The Conservatives’ Family Tax Cut has been targeted this election campaign by both the Liberals and the NDP.
In particular, the Liberals say income-splitting measures for families with kids will only benefit the wealthiest 15% of Canadians.
How True Is It?
How income-splitting works
The Family Tax Cut fulfils a 2011 campaign promise from the Conservatives. Families with children under the age of 18 are able to transfer up to $50,000 of income from a spouse with a higher income to the lower earning spouse. In the best case scenario, it works out to a $2000 savings per family on taxes.
Liberal leader Justin Trudeau says Stephen Harper’s plan only helps the wealthiest of Canadians.
“He thinks the Canadians who need it the least should get the most. I don’t know where you’re standing, but from where I’m standing, that’s not Canada and that’s not fair.”
Just 15% of Canadians benefit
The idea that only 15% of Canadians will benefit from income-splitting for families was first mentioned in a report from the Parliamentary Budget Office. And that shouldn’t be surprising.
There are around 13 million families in Canada. To qualify for income-splitting, you need to have a two parent household with children under the age of 18.
That automatically excludes single people, seniors, couples with adult children, and couples without children.
But it should be noted, only a minority of Canadian households even have children under the age of 18.
The government issues a Universal Child Care Benefit to those families, which is about 4-million households. That’s not even a third of all families.
Lachlan MacPherson is a Partner at MNP, a leading Canadian national accounting, tax and business consulting firm.
MacPherson says in order to benefit, a family doesn’t need to be wealthy, but it does need to have a wage disparity.
“If both spouses are earning over $150,000 or one is above $150,000 and the other is close to it, you’re getting very little benefit from this. Where I believe there may be a bit more benefit to the wealthier families is that it’s a bit more likely that someone earning over $300,000 would be able to have a stay-at-home spouse that takes care of the kids. If you’ve got just a spouse that’s earning $75,000 in today’s economics, it’s going to be difficult for that other spouse to earn nothing. Very often you’ve got to have two income earners and you lose that disparity between those incomes.”
MacPherson says the key is not income level, but rather the disparity in income and tax brackets.
“I know a lot of families where if they can afford to have a spouse take a few years off, especially in the early development years, I think they’ve found it to be very beneficial. But I think it’s tough, especially living in Vancouver.”
Numbers released in the spring from the Parliamentary Budget Office suggest almost 2 million families would benefit from the program, receiving a maximum of $2000. Overall, the program costs taxpayers $2.2-billion.
The families that will benefit the least from income-splitting will be the lowest earning Canadians. In fact, only 376,000 families who make under $60,000 a year will receive any benefit, and on average, it will amount to $985 a year.
But it appears an overwhelming majority of middle-class families with children will benefit from income splitting.
Middle class benefits from income-splitting
Statistics Canada notes the average income of a two-parent family with children under 18 in Canada was $114,000 in 2011.
Numbers from the Parliamentary Budget Office released in the spring break down benefits from income-splitting for families, and the results are surprising.
While it is true that wealthy Canadians do benefit from the program, it appears even more advantageous for middle-income earners.
The figures show almost 82% of two-income families earning $60,000 to $120,000 will benefit from income-splitting, which also accounts for the majority of those who get an advantage from the program.
When it comes to wealthier Canadians, the numbers don’t show they have the most to gain.
It appears only 54% of those in the $120,000 to $180,000 group benefit, and just 50% of families with incomes making more than $180,000 will gain from the tax break.
However, on average, those higher earning families do receive a larger cash benefit from the program.
While a family earning between $60,000 and $120,000 receives an average benefit of $1140, those making more than $185,000 receive an average of $1250.