Family Tax Cut delivers bigger refunds
Posted November 24th 2014
Introduced this October, the Family Tax Cut is meant to provide tax relief to Canadian families with children under 18 living at home and could mean a little more money in your pocket at tax time depending on your household income.
The cut is based on the concept of income splitting. It will allow couples with at least one child under the age of 18 to claim a non-refundable tax credit equal to the amount of federal tax savings that would be realized by transferring up to $50,000 of taxable income from the higher-income to the lower-income spouse or common-law partner. The maximum tax credit will be capped at $2,000.
When one partner is in a higher marginal tax bracket, that person would be able to split or share some income with the other person. When the money moves to the other return it is taxed at a lower rate and they save tax dollars.
For example, Edward makes $60,000 a year; Janet makes $20,000. Edward is taxed at a marginal rate of 22 per cent, Janet at 15 per cent. By shifting $20,000 of Edward’s income to Janet’s tax return, all of the family’s income is now in the 15 per cent tax bracket. This reduces the amount of taxes due. Because this takes place only on a federal schedule, it also doesn’t affect the amount of provincial tax either pays.
Similar to claiming the child amount, a family must have a child under the age of 18 at the end of the year who must normally reside with the couple throughout the year. An exception to this rule would be if the parents of a child remarry or enter into new common-law partnerships during the year, or if a child is born, adopted, or passes away during the year.
The credit will only be available to couples who are both Canadian residents at the end of the year, and who are not separated due to a breakdown in their relationship at the end of the year for a period lasting 90 days or more. It will, however, be available in the event that one spouse or common-law partners dies during the year.
Though parents who were confined to a prison or similar institution for 90 days of more in the year are not eligible, the credit could be claimed by the individual’s spouse or common-law partner. Couples are ineligible for the credit if either partner fails to file an income tax return, elects to split pension income, or becomes bankrupt.
The Family Tax Cut will provide the most benefit to households where one spouse or partner earns significantly more than another. However, even a small disparity in income could result in some added tax savings. And when you are raising children, every little bit helps with the expenses.
H&R Block offers a variety of tax services – for students, seniors, and everyone in-between! Whether you would like one of our tax professionals to prepare your taxes, or if you would prefer to file them on your own, HRB has a solution for you.
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