Feb. 27: Here’s how income testing and the 20% rule works. I think.

Without telling anyone, the government updated their Ontario Autism Program resource page to include new information on how income testing works.

To put it mildly, this release was an absolute mess. It doesn’t give any real explanation of how things work, provides no examples to help parents understand the changes. Parents were confused and frightened about this new program before this was released. Now they’re more so. This is a perfect case study in bad stakeholder management. Unless the goal is to confuse and frighten parents. In which case: well played.

I spent a few hours working on this, and I think I have it figured out. Here’s my guess to how this all works.

Please take everything below as ‘unofficial’. We need more information from the ministry. This is only one sleep-deprived man’s interpretation.

I’ll explain it using examples. For the purposes of this piece, I’m going to ignore two very important issues:

1. How income is calculated. Still lots of important questions there, including how income is calculated when parents have joint custody of a child.
2. The issue of ‘half-years’. Suppose a child starts receiving money at 3 years, 8 months. How much money do they receive as a 3-year old? My guess is it that it will be some pro-rated amount, but I don’t know. So for this piece, I’m going to assume that a child gets their first budget on their birthday.

For this example, let’s take a family earning $90,000 with a daughter who has just turned 4.

We know the maximum dollar values for children is $20,000 for ages 4–5, and $5,000 for ages 6–17.

To figure out how much she would actually get, we need to then apply the income test. The government has provided an income test chart to determine this (I’ll write a longer piece about the mechanics of income testing soon). For a family earning $90,000 a year, they receive 82% of the maximum amount. So for our family, this would look like this.

The family would receive $16,400/yr for ages 4 and 5, and $4,100 for ages 6 through 17.

But… “the amount of funding a family receives will be reviewed annually”. So for our hypothetical family, let’s fast forward a year, and now the family is earning $95,000. Families in that bracket receive 79% of the maximum amount (instead of 82%), so those figures are ratched downwards.

So now the family receives $15,800 for age 5 (instead of $16,400) and $3,950/yr (instead of $4,100) for ages 6 through 17.

Each year, these numbers will change as the family’s income changes.

Make sense so far? Hope so, because it’s only going to get a lot more complicated! Once again, the government threw a massive curveball at us.

The 20% Rule

There was this line in the release, dropped in with no context or explanation, that completely baffled parents.

Families will have options in how they receive their budgets. This includes being able to access 20 percent of their remaining childhood budget each year.

Flexibility is a good thing, but parents really need the government to walk us through what this means. It took me a couple hours, but then I had my “A ha!” moment (Not to be confused with an a-ha moment). And it was this:

The “Childhood Budget” lifetime total isn’t just marketing speak. It’s crucial to understand how this policy works.

Because there is flexibility in this plan, parents could have their money distributed to them in the yearly totals shown above. Or, instead, they could use this 20% rule and have the money distributed slightly differently.

Let’s go back to our family with the girl turning 4 and parents earning $90,000/yr. Here were their numbers again, now totaled up:

That $82,000 on the bottom is the child’s Childhood Budget. It’s crucial to how all of this works.

Since the child is new to the program, they wouldn’t have spent a cent of their budget. This would allow them to spend 20% of their Childhood Budget at Age 4. 20% of $82,000 is, coincidentally $16,400. So this would have no effect whatsoever:

So let’s change our example. Let’s assume the child enters on her 3rd birthday, instead of her 4th. We will leave the family income unchanged at $90,000.

Now the Childhood Budget for Ages 3–17 is $98,400. The parents can, if they choose, spend 20% on the child’s therapy at Age 3. 20% of $98,400 is $19,860 (shown below as “available this year”).

So this gives them a bit more wiggle room ($19,860 vs. $16,400). Now keep in mind, this isn’t more money — the amount spent on the child over the lifetime doesn’t change. Rather it’s allowing the parents to spend a little bit more up-front, and a little bit less in future years.

Let’s fast forward to Age 4, and assume the parents chose to spend all of the $19,680 at Age 3. For the moment, let’s assume their income hasn’t changed — it’s still $90,000. Here’s how things look now:

The childhood budget is still $98,400, but the parents have already spent $19,680, leaving $78,720. By applying the 20% rule, the family would now be able to spend 20% of $78,270, or $15,744 (as seen beside Available This Year).

But… under the regular formula, they could spend $16,400. So is the max they could spend $16,400 (by the regular rule) or $15,744 (by the 20% rule)? My answer: who knows?

But what about changes in income?

What happens when a family’s income changes? Let’s suppose this family’s income goes to $95,000. What happens then?

My understanding is that the family’s entire Ages 3–17 childhood budget now changes to reflect this reality. Would look like this:

So the Childhood Budget has been ratched downwards from $98,400 to $94,800. So assuming the family still spent $19,680 at Age 3, here’s how things look:

So at Age 4, the 20% rule gives the family $15,024 to spend. Or $15,800 under the “straight line” rule. Again, not sure which one applies.

This re-assessment could have some bizarre consequences. Now let’s assume that instead of a new income of $95,000, the family’s income rises to $248,000 (perhaps Mom re-entered the workforce). The numbers look as follows:

Now the Childhood Budget is $1,920. But they’ve already spent $19,680. So does this mean the parents now owe the government $17,760? Who knows.

I hope this has been helpful. Happy to answer questions on this.

My regular update will be postponed until later today. I need to go be “Ontario Dad” and do my day job.