Federal child care funding: what you need to know

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Child care. It was a hot political topic in the January 2006 frosty federal election campaign. And now, parents of children under age six will see concrete results of last winter's child-care promises in the form of a cheque delivered to their homes at the end of this month.

These monthly $100 payments come courtesy of the Conservative government's Universal Child Care Benefit (UCCB). While many Canadians already know the basics of this program, there are some additional details you should be aware of.

You may not get it automatically.
Rather than starting from scratch, the UCCB is "piggybacking" on the already-established Canada Child Tax Benefit (CCTB). Lorri Biesenthal, acting director of Child and Youth Policy Division of Human Resources and Social Development Canada, says using the existing CCTB structure was the best solution given the short time line for implementing the UCCB. "It's a quick, efficient, cost-effective way to capture almost all parents with small children under six," Biesenthal says.

What does this mean? It's good news if you're one of the 88 per cent of Canadian families already receiving the CCTB -- your UCCB payments will arrive automatically in addition to your current benefits. However, those not receiving the CCTB need to fill out an application form to ensure they receive the UCCB. You can download the form from the Canada Revenue Agency's site.

It's taxable.
If you earn enough that you normally pay taxes, or if receiving the UCCB puts you over that threshold, you will owe tax on your UCCB payments. It's important to keep this in mind because, unlike normal employment income, the government will not withhold taxes on the UCCB at source. In other words, they won't keep some back to cover what you owe -- instead, you'll get your full UCCB payment each month and you'll have to pay back a lump sum at tax time.

Fortunately, it's the lower-income parent who pays the taxes, meaning that if you're in the 29 per cent tax bracket and your spouse pays 15 per cent, the taxes on the UCCB will be calculated at the 15 per cent rate.

For an example of how much a typical two-earner family can expect to receive after taxes, visit the budget site and scroll down to Chart 3.7.

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