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Monday, May 1, 2017

Canada Child Benefit – Update

Posted by Tim Stobbs on July 25, 2016

As you may recall I have a long history of taking any government issued money for my kids and putting it into their RESP account.  Yet as we started to make more income over the years and the kids got older, we slowly got less money and I just decided to top up our monthly investments of $334 to their RESP account to make up the short fall.

Yet now the Federal government has revamped the old Child Tax Benefit and Universal Child Care Benefit into the Canada Child Benefit and everyone found out this week our new amounts and I have to admit I was a bit surprised to see our go up and be higher than I thought it would be.  We previously got just slightly over $200 per month combined on the old system and I had used the online calculator to estimate our new benefit to be only a bit higher at $220 per month.  Of course even if it had been slightly less we would be a bit better off since the new payment is now tax free.  Needless to say I was a bit shocked to see our official letter come in stating the new amount would be just over $350/month.

So what the heck went wrong?  So I went back to the online calculator and read the fine print at the bottom to notice it says “A different definition of income (adjusted family net income) is used to calculate actual entitlement, and would generally be lower than household income.”  So basically, everyone who previously used the calculator got a low ball estimate and got more than they were expecting.  Nice surprise.

This also means that I likely won’t have to put any money aside to top off my kids’ RESP account going forward as I previously thought I would have to do for the initial year after I left my job.  Instead the amount we get from the Canada Child Benefit should be enough to cover the entire $334 to their RESP account every month and even have some leftover to cover other kid related costs.

The side benefit of using tax free money to pay for the RESP contributions is they also get topped up by 30% (10% is from the Saskatchewan government and the other 20% is from the federal). So with very little money from us over the years my kids have over $60,000 put aside for their post secondary education already and we should easily be able to hit my $80,000 target in just a few years and then with investment returns exceed that amount.

Overall the new Canada Child Benefit was a nice surprise for us.  Did anyone else notice the same issue of under estimating how much they would get?

Comments

4 Responses to “Canada Child Benefit – Update”
  1. Jay says:

    I was pretty close to my estimate, I adjusted for net income. It’s the RRSP contributions that make the big difference; with 2 kids there’s a clawback of 5.7% on income over $65k (between $30-65K its 13.5%). In effect your marginal tax rate just got bigger, earn less and you get more money from CCB.

    Currently with 2 kids the marginal tax rate in SK is 47% if you earn between $45,282 and 65k, the next highest bracket is earners over $140k. Its weird to see higher rates at lower incomes.

  2. Mic says:

    Tim,

    Wouldn’t you need to contribute $420 for two kids if you wanted to maximize the 20% federal government RESP topup?

    We do the same, our new CCB payment more than covers 3 kids RESP contributions. “Free” money from the feds every month to get a free 20% topup, if all goes well we should be able to send all 3 kids to higher education with little of our own money.

  3. Jay says:

    Where do you invest your RESP money? I’m having troubles finding low cost funds that will accept the SAGES grant

  4. Tim Stobbs says:

    @Mic – True, if I wanted to max it out for a given year, but with the lifetime limit there really isn’t the need. Also I don’t plan to put that much into the plan in the long haul. We are aiming to have $80,000 or more for both kids so I don’t need to put in $420/month.

    @Jay – We have ours at Royal Bank just with some mutual funds. The fees are slightly higher than other options but I don’t feel we would gain too much by shifting the plan somewhere else.

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