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Canadian tax alert

Federal government unveils family tax cut measure

October 31, 2014

Prime Minister Stephen Harper and Finance Minister Joe Oliver announced today new tax relief (referred to as the “Family Tax Cut”) which will allow certain Canadian families to reduce their overall federal income tax. This relief will be available starting for the 2014 tax year.

The new measure would allow a higher income spouse to notionally shift a portion of their income to a lower income spouse in order to take advantage of their spouse’s lower marginal tax rate and non-refundable tax credits. This can be very beneficial in cases where the family has one spouse earning the majority or all of the income.

In order to prevent certain individuals from getting a disproportionate benefit, the maximum amount of income which can be split with a lower income spouse will be limited to $50,000 annually. The tax relief is calculated on the basis of the difference in the tax before and after the notional transfer of income. Furthermore, the tax benefit which can be achieved will be limited to $2,000 per year in the form of a non-refundable federal tax credit.

To illustrate the benefit of the proposed family tax cut measure, consider a couple, where one spouse earns a salary of $100,000 and the other spouse has no income. Before the family tax cut measure, the couple would pay combined personal federal tax of approximately $15,4001. With the application of the family tax cut measure, the combined federal tax would be approximately $13,400.

In order to take advantage of this new measure, there are a number of requirements that the couple will have to meet including the following:

  • The taxpayers must be residents of Canada and married or living in a common-law relationship; and
  • The couple must have at least one dependent child under the age of 18 at the end of the year.

For the moment, the income splitting measure announced today applies to the federal portion of tax only. It remains to be seen if the provincial governments will follow suit and introduce a similar measure in the near future.

Finally, it should be noted that this new provision will not impact the pension income splitting currently available to seniors. However, the two income splitting measures cannot be claimed at the same time.

Simon Couvrette and Gilles Fleury, Ottawa

1For residents of Quebec the federal tax is before considering the Quebec abatement.

Contacts

National PCS Leader
Dominic Vendetti
450-978-3527

Atlantic
Jim MacGowan
902-721-5697

Quebec
Denis de la Chevrotiere
819-797-7419

Philippe Belair
514-393-7045

Christian Provencher
450-978-3526

Ontario
David Mason
613-751-6685

Toronto
Rob O’Connor
416-601-6316

Prairies
Brian Anderson
204-944-3628

Alberta
Mike Bird
403-267-1852

British Columbia
Claude Rinfret
604-640-3120

This publication is produced by Deloitte LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.

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