New Tax Breaks: Income Splitting
Posted 31 Oct 2014 by Rick Irwin, CFP, CLU
On October 30th, the Conservative government finally delivered on its promise to introduce family-oriented tax breaks once the budget deficit was eliminated. The new tax measures include the following:
- Income Splitting: The new Family Tax Cut is a non-refundable tax credit that will allow couples with children to potentially lower taxes by splitting their income. This new tax break is being made applicable to the 2014 tax year and will allow couples with children younger than 18 to transfer up to $50,000 in income from the higher earner to the lower earner for tax purposes. Much criticism had initially been levied at this idea, suggesting that it would disproportionately benefit the wealthy. To limit this outcome, the government has capped the tax benefit at $2,000 a year per couple. Potential savings are the greatest when there is a large disparity in incomes between spouses.
- Increase to the Child Care Expense Deduction: this deduction will increase by $1,000 annually: from $7,000 to $8,000 for children under age seven and from $4,000 to $5,000 per child aged seven to 16. The Disability Tax Credit for children will be increased similarly: from $10,000 to $11,000.
As with the advent of Pension Income Splitting, which began in the 2007 tax year, there is likely to be much discussion about who benefits from these new tax measures and who is left out in the cold, as well as what other economic benefit this lost federal tax revenue could have been put towards. Whatever your view on the subject, for millions of Canadian families these changes will put more income into their pocket annually. If you would like to know more about how this might affect your tax situation, please do not hesitate to get in touch with our office.