Harper government announces tax changes for families
Posted February 15th 2015
The Harper government recently announced a package of tax changes for families that will include a limited form of income splitting for couples with children, the replacement of the child amount with enhanced UCCB benefits, and increased claims for childcare expenses. The changes to income splitting will be in effect for the 2014 tax season, and the remaining measures will take effect for 2015.
The Family Tax Cut
The family tax cut will allow couples with at least one child under the age of 18 to claim a non-refundable tax credit equal to the amount 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 claim will be limited to $2000.
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 and for a period of at least 90 days commencing in the following year. It will, however, be available in the event that one spouse or common-law partners dies during the year.
Their child must be under the age of 18 at the end of the year, and must ordinarily reside with the couple throughout the year. An exception to this rule, according to the Department of Finance, is that this requirement could be met 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 is unavailable to individuals who were confined to a prison or similar institution for 90 days of more in the similar year, but 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.
Enhancement of UCCB Benefits
Effective for 2015, the Universal Child Care Benefit will be increased from $100 to $160 per month for children under the age of six, and a new benefit of $60 per month will be paid for children over the age of five and under the age of 18. While these enhancements will take effect as of January 2015, they will not be reflected in monthly payments until July 2015. Taxpayers who have already registered for the Canada Child Tax Benefit or related provincial benefits will not have to reapply to receive the enhanced benefit.
Also effective for 2015, the amount for children under 18 at the end of the year will be eliminated, but the family caregiver supplement to the child amount will remain in effect.
According to the Department of Finance materials, the enhancements will take effect as of January 2015 but will not be reflected in monthly payments until July 2015. This means that a retroactive adjustment will be included with July cheques.
Taxpayers who are already registered for the Canada child tax benefit or related provincial benefits will not have to reapply in order to get the enhanced UCCB benefit. However, there will undoubtedly be taxpayers whose income is too high to get the Canada child tax benefit who have not bothered to apply. In order to get their $60 per month they will have to complete Form RC66 Canada Child Benefits Application.
The existing tax treatment of UCCB benefits will apply to the enhanced benefits. In the case of couples, they will therefore remain taxable in the hands of the lower-income spouse. In the case of single parents, they will have the option of including the payments in their own income or in the income of a dependant for whom they are claiming the amount for an eligible dependant.
Elimination of the Child Amount
Effective for 2015 the amount for children under 18 at the end of the year will be eliminated. However, the family caregiver supplement to the child amount will remain in effect.
The elimination of the child amount will not completely negate the savings realized from the enhanced UCCB benefits. However, it will substantially reduce them when the UCCB benefits are included in income at a higher marginal rate. For example, the annual tax savings afforded by the child amount in 2014 is $338. The value of the enhanced UCCB benefit if included in income at a marginal federal/provincial tax rate of 36 per cent would be $461 (calculated as [$60 x 12] x 64%). This would be the marginal tax rate of an Alberta resident in 2014 with taxable income between $87,907 and $136,270.
On a more positive note, lower-income parents who were previously unable to fully utilize the child amount because they were not taxable could benefit from the full enhancement of $720 per year.
Deduction for Child Care Expenses Increased
Effective for 2015, the maximum dollar limits in the calculation of the deduction for child care expenses will all be increased by $1,000 as follows:
- From $7,000 to $8,000 for children under 7;
- From $4,000 to $5,000 for children aged 7 to 16 and infirm children over 16;
- From $10,000 to $11,000 for disabled children.
The weekly limits where a child is staying in a boarding school or camp will be increased proportionately from $175 to $200, $100 to $125 and $250 to $275.
The new package of changes is focused on providing two parent families a tax break and they should see the savings when they file their 2014 tax return.
At H&R Block, we believe our clients are entitled to the highest level of service. Our tax advisors are some of the best in the business, and are here to help you with any tax situation you might have. It’s our guarantee.
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