In October, the federal government introduced income splitting for parents with the “Family Tax Cut”. This tax cut will allow one spouse to transfer up to $50,000 of taxable income to the other spouse.
All types of taxable income are eligible for income splitting. The maximum allowable family tax reduction will be $2,000. The credits will be available for 2014 and subsequent taxation years.
Families with children may save $2,000 from new credit
There are several requirements that must be met in order to receive the credit. The family must be a two parent household with a child who is under the age of 18 at the end of the year. As well, both spouses must file tax returns for the year and must not have declared bankruptcy in the year.
The credit will be non-refundable, meaning that the taxpayer can only use the tax credit to reduce their federal income taxes to zero.
Like some other credits, it can only be applied against federal taxes, and therefore it cannot be used to decrease a provincial tax liability. As a result, the credit could reduce a taxpayers federal income taxes to zero, while still leaving the taxpayer with a provincial income tax obligation. In certain circumstances, a person could have no federal tax payable, while still owing almost $700 of provincial tax.
This credit is very different from income splitting for seniors. Although seniors income splitting only applies to eligible pension income, it can result in savings of almost $15,000 on a couple’s total tax liability, as there is no maximum allowable transfer with seniors’ pension splitting.
A couple cannot claim both pension splitting and the family tax cut on the same tax return.