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APPENDIX D:
THE MECHANICS OF SELECT PROGRAMS THAT APPLY TO FAMILIES WITH CHILDREN

When officials from Human Resources Development Canada appeared before the Committee, they spoke about a number of government programs that could be of benefit to families with dependent children. This appendix provides an explanation of those programs, detailing just how they benefit those families.

EMPLOYMENT INSURANCE (EI)

The Employment Insurance Act provides for two types of benefit: regular and special. Special benefits include maternity, parental and sickness benefits.

MATERNITY BENEFITS

A maximum 15 weeks of maternity benefits are payable to a natural mother in the period surrounding the birth of her child. The benefit period begins the earlier of up to eight weeks before the week in which the birth is expected or the week in which the birth occurs. The period ends 17 weeks after the later of the week in which the birth is expected or the week in which the birth occurs. No benefits are paid during the two-week waiting period. The benefit period can be extended for every week the child is in the hospital up to 52 weeks following his or her birth.

PARENTAL BENEFITS

A maximum 10 weeks of parental benefits are payable to natural and adoptive parents. The parental benefits can be split between the mother and father, but they will both have the two-week waiting period unless the natural mother already had it for the maternity benefits. Parental benefits can be increased up to 15 weeks if the child suffers from a physical, psychological or emotional condition that requires care. Parental benefits are available during the 52 weeks following the birth of the child for natural parents and following the moment the child arrives home for adoptive parents.

SICKNESS BENEFITS

Sickness benefits are paid when a person is sick, injured or in quarantine. Benefits are paid up to 15 weeks if the person had 700 hours of insurable employment in the last 52 weeks or since the start of the last EI claim. If the person already received benefits for another reason and falls ill, the person can qualify with less than 700 hours. Sickness benefits can be added to maternity and parental benefits, for a maximum total of 30 weeks.

ELIGIBILITY AND AMOUNT OF BENEFITS

To receive these special benefits, a person must have worked at least 700 hours in the last 52 weeks or since the start of the last EI claim.

SPECIAL BENEFITS

The weekly benefits are based on the earnings of the last 26 continuous weeks ending with the last day of work. To determine the average weekly insured earnings of the claimant, the total of the earnings in the last 26 continuous weeks of work is divided by the greater of:

• the number of weeks the claimant has worked in the last 26 weeks; or
• the minimum divisor number determined by the local unemployment rate in the region of the claimant, as shown in the table below.

Table -
Minimum Divisor Associated with the Unemployment Rate
in the Region of the Claimant

Source: Human Resources Development Canada, Maternity, Parental and Sickness Benefits, available on the internet site: http://www.hrdc-drhc.gc.ca/insur/claimant/201017.shtml, revised 10/02/99.

The result is then multiplied by 55% to obtain the weekly benefit. The maximum benefit is $413 per week.

FAMILY SUPPLEMENT

The Family Supplement is currently under revision, and no information is available at the moment. If a family has children, has a net income less than $25,921, and receives the Canada Child Tax Benefit (CCTB), the EI claimant may be eligible for a Family Supplement. If both spouses receive EI benefits, it is generally better off financially if the person with the lower benefit receives the Family Supplement. It is calculated as follows:

• if family net income is less than $20,921, the benefit is the weekly equivalent of the Canada Child Tax Benefit (the base benefit and the National Child Benefit Supplement);
• if family net income is between $20,922 and $25,921, this amount is reduced by 0.02% of net income in excess of $20,921.

The Family Supplement is capped so that the benefit rate cannot exceed 75% of insurable earnings in 1999 (increased to 80% in 2000). Total benefits, including the Family Supplement cannot exceed $413 per week.

EXAMPLES

If a person worked each week in the 26 weeks preceding the last day of work, having total earnings of $9,100 in an area where the unemployment rate is 8.3%, the weekly benefits will be $193.

If a claimant has 2 children aged between 8 and 18 years of age and family net income is less than $20,921, CCTB would be $3,050. The claimant would thus receive a weekly maximum of $59 under the Family Supplement (providing it was not capped).

CANADA PENSION PLAN (CPP)

The retirement benefit of the Canada Pension Plan is based on the value of contributions and the length of time a person contributed. Periods of low income could thus lower the benefit. However, there are several provisions that enable a person to subtract several months (years) from the contribution period. One of them is called Child Rearing Dropout Provision which allows parents to take care of their children for the entire period before they reach age 7, without including this time in the contribution period. The standard contributory period begins when a person reaches age 18 or 1 January 1966, whichever is later. The contributory period ends when a person receives a CPP retirement pension, reaches age 70 or dies, whichever occurs first. For an individual reaching age 18 today, the contributory period would be 52 years.

ELIGIBILITY AND AMOUNT OF BENEFITS

If children are born after 31 December 1958 and one of the parents left the paid labour force, or reduced his or her participation in the paid labour force, this parent may be eligible for the provision. At the time of retirement, an average of earnings is made for 85% of the years in the contributory period. That is, the lowest 15% of earnings in the contributory period are not taken into account. If there are low earning years associated with the care of children, these years (up to seven years per child) will be dropped from the contributory period. The calculation of the retirement benefits is as follows:

• Calculate contributory period by subtracting eligible years or child rearing;
• Erase 15% of years in the contributory by ignoring those years with the lowest income;
• Calculate the average annual income of the remainder;
• Multiply by 25%, which is the amount of income the CPP is designed to support;
• Divide by 12 to get the monthly benefit.

EXAMPLE

Consider the case of a woman who earns an amount equal to the maximum pensionable earnings every year in which she works. If she retires in 1999, her contributory period is 33 years.

The monthly maximum CPP benefit is $751.67. If she worked every year this is the amount she would receive. If she worked for 26 years, and stayed at home to raise a child for the other 7 years, she would also receive this maximum amount because of the application of the child rearing dropout provision. In this case her contributory period is 26 years.

Without the child rearing dropout provision, her contributory period would be 33 years and she would only benefit from the general provision that removes the lowest 15% of earning years from the calculation of benefits. Fifteen percent of 33 years is about 5 years. In this case her pension would decline to $637.78, a decline of $113.89.

CANADA CHILD TAX BENEFIT

The Canada Child Tax Benefit has two components: the base benefit and the National Child Benefit supplement (NCB supplement). The benefits are revised each year in July (or following certain changes in the family situation during the year).

ELIGIBILITY AND AMOUNT OF BENEFITS

A. NCB Supplement

The NCB supplement provides increased benefits to families with net family income lower than $25,921. It provides $605 for the first child, $405 for the second child and $330 for the third child and subsequent children. The benefit is reduced for families with net family income above $20,921 at a rate of 12.1% for families with one child, 20.2% for families with two children and 26.8% for families with three or more children. This benefit reduction rate is applied to net family income above $20,921 and this amount is subtracted from the benefit calculated according to the number of children. In July 1999, the amounts for each child will increase to $785 for the first child, $585 for the second child and $510 for the other children. Also, the cut-off level of net family income increase from $25,921 to $27,750. The benefit reduction rates will accordingly be changed to 11.5% for families with one child, 20.1% for families with two children and 27.5% for larger families.

B. Base Benefit

The base benefit is $1,020 per child. There is also a supplement of $75 for the third and each subsequent child, and a supplement of $213 for each child under 7 for whom no child care expenses are claimed. If there are claimed child care expenses, 25% of the total is subtracted from the $213. The base benefit is reduced by 5% (for families with more than one child and 2.5% for single-child families) of family net income above $25,921. No changes are planned for the base benefit in July 1999. In Alberta and Quebec, the base benefit is calculated differently. In Alberta, the age of the child is taken into account and in Quebec, both the age of children and the number of children are taken into account.

EXAMPLE

A family with 3 children aged 6, 9 and 10 years old having $23,000 in net family income with no Child Care Expense Deduction would receive a supplement and a base benefit. Between July 1998 and July 1999, the supplement would be $605+$405+$330 - ($23,000 - $20,921) x 0.268 = $782.83. The base benefit would be ($1,020 x 3) + $75 + $213 = $3,348, for a total annual benefit of $4,130.83 ($782.83 + $3,348).

CHILD CARE EXPENSE DEDUCTION

Child care expenses are deductible from total income. They reduce the federal income tax liability, and hence provincial tax liabilities in all provinces but Quebec.

ELIGIBILITY AND AMOUNT OF BENEFITS

Child care expenses are deductible if they allow a person to earn income from employment, carry on a business, attend school or carry on research for which the person receives a grant. Children must be under 16 years of age, or mentally or physically infirm. The person can claim such expenses if the child is his or hers or his or her spouse's or dependent on the person or his or her spouse. Expenses must have been paid by the person or another supporting person. If there are two supporting persons, the Child Care Expense Deduction must generally be claimed by the person with the lowest net income (some exceptions apply). Child care expenses are subject to a maximum of 2/3 of earned income or the total of $7,000 per child under 7 years old (or eligible children older for whom the disability amount can be claimed) and $4,000 per child under 16 years old (or eligible children older with a mental or physical infirmity for whom the disability amount cannot be claimed), whichever is less.

EXAMPLE

A couple earns $50,000 ($30,000 for one parent and $20,000 for the other) and has 2 children, one 5 years old and the other 8 years old, and there are child care expenses of $8,000 ($6,000 for the youngest and $2,000 for the other child). The Child Care Expense Deduction would be claimed by the lowest earning spouse and would be the lesser of:

$8,000 (actual expenses);
2/3 x $20,000 = $13,333 (the limit on earned income);
$7,000 + $4,000 = $11,000 (the statutory limits).

If there are no other deductions, taxable income for the lowest earning spouse is thus $12,000 and federal income tax to pay is $746.60 while it would have been $2,152.73 without the Child Care Expense Deduction. The person thus saved $1,406.13.

The change in net income also has an impact on CCTB. With the Child Care Expense Deduction, net family income is $42,000, resulting in a CCTB of ($1,020 x 2) - ($42,000 - $25,921) x 0.05 = $1,236.05. Without the Child Care Expense Deduction, the CCTB would be ($1,020 x 2) + $213 - ($50,000 - $25,921) x 0.05 = $1,049.05. The Child Care Expense Deduction translates into an increase in the CCTB of $187.