What the Family Tax Cut means to you

family tax cut

On Oct 30, 2014, Prime Minister Stephen Harper announced a new “family tax cut” and a boost to the university child care benefit. This new credit is also frequently referred to as income splitting for families with child under 18.

How the family tax cut save my tax?

Under Canada’s tax system, income tax rates increase as income increase. As a result, if you have higher income than your spouse, your family often has to pay more tax then a family where both have equal income.

The family tax cut is actually a non-refundable federal tax credit worth up to $2,000. This is the amount of tax that would be saved if you transfer $50,000 of income to your lower income spouse.

Can I claim the Family Tax Cut?

You can claim the Family Tax Cut in 2014 tax year if:

  • You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your spouse;
  • Neither you nor your spouse elected to split eligible pension income in the year; and
  • Both you and your spouse file 2014 income tax return

When will the new Family Tax Cut be effective?

This new tax credit will be effective for the 2014 and subsequent tax years.

Can I share the Family Tax Cut with my eligible spouse or common-law partner?

No. Either you or your eligible spouse or common-law partner can claim the Family Tax Cut for a year, but not both. This credit cannot be shared.

Will my net income or taxable income change if I claim the Family Tax Cut?

No. This credit is calculated as if you allocated up to $50,000 of taxable income to your spouse. Your actual net income and taxable income will remain unchanged.

If I claim the Family Tax Cut, will it change my GST/HST credit, CCTB, and other federal or provincial benefits and tax credits?

No. Unlike pension income splitting, your net income and the net income of your spouse 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.

How can I claim the Family Tax Cut in 2014 tax return?

To claim the credit in your 2014 tax return, you have to complete new Schedule 1-A, Family Tax Cut, and enter the amount calculated on line 423 of the Schedule 1, Federal Tax.