With the federal election set for the fall on October 19, 2015, the Conservatives wasted no time in depositing money directly into the bank accounts of parents who qualify for the Universal Child Care Benefit (UCCB). 3.8 million families with children 17 years old and under received a large payment last month. The payments were retroactive to January 1, 2015, so parents with two children under age six would have received a lump sum payment worth $1,040.
Before you go out and spent the money, it’s important to understand the facts. Although you have extra money now, you may have to give most of it right back when it comes time to file your taxes. The Tories have received a lot of heat in the media for misleading parents with UCCB advertising, which fails to tell parents about the money that may get clawed back.
The History of the UCCB
When the Conservatives came into power in 2006, they introduced the UCCB. For nine years, parents who qualified for the UCCB have been receiving $100 per month for every child under six years old. In 2015, the Tories upped the UCCB to $160 per month for children under six years old and introduced a new payment of $60 per month for families with children between age six and 17.
It’s important to know that the UCCB is a taxable government benefit. Although it’s taxed in the hands of the lower-income spouse at a federal rate of 11.5%, it still needs to be claimed on your tax return. For example, if you have a child under age six, you’ll owe $220 in federal taxes when you file your tax return by April 2016.
The Child Tax Credit Axed
While the extended UCCB is great for parents, it’s important not to forget that the government eliminated the child tax credit. This tax credit provided tax relief of $343 per child.
While families will be financially better off in most cases, the money that arrived in your bank account in July can be deceiving. After the loss of the child tax credit and federal taxes are taken into account, the average family can only expect to pocket $15 of the extra $60 UCCB monthly benefit. False advertising? You be the judge.
What should you do with the extra cash? If you haven’t opened a Registered Education Savings Program (RESP) for your child, there’s never been a better time. By not contributing to an RESP, you’re leaving free government money on the tables. When you make contributions to your child’s RESP, the government matches them with a grant worth 20% of the contribution amount up a maximum $500 per year.
If you’re looking to open an RESP for your child’s education, feel free to contact our office and let us help you fully weigh your options.
