How to Spend Your UCCB Lump Sum
- Thursday, 13 August 2015
First, a little background on the UCCB, It was started in 2006 at $100 a month for each child under the age of six. This year, Ottawa increased the amount for kids under aged six to $160 and added a $60 monthly benefit for children aged six through 17. All families with minor children are generally eligible for the benefit.
Assuming you applied for the UCCB and you have children aged 17 or younger, you've received the first retroactive and lump sum payment of the enhanced Universal Child-Care Benefit (UCCB).
This money isn't targeted to any income group and there are no restrictions on how to spend it. Even if you're wealthy, you're going to get it. The question then, is: What do you do with it?
There are many suggestions floating around. The banks would like you to put it into their Registered Education Savings Plans (RESPs). The political parties want you to donate it to them.
Tax-wise, a donation may be a smart move, considering that the money is taxable. If you donate the money, you'll receive a tax credit for next year's taxes. As well, this could be one money-management lesson for the kids if you ask them to help support a charity or political party.
If you don't donate, you may want to increase the amount of tax withheld at source from other income to compensate. Income tax won't be withheld from UCCB payments.
Take note that by the end of each February, Canada Revenue Agency (CRA), on behalf of Employment and Social Development Canada, will issue a RC62, Universal Child Care Benefit statement, telling you how much you need to report on your income tax and benefit return.
A Few More Ways to Spend the Money
Parents can spend the money any way they want, however the nice people at the CRA say they cannot apply the money to outstanding debts with the CRA other than UCCB debts. That said, you do get to decide how best to use the money for the benefit of your kids. Among the possibilities:
1. Save for big expenditures such as braces or other large outlays that crop up when raising a family.
2. Spend it on fitness and arts programs the children enjoy and that generate tax credits.
3. Ask your kids what they want to do with it. If your budget has been tight and you've said "no" to a lot of extras, this lump sum might help you splurge for a concert, a day at an amusement park or some other summer adventure.
4. Let your kids spend it. Another money-management lesson is to give your kids all or part of the lump sum to spend within certain parameters. Set up a budget for back-to-school supplies, new clothing or electronics and have the kids decide how to use the money. You can also give them the monthly payments as spending money.
5. Open a Tax Free Savings Account (TFSA). This won't provide matching grants or deductions but it will offer flexibility and a tax benefit. You won't pay tax on investment growth in the accounts and you won't pay tax on withdrawals. If you think you'll need to spend money for something other than education, this might be your best bet.
Of course, you can also invest in a mutual fund account or buy stocks with a Dividend Reinvestment Program. In any event, this is a great opportunity to teach your kids about saving or investing for the future, so you might want to get them involved in deciding where they think the money should go.
If you have tax questions about your situation, consult with your financial advisor or accountant who can help you come up with the best plan to suit your needs and the needs of your children.