Parents can make more of their UCCB by generating tax deferred growth
and securing additional government grants in a RESP
TORONTO, Aug. 4, 2015 /CNW/ - With a big retroactive Universal Child
Care Benefit (UCCB) cheque in hand and increased monthly payments now
flowing in, Canadian parents should plan for the upcoming tax bill and
consider investing remaining benefits in a Registered Education Savings
Plan (RESP), boosting savings with tax deferred growth and additional
"It's tempting for parents to spend the extra cash, especially with
school around the corner soon and bills mounting," says Jamie Golombek,
Managing Director, Tax & Estate Planning, CIBC. "But it's important to
realize that you'll pay tax of up to 50 per cent on the UCCB next
spring. For any benefit that remains after tax, you should consider
contributing to a RESP, to receive even more money from the government
and build a tax-sheltered nest egg for your children's education."
Enhanced UCCB: More benefits for children under six, new benefits for
The UCCB is designed to provide financial support for families with
children. The federal government enhanced the UCCB this year,
increasing the monthly amount for children under six from $100 to $160
and expanding the program to include a new benefit of $60 per month for
children aged six through 17. On July 20, the first enhanced payment
was issued and included a retroactive payment from January to June
2015, leaving parents with an extra $420 per child, representing $60
per month for the past seven months.
Newfound money might be gone next spring with 2015 tax return
But for those planning to spend the funds on their children's summer
activities or on back-to-school supplies, Mr. Golombek, has a word of
caution: "Much of your newfound money might be gone next spring with
your 2015 tax return."
Mr. Golombek explains that the enhanced UCCB replaces the existing Child
Tax Credit of $338 per child. This non-refundable tax credit for
parents of children who are under 18 years of age at the end of the
year was available for the last time on the 2014 tax return. And, the
UCCB is taxable at your marginal tax rate with no tax withheld at
"The UCCB is not nearly as attractive when taxes and the loss of the
Child Tax Credit are factored in," Mr. Golombek says. "Depending on
your tax bracket, you may end up paying back up to half of it next
year, so be sure to plan for this expense."
For example, suppose you have two children under age six and your
marginal tax rate is 30%. In 2015, you would receive UCCB of $160 per
child each month, for a total of $3,840 in the year. When you file your
tax return next year in April, you would pay tax of $1,152 ($3,840 x
30%), leaving $2,688 in your pocket. Note that the enhanced UCCB
replaces the Child Tax Credit which will no longer be available
starting this year.
RESP: Tax deferred saving for post-secondary education
Mr. Golombek recommends an RESP as an effective savings strategy for the
after-tax UCCB. A RESP is a tax deferred investment plan that helps you
save for a child's post secondary education.
"Contributing the funds towards a RESP may effectively boost savings
with tax deferred growth and additional government grants. If you have
children under 18, my advice would be to contribute the after-tax UCCB
towards the RESP," says Mr. Golombek.
Three reasons to put your after-tax UCCB towards an RESP, rather than
spending the benefit currently:
Tax deferred growth: While contributions themselves are not tax-deductible, all investment
income and growth generated in the RESP accumulate tax deferred.
Government contributions: The federal government adds 20% to your RESP contributions through the
Canada Education Savings Grant (CESG), up to a maximum of $500 per
year, per child. The CESG is payable until the end of the calendar year
a child turns 17, and the maximum lifetime CESG payment is $7,200.
Tax savings: Plan earnings and government contributions are taxed in the hands of
the student, who may pay little or no taxes on the money using the
available tax credits.
In the example above, contributing the after-tax amount of $2,688 to an
RESP may result in an additional $538 ($2,688 x 20%) of government
grants being deposited to the RESP, assuming there is sufficient CESG
room. This could yield a total of $3,226 to start your children's
education fund. If left to accumulate for 15 years at 5%, the amount
would more than double to over $6,700.
CIBC is a leading Canadian-based global financial institution with 11
million personal banking and business clients. Through our three major
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Wholesale Banking - CIBC offers a full range of products and services
through its comprehensive electronic banking network, branches and
offices across Canada with offices in the United States and around the
world. You can find other news releases and information about CIBC on
our corporate website at www.cibc.com/ca/media-centre/.
SOURCE Canadian Imperial Bank of Commerce
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Caroline Van Hasselt, Director, External Communications, at 416-784-6699 or