New Income-splitting measures announced

Recently Introduced Tax Breaks to Help Families

 

Summary

On October 30, 2014, Prime Minister Stephen Harper revealed income splitting tax breaks for families with children less than 18 years of age. Canadians have been waiting since 2011 for a variety of promised tax breaks.

 

Family Income Splitting

A new federal non-refundable Family Tax Cut Credit was recently introduced that will create tax savings for families with children less than 18 years of age. To be eligible for this credit an individual must:

• Have a spouse (including common-law partner); and
• Have a child under 18 years of age at the end of the year who resides with the individual or the spouse.

Effective 2014, the family income splitting measures allow a higher income spouse to allocate up to $50,000 of income to the lower income spouse for the express purpose of determining this new federal tax credit. The maximum allowable benefit that can be attained from this transfer is a $2,000 non-refundable federal tax credit. Please note that the Family Tax Cut Credit can only reduce federal income tax at this point and there is currently no reciprocal provincial tax credit.

For separated families, who have joint custody of a child under 18 years old that resides with both parents throughout the year, each family will be eligible to claim the Family Tax Cut Credit providing both parents have a spouse of their own and all other conditions are met.

There is already a common misunderstanding that the Family Tax Cut Credit is similar to the Pension Income Splitting measures, which is not the case. There is no income actually being transferred between spouses. The net income of both spouses remains the same; the only difference will be the additional federal tax credit claimed by the higher income spouse.

As a result, personal tax benefits such as the GST/HST credits, the Canada Child Tax Benefit, age amount and the spouse and common law partner amount, will not change.

 

Child Care Expenses Deduction

This deduction allows parents, with children under 16 years of age, to reduce their Taxable Income by their child care expenses incurred in order to earn employment or business income as well as to pursue education and perform research.

Effective 2015, the Federal Government has proposed to increase the Child Care Expense Deduction from $7,000 to $8,000 for children under age 7 and from $4,000 to $5,000 for children ages 7 to 16 (and for infirm dependent children over age 16). For children who have a Disability Tax Certificate on file with the CRA, they will now be eligible for an increased credit to $11,000 from $10,000.

 

Universal Child Care Benefit

Starting in 2015, this monthly benefit will increase by $60 per month from $100 to $160 per month, for each child under the age of 6. Additionally, a new benefit of $60 per month will be available for children from ages 6 through 17.

Please note that due to the increases in the Universal Child Care Benefit, effective 2015, the Child Tax Credit will be eliminated for 2015 and later years. The Child Tax Credit was originally introduced in 2007 and was available for parents with dependent children under 18 who resided with the parent(s) throughout the year.

 

Child Fitness Tax Credit

As previously announced on October 9, 2014, the Federal Government has also doubled the Child Fitness Tax Credit to $1,000 starting for the 2014 taxation year for families who enroll their children in eligible fitness activities. In addition, this tax credit will be refundable starting in 2015.

 

Final Comments

Please note that these measures are still subject to parliamentary approval. This publication has been prepared by Scotiabank and is intended as a general source of information. This publication should not be considered as personal investment, tax or legal advice.

We are not tax advisors and we recommend that individuals consult with their tax professionals before taking any action based upon the information found in this publication.

 

This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This publication is intended as a general source of information and should not be considered as personal investment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. While care and attention is expended to ensure the accuracy of the material in this publication, ScotiaMcLeod does not warrant the accuracy of the material and disclaims any liability with respect to its contents.

This publication and all the information, opinions and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of ScotiaMcLeod. ScotiaMcLeod is a registered trade mark of The Bank of Nova Scotia. The mark refers to the activities of The Bank of Nova Scotia and certain of its Canadian subsidiaries such as Scotia Capital Inc., The Bank of Nova Scotia Trust Company and 1832 Asset Management.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.