In early November 2014, the government announced its version of income splitting for couples with children under 18 years. The term “income splitting” is deceptive as the measure introduced by the government is in fact another non-refundable tax credit. The credit is called: “Family Tax Cut”( http://www.cra-arc.gc.ca/gncy/bdgt/2014/qa10-eng.html) and it is capped at $2,000 for 2014 taxation year. To be eligible for the full $2,000 tax credit, the couple’s net income should be substantially apart. It is important to pay attention to the concept of “net income”. It is the total income earned during the year minus certain deductions listed here: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/menu-eng.html. The most notably, the pension and RRSP contributions are deducted in calculating the net income. Let’s put it in a perspective with some examples:
Scenario 1
Partner A’s total income – $100,000
Partner A’s contribution to pension or RRSP – $25,000
Partner B’s total income and net income – $0
Family tax cut credit – $2,000

Scenario 2
Partner A’s total income – $120,000
Partner A’s contribution to pension or RRSP – $25,000
Partner B’s total income and net income – $20,000
Family tax cut credit – $1,960.50

Scenario 3
Partner A’s total income – $150,000
Partner A’s contribution to pension or RRSP – $25,000
Partner B’s total income and net income – $50,000
Family tax cut credit – $1,483.84

Scenario 4
Partner A’s total income – $75,000
Partner A’s contribution to pension or RRSP – $10,000
Partner B’s total income and net income – $0
Family tax cut credit – $1,473.34

Scenario 5
Partner A’s total income – $50,000
Partner A’s contribution to pension or RRSP – $5,000
Partner B’s total income and net income – $0
Family tax cut credit – $73.34

As you see above, the income gap between partners should be substantial to receive any meaningful tax cut.

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