BUSINESS

Income-Splitting Changes Coming From Tories

10/29/2014 09:03 EDT | Updated 12/29/2014 05:59 EST
CP
Prime Minister Stephen Harper will on Thursday unveil a scaled-down version of the Conservatives’ 2011 campaign commitment to allow income-splitting by parents with children younger than 18 once the federal budget is balanced.

Sources tell CBC News that Harper's announcement at a community centre north of Toronto will cap the amount of tax savings at $2,000 per couple.

The change is intended to cut the estimated $2.7 billion cost of the program, without altering the core commitment to allow the parent with the higher income to transfer up to $50,000 in income to the other. And it potentially frees up hundreds of millions of dollars in surplus monies for the Conservatives to spend on other priorities heading into an election year.

There are reports that those priorities could include an expansion of the universal child care benefit, which now pays $100 a month for each child regardless of income. The government has already doubled the children’s fitness tax credit.

The prime minister is expected to frame Thursday’s announcement as part of the Conservatives’ family agenda. The change could also help shield the government from the accusation that the income-splitting measures stand to disproportionately favour richer Canadians.

Wide support among MPs

Cost aside, income-splitting enjoys wide support among Conservative MPs. They saw it as a vote-getter in suburban ridings around Toronto and Vancouver where families with single-income earners are more common.

The plan would lower their overall tax bill by allowing the transferred money to be taxed at a lower rate, with the family pocketing the savings.  The Conservatives also say it will make it financially easier for couples who want one of the parents to stay at home to raise the children.

But critics of the program, including former finance minister Jim Flaherty, argued it would primarily benefit a small minority of the richest Canadians who least need a tax cut.

For example, for a couple in which one spouse earns $60,000 a year and the other earns nothing, the savings would be about $1,400 in federal tax. But for the same couple where the income earner brings home $191,000 — which Statistics Canada’s 2011 survey identified as the cutoff for the top one per cent of income earners — the savings jump to more than $7,000.

Sources tell CBC News that Harper shared those concerns.

But a promise is a promise, so the government will argue Thursday that it is making good on the commitment, beginning immediately. That means couples will see the benefits of the tax savings next spring when they file their 2014 income tax returns.

Finance Minister Joe Oliver will be at Thursday’s event at the Schwatz-Reisman Centre in Vaughan, Ont. a suburb north of Toronto.

"The prime minister will be talking tomorrow and we'll find out then,'' Finance Minister Joe Oliver told reporters Wednesday when asked. "And I'll be there with him."

Not for single parents

While the announcement should placate Conservative supporters, it will do nothing to mollify opponents who see it as a form of social engineering. The tax benefit is not available to single parents, and would have little impact on families with two income-earners who bring in roughly the same amount. It also doesn’t reflect how many children a family has.

The program will also have an impact on provincial revenues, since their tax systems are based on payable federal tax.

But income-splitting is shaping up as the biggest issue separating the Conservatives from their political opponents.

The New Democrats announced a $15-a-day child-care plan earlier this month as part of an ambitious plan to create or maintain a million affordable daycare spaces across the country.

Liberal Leader Justin Trudeau has already vowed he’d reverse the Conservative policy if his party forms a government.

"It doesn't help the people who need it most and it costs Canadians an awful lot to do. It doesn't make sense," he told CBC News last week.

Conservatives immediately accused Trudeau of planning to increase taxes.

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