Split Your Income, Cut Your Family’s Tax

The Government of Canada has announced the Family Tax Cut, effective for the 2014 tax year, which allows couples with children under 18 years of age to split their income. The result is a non-refundable credit of up to $2,000.

With the income-splitting, one spouse can effectively “transfer” as much as $50,000 of their income to the lower income spouse, allowing the family to take advantage of Canada’s progressive tax rates (thus the two parents must be in different tax brackets in order for the family to benefit).

The transfer will only be a hypothetical transfer on a particular schedule of the tax return, and solely for the purposes of calculating the credit. Both spouse’s net income etc. remain unchanged.

The savings also only apply to federal income tax and not provincial.

For further information, see http://www.cra-arc.gc.ca/gncy/bdgt/2014/qa10-eng.html.