If you have children, you probably received your first Canada Child Benefit (CCB) payment on Wednesday. It’s not taxable so what are some smart ways to spend this extra money?
About the Canada Child Benefit
Before getting into how to spend this benefit, here’s an overview of the CCB. It was introduced in the 2016 Federal Budget and replaces both the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB). The CCTB was a tax-free payment for eligible families to help them with the cost of raising children under the age of 18. And the UCCB, which was universal but also taxable, gave all parents with children under the age of six $160 a month per child. Parents with children between the ages of six and 17 received $60 a month for each child.
Low- to middle-class households with children will benefit the most from the CCB. Families with a net income (after-tax income) of less than $30,000 will get the maximum benefit ($6,400 per child under the age of six and $5,400 for each child between the ages of six and 17). The amount is clawed back for families with a net income of more than $30,000 while those with net earnings of more than $190,000 will receive no benefit at all.
For example, a family with a combined after-tax income of $65,000 and a three-year-old child will receive 12 monthly payments of about $329.17 ($3,950 annually) over the next year. To estimate how much your family will receive, the government has created a CCB calculator.
What to do with Canada Child Benefit payments
Ninety percent of families will receive more benefits than under the previous programs and you may be tempted to spend this extra cash. But here are a few ways to use this money more wisely:
Make an RESP contribution—If you can afford to, using the CCB payment as a way to fund your child’s post-secondary education is a probably the best idea. A recent Ipsos poll finds that parents will use the largest portion of the benefit for day-to-day expenses, followed by savings for post-secondary education.
If you contribute $2,600 to an RESP for 18 years, receive the Canada Education Savings Grant of $500 every year (up to a lifetime maximum of $7,200), and earn a 7% annual return on your money, you could end up with nearly $102,000. It’s possible the federal government could technically end up paying for most or all of your child’s tuition.
Contribute to a different tax-sheltered savings account—While you won’t receive any grants by contributing to a TFSA, you also won’t have to pay taxes on any capital gains or interest income. Or you could also contribute to an RRSP, which will likely result in a tax refund next year. Either account can be used to save for retirement. You should put a portion of your money into stocks, mutual funds, ETFs, and/or GICs and also consider saving in a tax-sheltered high-interest savings account.
Make a charitable donation—A Harvard Business School study finds giving to charity can help you feel better about yourself. You’ll also benefit financially because you’ll receive a tax credit. If your children are old enough, you can get them involved in choosing a charity and teach them the importance of giving to others who are less fortunate.
The bottom line
Parents are allowed to spend their CCB payment any way they want and the money should obviously go towards buying food and clothing first. But if you can afford to use your benefit payment for something else, consider the three options listed above. You’ll be glad you did.
- What Are RESPs? Your RESP Questions Answered
- 5 Reasons to Have an RESP
- What is a TFSA? 5 Common TFSA Questions Answered
- The Differences Between RRSPs and TFSAs
Flickr: Bruce Guenther