Income splitting not the only good news; Recent federal tax announcement

National Post

2014-11-08


Last week's federal government's announcement contained various measures that will put more money into the hands of families with kids under the age of 18. While much of the attention and discussion has focused on the "income splitting" proposal, there were a few other measures of some significance.

The Family Tax Cut Credit Otherwise known as "income splitting," the "family tax cut credit" is a new federal non-refundable credit worth up to $2,000 for couples with children under 18, effective for the current 2014 taxation year. It's calculated as the tax savings a couple could realize on the notional transfer of up to $50,000 of income from one spouse or partner to the other and capped at a maximum benefit of $2,000.

Enhanced Universal Child Care Benefit This monthly, taxable benefit rises to $160 per month for children under the age of six - up from $100 per month. In addition, a new benefit of $60 per month or up to $720 annually for children aged 6 through 17 is added, both effective Jan. 1, 2015.

But, the enhanced Universal Child Care Benefit (UCCB) is not a pure win as it will replace the existing Child Tax Credit. This credit, which will be eliminated in 2015, is currently based on $2,255 per child at the 15% credit rate or $338 per child.

Child care expenses The child care expense deduction allows the lower-earner spouse or partner to deduct up to $7,000 per child under age seven, $4,000 for each child aged seven through 16 and $10,000 for children who are eligible for the Disability Tax Credit (DTC). Last week's proposal will increase the amounts by $1,000 each for 2015, such that the maximum amount would increase to $8,000 per child under age seven, $5,000 for each child aged seven through 16 and to $11,000 for children eligible for the DTC.

Doubling of the Children's Fitness Tax Credit The government also reconfirmed its commitment to double the Children's Fitness Tax Credit from its current limit of $500 per child to $1,000 effective immediately. Currently, this non-refundable credit is worth 15% or up $75 if you spend $500 on your kid's fitness activities. Beginning next year, in 2015, the credit will be refundable, meaning that even a low income individual who otherwise wouldn't pay tax could get back up to $150 ($1,000 X 15%) as a result of the credit.

Savings add up Taking the example of an Ontario family with five kids ranging in age from four through twelve. One parent is in the top federal tax bracket (29%) and the other is in the lowest federal bracket (15%). All five kids are in various sports and the family employs a fulltime nanny.

The couple will now be ahead by nearly $4,600 in 2015. The family tax cut credit will give them $2,000. An additional $1,200 will come as a result of the enhanced UCCB, calculated as an extra $60/month X 12 months X 5 kids, less 20% combined federal and Ontario tax at the lower earner's bracket, less 5 X $338, which represents the elimination of the Child Tax Credit in 2015.

Another $5,000 in additional child care deductions is worth a further $1,000 at the lower earner's tax rate of 20% while the doubling of the fitness credit adds another $375 (5 X $75) to the family's wallet in 2015.