Personal Finance

Child Care Tax Credit

  • Last Updated:
  • Feb 23rd, 2020 10:42 pm
[OP]
Sr. Member
Oct 12, 2014
910 posts
162 upvotes
Ajax

Child Care Tax Credit

My tax situation for 2019 is that I have approx. $10k as my RRSP contribution limit, while my spouse has $45k as her limit. We currently have 1 child and are expecting another child this year. Our tax strategy has always been do RRSP contributions come tax time and take the refund and deposit into TFSA.

However, does it make sense to max. our RRSP contribution this year or should we wait until next year to do so, when our total net income is expected to be lower (due to wife being on mat/pat leave) and thus receive more child care tax credit?
9 replies
Member
Feb 9, 2020
201 posts
127 upvotes
It really depends on your overall income level so you really need to do the math. Generally deducting RRSP against higher income is "worth more" per say because you are getting a bigger % tax refund. So then you'll have to work out how much more CCB/Ontario Childcare Tax Credit you would be getting vs how much tax refund you would be losing.

Assuming your income is constant this year and next, suppose your wife makes 150k this year but just the base EI amount next year then it may not be worth it to wait until next year to deduct your RRSP. Or if your wife's income is on a significantly lower tax bracket, then it's again a different story.
Newbie
Nov 20, 2015
4 posts
4 upvotes
Burlington, ON
I'm not a tax professional but I'm in a similar situation right now. My wife and I have just over 100k in contribution room and she just returned to work from her second mat leave with our children being 17 months apart. We decided that this is the time to lower our net income to 1. get a substantial tax return, 2. increase our CCB benefits and 3. obtain daycare subsidy through our regional government. We could have done this with one child in daycare but decided to wait until we had two kids in daycare to maximize our benefits. If you use the online CCB calculator on the federal government website, you can play with numbers to maximize the benefits along with an RRSP optimizer. Best of luck.
Deal Expert
Aug 2, 2001
18124 posts
9193 upvotes
The benefits you get from these one-time situations can be very good. You qualify for a whole host of benefits by lowering your income via a RRSP (or Spousal RRSP) contribution. We recently did this with a large contribution and it netted a very large refund, as well as a very large series of checks for the year.

I think this is one of the few times this is very beneficial. Because you need to save large amounts of contribution room and time it with a maternity / parental leave, it can typically only be done once. Take advantage of it.
[OP]
Sr. Member
Oct 12, 2014
910 posts
162 upvotes
Ajax
TrevorK wrote: The benefits you get from these one-time situations can be very good. You qualify for a whole host of benefits by lowering your income via a RRSP (or Spousal RRSP) contribution. We recently did this with a large contribution and it netted a very large refund, as well as a very large series of checks for the year.

I think this is one of the few times this is very beneficial. Because you need to save large amounts of contribution room and time it with a maternity / parental leave, it can typically only be done once. Take advantage of it.
What are the other benefits you are referring to other than CCB/Ontario Childcare Tax Credit?
Deal Expert
Aug 2, 2001
18124 posts
9193 upvotes
yellowlight18 wrote: What are the other benefits you are referring to other than CCB/Ontario Childcare Tax Credit?
We receive cheques from three different programs that we now qualify for based on our income, I just cash them and don't pay attention to what they are for. There are other subsidies that you can get municipally and provincially if you're able to lower your income far enough for their services.
[OP]
Sr. Member
Oct 12, 2014
910 posts
162 upvotes
Ajax
TrevorK wrote: We receive cheques from three different programs that we now qualify for based on our income, I just cash them and don't pay attention to what they are for. There are other subsidies that you can get municipally and provincially if you're able to lower your income far enough for their services.
Hmmm. Checked a few sources and didn't see anything about other municipal programs available based on lowering income and # of kids.
[OP]
Sr. Member
Oct 12, 2014
910 posts
162 upvotes
Ajax
I did some calculations and assuming I maximize my RRSP contribution, take the refund and invest back into my TFSA and gain at least 6%, get CCB for 1 kid based on lowered income, I would be pretty much break even compared to the scenario of waiting until next year, maximizing my RRSP contribution taking the refund invest back into my TFSA and getting CCB for 2 kids based on lowered income.

I guess the deciding factor would be if there are other benefits available for a family with 2 kids (other the CCB)? Does anyone know?
Deal Expert
Aug 2, 2001
18124 posts
9193 upvotes
yellowlight18 wrote: I did some calculations and assuming I maximize my RRSP contribution, take the refund and invest back into my TFSA and gain at least 6%, get CCB for 1 kid based on lowered income, I would be pretty much break even compared to the scenario of waiting until next year, maximizing my RRSP contribution taking the refund invest back into my TFSA and getting CCB for 2 kids based on lowered income.

I guess the deciding factor would be if there are other benefits available for a family with 2 kids (other the CCB)? Does anyone know?
I don't know if this has everything but it's another source:
https://srv138.services.gc.ca/daf/s/0a9 ... ture=en-CA
Newbie
Nov 20, 2015
4 posts
4 upvotes
Burlington, ON
yellowlight18 wrote: I did some calculations and assuming I maximize my RRSP contribution, take the refund and invest back into my TFSA and gain at least 6%, get CCB for 1 kid based on lowered income, I would be pretty much break even compared to the scenario of waiting until next year, maximizing my RRSP contribution taking the refund invest back into my TFSA and getting CCB for 2 kids based on lowered income.

I guess the deciding factor would be if there are other benefits available for a family with 2 kids (other the CCB)? Does anyone know?
If you lower your income enough, you can qualify for the following:

Child Benefits (CCB)
Ontario child benefit
GST/HST credit
Ontario trillium benefit
Ontario energy and property tax credit
Ontario sales tax credit

Play with the numbers for your net income here: https://www.canada.ca/en/revenue-agency ... lator.html

For my situation, we chose to lower our net income through the use of RRSP's when my wife returned to work after our second child. Option A was to leave things as is and pay 18k in daycare fees between March and December of this year and have nothing to show from it. Option B was to invest 52k into RRSP's and lower our net income. This will get us a return of 53k between our 21k tax refund, government benefits and daycare subsidy PLUS we will have 52k in our retirement funds.

Top