NEW TAX BENEFITS
FOR FAMILIES
As part of our commitment to keep you informed, we thought the following could be of interest to you. As you may know, on October 30, 2014, the Federal Government introduced numerous tax saving measures for families which include:
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The introduction of a new Family Tax Cut Credit (a form of income splitting)
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Increases to the Child Care Expense Deduction by $1,000 per year
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Increases to the Universal Child Care Benefit by $60 per month and extended for children up to age 18
However, included with the unveiling of tax-saving measures was the elimination of the Child Tax Credit which will be replaced by the enhanced Universal Child Care Benefit (UCCB) for the 2015 and subsequent taxation years. The government also announced the continuation for the Family Caregiver Tax Credit.
Family Tax Cut Credit
This measure will allow a higher income earning spouse to transfer income of up to $50,000 to the lower income earning spouse, resulting in a lower combined tax payable. This will be a notional allocation, and the amount would still be reported on the higher income earning spouse’s tax return.
In order to qualify for this new credit, you must have a child under the age of 18 at the end of the year. That child must also ordinarily reside with you or your spouse or common law partner throughout the year.
How is the credit calculated?
- Calculate the combined federal tax the couple would normally pay after claiming non-refundable tax credits.
- Calculate the combined federal tax payable if the higher earning spouse transferred income up to $50,000 to the lower earning spouse.
- Claim the difference between the two amounts as the Family Tax Cut Credit, up to a maximum of $2,000.
Example
Richard and Mary have two minor children and earn salaries of $25,000 and $150,000 respectively. Their total combined federal tax payable is $33,225.
If Mary allocates $50,000 of her income to Richard, their combined federal tax payable would reduce to $29,490.
Either Richard or Mary could claim a Family Tax Cut Credit equal to the lesser of:
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The difference in the tax savings of $3,735
- $2,000
Note the Family Tax Cut Credit is only for Federal income tax purposes.
Should you have any questions on these measures, or any other areas of tax and estate planning please contact us
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