Tax Tip Thursday

The CRA announced clawbacks for those making over $34,863

The CRA announced earlier this year that parents could be due for a clawback in their 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.

Increase in CCB amount

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.

At the time 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.

RRSPs can help!

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.

As an example if you and spouse each make $50k, a $5k contribution to an RRSP could result in an additional $570 for the year AND a $1500 tax savings. So your $5k contribution gets you over $2k back in your pocket – that’s a 40% return on your money before you investment even does anything!

If your income did not exceed $35k, you CCB would be almost $14k.

Other things to help in the reduction

Daycare is also a deduction that will help drive down your taxable income (used for the calculation of the CCB).

Also, be sure to evaluate the benefit of one of the spouses working and paying daycare, the impact on CCB and of course the overall tax you pay, compared to maybe not working or working less. Because of the cost of daycare, combined with taxes and the decrease in CCB, this is something that should definitely be at least evaluated. It is a number crunching exercise that we can help you with!

Sweating the Clawbacks?

Give us a call and we can take a look at your financial position and make some recommendations for how to minimize your taxes owed to keep more of your money in your pocket. Make an appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.