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Cut the tax cut

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caledon commentary
Torjman, Sherri
Publication Date: 
8 Jan 2015



In its November 2014 Update of Economic and Fiscal Projections, the federal government unveiled a set of measures for families with children that will take effect in 2015. The reforms are noteworthy in that they are expected to comprise the centrepiece of both the upcoming federal Budget and the election platform of the Conservative Party.

One of the major changes, the Family Tax Cut (also known as ‘income splitting'), caught most of the media attention. But that tax cut was only one component of a larger package. Several associated measures were brought in at the same time - partly to offset the criticism that the government knew would be coming its way on the flagship Family Tax Cut [Battle and Torjman 2014].

The Tories had announced in their 2011 election platform an earlier version of income splitting, which was subject to widespread condemnation. Even the late Minister of Finance Jim Flaherty mused that this proposed policy required a major rethink. The version of income splitting announced in November 2014 was modified somewhat in direct response to earlier negative comments. The additional changes to other child benefits were intended to help sell the new Family Tax Cut more easily to Canadians.

There is no question that the altered plan is more palatable than its earlier design. But we still don't like it. Neither should the vast majority of Canadian families with children. Here's why. The new version of income splitting will allow a spouse in a family with children under the age of 18 to transfer up to $50,000 of taxable income to a spouse in a lower tax bracket. The credit will provide tax relief up to a maximum $2,000 to those households. While the plan may sound good on paper, in the real world it has lots of problems.