It’s not every day that a hefty cheque arrives in the mail (or in your bank account) courtesy of the federal government. But for parents across Canada with children under 18, that was the case this week.
The increase to the Universal Childcare Benefit (UCCB), announced last Fall, means parents receive $160 per month for each child under the age of 6 (up from $100), and $60 per month for each child aged 6 to 17. On top of that, the extra $60 is retroactive to January 2015.
A windfall, yes. But with a little foresight, parents can make sure it’s a lasting benefit. Here’s how:
1. Plan for future expenses
If you’ve been putting off household expenses like car repairs or new tires, now’s your chance to get caught up. Give priority to the ones that bring a lasting benefit. For example, it’s a good time to plan for back-to-school costs such as school supplies and new clothes, which typically arise in August.
Consider putting something aside for extra-curricular activities, sports, and school trips that crop up later in the year. And remember to budget for things like eyeglasses and braces.
2. Recognize you will likely need to pay tax on the amount you receive
The UCCB is a taxable benefit, which means you must report it on your yearly income tax return. If you have a spouse or common law partner, the one with the lower income typically reports the benefit.
The tax impact will depend on how much you earn. Regardless of your income tax bracket, be aware that because it’s taxable, the UCCB could increase the amount of tax you pay.
3. Pay off debt
Use the extra money to pay down debt. Start with high-interest debt, such as credit cards, but don’t forget about outstanding balances from highway tolls or tickets that can add up and cause problems later.
4. Save for your kids’ education
If your expenses are under control and you have little or no debt, consider maximizing education savings with a Registered Education Savings Plan (RESP).
5. Buy an RRSP
If you’re in a higher tax bracket and can afford it, rather than waiting until later in the year to buy an RRSP, use the extra money to buy it now. That way, you avoid the extra tax created by receiving the UCCB.