Parents are likely feeling a bit confused these days. The Canada Revenue Agency (CRA) and federal government have been making contradicting statements regarding the Child Care Benefit (CCB). So today, let’s clear some of that up, and figure out what parents can actually expect.
First, the clawback
The CRA announced earlier this year that parents could be due for a clawback in CCB payments. This came after the CRA discovered there were some overpayments made to some parents. Therefore, rather than ask for the money back, parents may have noticed that their CCB payments were either reduced, or down to nil.
This of course was met with a lot of shock from parents. It can be difficult to receive mail or notifications from the CRA if you don’t know where to look. In all likelihood, the CRA likely sent a message through your MyAccount on the CRA service. However, if you’re not set up for email notifications, this may have been missed by many parents.
Then, a CCB increase!
The federal government announced that the CCB would increase by 6.3% when looking at the maximum amount Canadian parents could receive. This was to address the issue of meeting inflation and interest rate increases.
As of writing, Canadians can receive a maximum CCB of $7,437 per year for children under six, and $6,275 for children between 6 and 17. However, clawbacks still can certainly come into play here after these amounts have been calculated.
The key here comes down to household income. While there has been a CCB increase, there was also a new threshold for family income. This was a huge factor for parents who received a clawback. The maximum amount is received for families with a taxable net income of under $34,863 in 2023. As your income increases, your CCB payment decreases.
But here’s the thing, there is a way to fight back these clawbacks.
Invest in an RRSP
If parents invest in a Registered Retirement Savings Plan (RRSP), this can fight back the clawbacks that the CRA takes from your CCB payments. For every dollar contributed into your RRSP, that dollar comes off your total taxable net income for the year. This is doubly beneficial. First, lowering your taxable net income could bring you into a new tax bracket. This would mean the CRA will tax you at a lower amount, providing you with the potential of a tax refund!
However, lower income means you also can receive a higher CCB payment. So there’s now more cash in your pocket from the CRA both from a tax refund and CCB payments. Let’s look at an example in the chart below for someone living in Ontario with two children, one under six and one over, making family income of $100,000. Both you and your partner make $50,000 in this example
| Income | Ontario Tax Rate | Federal Tax Rate | CCB payment for child under six | CCB payment for child over six | CCB Payment Before Reduction | CCB Payment After Reduction | Total Taxes Owed |
| Before RRSP contribution | 9.15% | 15% | $7,437 | $6,275 | $13,712 | $6,826.61 | $7,143 |
| After RRSP contribution of $5,000 each | 5.05% | 15% | $7,437 | $6,275 | $13,712 | $7,396.61 | $5,600 |
As you can see, you’ve lowered your taxes by $1,543, and increased your CCB payments by $570! That’s an extra $2,000 in your pocket! Of course, these are just estimates, but you can certainly increase your income substantially. The best way to make it work even better? Invest in a stable asset such as a Canadian bank. These provide dividend income and are currently trading in value territory.
A great option is to consider Royal Bank of Canada (TSX:RY), which currently has a dividend yield at 4.45%. It’s quite valuable trading at just 12 times earnings, and is due to recover when interest rates get under control. So parents could achieve strong returns from this investment, along with higher passive income! So don’t let clawbacks get in the way of earning the income you and your family need.
