What is the new Family Tax Cut?

All about the new family tax cut . Under Canada’s tax system, federal personal income tax rates increase with the level of taxable income of the individual. As a result, a couple in which one individual has a higher taxable income than the other often pays more federal income tax than a couple where both individuals have equal taxable income.

The October 30, 2014 announcement included a proposal to introduce the Family Tax Cut, a new non-refundable tax credit of up to $2,000 for eligible couples with minor children based on the net reduction of federal tax that would be realized if up to $50,000 of an individual’s taxable income was transferred to the individual’s eligible spouse or common-law partner. This would take advantage of a spouse’s lower income tax bracket.

When will the new Family Tax Cut be effective?
This new tax credit will be effective for the 2014 and subsequent tax years.

Will the new Family Tax Cut be included in the 2014 individual income tax and benefit return to be released in January 2015 for the upcoming filing season?
Yes

Who is considered an eligible spouse or common-law partner for the purposes of the Family Tax Cut?
To be eligible, your spouse or common-law partner must be a resident of Canada on December 31 of the year (or on the date of death) and you were not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days or more beginning in the year.

Can I claim the Family Tax Cut?
You can claim the Family Tax Cut for a tax year if:
• You were a resident of Canada on December 31 of the year (or on the date of death);
• You have an eligible spouse or common-law partner for the year who has

not claimed the Family Tax Cut;
• You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your eligible spouse or common-law partner;
• You were not confined to a prison or similar institution for a period of at least 90 days during the year;
• Neither you nor your eligible spouse or common-law partner became bankrupt in the year;
• Neither you nor your eligible spouse or common-law partner elected to split eligible pension income in the year; and
• Both you and your eligible spouse or common-law partner file an income tax and benefit return for the year.

How will I claim the Family Tax Cut credit?
To claim the credit, complete new Schedule 1-A, Family Tax Cut, and enter the amount calculated on line 423 of the Schedule 1, Federal Tax.

Can I share the Family Tax Cut with my eligible spouse or common-law partner?
No. Either you or your eligible spouse or common-law partner can claim the Family Tax Cut for a year, but not both. This credit cannot be shared.

My former spouse and I have joint custody of our child, who is under 18 years of age. Can we both claim the Family Tax Cut?
Because of a joint custody arrangement, your child may have ordinarily lived with both you and your former spouse or common-law partner throughout the year. Provided that you and your former spouse each have an eligible spouse or common-law partner for the year, and all of the other conditions for claiming the Family Tax Cut (see Can I claim the Family Tax Cut?) are met, you can both claim the credit for the year.

Will my net income or taxable income change if I claim the Family Tax Cut?
No. This credit is calculated as if an individual allocated up to $50,000 of taxable income to an eligible spouse or common-law partner of the individual. Your actual net income and taxable income will remain unchanged.

If I claim the Family Tax Cut, will it change the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, Canada Child Tax Benefit (CCTB), and other federal or provincial benefits and tax credits?
No. Unlike pension income splitting, your net income and the net income of your eligible spouse or common-law partner will not change if you claim the Family Tax Cut. As a result, benefits and tax credits that are calculated based on net income, such as the GST/HST credit, the CCTB, the age amount, and the spouse or common-law partner amount, will not change.

If I intend to claim the Family Tax Cut for 2015, can I reduce the tax being withheld from my employment income or other income during the year?
The CRA cannot approve a reduction of tax withheld at source based on a claim for, or the intention to claim, the Family Tax Cut.

If I intend to claim the Family Tax Cut for 2014, can I reduce my installment payments?
Many individuals are required to pay tax by installments, and the CRA issues installment reminders to them indicating the amounts to be paid by each installment due date. However, as an alternative to paying the amounts shown on the reminders, installment payments can instead be made based on either the individual’s prior-year net tax owing and CPP payable, or his or her estimated current-year net tax owing and CPP payable.

Under the current-year option, an individual can estimate his or her current-year net tax owing for 2014 based on the intention to claim the Family Tax Cut. However, if the installment payments are insufficient, installment interest may be charged. More information about installment payments and installment interest charges is available in Pamphlet P110, Paying Your Income Tax by Installments.

Disclaimer:
This article only provides information in a general nature and is only as current as the date in which it is posted. It is not updated and therefore may no longer be current. This document should not be relied upon as it does not claim to, nor provide advice on legal or tax matters. All tax situations are specific in nature and will likely differ from the situations that are presented in the article. It is advisable that you seek and consult a tax professional if you have any specific legal or tax questions. This document is intended to provide general information on a particular subject or subjects(s) and this article is not an exhaustive treatment of such subject(s). In accordance, the information in this document is not intended to constitute or replace accounting, tax, legal, investment, consulting, or other professional advice or services. Before any decision is made, or any action taken which might affect your personal finances or business, you should consult a qualified, professional adviser.