Under Canada’s tax system, federal personal income tax rates increase with the level of taxable income of the individual. As a result, a couple in which one individual has a higher taxable income than the other often pays more federal income tax than a couple where both individuals have equal taxable income.
In October 2014, the federal government introduced the Family Tax Cut; a new non-refundable tax credit of up to $2,000 for eligible couples with minor children based on the net reduction of federal tax that would be realized if up to $50,000 of an individual’s taxable income was transferred to the individual’s eligible spouse or common-law partner. This would take advantage of a spouse’s lower income tax bracket. This tax cut is available for the 2014 tax year and subsequent years.
To be an eligible partner, your spouse or common-law partner must be a resident of Canada on December 31 of the year (or on the date of death) and you were not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days or more beginning in the year.
Can I claim the Family Tax Cut?
- You were a resident of Canada on December 31 of the year (or on the date of death);
- You have an eligible spouse or common-law partner for the year who has not claimed the Family Tax Cut;
- You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your eligible spouse or common-law partner;
- You were not confined to a prison or similar institution for a period of at least 90 days during the year;
- Neither you nor your eligible spouse or common-law partner became bankrupt in the year;
- Neither you nor your eligible spouse or common-law partner elected to split eligible pension income in the year; and
- Both you and your eligible spouse or common-law partner file an income tax and benefit return for the year.
In most situations, only one spouse may claim the Family Tax Cut. However, if you and your ex-spouse have a child under the age of 18 and you have joint custody, you may be able to both claim it. Because of a joint custody arrangement, your child may have ordinarily lived with both you and your former spouse or common-law partner throughout the year. Provided that you and your former spouse each have an eligible spouse or common-law partner for the year, and all of the other conditions for claiming the Family Tax Cut are met, you can both claim the credit for the year.
Your net income or taxable income will not change with the Family Tax Cut. This credit is calculated as if an individual allocated up to $50,000 of taxable income to an eligible spouse or common-law partner of the individual. Your actual net income and taxable income will remain unchanged.
Likewise, other credits don’t change. Unlike pension income splitting, your net income and the net income of your eligible spouse or common-law partner will not change if you claim the Family Tax Cut. As a result, benefits and tax credits that are calculated based on net income, such as the GST/HST credit, the CCTB, the age amount, and the spouse or common-law partner amount, will not change.
The Family Tax cut can definitely benefit those families, and not just the rich, as many would have you believe, where one spouse makes more than the other.