The current Canadian income splitting situation briefly explained,
to help people ask for this tax reform
during the election campaign,
April 2011
If you are a couple whose incomes are in different tax brackets (especially if there is only a single income)
and your combined income is about $45,000 or over, you are probably paying significantly more income tax than another couple who have
the same total income but happen to have incomes equal enough to be in the same tax bracket (other factors might apply, but assuming
all else is equal). The Canadian income tax system works that way because the higher income in the one household is taxed in
a higher bracket (higher percentage rate) than the other incomes. Many tax experts consider this as very unfair, because couples
informally share income within the household, so both the partners in the unequal-income household each have in effect the same income as
is had by each of the partners in the equal-income household. So why should the unequal-earning couple be taxed more? The extra tax paid is commonly in the hundreds or the thousands of dollars per year!
For example, in a paper (
www.imfcanada.org/Default.aspx?go=article&aid=1001&tid=8 )
written not too long ago for the Institute of Marriage and Family Canada (
www.imfcanada.org ) by Jack Mintz, Canada's leading tax
authority, he gave tax figures for two families with two children each. One family with
two incomes of $35,000, and
another with a
single income of $70,000.
The single-income family pays $3800 more tax annually than their dual-income
counterparts.
NEW: See how much less tax you would pay with income splitting, according to this calculator: http://www.familyincomesplitting.com/tax.htm .
Also, please consider signing the petition there. (Mr. Hiebert is not associated with this website).
Taxpayers and authorities
(at least as far back as the 1966 Carter Royal Commission) have for a long time been pointing out to governments that making couples
pay more tax just because they have unequal incomes is simply not fair. But governments have been reluctant to correct the situation,
and two of the reasons they have given are: (1) it would cost the government too much, in terms of lost revenue, and (2) it would
create a disincentive to wives to seek employment. It does not require much logic to see that these reasons do not justify
continuing to severely contravene the basic tax principle of horizontal equity.
Some unequal income couples are fortunate to
have ways to avoid the extra tax. These ways come under the general heading of ‘income splitting’. In income splitting
the higher-income partner transfers income to the lower-income partner – as much as possible to equalize their incomes – either in
actual dollars, or just on the income tax return. Examples of people who are allowed to save income tax this way are family
businesses, and of course pensioners, who can do it simply on their tax returns under the pension splitting rules introduced
in 2007 (in the particular case of CPP it has always been possible simply by having benefit payments combined, and half mailed to
each spouse).
What the parties, in their election platforms, are offering regarding income splitting:
Conservatives:
Income splitting (maximum transfer of $50,000) for families with children under 18, but this would not start for years, if at all
(depends on the budget).
Liberals: Nothing so far.
NDP: Nothing so far.
BQ: Nothing so far.
Green: The Green Party proposes that
revenue from taxing pollutants be used to allow income splitting, etc.
It is late in the election campaign, but
perhaps the very recent upset in the polls might make more parties listen to what the voters want.
We recommend that you
contact the leaders of the parties, and your local candidates, and tell them your situation and why you want income splitting
NOW. And you might want to remind them that what we are asking for here is a correction of a longstanding tax inequity, not
a new benefit, so don’t be shy to ask. And it’s not like we are asking for the world – you could say we want a modest but immediate
start, maybe a maximum of $10,000 transferred between spouses' tax returns in the first year, increasing yearly to the Conservative-proposed
$50,000 in five years. And give any reasons why your household especially deserves income splitting, like children, an elder
or invalid to care for, one partner not physically able to be employed, etc. Even if your household is not affected, why not
ask for income splitting anyway, for the benefit of the households of your children, friends, and Canadians generally?
Here are
some useful addresses and websites for getting more information and contact info for politicians:
The leaders of the main parties:
List of Political Party websites:
The
current election platforms of the parties:
List
of local ridings and candidates:
List of current MPs in Canada, with contact info:
The
website and facebook page of MP Russ Hiebert (he is not associated with this website):
Please,
pass this message along to all the people you know who might be affected or whose family members might be affected.
The author
and helpers of this website are mostly seniors who were involved in the advocacy campaign to bring about pension splitting, and would
now like to see the tax fairness that pensioners and others have, extended further.
This web page was updated 2011-04-22. Check back for updates
as the election campaign progresses.