Wednesday, December 31, 2014

Welcome Income Splitting

Yes, it will only be available to families with children. And, apart from the restriction on the income one could attribute to the spouse, there will be another restriction on how much one could save from income splitting - no more than $2000. Still, it's better than nothing:
Income splitting would help almost half of Canadian families with children under 18. If it were adopted federally and provincially, typical middle-class families getting by on a single income would see substantive tax relief. For example:

A graphic designer in British Columbia with a salary of $49,920 would save 27% on taxes (down from $5,027 to $3,658)
An electrician in Ontario earning $56,150 would save 35% on taxes
A registered nurse in New Brunswick earning $72,800 would save 28% on taxes
Income splitting has been depicted as a tax break for specially chosen Canadians. However, currently certain Canadian families are unjustly disadvantaged by our tax code. Income splitting would eliminate this injustice, treating all families equally.

The disadvantage is clear since two families with matching incomes are taxed differently based on how their incomes are earned. Families that sacrifice workforce pay in order to address caretaking needs are penalized through higher taxes.

This long-standing injustice in our tax code is both unfair and unacceptable to Canadians. Recent polling confirms that Canadians, regardless of political preference, support income splitting. Opponents of the policy are a vocal minority.
The opposition parties keep blasting the Conservatives for what they claim is a "tax break for the rich"; the Liberals (primarily - Ralph Goodale and Justin Trudeay) claimed that a family would have to make as much as $160,000 to fully benefit from income splitting. Let's see if it's really so. Let's calculate together how much does one have to make to take full advantage of the $2000 tax break.

Our first tax bracket is 15%. The next one is 22%. By attributing part of his income to a spouse, one would save 7 cents on the dollar. How much income does one have to attribute to hit the $2000 ceiling? 2000/0.07=$28,571.42. Combined with the $43,953 threshold where the 22% rate kicks in, that amounts to mere $72,525. That's nowhere near $160,000 (not even half that much). And only hardcore lefties could argue that a family making $72,500 is somehow "rich".

Income splitting is there to provide middle income families with much needed tax relief. Hopefully, as the time comes for the next Federal election, all these families make the right chose and don't trade the long-awaited tax break for a legalized marijuana.

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