TAX SAVVY STRATEGIES
Making most of child benefit
Justin Trudeau’s decision to donate all his enhanced universal child care benefits to charity could end up being a smart move, tax- wise, you may wish to consider for yourself.
On Wednesday, Trudeau, who has three young kids, one under the age of six, announced he would be donating all of his estimated $ 3,400 to La Maison Bleue, a charitable group in his Montreal riding devoted to helping vulnerable women during pregnancy and the early days of motherhood.
But when it comes to the donation decision, it will likely be his wife, Sophie Gregoire, who will have the final say, since she will be the one collecting the payments.
Under the rules, to collect the benefit you must be the person who is primarily responsible for the children’s care and upbringing. According to the CRA, primarily responsible means that you are responsible for such things as supervising the child’s daily activities and needs, making sure the child’s medical needs are met, and arranging for child care when necessary. The payments, which began in 2006 at $ 100 per month per child under age six, were enhanced this year, with the government increasing the monthly amount for kids under six to $ 160 and expanding the program to include a new benefit of $ 60 per month for children aged six through 17.
The first enhanced payment was issued on Monday and included a retroactive payment for the period covering January to June.
The payments replace the child tax credit, which was worth $ 338 per child, and are considered to be taxable income.
Quebec taxpayers in the lowest tax bracket pay a combined federal and provincial tax rate of about 30 per cent on the first $ 42,000 of income ( above the basic personal amounts) and the top combined federal- Quebec tax rate hits 50 per cent once taxable income is over about $ 138,000. So Gregoire’s tax bill would be between $ 1,000 and $ 1,700 on $ 3,400 of benefit payments, giving her an after- tax benefit of between $ 1,700 and $ 2,400.
If the full pre- tax payment is donated to charity, and assuming the Trudeau family already donates $ 200 annually to other charities, a combined federal- Quebec donation credit would be worth 48.22 per cent on the $ 3,400 of donated benefit, resulting in a tax deduction of $ 1,640.
But unless Gregoire is in the highest tax bracket, the $ 1,640 of donation credits will exceed the amount of tax payable on the child care benefit collected and thus can be used to shelter tax on any other source of income. For example, if she paid $ 1,000 of tax on $ 3,400 of benefit payments, she would be able to reduce her tax on other income by an additional $ 640.
Of course this isn’t unique to the Trudeau family or even to Quebec. Once you donate more than $ 200 in a given year, you get a federal and provincial credit at the top rate ( or near- top rate in some provinces), regardless of whether you are, in fact, actually in the top bracket.
This makes donating your benefit to charity an attractive tax strategy.
If Trudeau really wants to make a public, political statement about opposing the benefit for highincome families, he and his wife could agree to not claim the federal and provincial donation credits on their returns, just as Trudeau reportedly did when he promised he and his wife wouldn’t take advantage of the Conservatives’ incomesplitting for parents, giving up $ 2,000 in potential tax savings.
For everyone else, though, using the benefit to fund charitable donations, activities that will generate arts and or fitness tax credits for your kids, or even contributions to an RESP to generate Canada education savings grants are some smart ways to make the most of your child care benefit payments.