Let’s face it — summers are usually slow. The kids are off school; clients are away on vacation; and many advisors take time over the summer to relax and rejuvenate for a busy fall season. But this summer, you may want to reach out to clients who have kids under 18 years of age as they’re now receiving their first Canada child benefit (CCB) cheque or direct deposit. (The first cheques went out on July 20.)
As a reminder, the CCB is a new, tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age; it replaces the Canada child tax benefit (CCTB) and the universal child-care benefit (UCCB). The CCB may also include the child disability benefit for children who qualify for the disability tax credit, as well as any related provincial and territorial programs.
Keep in mind that unlike the UCCB, the CCB monthly benefits are entirely tax-free, so your clients won’t have to worry about coming up with the cash next April to pay the tax bill on their monthly benefits.
Here are three ideas you can approach clients with to help them invest — rather than spend — their new monthly CCB cheques.
1. Contribute to an RESP
Clients who aren’t currently maximizing their registered education savings plan (RESP)_ contributions for their children can contribute the CCB to an RESP, which can produce an immediate return of 20% by way of the Canada Education Savings Grant (CESG).
For example, if these clients were to contribute just more than $200 each month per child to an RESP in 2016, they could collect the full 2016 CESG of $500 per child (20% of $2,500). If they haven’t already maxed out on prior years’ CESGs, they can contribute more and catch up on the CESGs retroactively, up to an annual limit of $1,000 of CESGs per child.
2. Contribute to an RDSP
If your client has a child or other family member with special needs that qualifies for the disability tax credit due to a severe and permanent disability, consider recommending they direct some of their monthly CCB to fund a registered disability savings plan (RDSP).
A main feature of the RDSP is the ability to supplement the plan with matching Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs). For example, a contribution of just $125 each month ($1,500 annually) to an RDSP can yield up to $3,500 in CDSGs and another $1,000 in CDSBs, depending on the client’s family income.
3. Top up an RRSP or TFSA
Remember that just because these payments are called the Canada “child” benefit, there’s no reason your clients can’t simply use those funds to save for their own retirement. If they have unused contribution room in their RRSP or tax-free savings account, ask them if they would like to direct a portion of those monthly cheques into one of these tax-advantaged plans.