more dollars directly in the pockets of moms and dads . . .”

While that’s true, some of the money will actually have to be repaid when recipients of the enhanced UCCB file their 2015 tax returns. That’s because the UCCB is taxable in the hands of the recipient. This fact will appease the critics of the universality of the benefits – that is, that every family gets them, regardless of income level.

Furthermore, the non-refundable Child Tax Credit (valued at 15% of $2,255, or $338 in 2014) has been eliminated to pay for these enhanced UCCB benefits. There was no mention of this in the letter parents received. In effect, that extra $720 received in UCCB payments for each child will be reduced by both the taxes payable (somewhere between $180 and $330 depending on the recipient’s tax bracket) and the lost $338 . . . still good, but certainly not as good as the messaging suggests. After tax, the “in pocket” amount will be somewhere between $50 and $200 per child. You can do the calculation for yourself by using the professional Income Tax Estimator from Knowledge Bureau. A free trial is available.

The UCCB notice does remind parents that the UCCB payments are in addition to the monthly payments received under the Canada Child Tax Benefit, which remains “unchanged.” That’s unfortunate wording too, because, in fact, the CCTB is income-tested, and is paid on a “benefit year” basis – July to June. Family net income from the immediately preceding tax year (2014) is taken into account. If family incomes fluctuated, there will be a change to the CCTB. Where family net income rose, or where children became age-ineligible, there will be no CCTB or a reduced CCTB . . . not a tax change, but a different result than what’s been communicated.

Next is the reminder about the Family Tax Cut that couples may be entitled to, resulting in up to $2,000 in reductions to their tax bill. Unfortunately, nothing was said about two other tax changes that begin in 2015: the $1,000 increase in the amount of money parents can claim as child care expenses; and the fact that the Child Fitness Amount will be refundable in 2015, a change that benefits even families with no taxable income. All three of these provisions can put more money into family pockets at tax filing time; the latter two also require receipt keeping throughout the year. It’s too bad there was no reminder about any of this.

Regardless of political stripe, messaging from anyone involved in the fall election provides the opportunity for financial literacy: To clarify for Canadian families all their entitlements under current tax law or new proposals. To go down that road requires holistic tax knowledge, which is uncommon for lay persons, including politicians. 

The ideals of a sound tax system – fairness and equity – are at risk when complexity makes communication and compliance difficult. Future governments might want to have a closer look at tax simplification under their new mandates, to get the best results from promised reforms to income collection and redistribution under the tax system.

Costs of the UCCB: As per the Department of Finance details released with the announcements, the net cost of enhancing the Universal Child Care Benefit and replacing the Child Tax Credit should be $0.7 billion in 2014-15 and $2.6 billion in 2015-16 (this is calculated as the increase in cost for the UCCB enhancement of $1.1 billion for 2014-15 and $4.4 billion 2015-16, less the savings the government reaps by replacing the CTC. That amounts to $0.4 billion 2014-2015 and $1.8 billion 2015-16).