A sweeping new pro-family tax reform has been announced by the Canadian government. It has promised to allow “income-splitting” for tax purposes. This will help families where one spouse earns all or most of the income. The change, which comes as part of a package of pro-family tax and benefit policies, was a key election promise of Prime Minister Stephen Harper’s Conservatives.
The Government is also boosting Canada’s child benefit payments — $160 a month for children under six, up from $100, plus a new monthly benefit of $60 for children aged six through 17 which will replace a less generous tax credit.
According to the National Post, income splitting will allow couples with children younger than 18 to transfer up to $50,000 in income from the higher earner to the lower earner for tax purposes, in order to qualify for a tax credit that will be capped at $2,000. The government claims that its changes to the tax and benefits system will see families with children receive, on average, about $1,140 in tax relief and benefits each year, helping about four million families.
Prime Minister Harper said the package sends a clear message that direct financial support is better for families than a national daycare program would be.
“These add up to real dollars in the pockets of Canadian families,” Mr. Harper said at a campaign-style event with his wife, Laureen, at a community centre in Ontario “This is a difference between our philosophy and the others. We have always been clear that money and support to help families raise children should not go into more bureaucracy. It should go to the real experts on child care. That’s mom and dad, and that is what we are doing.”
Opposition parties have criticised the move, saying it removes incentives for stay-at-home parents to enter the workforce.
The Leader of the Opposition, Thomas Mulcair, called income splitting a step in the wrong direction, saying that it would increase inequality.
But the New Democratic Party leader did not say whether he would cancel it if his party forms the next government.
Liberal Leader Justin Trudeau, who has vowed to repeal income splitting, said the tax break does not encourage economic growth or strengthen the middle class.
“Middle-class families … should not have to pay more to give families like mine or Mr. Harper’s a $2,000 tax break,” Mr. Trudeau said.
In a press release, the Institute of Marriage and Family Canada praised the government’s move, saying “Currently, families with a single primary earner often pay significantly more than families with income evenly distributed between two earners. This bias puts a financial strain on families with a lower-earning spouse – typically families struggling with child care, elder care or the care of family members with special needs.
“Our research shows that families work as a unit, sharing money and resources as needed. This sharing strengthens families, which in turn benefits society and the economy. To date, the Canadian tax code has done a poor job of reflecting this reality since family members are taxed as individuals. Income splitting more accurately reflects the reality of shared finances within the family unit.”
