My100TH Post – Free Money From the Government!

By: GenXinvestor

child tax benefitWelcome to my 100th post!  I can’t believe I managed to churn out so many posts.  Oh well, here’s to the next hundred!  Today, I’m writing about something that’s been all the buzz here in Canada this week.  No, it’s not the Pan AM Games (Go Canada!).  It’s that other thing that everyone (with children) is excited about: the increase in the Universal Child Care Benefit (UCCB).

Last Fall, the government announced changes to the UCCB program.  These changes were:

1. The monthly amount per child would be increased from $100/month to $160/month for children 6 yrs old and under.

2.  The government introduced a monthly payment of $60 per child for children ages 6-17.

3.  These new changes are retroactive to January 1st, 2015.

Last week we received a notice from the Canada Revenue Agency (CRA) that we would be getting a payment of $800 this week —Yay! 🙂

All this sounds fantastic.  Of course many families are talking about how they will spend the extra money.  Some may take a vacation, or buy that new TV –  after all, this is what the government wants us all to do with the money – Spend It!  And by describing this as “Christmas in July,” [must be an Election coming or something!] our dear Employment Minister Pierre Polievre is doing all that he can to encourage us to do so.

Here’s a thought though.  Why not invest that money in your child’s Registered Education Savings Plan (RESP)?  Any contribution that a person makes, up to a maximum of $2,500, will receive a government match of 20% up to a maximum of $500.  That’s free money from the government people!  That money can grow tax sheltered in that account until junior gets to college.

Oh and by the way, the UCCB money is not totally free money as the government is trying to make us believe.  The government eliminated the Child Tax Credit that was worth about $2,300 so we’ll be taxed on that money as if it were income.  So net – net the average family will be ahead by about $10-$15.  So some financial professionals are cautioning people not to go too crazy spending that money because the government will have its hand out for about half of it come tax time early next year.  So this I think that this so-called “gift” from the government should come with a warning label: Will be taxed up to 50% next year!

I think that, to make the most of this so-called “free money,” people need to stuff that money into their children’s RESP or maybe even their own RRSP to get the benefits of tax sheltered compounding and, at least with the RRSP, a tax deduction to lower the amount of taxes paid on the new UCCB benefit.

So that’s my take on it all, save it and invest it wisely in a tax sheltered account because, as all of us up here in the north know “Winter’s Coming,” and so is the tax man!

* UPDATE JULY 30 – Still waiting for our $800!  The CRA says to call after August 4 to report any problems with the direct deposit…I wonder how many calls they’ll be getting!

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