FAMILY TAX CUT: Income Splitting and Other Benefits for Families with Children

Canadian-Family-by-Joe-HowellOn October 30, 2014, Prime Minister Stephen Harper announced personal tax changes with respect to families. These changes were passed into law on December 16, 2014.

The Family Tax Cut is a new non-refundable credit.
Essentially, you get a Federal tax credit intended to simulate the annual Federal tax benefit of income splitting with a lower income spouse to a maximum transfer of $50,000 and a maximum tax benefit of $2,000.

This will start on 2014 personal tax returns.

To be eligible for the credit, you must meet all of the following criteria:

o be married (including common-law partners) to a Canadian

  • resident at the end of the year;
  • have a child under age 18 who resides with you;
  • not make a pension splitting election (either spouse);
  • file a return (both spouses);
  • be resident in Canada;
  • not become bankrupt in the year; and
  • not be incarcerated for a 90 plus day period in the year.
  • Universal Child Care Benefit (UCCB) payments will be increased by $60 per month for all children under age 18 (so you get $160 per month for children under age 6 and $60 per child age 6 to 17). This is effective January, 2015 but payments will not begin until July, 2015. A Canada Child Benefits Application Form will be required for parents who have not previously completed such a Form to get other benefits, or for those whose situation has changed.
  • The Child Tax Credit (worth $338 per child under age 18 in 2014) will be eliminated in 2015. Instead of a $338 Federal tax credit, the taxpayer will receive $720 ($60 per month as indicated above) in new UCCB payments to be reported by the lower income spouse. Even at a 50% tax rate, the taxpayer will still be ahead. The enhanced portion of the credit for an infirm child will remain available, despite the base credit being eliminated.
  • The annual limit on Child Care Expenses will increase to $8,000 per child under age 7, $5,000 per child age 7 to 16, and $11,000 per disabled child, a bump of $1,000 per child in each category. This will also be effective in 2015.
  • The Fitness Tax Credit doubles in 2014. For eligible expenses of $1,000, a Federal credit of $150 is obtained ($1,000 @ 15% = $150). This credit will become refundable in 2015. “Refundable” means that in situations where less than $150 in tax is assessed, federal taxes will be reduced to $0 and the unused portion of the credit will be refunded to the taxpayer. The Arts Tax Credit remained unchanged.Action Item: Ensure your children, aged 17 and under, are registered for UCCB.
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