The controversial income-splitting plan known as the Family Tax Cut promises to save families up to $2,000 — or $1,670 in Quebec — but critics say few Canadians will max out on the benefit.
The tax cut applies to couples residing together in Canada who have kids under the age of 18 in which one spouse is in a higher income tax bracket than the other. Up to $50,000 in income can be transferred to the lower-paid spouse or common-law partner.
The savings aren't available to those who were in prison for at least 90 days, went bankrupt in 2014 or split a pension.
Eligible taxpayers have to make several calculations and complete one schedule on their tax returns. All tax software will make the calculations and determine the tax credit.
A family can max out if one spouse earns $120,000 and another earns nothing. However, parents in the same tax bracket — whether high or low — won't see any savings. That's the case for someone earning $80,000, for example, with a spouse who earns $50,000.
However, a family would save $423 if one person makes $50,000 and the other nothing at all. Only $277 will be saved in situations in which one spouse earns $50,000 and the other earns $40,000. Savings would total $977 if one spouse earned $70,000 compared to $30,000 by the other.
The change is expected to cost Ottawa $2.2 billion a year in foregone revenue, and critics argue the measure only truly benefits high-income earners with stay-at-home spouses who don't work.
The parliamentary budget office estimates that only 15 per cent of households will qualify for the family tax cut, and just 642,000 of the two million households eligible for income-splitting will hit the maximum benefit.
The marquee tax cut is the most high profile of several family-friendly tax changes for 2014.
Less controversial this year is the children's fitness tax credit that is doubling to $1,000.
Universal Child Care Benefit payment are increasing to $160 per month from $100 for children under six, and a $60 benefit is being introduced for children six to 18 years old. A lump sum will be paid in July followed by regular monthly payments.
A new search-and-rescue volunteer credit will allow eligible personnel to claim up to $3,000. The credit for adoption expenses has increased to $15,000, generating $2,250 in tax savings if the full credit is claimed.
"It's a great year for families," said Caroline Battista, senior tax analyst for H&R Block, the tax preparation company. "For other people, it's more business as usual."
While many Canadians only turn their attention to taxes just before the April 30 deadline, she said H&R Block is fielding lots of calls from people who want to ensure they don't miss out on changes that are only partly understood by the public.
About half of Canadians were aware of the family tax cut but just 15 per cent expected to receive a larger refund because of it, according to a Leger survey recently conducted for H&R Block.
Although critics argue the tax break is a giveaway to high-income earners with stay-at-home spouses, the low maximum benefit means the change doesn't amount to much for multi-millionaires, said Dimitri Georgoulas, senior manager of Canadian tax for Raymond Chabot Grant Thornton.
"Certainly they wouldn't want to pay an extra dollar if they don't have to, but at the same time it's not one (program) that is only being given to the rich," he said.
Georgoulas said the tax cuts will help young families, but the transfer of income could reduce other tax credits, particularly for medical expenses, which are tied to the income of the lower-income spouse.
Also new this year, tax filers will no longer need to apply for GST/GST tax credits since they will be calculated automatically.
This year could also be the last for receiving a tax refund cheque in the mail. The federal government is planning to make direct deposit mandatory by April 2016.
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