0:08

Hello and welcome back to the Canadian Money Roadmap

0:10

Podcast . I'm your

0:12

host , evan Newfeld , on

0:17

this week's episode . It is the first episode

0:20

of 2024 . I thought I'd

0:22

talk about something I've never talked about once

0:24

on the podcast before . We're talking

0:26

about all this free money that you

0:28

can get from the government tax-free money from the Canada

0:31

Child Benefit . So if you have kids , if you're

0:33

planning on having kids , I'd like to dig into

0:35

this program a little bit more so you understand how

0:37

much tax-free money you can get from the Canada

0:39

Child Benefit . Welcome

0:46

back to another year here on the podcast . I'm

0:48

going to start off this year with a little short

0:51

episode here , but getting into the weeds

0:53

a little bit I'm going to be talking about . A couple of you listening

0:55

like to get into the technicalities of a lot of these different

0:57

programs . I've never talked about this one before

0:59

and , truth be told , I need to learn about it

1:01

a little bit more myself because now

1:03

that I've got a couple of kids at home , I

1:05

thought it would be valuable time well

1:08

spent to dig into the Canada Child

1:10

Benefit to better understand this program and

1:12

how it would work for people of

1:14

all financial situations

1:16

and family situations as well . So

1:19

the Canada Child Benefit has been

1:21

in place , I believe , since

1:23

2016, . It replaced

1:25

a previous program of tax credits and things

1:28

like that . It's a simplified program , but now

1:30

it is a monthly tax-free

1:32

payment made to eligible families

1:35

just to help with the cost of raising

1:37

kids , and kids is defined

1:39

, or children is defined by someone in your

1:42

care under the age of 18 . There's

1:44

a large definition there for things like

1:46

foster kids or , if you're not

1:48

a parent , maybe you're a grandparent taking care of kids there's

1:51

lots of opportunities to be able to claim this benefit

1:53

if you're a caregiver of children no

1:56

, this isn't like a daycare caregiver

1:58

of children , but the primary caregiver for that child

2:00

. So in this episode , I'm going to talk a little

2:02

bit about how much you can get

2:04

I'll start there , because that's probably the most

2:06

interesting thing and two , how to

2:08

keep your payments going and

2:11

what are some of the factors that will determine how much you

2:13

can get . And finally , stick around

2:15

to the end for a little wrinkle on

2:17

how to use deductions and

2:19

specifically RSP contributions

2:22

, to be able to increase your Canada

2:24

child benefit . So , for those of you

2:26

that are curious , the way that the Canada

2:29

child benefit works is there's two different thresholds

2:31

for payments that you can receive , based

2:33

on having kids either under six

2:35

years old or over six years old . Now

2:38

these payments are adjusted

2:40

with inflation , so if you're listening to

2:42

this later on , after it's been

2:44

released , these are current as of

2:46

the beginning of 2024 here

2:48

. So for each child

2:51

that you have under the age of six

2:53

, the maximum you can receive from this program

2:55

is $7,437

2:59

per year per child . So

3:02

that's about 620 bucks per month . There's

3:04

a lot of really specific dollar amounts in this

3:06

episode and so I'm going to try to use round numbers

3:08

. Even so , bear with me if it's not exactly

3:11

that amount . I just because this is

3:13

an audio podcast , I just want to make sure that

3:15

it's easy enough to understand but

3:17

specific enough to be relevant . Okay , so

3:19

about 620 bucks per month for every

3:21

child under the age of six . Now

3:24

, for children between the ages of

3:26

six and 17 , it

3:28

reduces to about $520

3:32

per month , $522.91

3:34

per month for a total just shy

3:36

of $6,300 per year . So

3:38

this is real money , like . It's

3:40

quite a bit . And the best part about

3:43

this is that it is tax free . So

3:45

sometimes when you get government benefits

3:47

, so even think about like CPP or old age

3:49

security later on in retirement those are actually

3:52

taxable sources of income , whereas

3:54

the Canada child benefit is tax

3:56

free . So , for example

3:58

, if you happen to have three kids

4:00

under the age of six , currently you

4:03

would receive about $22,000

4:05

a year tax free from the Canada

4:08

child benefit program . Now here

4:10

comes the wrinkles . So that's kind

4:12

of the maximum that you can get for , depending

4:14

on the number of kids that you have . But

4:16

this amount starts to reduce

4:19

based on the amount

4:21

of household income that

4:23

you have . Again , this is where the really specific

4:25

dollar amounts come in . So I'm going to just use

4:28

round numbers here . It's

4:30

really close . It's not exactly those

4:32

, it's just . If you're really curious and you

4:34

want to get to the specific dollars and cents , you can look

4:36

it up online . If you just Google Canada

4:38

child benefit , there's a great website from the CRA

4:40

that goes through all of it . But the

4:42

main thresholds are income

4:45

below $35,000

4:47

. Then there's another Breakdown between

4:49

35 and 75 and then over

4:52

75,000 . So if

4:54

you have household income under

4:56

$35,000 , you would

4:58

get the maximum amount Easy enough

5:00

. So these are the amounts I've talked about before . So kids under

5:02

six about $7,400 . Kids

5:04

between six and 17 about $6,300

5:07

per child . You would get the maximum

5:10

and that gets paid out to you every month on approximately

5:12

the 20th of every month , depending if

5:14

it falls on a weekend or not . But

5:16

once you have income above

5:18

that $35,000 threshold it

5:21

starts to reduce . So between 35

5:23

and 75 , that amount gets reduced

5:26

by 7% . I'll be

5:28

more specific with that reduction there . So

5:30

if you have income of

5:32

$40,000 , the way that

5:34

they do the calculation is that they take your

5:37

total income , so 40 , and then

5:39

they subtract the $35,000

5:41

bracket . There is in this case $5,000

5:43

, and then the 7% reduction

5:46

is on that amount over 35,000

5:48

. So in my hypothetical example

5:50

here , that's $5,000 . So

5:53

your total benefit would be reduced

5:55

by $350

5:58

for one child . If you have two kids

6:00

, the reduction is 13 and a half

6:02

percent , 19% , and then

6:04

23% For

6:07

families of four kids . I won't go beyond

6:09

there because I think we're getting into

6:11

very niche territory Potentially

6:13

there , but you can look this up for any

6:16

details that I'm not talking about specifically today . So

6:18

that's for incomes between

6:20

35 and 75

6:22

, there's a reduction factor based

6:25

on the amount over $35,000

6:29

. Now this is where it gets a little bit complicated

6:31

. If you have household income

6:33

over 75,000 , okay

6:35

, it's specifically 75,537

6:38

, okay . And so now if we're

6:40

dealing with , say , just one child . The

6:43

way that the reduction ends up working is

6:45

that they take a flat rate Reduction

6:48

and then a percentage

6:50

of the amount over 75,000

6:52

. Let's deal with one specific example

6:54

. Okay , so say you have household

6:57

income of a hundred thousand dollars

6:59

. The

7:01

way that it works for families

7:04

with one child is that there's

7:06

a flat rate reduction of $2,847

7:11

and then a percentage

7:13

reduction of 3.2 percent

7:15

. So let

7:17

me walk you through the calculation here . So if you have

7:20

a hundred thousand dollars , you would say a

7:22

hundred thousand dollars minus 75,000

7:24

, or 75,537

7:27

specifically , that will give you the

7:29

amount that your income is above the threshold

7:32

. Okay , so then you

7:34

move to the percentage Reduction

7:36

. So again , this is just for one child . So

7:38

you take that income that you have over 75,000

7:41

multiplied by 3.2 percent

7:43

to get your partial reduction , and

7:45

then you add that to the flat rate

7:47

reduction of $2,847

7:51

to get your total reduction . Well , if you're

7:53

still with me here , this is how

7:55

it would work for a family with a hundred thousand dollars

7:58

. So if you make a hundred thousand dollars , you

8:00

would end up getting $3,800

8:03

per year , so about 300 bucks a month for

8:06

one child under the age of six . So

8:08

a hundred thousand dollars essentially cuts your benefit

8:10

in half pretty close , but

8:12

you still get about 300 bucks a month

8:14

tax-free . That's pretty cool . So

8:17

obviously there's different thresholds based

8:19

on the number of children that you have . I

8:21

won't go into all of those , but I

8:24

wanted to talk about it just in general for a few

8:26

different circumstances so you could kind of understand

8:28

it a little bit . But then once

8:30

you have income above a certain amount

8:32

, then the benefit just

8:34

disappears , based on running the formula

8:36

. Again , these numbers are ish . But

8:38

if you have one child and you have family income

8:41

of about $220,000

8:43

, that's where you will not receive a benefit

8:45

anymore . Two kids , it's about 240,000

8:49

, 260,000 for three kids and about 290,000

8:52

ish for four kids or more . And that makes

8:54

sense , right . So this is a program that's

8:57

designed to help parents pay for

8:59

the cost of living and the government rightfully

9:01

says well , if you have this level

9:03

of income , you probably don't need as much support

9:05

from us to do this , so you

9:08

won't get this benefit here . But

9:10

for people with more modest incomes

9:12

this can be really beneficial . So , for

9:14

example , if you have household income right

9:16

around that upper threshold of $75,000

9:19

so it's a single parent home with 75,000

9:21

. You'd have to work about 170

9:24

hours to get the same amount after

9:26

tax as the Canada child benefit , because

9:29

, again , the Canada child benefit is an after

9:31

tax benefit . So in most provinces

9:33

75,000 dollars gross ends

9:35

up pretty close to about 60,000 after

9:37

tax , which means it's about five grand

9:39

a month . So if you're just a hair over

9:42

that 75,000 dollar threshold you

9:44

end up with pretty darn close to five

9:46

grand a month . It'll be a little bit less than that , closer

9:48

to about 4,600 . So

9:52

if you have income right over that

9:54

threshold that's called 76,000 dollars

9:56

your benefit

9:58

from this program ends

10:01

up being pretty close to 5,000 dollars a year . So

10:03

it's almost a month worth of work that

10:05

gets paid to you throughout the year , again

10:08

tax-free . So everybody's going to

10:10

get a completely different amount based

10:12

on the number of kids you have and the amount of income that

10:14

you have , and it's a kind of a complicated

10:17

program just based on when the

10:19

amounts change . So the way that it works

10:21

is that you have to file your taxes

10:23

so that they know how much income you

10:25

have as a household , how many kids you have

10:27

, and then in July the

10:30

payments get adjusted . Okay

10:32

, so everything in our tax system

10:34

usually works on a calendar year system . However

10:37

, the benefit is only assessed

10:39

after your taxes have been filed , and

10:41

so it's on a July to June

10:44

cycle . So if you've had a

10:46

big change in income and things like that , you

10:48

won't necessarily see a change

10:50

in your Canada child benefit

10:52

until you've filed your taxes and then July

10:55

rolls around . So in some cases if you

10:57

make a lot of money , you might have your Canada

10:59

child benefit disappear . Maybe if you've had

11:01

a year off or your spouse was on

11:03

a mat leave and your income

11:05

was reduced for that year , you might actually

11:07

get more for that period of time . And so

11:10

it's assessed based on your previous year's taxes

11:12

and then applied in July

11:15

to June of the following year . So

11:17

the amounts that you get and the thresholds and everything

11:19

like that will adjust with inflation , which

11:21

definitely helps , especially in periods of time , like we've

11:23

seen recently , where inflation is far higher

11:26

than the last decade averages or so . And

11:28

the way that the program starts is

11:30

that here in Saskatchewan at least , I've

11:33

had a couple of kids in the last few years and

11:35

we actually get paperwork in the hospital to

11:37

fill it out and you can apply for your social

11:40

insurance number and you can apply for the Canada

11:42

child benefit right at the same time . And

11:44

so before we even left the hospital , we've applied

11:46

for it and a couple of months

11:48

later you become eligible for it based on your previous

11:51

year's income , and that all gets done automatically

11:53

. It's pretty slick . But if you

11:55

have not filed your taxes before , you

11:58

do not qualify for this program because

12:00

they don't know how much money you make . So a big , big

12:03

, big factor here is

12:05

actually filing your taxes

12:07

. If you do not file your taxes , you

12:09

will not receive your payment , and so even

12:12

if you're expecting to get a refund or

12:14

you didn't have any income , you still

12:16

need to file your taxes to tell them that , so

12:18

that you can actually qualify for this benefit . So

12:20

people that are low income that would be

12:23

the demographic of our country that

12:25

would be least likely to file taxes

12:27

. That doesn't mean they don't pay taxes , because

12:29

it's taken off of employment income directly , but

12:32

they'd be least likely to file

12:34

taxes on an annual basis , but they'd be the most

12:36

likely to benefit from this program . And

12:39

so if you know anybody that might fall

12:41

under this category of people that would

12:43

be , say , low income or

12:45

even temporarily low income please

12:47

remind them to file their taxes every

12:50

year to make sure that they qualify for benefits

12:52

like this and the HST rebates

12:54

or GST rebates depending on your province all

12:57

sorts of things that's going to be the topic of another

12:59

podcast come tax time . But to

13:02

be able to qualify for it , you have to apply first

13:04

. Oftentimes you'll apply without even knowing it , and

13:06

if you're doing the paperwork , like we do here in Saskatchewan

13:08

, before you leave the hospital , and

13:11

the money starts showing up soon after , but

13:13

as long as you are filing your

13:15

taxes , so it's a pretty great program . But

13:18

so far in this episode I've pretty much

13:20

just regurgitated facts and there's nothing

13:22

really actionable here , necessarily . But

13:25

one thing that I wanted to put you

13:27

on is the idea of

13:29

increasing this benefit based

13:31

on your net income , and

13:34

net income is not after

13:36

tax income , it's after deductions

13:38

income . Okay , so you get your

13:40

gross income is your top line , the most money

13:42

that you make and then there are deductions

13:45

that happen after that , which reduces the amount

13:47

of income that you end up paying tax on , and

13:49

so the big one that

13:52

you listening to this podcast would probably be

13:54

familiar with would be an RSP

13:57

deduction . So when you make a contribution

13:59

to an RSP , you get a deduction

14:01

on your income and it reduces the amount of taxes

14:03

that you have to pay on your income . For many

14:05

people that have already paid taxes on their income through

14:08

their employer directly , that means

14:10

you get a refund , but people who are self-employed

14:12

, they will have to just pay less taxes

14:14

every year . However , if

14:17

you are someone who would qualify

14:19

to receive the Canada Child

14:21

Benefit someone like myself we've

14:23

got a couple of kids at home making an

14:25

RSP contribution now does two

14:27

things it reduces the amount

14:29

of tax that you pay and

14:31

will increase the amount of Canada Child

14:34

Benefit that you get . Whoa , this

14:36

is pretty crazy . So the actual

14:38

net benefit of making RSP

14:40

contributions while you have children

14:43

at home , especially children under the age of

14:45

six , is quite a bit more

14:47

than just the pure tax

14:50

savings that you would get from

14:52

making that RSP contribution . Let

14:54

me walk you through a rough calculation

14:57

here . Okay , my hypothetical scenario

14:59

. We've got a couple living in Ontario

15:01

. We have one stay-at-home parent and

15:03

the other parent earns $150,000

15:06

a year . This might not be relevant to your situation

15:08

. You might make more , you might make less . Just hear me

15:10

out on the example here . So $150,000

15:14

for one person in Ontario

15:16

. This person decides to do a $10,000

15:19

RSP contribution , perhaps that's throughout the

15:21

year . Whatever , $10,000 goes into the RSP , effectively

15:24

reducing their income from $150,000

15:27

to $140,000 . Okay , so

15:29

the tax savings that comes along

15:31

with that RSP contribution in their case

15:33

is $4,341

15:37

. Again , $4,300 . It's

15:39

not bad . That's a lot of money , because that marginal tax

15:41

rate in Ontario is 43.41%

15:44

. Okay now , adding

15:47

on to that , if you have $150,000

15:50

of income and two kids under

15:52

the age of six again this is just a

15:54

hypothetical two kids under the age of six that

15:57

family would expect to get $5,138

16:00

from the Canada Child

16:03

Benefit Program . However , if

16:05

you had $140,000 of income

16:07

meaning if this person

16:09

did a $10,000 RSP contribution

16:12

and reduced their income by $10,000 , they

16:14

would increase their Canada Child Benefit

16:16

for the following year to $5,708

16:21

. So an increase of $570

16:23

per year , again tax-free

16:25

. So the benefit in

16:27

total goes all the way up to

16:30

$4,911

16:33

. It's pretty significant when you

16:35

start looping this in . Okay , so

16:37

if you have more kids , it gets

16:39

better . Yet in terms of

16:41

absolute dollars , in this same example

16:44

, nothing else changes except now they have three kids under

16:46

the age of six . Say a prayer for this hypothetical

16:48

family . That sounds like a busy household . But if you have

16:50

three kids under the age of six , income

16:53

at $150,000

16:55

, make an RSP contribution of $10,000

16:57

, the Canada Child Benefit actually goes up

16:59

by $800 , on

17:02

top of the $4,300 of tax

17:04

benefits that you receive from

17:06

making the RSP contribution . This is

17:08

pretty meaningful , and so I'm

17:11

not saying this to anybody to

17:13

use as a blanket statement for

17:15

doing RSP contributions

17:17

over other forms of investing or things like

17:19

that , because , as you can

17:21

tell , everything here depends on

17:23

your income level and your family

17:26

situation cash on hand , tax

17:28

situation , all sorts of different things . This is highly

17:30

personal , but in my

17:32

hypothetical here and maybe this is relevant

17:35

to you if you're a relatively high income

17:37

earner but you still qualify for

17:39

the Canada Child Benefit meaning someone

17:41

under 220 of income for one child

17:43

, under 240 of income for two kids , and

17:46

so on the value of an RSP

17:48

contribution actually goes up meaningfully

17:51

when you factor in the

17:53

additional benefits from the Canada

17:55

Child Benefit program that come to you as

17:58

tax-free income in the following

18:00

year . This is something that I'm looping into

18:02

my financial planning

18:04

as well , because we

18:06

now have two kids under the age of six . For

18:08

the time being , my wife is a stay-at-home parent , and

18:11

so my personal income

18:13

is the one that we have to be more considerate

18:16

of , and so the value of RSP

18:18

contributions is meaningful

18:20

just on a tax basis , but also

18:23

now that we qualify for the Canada

18:25

Child Benefit for two kids , it is

18:27

really something that is worth considering doing

18:29

over , say , a TFSA . In my

18:31

specific situation , your province

18:33

of residence also matters too , because

18:36

the tax rates are different and

18:38

things like that . So RSP deductions

18:40

aren't the only thing that will reduce

18:42

your net income . There's . Childcare

18:44

expenses also would

18:47

count as a very common deduction , especially

18:49

those of you that have kids

18:51

. Obviously , this one is relevant for you . So

18:53

, anyways , that was just one thing that I wanted to loop

18:56

in here as something that's actionable or something

18:58

that you could take a look at for

19:00

planning your investing

19:03

strategy for the rest of the year . If

19:05

you're a person that has kids at home

19:07

under the age of 18 , take

19:09

a look and see how much of a benefit

19:11

an RSP contribution

19:13

would have , not only in terms

19:16

of the tax benefits , but also

19:18

in terms of the Canada

19:20

Child Benefit increase that you would receive

19:22

as a result . Anyways , lots of really specific

19:24

data in here and numbers and things like that . So I appreciate

19:26

you staying with me so far If you're still here

19:28

. Thank you so much for listening . I'm excited

19:31

to get into a lot more topics

19:33

like this throughout the rest of this year , but

19:35

appreciate you listening to the Canadian Money Roadmap

19:37

. If you haven't subscribed , consider doing that so

19:40

you can get a new episode like this one every

19:42

Wednesday . Take care , and we'll see you next week . Thanks

19:45

for listening to this episode of the Canadian

19:47

Money Roadmap Podcast . Any

19:49

rates of return or investments discussed are

19:51

historical or hypothetical and are

19:54

intended to be used for educational purposes

19:56

only . You should always consult

19:58

with your financial , legal and tax

20:00

advisors before making changes to your financial

20:02

plan . Evan

20:04

Neufeld is a certified financial planner and

20:07

registered investment fund advisor . Mutual

20:09

funds and ETFs are provided by Sterling

20:11

Mutuals Inc .