Principal Issues: If the Universal Child Care Benefit is deposited directly into the child's bank account and subsequently used as contributions to a Registered Education Savings Plan, is the parent exempt from tax on that amount?
Position: No. However there is new legislation which would allow a single parent to designate that UCCB amounts be included in income of children/dependant for taxation years 2010 & subsequent years.
Reasons: Subsection 56(6) specifically requires UCCB to be taxed in hands of recipient (parent). How the parent directs the money to be used does not impact taxation of amounts.
XXXXXXXXXX 2010-036756 W. Doiron December 2, 2010
Dear XXXXXXXXXX :
Re: Universal Child Care Benefit
This letter is in response to your email dated May 17, 2010. In your email you ask, if the Universal Child Care Benefit ("UCCB") is deposited directly into the child's bank account and subsequently used as contributions to a Registered Education Savings Plan ("RESP"), is the parent exempt from tax on that amount?
General comments
The general purpose of the UCCB Act is to provide financial support to families for child care costs while allowing parents to choose child care options. As of July 2006, pursuant to section 4 of the UCCB Act, monthly UCCB payments of $100 are paid at the beginning of the month to parents in respect of each child under the age of six. The Income Tax Act ("ITA") includes those amounts in computing the income of a parent. The taxation does not depend on whose bank account the payments are added to or what is done with the money later.
However, there is an amendment to the ITA applicable to 2010 and subsequent taxation years. Pursuant to that amendment, single parents will have the option to designate that UCCB payments be included in their income, or in the income of their child. If the child has no other income, this could result in lower tax.
We trust these comments will be of some assistance.
Yours truly,
Lita Krantz
Assistant Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch