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There was much buzz last Monday when the Government of Canada issued $3 billion in Enhanced and Universal Child Care benefits to Canadians with children under the age of 18. As many Canadians did not have to apply for this benefit they were pleasantly surprised when they logged into their bank accounts and saw the deposit. At a minimum, a family would have received $360 representing the $60 per month retroactive payment for a single child registered for the benefit. For other families with more than one child and currently receiving the UCCB, the deposit could have been near $1000 or more.
Does this affect personal income taxes?
This is all great news and these retroactive payments are timely as families plan vacations and other events for the summer. But families be warned – you will need to include this lump sum and future payments into your taxable income come Spring 2016 when you file your income tax return because the federal government paid you this amount before tax. You have not already paid the tax on these funds. How much tax you will have to pay will depend upon your tax bracket come at the 2015 year end. Some families may have a lower income bracket and pay little or even no tax. Families in higher brackets will have to pay taxes on this income, with the highest marginal rate (for Manitoba) nearing 50%. And the parent or guardian in the household with the lowest income (and possibly lowest tax bracket) should report these benefits on their tax return in April 2016. For more information visit this link on the CRA website: http://www.cra-arc.gc.ca/bnfts/uccb-puge/tx-eng.html#q2
What should you do to prepare for tax time in Spring 2016?
So what can you do to ensure you don’t have to pay additional taxes in April 2016, or if you plan on receiving a tax refund, ensure you will still receive it? One easy way is to visit your workplace payroll department and ask to fill out a TD1 form. This form will allow your employer to take off a bit of extra tax each pay so that you are not hit hard and unexpectedly come tax time. Beginning August 1, you will have 5 months remaining in 2015 to contribute to cover these additional taxes. Your payroll department should be able to assist you in calculating how much additional taxes you may want to contribute each payday for the rest of the year.
For most of us with children, we can either pay now or pay later. If you choose the latter, just remember to plan accordingly to avoid disappointment.