Prime Minister Stephen Harper announced several new tax relief measures last week, which we have summarized below. Please note that the following measures are applicable only to households with children.
Family Tax Cut
The proposed Family Tax Cut allows an individual to transfer up to $50,000 of taxable income to his/her spouse who is in a lower tax bracket for federal income tax purposes.
This new income-splitting federal tax measure will provide relief of up to $2,000 in the form of a non-refundable tax credit to the higher income-earning spouse. The credit would be determined based on the difference between the combined taxes payable with no income splitting (i.e., the status quo) and the combined taxes that would otherwise be payable if the higher income spouse transfers taxable income (up to $50,000) to his/her lower-income spouse.
The non-refundable tax credit can be claimed by either spouse as long as he/she is a Canadian resident for tax purposes. However, the couple must have at least one child under the age of 18.
In order to make the claim for this new proposed non-refundable tax credit, each spouse must file an income tax return. The proposal, if enacted, will apply to 2014 and subsequent tax years.
Increase Universal Child Care Benefit (UCCB)
The UCCB has been enhanced by providing parents of children aged six and under with $160 per month for each child. This is an increase of $60 per month, which translates to up to $1,920 per child per year. In addition to this increase, the government has proposed a new benefit of $60 per month for children aged six through 17, for a total of up to $720 per child per year. These benefits are taxable to the lower-income spouse.
For children aged six through 17, parents must complete the Canada Child Benefits Application form in order to qualify for the new UCCB benefit. Parents who had already completed this form to access other child-related benefits (e.g., Canada Child tax benefit and GST/HST credit) do not have to resubmit the form unless their family situation has changed. It is not entirely clear if the form will need to be resubmitted by those with children over the age of six who previously received the UCCB.
The enhanced program would take effect as of January 2015 and payments would begin in July 2015. The July payment would include up to six months of benefits from January to June 2015.
Finally, as a result of the increased UCCB benefits, it is proposed that the Child Tax Credit be eliminated for 2015 and subsequent tax years. Parents with infirm, minor children will continue to be eligible for the Family Caregiver Tax Credit notwithstanding the repeal of the Child Tax Credit.
Child Care Expense Deduction
The government announced its intention to increase the Child Care Expense Deduction dollar limits by $1,000 for each child. The proposed dollar limits are as a follows:
- For children under the age of seven: $8,000 (up from $7,000)
- For children aged seven through 17: $5,000 (up from $4,000)
- Children who are eligible for the Disability Tax Credit: $11,000 (up from $10,000)
For an individual in the highest tax bracket with two children under the age of 18, the increased Child Care Expense Deduction equates to approximately $1,000 per year. However, we remind you that it is the lower-income spouse who must claim this deduction.
These increased limits are proposed to apply for 2015 and subsequent tax years.
Children’s Fitness Tax Credit (CFTC)
Effective for the 2014 and subsequent tax years, the government has proposed to increase the maximum CFTC to $1,000 per child. In terms of annual tax savings, you can expect a maximum of $100 per child per year from the doubling of the CFTC.
As in prior tax years the CFTC will be a non-refundable tax credit in 2014. However, starting in 2015, it is proposed that the CFTC will become a refundable tax credit.