Tips to help make the most of your Canada child benefit

If you’re a parent, you know that raising kids is costly from day one. It can be hard to think about putting money aside for their future, or your own, when daily expenses pile up.

As of July 2016, the government introduced the non-taxable Canada child benefit (CCB) to help eligible families offset the expenses of raising children under 18. The CCB replaces the Canada child tax benefit, the national child benefit supplement and the universal child care benefit.

The amount you receive is based on a number of factors including the number and ages of your children, your adjustedCanada Child Benefit family net income and your child’s eligibility for the child disability benefit. An additional amount for the child disability benefit and related provincial or territorial programs might also be included.

After determining eligibility, Canadian parents can apply online and must file income taxes every year – regardless of employment status – to receive the benefit. For full eligibility and application details, visit the Canada Revenue Agency website.

With the rising costs of education and everyday expenses, setting aside a portion of your benefit amount for your child’s financial future could give them a welcome head start. Depending on your situation, here are a few ideas to consider to help you make the most of your monthly CCB cheque.

Make an RESP contribution

Opening a registered education savings plan (RESP) is an important investment in your child’s future. This tax-advantaged savings vehicle is designed to help you save for your child’s post-secondary education and related expenses, such as housing, food, books, technology and travel. There’s no limit to how much you can contribute each year, but there’s a lifetime maximum of $50,000 per child. As a bonus, the government will help you save through the Canada education savings grant (CESG), which provides 20 per cent on the first $2,500 you put into an RESP each year, to a lifetime limit of $7,200. Some provinces may also provide additional grants.

Start a savings account

With the ever-rising cost of living and uncertain job markets, setting aside a small amount of money for your child beyond their education costs could help to ease future financial burdens. Alternatively, you could contribute a portion of the benefit to your own savings account. This money could be used as an emergency account or to fund unexpected family expenses. If you’re worried about spending your CCB cheque as soon as it arrives, consider setting up automatic transfers that will divert it to your account. Once your emergency reserve is fulfilled, you might consider transferring additional funds to a longer-term investment, like a registered retirement savings plan (RRSP) or tax-free savings account (TFSA).

Consider a life insurance policy

When you buy a permanent life insurance policy for your child early, it means they’ll be insured for life, regardless of any future health problems. Permanent life insurance includes features that can grow money inside your policy over time (called cash value). This money can be accessed during your child’s lifetime.* When your child reaches the age of 25, the policy can be transferred to them tax-free. Later in life, your child could have the option to access the policy’s cash value to contribute to things like supplementing their retirement income or establishing a financial legacy of their own.*

* If money is withdrawn from the cash value of a policy, it may be subject to tax.

Help Insure Your Child Get’s Off to a Head Start

Tuition costs have nearly tripled over the past quarter-century ­– good enough reason to start planning for your child’s university or college education.

With the average cost of a post-secondary education in 2010-2011 at $58,000 – and climbing – and with the maximum contribution to registered education savings plans (RESPs) set at $50,000, you may be looking for other ways to fund your child’s education. Life insurance can help your children fund their post-secondary education if you or your partner die unexpectedly.

Child Life Insurance

Insure Your Child

How does it work? Most permanent life insurance products offer a guaranteed cash value accumulation component that allows the cash value to grow tax-free (within limits).

When it’s time to withdraw funds for your child’s education, you can either withdraw the accumulated cash value or take out a loan against the policy’s accumulation. If you take out a loan, your cash value can continue to grow, provided you repay the loan. Alternatively, you can surrender your insurance policy if coverage is no longer required and apply this money to your child’s education needs (tax may apply).

Purchasing participating life insurance for your child or grandchild is a gift that keeps on giving. A participating life insurance policy has cash value that can grow over time and can be accessed to pay for things like tuition, a new car, or a down payment on a house. With their insurance needs taken care of for life, they can focus on other key priorities.

I can help you make sense of using permanent life insurance to pay for tuition.

Investing in your Child’s Education Through RESP’s

With the average full-time Canadian undergraduate student paying annual tuition fees of nearly $6,000+, post-secondary education can be an overwhelming expense. Registered education savings plans (RESPs) are a great way to make this expense more manageable. Read on to find out how to take advantage of this financial tool.

Why invest?

An RESP is a savings vehicle designed to help you save for your child’s post-secondary education. There is a wide range of investment options available for RESPs including mutual funds, stocks and GICs. Not only does the money in an RESP grow tax-deferred, the government chips in with substantial grants.

With an RESP, the first $36,000 you contribute is eligible for the 20 per cent Canada Education Savings Grant (CESG), which works out to $7,200 per child. There are, however, some restrictions: If your child was born in 2007 or later, the maximum contribution eligible for the grant is $2,500 per year, up to and including the year the child turns 17. That works out to a grant of $500 annually. If you don’t max out your annual basic CESG, the eligibility carries forward, but $1,000 is the maximum grant you can receive in any one year.

There’s no limit to how much you can contribute each year, though there is a lifetime maximum of $50,000 per child.

RESP Education Savings

When to start?

As we all know, children grow up quickly. That’s why it’s important to start saving for school as early as possible. Don’t worry if you can’t contribute anywhere close to $2,500 a year; consistency is key, so make sure you’re contributing on a regular schedule, even if it’s $10 or $20 a week. Setting up automatic withdrawals through your financial security advisor and investment representative can help keep you on track with your savings goals.

Keep in mind that you have limited time to take advantage of the CESG. You can’t collect more than $1,000 in any given year and the grant stops after the child turns 17, you’ll need to open the account when your child is no older than 10 to receive the full $7,200 in grants.

RESP contributions should always be weighed against one’s current financial priorities as well as any long-term planning. It’s also important to stay on track to achieving your retirement savings goals

How do I withdraw money?

Once your child is enrolled at a post-secondary institution, you can begin withdrawing RESP money. The process is simple: just provide proof the child is enrolled at an approved school each time you request a withdrawal. They can be used for other expenses related to education, such as housing, food, books, technology needs and travel.

Not all RESP providers have the same requirements for withdrawals, so it’s best to contact your financial institution several weeks before you need the money and ask about their specific policies. It’s also important to note that, if you invest in guaranteed investments or bonds within the RESP, you’ll want them to mature a few weeks before you plan to withdraw the funds.

There are two types of withdrawals from an RESP: post-secondary education payments (otherwise known as capital withdrawals) and educational assistance payments (or EAPs).

The difference between these two withdrawals is tax-related; post-secondary education payments are taken from the contributions you’ve made with your after-tax income, so there’s no additional tax owed upon withdrawal. EAPs are taken from the growth of the RESP, so they’re taxed in your child’s hands. However, if they’re claiming tuition and education tax credits, and have a low income, they should pay little to no tax.

When you are ready to use RESP funds, you can specify which type of withdrawal you want to make. It usually makes sense to start by withdrawing EAPs; that way, if the child ends up completing their education before the RESP account is empty, most of the remaining money can be withdrawn without taxes or penalties. While only $5,000 in EAPs can be withdrawn during the first 13 weeks of school, there’s no maximum withdrawal after that.

And remember, if a child’s post-secondary education plans change, there are several options to use those savings for education or other needs.

While saving for a post-secondary education may seem overwhelming, you’ll be surprised at how much you can save if you contribute regularly to an RESP. And free money from the government can be very helpful.

The information provided is based on current tax legislation and interpretations for Canadian residents and is accurate to the best of our knowledge as of the date of publication. Future changes to tax legislation and interpretations may affect this information.

Universal Child Care Benefit (UCCB) Increase

The Universal child care benefit (UCCB) is designed to help Canadian families, as they try to balance work and family life, by supporting their child care choices through direct financial support.

The Government of Canada is introducing changes to the law to increase and expand the UCCB. Enhanced payments for the universal child care benefit would take effect as of January 2015 and would begin to be reflected in monthly payments to recipients in July 2015.

Universal Child Care Benefit

The UCCB is increasing for children under the age of six. Effective January 1, 2015, parents will receive a benefit of up to $160 per month for each child under the age of six, up from $100 per month. If the changes to the law pass, parents will receive up to $1,920 per child per year.

The UCCB is also expanding to children aged six through 17. Effective January 1, 2015, parents will receive a benefit of up to $60 per month for children aged six through 17. If the changes to the law pass, parents will receive up to $720 per child per year.

The first enhanced payment will be issued in July 2015 and will include any retroactive payments for the period ofJanuary 2015 to June 2015.

Note
It is the CRA’s longstanding practice to administer tax and benefit measures on the basis of proposed legislation, which has been accepted in principle by Parliament pursuant to a Notice of Ways and Means Motion, unless this legislation or a motion to implement the measures is defeated in Parliament.