Tax changes to benefit families: MP
Income splitting and higher child care credit announced
Michele LeTourneau
Northern News Services
Published Monday, November 10, 2014
NUNAVUT
Nunavut's MP announced changes to the federal government's family tax credits Oct. 30, which she says will help families in Nunavut, home to the youngest population in Canada, including a high number of single mothers.
"A model family, that has a significant differential in spousal earnings, with several children under the age of six, who are in child care and who are engaged in a significant amount of paid physical fitness activities, would realize the maximum benefits under these proposed tax cuts," said Ralph Cormack, a chartered accountant and tax manager at Lester Landau Chartered Accountants in Iqaluit.
Short of having a model family, each individual change will have more or less impact on Nunavut families.
The changes "will help families face the higher cost of living that we face in the North," Nunavut MP Leona Aglukkaq said in an interview.
"All around, it's very good news for Nunavummiut. We have the youngest population in Canada. We have many single mothers and young families in the North so this will go a long way."
The main measure touted by the government is the family tax cut will allow income splitting for families with children under the age of 18.
An eligible taxpayer will be able to transfer up to $50,000 of income to his or her spouse for tax purposes in order to collect a non-refundable tax credit of up to $2,000 per year.
(Non-refundable means it only lowers the tax you owe but will not be refunded if you owe no tax).
Cormack explains that according to Statistics Canada, the median Nunavut household income was $65,530 in 2012.
If this was all earned by one spouse, then the family would be able to transfer income to the lower earning spouse, therefore utilizing lower marginal tax rates, and being able to receive the tax credit.
If both spouses were making $32,765, then there is no ability to split income and therefore no opportunity to receive the tax credit.
The family tax cut benefits families where one spouse has a higher income level than the other. If you are a single parent, the family tax cut will have no impact on your tax return, said Cormack.
However, there are three other changes that will be generally helpful - the universal child care benefit (UCCB), the child care expense deduction, and the child fitness tax.
Aglukkaq says these "will go a long way to supporting families in the North. It's very beneficial to families in low-income or middle-income brackets."
Cormack agrees.
"The UCCB is a straight-up benefit," he said. "Every family or single parent is eligible for the UCCB payment no matter the income level of the parent or parents.
"There is a $60 per month increase for children under six; the increase is to $160 per month per child under six. There is a new $60 per month benefit for children age six to 17."
"For mothers that have children in day care (the increase in the child care expense deduction) is great news," said Aglukkaq.
The deduction is now $8,000, up from $7,000.
"The $1,000 deduction increase will reduce taxes for families that spend more than $7,000 per child under the age of seven and $4,000 per child age seven to 16 on child care expenses. The amount of taxes that will be reduced is their increased spending multiplied by their effective marginal tax rate," said Cormack.
As for the fitness credit, families will see both an increase to $1,000 from $500 and a change from a non-refundable credit to a refundable credit.
"We've also made a change to include individuals who are at a very low income bracket and don't contribute to paying taxes because of their low income - they had not been included before - so under this new program those individuals would benefit from the change under the reimbursement component of it for sporting activities," said Aglukkaq.
"For all the hockey moms in Nunavut, the mothers of soccer players and volleyball players, for parents to participate in hockey and travel to regional centres to participate in hockey tournaments, this one will be very good."
Cormack puts it in real monetary value.
"The tax saving value was $75 previously. Now it will be $150 (15 per cent of the total amount) in total. The fact that it is refundable is advantageous to low-income families that pay for some child fitness amounts, as they know they will receive 15 per cent of the amount back.
"For example, if the swim program was going to cost $100 per child, then the family can budget and say overall the swim program only costs $85 once we file our tax returns and apply for the child fitness credit."
Cormack said the changes will benefit most Nunavut families.
Aglukkaq says "The bottom line is that this is more cash in the pockets of parents, for parents to make decisions in terms of how they will spend these savings for their children."
"It's in their pockets - they are free to make decisions on what sporting activities they get into, what kind of after-school program they have or daycare or what not."
The changes are subject to parliamentary approval, which is likely to take place next year.
