Why is the Universal Child Care Benefit taxable?
Vancouver Sun
By CHAD SKELTON
03-25-2009

In 2006, the Conservative government decided to scrap the outgoing Liberals' plans for a national child care program. In its place, the Tories brought in the Universal Child Care Benefit -- a $100 cheque each month, for each kid, that the government argued could be used to pay for whatever child-care options parents thought were best…

So while the government generously hands you a cheque each month for $100 -- or $1,200 for the whole year -- come the following April, the tax man comes knocking for his cut: anywhere from $240 to $516, depending on your tax bracket.

Most galling, to my mind, there is no provision in the UCCB -- unlike with most other types of income -- to take this money off at source. If you know the benefit is taxable, ... why not just give me an after-tax cheque each month for $65, or $75 instead of pretending you're giving me $100?

One could argue that making the UCCB taxable makes it a slightly more "progressive" benefit, since those with low incomes who need the money most have to "pay back" less than the rich who need the money least. But if the government really wanted to make the UCCB progressive, or income-tested, why not just say so and offer different levels of benefits to those with different incomes (like the Child Tax Benefit). Instead it gives out $100 cheques to everyone and even calls the benefit "universal".

And the weird way the UCCB is taxed means it may not even be that progressive. That's because the UCCB is treated as income for the lower-income spouse. In a research paper published shortly after the UCCB was introduced, the Caledon Institute of Social Policy noted this tax treatment overwhelmingly benefits single-income households (ie. those in which one spouse works and the other, usually the woman, stays home). That's because the UCCB is treated as income for the stay-at-home spouse, whose income is essentially nil. ….