The Child Benefit You Got was Not an Error

So a lot of people are wondering why money showed up for the Canada Child Benefit (CCB) yesterday (May 20) when they normally don’t qualify.

The CCB “one-time payment” for COVID-19 relief is actually formula driven but it is created by adding $3,600 for each additional child (not $300)… you’ll see in a minute why this is.

Step 1 – Add up the number of children that were under 6 years old in 2018 and multiply by $6,639.00

Step 2 – Add up the number of children that were between 6 and 17 years of age in 2018 and multiply by $5,602.00

This is your normal ANNUAL Canada Child Benefit entitlement before reductions.

However, for your May 2020 payment only, the formula adds $3,600 per child to bring the numbers to $10,239 and $9,202 per child based on age respectively.

If you have less than $31,120 of adjusted household income, you will get the full $300 extra, congrats, no more math for you.

For the rest of you it gets interesting or complicated, depending how you view math.

Any amount of adjusted household income between $31,120 and $67,426 causes your ANNUAL entitled CCB to be reduced by the following:

• 7% of the amount of household income if you have 1 child
• 13.5% of the amount of household income if you have 2 children
• 19% of the amount of household income if you have 3 children
• 23% of the amount of household income if you have 4 children or more

This is called the “first reduction”.  The maximum amount of household income subject to the first reduction formula is $36,306 more than the base $31,120 (meaning an income of $65,976)

Those of you over this number, you are not done yet.

Any amount of adjusted household income over $67,426 causes your ANNUAL entitled CCB to be reduced by the following:

• 3.2% of the amount of household income if you have 1 child
• 5.7% of the amount of household income if you have 2 children
• 8% of the amount of household income if you have 3 children
• 9.5% of the amount of household income if you have 4 children or more

This is called the “second reduction”.  There is no maximum amount of household income subject to the second reduction formula.  You keep calculating until you hit zero.

For example.   If you have one school-aged child in 2018, and your adjusted household income is $100,000 the formula would be this:

NORMAL MONTHLY BENEFIT:

• First reduction: 67,426-31,120 = $36,306 x 7% = $2,541.42
• Second reduction: 100,000-67,426 = $32,574 x 3.2% = $1,042.37
• 1 child: $5,602
• $5,602.00 minus $2,541.42 = $3,060.58 minus $1,042.37 = $2,018.21
• $2,978.21 divided by 12 = $168.18/month CCB as a Normal Benefit

COVID19 MAY 2020 BENEFIT:

• The first two reduction steps are the same but that 1 child is $3,600 more
• 1 child: $9,202
• $9,202.00 minus $2,541.42 = $6,660.58 minus $1,042.37 = $5,618.21
• $5,618.21 divided by 12 = $468.18/month CCB as a one-time Benefit  (an extra $300 like promised)

So yes… an extra $300 per child for those already getting the benefit already… but for those that were not getting it before, but filed in 2018… and had an eligible child… the formula is recalculated with the $3,600 ($300 per month) change, and so many more households in Canada will be seeing some sort of amount.

For example, the lowest amount possible to collect would be with one school-aged child ($9,202 formula).

• Households that make up to $163,069 will receive the full $300 for this child.
• Households between $163,069 and $275,569 will receive less than $300 on a sliding scale from the Second reduction.
• Households over $275,569 in this scenario would receive zero.

So almost every household with eligible children in Canada will see something coming their way for the May benefit to help with the extra costs with no schools or dayhomes open.

Sincerely,
Your Friendly Neighbourhood Tax Nerds

CGL Strategic Business & Tax Advisors

CV of Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr can be found here.