Single parents and parents who share custody of children may be better able to support their young children under measures proposed in this year’s federal budget, which was unveiled on Thursday.

In the budget, the government proposes to improve the taxation of the Universal Child Care Benefit for single-parent families.

The Universal Child Care Benefit provides families with $100 a month for each child under the age of six years.

Currently, in two-parent families, the benefit is included in the income of the lower-income spouse or common-law partner. In the case of a single-parent family, the benefit is generally included in the parent’s income and taxed at his or her marginal tax rate. This can result in a single parent paying more tax on Universal Child Care Benefit amounts than a single-earner couple, with the same income, receiving the same benefit.

“Single parents have often been penalized in this regard,” explains Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth Management.

To address this disparity, the budget proposes to allow a single parent the option of including the aggregate Universal Child Care Benefit amount received in the parent’s income, or in the income of their dependant child. In most cases, the dependant would not be subject to taxes, which would provide single parents with tax treatment comparable to single-earner two-parent families.

“If the dependant child has no income, or very low income, it essentially allows the amount to be tax-free,” says Golombek.

The measure would apply to the 2010 and subsequent taxation years. This year, the government says the measure would provide up to $168 in tax relief for single parents with one child.

“This change will ensure that single parents are not disadvantaged by their family status,” the budget says.

Another measure in the budget aims to improve the allocation of child benefits between parents who share custody of a child. The government proposes to allow both parents of a child to receive Canada Child Tax Benefit and Universal Child Care Benefit amounts in a particular month, as well as GST/HST credit amounts in a particular quarter, if the recipients are eligible to receive amounts under the Canada Revenue Agency’s existing shared eligibility policy.

This policy would apply when a child lives more or less equally with two parents who live separately. Each parent would receive one half of the eligible benefits and credits.

Under the current rules, only one eligible individual can receive the benefits in respect of a qualified dependant each month.

The proposed change to benefits would be payable commencing July 2011.

IE