APPENDIX C:
A SHORT HISTORY OF CHILD BENEFITS

For many years, the Income Tax Act recognized the essential costs of supporting dependent children in the form of a personal exemption allowing a supporting parent to deduct a specific dollar amount for each child in computing taxable income. At the same time, family allowances provided a universal transfer payment to families with dependent children.

On 1 January 1993, the federal government put in place a new system of child benefits modelled after the refundable Child Tax Credit which had been in existence for a decade. It replaced the Child Tax Credit, the family allowance, and the Child Tax Exemption credit. As a result, the Income Tax Act no longer recognizes essential costs of supporting dependent children when determining the amount of income tax payable by those providing that support.

The family allowance was instituted in 1945, and generally paid to the mother. Its configuration had changed several times since it was first put in place. In 1973 the benefit was made taxable and indexed to the Consumer Price Index (CPI). In 1979 benefits were reduced upon the creation of the Child Tax Credit. Prior to its eventual elimination, the family allowance was made subject to a clawback.

The Child Tax Exemption was introduced in 1918 to recognize the expense and social value of child rearing. It, like other personal exemptions, was introduced to promote horizontal equity in the tax system. Like all tax exemptions and deductions it was established so that the tax system would only apply tax to discretionary income. The after-tax benefit was of greatest absolute benefit to those in the highest tax brackets.

When the federal government reformed its personal income tax system this exemption was converted into a non-refundable credit. Prior to that reform however it was the intention of the government to reduce the value of this exemption to a level equal to that of the family allowance, so that it would have the effect of making the family allowance tax-free to families. The parent claiming the Child Tax Exemption was required to report the family allowance as income.

The Child Tax Credit was introduced in 1979, to provide additional financial assistance to low and middle-income families with dependent children. It was delivered to the parent or guardian who received the family allowance.

The equivalent to married exemption (now the equivalent to spousal credit) was introduced in 1918. It was designed to create horizontal equity between one-parent and two-parent families with children - a two-parent family enjoyed the benefit of either a personal and a spousal exemption, or two personal exemptions. (A divorced couple with children may take advantage of two basic credits plus an equivalent to spousal credit.) This exemption was also converted into a non-refundable credit as a result of tax reform.

The Child Care Expense Deduction was introduced in 1971 and was originally intended for one-parent families only. It was designed to offset the incremental costs of child rearing for parents in the labour force. When first introduced, this deduction was limited to $2,000 per child under age 14, subject to a maximum of $8,000 per family.