Family Income Splitting

New Family Income Splitting

New for the 2014 tax year is what is being called the Family Tax Cut. So what is the Family Tax Cut and how do you take advantage of it? The Family Tax Cut mimics pension income splitting; that is, eligible income is transferred from the higher income spouse to the lower income spouse. This results in a non-refundable tax credit worth up to a maximum of $2000 and transferring a maximum of $50,000 to a spouse. You are also only eligible if you have a child under the age of 18 living with you. So how does this help you? Let me show you a simple example using Joe and Mary with a 6 year old daughter:

Before Income Splitting:
Joe earns $80,000 and is taxed at an average of 22.1%. Total taxes owing: $17,654.
Mary earns $30,000 and is taxed at an average of 12.8%. Total taxes owing: $3,848.
Combined taxes owing: $21,502.

Now with the new income splitting, Joe transfers $25,000 of his income to Mary.

Joe now earns $55,000 and is taxed at an average of 20.1%. Total taxes owing: $10,095.
Mary now earns $55,000 and is taxed at an average of 20.1%. Total taxes owing: $10,095.
Combined taxes owing: $20,190.
Total Tax Savings: $1,312.

For further information the CRA has a FAQ on the Family Tax Cut available at: CRA Family Tax Cut

If you would like to speak to a professional regarding the Family Tax Cut or any other tax related information please feel free to contact us at (250) 753-7888.