Maxing Your Canada Child Benefit

The Canada Child Benefit (CCB) is benefit program offered by the federal government where you get tax-free money for raising children. Any Canadian who files a tax return and has children under the age of 18 is eligible for the benefit. To collect the benefit, you must live with the child and be the primary caregiver. For truly joint parenting by separated parents, the CCB payment will be split.

If you are a male parent, you will have to apply to the CRA to obtain the benefit in your name. This includes obtaining a signed note from the female stating you are the primary caregiver. Somehow even in today's politically correct, gender neutral environment the government still assumes females are the default primary caregivers to the point where males need to get a signed note!

The CCB program can actually help aggressive savers retire earlier than otherwise expected. Under the 30x Rule for early retirement, you need 30 times your annual spending saved in productive investments in order to quit work and not run out of money. If the CCB programs pay you $10,000 a year, that translates to $300,000 less in required savings. You can take the time to raise your kids yourself and supplement your portfolio withdrawals with CCB income. If you need to, you can always go back to work once your kids are older and your CCB benefits run out.

Structure of the Program

CCB payments are considered non-taxable benefits. This means they do not have to be reported on your income tax return. The benefit is calculated based on adjusted family net income (you and your partner), the number of children you have, and whether or not any of your children are disabled and eligible for the disability tax credit. Make no mistake, the CCB is a very generous program that can significantly increase your after-tax income available for spending.

The government has a handy calculator site that you can use to calculate your benefits. Canada Child Benefit Calculator

Here is a chart of the federal portion CCB annual benefits only with some examples of various family structures and incomes:


Typically the CCB payments are paired with other benefit programs as well. This includes provincial child benefits (also non-taxable), GST/HST credits, working income tax benefits, and other provincial programs such as climate tax credits and low-income employment tax benefits.

Looking at the chart above, one thing should really stand out to you; the size of the payment relative to the Adjusted Family Net Income. A family earning $30,000 (before tax) with two young children can get a federal CCB benefit worth $12,800. That's a 42% top-up of their income completely tax-free.

Key Numbers to Know

As you probably gathered from the chart above, there are three key numbers you should remember when calculating and optimizing your benefit.

6: Six years old is the age your benefit gets reduced by $1,000 per child per year regardless of your income.
30,000: An Adjusted Family Net Income over $30,000 starts the benefit reduction.
65,000: An Adjusted Family Net Income over $65,000 further reduces the size of the CCB benefit at a lower rate and starts the reduction of the disability benefit.

Effective Taxation of Income

One of the issues with having very generous non-taxable benefits is the true rate of taxation for income is much higher than the posted tax rates. This can actually incentivize people not to work if they are low-skilled individuals who are not highly driven to succeed and would likely end up in a lower wage position.

For example, let's say you, your spouse, and two young kids under 6 live in Alberta. If you're currently careful not to earn more than $15,000 a year each, here is what your income situation looks like after adjustments for some popular benefits:

Your Employment Income: $30,000
CCB Federal Benefit: $12,800
AB Child Benefit: $1,233
AB Employment Benefit: $1,476
GST Credit: $854
Climate Tax Credit: $450
Minus Income Tax: -$400
Total Spending Money: $46,413 ($3,868 per month)
Income Tax Rate: 1.3%
Net Adjusted Tax on Working Income: -54.7%

This is a pretty generous situation. While their working income is low, they only pay 1.3% of their income towards tax. However, when adjusted for all the benefits this family receives, they actually have a negative tax rate that exceeds half their working income!

Now, let's do some calculations if this family decided to bump up one their incomes to $40,000 each per year ($20 per hour for 2,000 hours).

Your Employment Income: $55,000
CCB Federal Benefit: $9,425
AB Child Benefit: $0
AB Employment Benefit: $947
GST Credit: $0
Climate Tax Credit: $450
Minus Income Tax: -$5,430
Total Spending Money: $60,392 ($5,032 per month)
Income Tax Rate: 9.87%
Net Adjusted Tax on Working Income: -9.8%

Here is where the penalties begin to really show. After all adjustments, their tax rate has gone from -54.7% to just -9.8%. That's a tax cost increase equal to 44.9% of their net income. While one partner went to work full-time and earned $40,000 a year on paper, they only earned $13,979 in extra real income. Their effective tax rate on the $25,000 in extra income is 44%. That's a pretty big penalty for someone earning $20 per hour.

Maximizing Your Benefit

There are some ways for a family to maximize this generous, non-taxable benefit. For a wealthy couple with high financial assets and a paid-off house, they can really live well while still obtaining the maximum benefits available.

In any event, even if you are a low income household with a few kids, there should be absolutely no reason why reasonably responsible parents have kids who are not well-fed, adequately clothed, and in comfortable shelter given the size of these child benefits available.

Understanding the Adjusted Family Net Income (AFNI)

To understand how you can maximize your benefit, you first must understand the calculations and definitions the program is based on.

The government defines the AFNI as Line 236 income of both parents who have primary caregiver status minus UCCB (old program replaced by CCB) and Registered Disability Savings Plan income. Line 236 refers to that line on your Federal Canada Tax Return forms.

Line 236 income is essentially the sum of all your taxable income at their inclusion rates for tax purposes. Employment income, RRSP withdrawals, EI benefits, interest income, foreign income, pension income, WCB income, and social assistance income is fully included. Capital gains income is included at 50% of the total realized capital gain. Dividend income, eligible and non-eligible, is included at the grossed-up amount (important!).

However, Line 236 income has been adjusted down for RRSP contributions, child care expenses, union dues, eligible interest costs, and pension contributions.

Children with Disabilities

Raising a child with severe disabilities takes a lot of work and often comes with high associated costs. If your child has a significant handicap, even with therapy and assisting devices, in any of the following areas they can be eligible for the disability tax credit: vision, speech, hearing, walking, bowel functions, feeding, dressing, or mental functioning.

If you have any children with these disabilities, it is very important to work with your doctors to complete the forms required to have them designated as eligible for the disability tax credit. Apparently it can be a bit of a hassle to get this done, but the assistance available to caregivers increases exponentially once the disability is recognized by the CRA.

If you child is eligible for the disability tax credit, not only do you get a credit on your income tax as a caregiver, you would also receive Child Disability Benefit, be able to open a Registered Disability Savings Plan for their benefit, and it is often used as qualifying criteria for other government programs at the federal and provincial level. This status will also benefit your child as they become adults.

Keep Your Expenses Under Control

In order to make the most of the benefit, you need to keep your family spending level quite moderate. You typically would need to keep spending under $45,000 per year in most provinces. I believe this is very achievable, especially if your house is paid-off or if you live in a low-rent area.

For some perspective, my wife and I spend around $53,000 per year. After adjusting for housing and our education that drops to $32,000 per year. We live a very comfortable life, so $45,000 in spending money is certainly not a restrictive lifestyle.

Contribute to Pensions and RRSP Accounts

The easiest way to drop your Line 236 income while you are working is to contribute to pension plans and RRSPs. Pension contributions are typically mandatory in the public sector, but if your workplace offers a matching contribution-based pension plan make sure you take advantage at minimum to the highest company matching level.

Remember the key numbers when making your RRSP contributions to your personal account and don't forget to use Spousal RRSPs if necessary. You may transfer investments from your non-registered investment accounts to your RRSP accounts to help maximize your RRSP contributions, get back taxes from the government, and reduce your Line 236 income. Don't forget to transfer positions only if they show a profit! If you have a losing position, sell the position in your non-registered account first so you can claim the capital loss and use it to offset capital gains now or in the future.

Normally when you are in the lowest tax bracket, I have suggested you are better off filling your TFSA and non-registered accounts instead of the RRSP. However, if you have a few kids and can claim the CCB with a possible Adjusted Family Net Income under $65,000, I would contribute to a RRSP first to reduce your income and maximize your tax-free CCB benefits. Unused TFSA room is carried forward, so you can always catch up your TFSA accounts once your kids get older. Always re-invest your RRSP refund right away to make sure you tax advantage of the RRSP tax deferral mechanism as you will pay taxes on withdrawals later.

Avoid Dividend Income

When you have kids under 18, you should make every effort to avoid getting any dividend income from your investments in a non-registered investment account. You should also avoid paying yourself with dividends from your private corporation and pay yourself a salary instead. Canadian dividend income is grossed-up for tax purposes before your get the dividend tax credit. The dividend tax credit stage occurs after Line 236 in your tax return.

Eligible dividends from publicly traded Canadian companies are grossed-up by 38%. Dividends from your private corporation are grossed-up 17%. This means if you receive $60,000 in dividends from your private corporation, on your tax return it will show as a Line 236 income of $70,200.

Aside from some adjustments for CPP and EI, the government has already made it nearly equal to take salary or dividends from your private corporation. In this case, if you have kids and your spending is low, you should always take a low salary to avoid the gross-up effect of paying yourself with dividends. You can always retain excess earnings within your corporation that can be withdrawn as dividends at some point down the road.

In your non-registered investment accounts, this is another reason to use swap-based ETFs instead of investing in dividend paying stocks or ETFs--even if your income is low. Swap-based ETFs do not pay any distributions and all dividends are reflected in the ETF as an increase in the ETF's value. If needed for tax reasons in retirement, you could switch to purchasing dividend-paying ETFs once your kids turn 18.

Choose Capital Gains Income

If you have retired early with a sizeable non-registered investment account, you are in a great position to take full advantage of the CCB and related benefits while living lavishly off your investment through capital gains. Capital gains are the increase in value of your investment above the adjusted cost base (weighted average cost adjusted for capital distributions).

Capitals gains are taxed very beneficially as far as investments go. Only half of the realized capital gain is included as income for tax purposes. As well, because the cost of the investment is not taxed, capital gains are just a portion of the total value of the sale of any investments.

If you paid $20 per share for an investment and sold that investment for $30 per share, your capital gain is $10 per share. At the current inclusion rate of 50%, just $5 per share would be added to your Line 236 income.

Depending on the cost base of your investments, it is very realistic to sell $200,000 of profitable investments and still be below the $30,000 adjusted family net income required to maximize your CCB benefits.

While it works best for retirees, this might also work if you have one stay-at-home spouse who was formerly a high-income earner and contributed directly to a non-registered investment account. Always be aware of contribution rules before realizing and assigning any capital gains.

Use Interest Expenses to Offset Your Taxable Income

If you are trying to bring down your taxable income, a great way to achieve this is through loans used to purchase investments in non-registered accounts. When a loan is used to purchase an investment which generates some form of eligible income, you can completely deduct the interest expenses associated with that loan. As well, the income from the investment is not required to exceed the interest costs.

Interest expenses, whether by way of the Smith Manoeuvre, a documented spousal loan, or margin loans in your non-registered investment account, can be effectively used to offset income from high taxed sources like employment income and RRSP withdrawals.

Although the investment purchased will generate some income--maybe even grossed-up dividend income--if you are careful about your yield control it is still well worth it from a CCB perspective.


The CCB program and the affiliated provincial child/family benefit programs are very lucrative and can substantially increase your net income available for your daily spending.

Since the child benefits are not taxable, it is generally safe to say that a family with kids under 18 years old should take all reasonable steps to drop their Line 236 income as far as possible, especially when adjusted family net income is near or below $65,000. You can do this by working less, contributing to RRSPs or pensions, claiming interest income, claiming other expenses like union dues, child care, moving expenses, employment expenses, etc.

Effective tax rates--after adjusting for benefit reductions--can be extremely high for families with a combined income between $30,000 and $65,000. After $65,000, the reductions get much smaller and the benefits for reducing Line 236 income are not as high. The exact rate depends on the province, but it is not difficult to calculate for your situation if you use the CCB Calculator and my favorite Tax Calculator. If you have several children and are in a higher tax province, your effective tax rate on income between $30,000 and $65,000 can be upwards of 50%!

The various child benefits can be maximized very effectively by families with significant investment assets, but moderate spending and low employment income. Self-employed individuals with Canadian-controlled private corporations who limit their salary income to $30,000 or less can easily maximize their benefits and leave excess earnings in their corporation.

Capital gains income is easily the best form of income to increase your spending and still maximize your benefits. This is because only 50% of realized capital gains are included in Line 236 income. Also, the capital gain is only a portion of the total sale value of an investment because the original cost of purchasing the investment is not taxed.

Comments & Questions

This is an archived post and all comments are disabled for management efficiency. You can email me for direct questions.

Please visit my new website and blog for current posts on financial topics.

2 Replies to “Maxing Your Canada Child Benefit”

  1. Yanniel says:

    This is priceless. Thanks.

  2. And another awesome blog post for Canadians. Thank you.

Comments are closed