Last updated: June 02 2015

UCCB Lump Sum is Coming, but Not for Several Weeks Yet

Parents with children under age 18 living at home will be receiving a lump sum of $420 per child with their July Child Tax Benefit payment. This lump sum represents the additional $60 per month per child payable as of January 2015.

The majority of taxpayers who had their tax returns prepared professionally this tax season should be expecting this lump-sum payment because, when their returns were prepared, their preparers explained this to them. For those who did their own return, however, this extra money may well be a welcome surprise.

Investment advisors should take this opportunity to help their clients use this lump sum, and the additional $60 per month per child they will continue to receive as a result of the change in the UCCB, to increase their family wealth. Those who have not already adequately funded their education savings may want to consider setting these funds aside for that purpose, either through an RESP or a TFSA.

The upside of RESP savings is that the government will add the Canada Learning Bond and match 20% of the first $2,500 contributed each year through the Canada Education Savings Grant. The downside is that the income earned, including the grants and bonds will be taxable when withdrawn, albeit at the tax rate applicable to the student.

If the child does not become a post-secondary student, the grants and bonds will have to be repaid and the remaining excess funds will be taxable to the contributor, plus a penalty tax.

Parents who are fairly certain that their child will become a post-secondary student will find the RESP a better saving vehicle. On the other hand, if there is doubt, the TFSA will be a better savings vehicle as the earnings within the plan will never be taxable to anyone, and the funds are not restricted to being used for post-secondary education.

How far will the UCCB go towards financing your child’s education? For a child born in January 2015, if the UCCB is accumulated in a TFSA until the child is 18, earning 5% annual return, the balance will exceed $36,000. In an RESP the balance would be greater because of the government contributions.