Details on Ottawa’s new income-splitting breaks

October 31, 2014 | Last updated on September 15, 2023
3 min read

Prime Minister Stephen Harper unveiled new income-splitting tax breaks and benefits for families yesterday. But they were watered down from the plan promised by the Conservatives during the 2011 election campaign that drew criticism for targeting only well-off parents.

Under the Harper government’s proposed new measures, a federal tax credit called a Family Tax Cut would allow a higher-income spouse to transfer up to $50,000 of taxable income to a spouse in a lower tax bracket. Couples with children under the age of 18 would receive a tax credit of up to $2,000 as of the 2014 taxation year.

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That $2,000 cap was not mentioned in the Tories’ 2011 election pledge – a plan that drew criticism from the C.D. Howe Institute. The think tank warned that 40% of benefits would go to families with incomes above $125,000 and that 85% of all Canadian households, including single parents, would gain nothing.

The Prime Minister’s Office also noted that the Family Tax Cut would not affect provincial or territorial tax revenues. That’s likely good news for such provinces as Ontario, whose Liberal government worried that income-splitting idea would come with a fiscal cost to provinces.

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Meanwhile, the federal government plans to scrap the Child Tax Credit and replace it with an enhanced Universal Child Care Benefit (UCCB).

Introduced in the 2007 budget, the non-refundable tax credit provided a fixed amount up to $2,255 this year per child under the age of 18. But low-income parents not paying tax don’t qualify for that benefit. An expanded UCCB would change that.

The feds propose to increase the monthly benefit paid for children under age six from $100 to $160 ($1,920 per year), and introduce a new $60 monthly benefit ($720 a year) for children between the ages of 6 and 17. The first payments, covering the first six months of 2015, should be released in July — three months before the scheduled federal election.

About four million families, including those with income too low to be taxable, will be able to receive the benefit for children under 18, according to the government.

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Amounts received under the enhanced UCCB would be taxable for the lower-income spouse. Single parents could choose between including the expanded benefit in:

  • their income;
  • the income of a dependant for whom an Eligible Dependent Credit is claimed; or
  • the income of one of the children for whom the UCCB is paid.

The Harper government also proposes to increase the dollar limits of the Child Care Expense Deduction by $1,000: the maximum that can be claimed for children under age seven will rise from $7,000 to $8,000; to $5,000 for children aged 7 to 16; and to $11,000 for children eligible for the Disability Tax Credit.

As a result of these new measures, families with children will receive an average of $1,140 in tax relief and benefits next year, Harper’s office says in a statement.

But in his own statement, federal Liberal Leader Justin Trudeau says that “single mothers will receive nothing” and “families with parents in the same income bracket will receive nothing” under the government’s income-splitting proposal.