POLITICS

How will recent federal tax changes affect your family's tax bill?

11/13/2014 04:19 EST | Updated 01/13/2015 05:59 EST
CALGARY - It was all about families when Prime Minister Stephen Harper announced a new raft of new tax measures a few weeks ago.

Tax professionals have since been digging into the nitty gritty of the changes — income splitting and an expanded Universal Child Care Benefit among them — to discern how their clients may benefit come tax time.

The income-splitting option, or Family Tax Cut, is geared toward couples — with kids under the age of 18 — in which one spouse is in a higher income tax bracket than the other.

"It's always better having two individuals earning $70,000 than one individual earning $140,000 because those two individuals earning $70,000 would be taxed at federal rates 22 per cent versus one at 29," said Douglas Forer, a partner at law firm McLennan Ross in Edmonton.

Under the new rules, in effect for the 2014 tax year, up to $50,000 in income can be transferred from one spouse's tax bill to the other's, with a non-refundable tax credit capping out at $2,000 per household.

The change has been criticized as benefiting a relatively small number of families. The NDP has called it a "retrograde" plan that pressures women to stay at home rather than enter or re-enter the workforce. It also doesn't help single-parent households.

But, on balance, H&R Block's Caroline Battista says "it's a great thing for families."

"I wouldn't discount it for anybody until I completely looked at their tax situation for the year."

The benefit to a family whose breadwinner makes, say, $70,000 a year would be greater than one in which the main working spouse makes $50,000, she said. The savings would be $1,820 versus around $420, respectively, she said.

"It doesn't sound fantastic" to couples who may have misinterpreted the announcement as meaning $2,000 in savings across the board, Battista said.

"The way I look at it is (that) I wouldn't step over $420 if it was lying on the street," she said. "There would be no reason not to claim the credit if it's going to save you some money."

The biggest worry Battista has been hearing from clients over the past few weeks is whether the current spousal tax credit — for couples in which one partner financially supports the other — will be affected if a couple elects to divvy up their income for tax purposes.

"They don't need to worry about that because the government is accounting for that," she said.

For some families, claiming the Family Tax Cut might not give the best bang for the buck, said Dorin Mihalache, with TaxClinic.ca.

"One thing that probably is going to make a difference for some people is you cannot take the credit if you do the pension income spit," he said.

"So someone in that position needs to look carefully (at) whichever is more beneficial."

Forer said he's be interested to find out whether other tax credits — for tuition, for example — would be affected for families that choose to take advantage of the income split. He expects that sort of "anomaly" would crop up in a relatively small number of cases.

On Oct. 30, the government also announced it's adding $1,000 to the various limits on the child care expense deduction, which allows taxpayers to claim child care expenses if they go to work or school.

It also announced an enhancement to the Universal Child Care Benefit. Families with kids under the age of six will get $160 per month, up from $100. Meanwhile, families with kids aged six to 17 will get $60 per month.

For parents who already signed up to receive the under-six benefit, nothing has to be done to receive the higher amount. For those who have kids six to 17, the Canada Child Benefits Application form needs to be filled out.

That change takes effect in January 2015. The payments would start in July, with the first instalment covering up to six months of benefits.

The enhanced UCCB amount replaces the Child Tax Credit. That's benefiting families with low-enough income that a tax credit wouldn't have helped, said Battista.

"Some lower-income families might not have been benefitting from the child amount, whereas the UCCB, everybody gets that. So that's a positive thing," she said.