Personal Finance

Income Splitting.... How that is good!!

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[OP]
Member
Jul 4, 2012
409 posts
34 upvotes
Calgary

Income Splitting.... How that is good!!

Hi All,

I heard about this new rule what it is
A person can assign part of his/her income to his/her spouse to a max of 50K if the other person is stay home person or work part time

this is done in order to reduce taxed of people who have children under 18 and help them

isn't it true the tax value is determined on the total family income? so how splitting income helps?

Thanks
131 replies
Deal Addict
Dec 27, 2013
3586 posts
1345 upvotes
Woodbridge
Tax is paid by the individual.

I don't know the brackets of the top of my head, but a simple example:

Spouse 1 earns $100,000. Pays 15% on first $30,000, 30% on next $30,000, and 40% on remaining $40,000.
Spouse 2 earns $0.

Family pays $4,500 + $9,000 + $16,000 for a total of $29,500 taxed.

Instead:

Spouse 1 earns $100,000 but gives $50,000 of it to their spouse who earns $0. Now:

Spouse 1 is taxed 15% on first $30,000, 30% on next $20,000
Spouse 2 is taxed 15% on first $30,000, 30% on next $20,000

Total tax: $4,500 + $6,000 = $10,500 each x 2 = $21,000 total.

By splitting income, the family earns the same as a whole, but pays $8,500 less in taxes.
Deal Fanatic
Dec 24, 2005
5725 posts
1536 upvotes
nabilbb wrote: isn't it true the tax value is determined on the total family income? so how splitting income helps?
this is how it should be - but taxes are always filed individually.

it's good because until 2015 a family making 80k + 40k paid more in tax than a family with two people making 60k each.
now it's closer to even
Sr. Member
Jan 2, 2007
933 posts
48 upvotes
Can you provide a link that actually says this is possible? I'm interested in this as I'm in the same situation.
Deal Addict
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Jan 28, 2012
1736 posts
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Income splitting is just an attempt at social engineering to encourage women to stay at home with the kids "where they belong".

People who have a stay at home spouse already have an enormous benefit: they don't have to pay for daycare (which has an absurd cost due to this government also refusing to enact a childcare strategy.) Giving them tax breaks on top of that is stupid.


For people like the 80k/40k vs 60k/60k example, yes it does benefit them a bit but it's not that huge. Incidentally the government has capped the benefit of this plan at like $2000 anyway because it costs too much money.


Plus now the budget is going to sh&t due to oil yet they will still charge ahead with this anyway.
Deal Expert
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Jul 30, 2007
31261 posts
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Toronto
income tax software would be able to achieve the best income splitting scenario between the two. You don't need any link to know more.
Deal Addict
Sep 20, 2014
1518 posts
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Toronto, ON, CA
Rhaegar wrote: Income splitting is just an attempt at social engineering to encourage women to stay at home with the kids "where they belong".

People who have a stay at home spouse already have an enormous benefit: they don't have to pay for daycare (which has an absurd cost due to this government also refusing to enact a childcare strategy.) Giving them tax breaks on top of that is stupid.
...
Well they lose out on a salary too....
Deal Addict
Mar 11, 2007
4136 posts
1300 upvotes
QC
No real benefits for most QC people. Harper knows how to get votes from us. :D
Deal Addict
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Jan 28, 2012
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2009M5 wrote: ...
Well they lose out on a salary too....
All the more reason that the government should be encouraging them to go work, not bribing them to stay home.
Penalty Box
Aug 11, 2005
4175 posts
1430 upvotes
Rhaegar wrote: All the more reason that the government should be encouraging them to go work, not bribing them to stay home.
It's not about incentives, it's about removing the subsidies that dual income families have been getting (where income discrepency is zero or low)
Sr. Member
User avatar
Apr 5, 2009
948 posts
335 upvotes
Toronto
jvnanu wrote: Tax is paid by the individual.

I don't know the brackets of the top of my head, but a simple example:

Spouse 1 earns $100,000. Pays 15% on first $30,000, 30% on next $30,000, and 40% on remaining $40,000.
Spouse 2 earns $0.

Family pays $4,500 + $9,000 + $16,000 for a total of $29,500 taxed.

Instead:

Spouse 1 earns $100,000 but gives $50,000 of it to their spouse who earns $0. Now:

Spouse 1 is taxed 15% on first $30,000, 30% on next $20,000
Spouse 2 is taxed 15% on first $30,000, 30% on next $20,000

Total tax: $4,500 + $6,000 = $10,500 each x 2 = $21,000 total.

By splitting income, the family earns the same as a whole, but pays $8,500 less in taxes.
This is how it would work in an idealized situation, but this is not how Canadian tax law works.

Under old rules, in your example Spouse 1 would be able to claim an additional deduction called "Spouse or common-law partner amount", which would reduce the total tax burden by about $1,500 (the amount changes a little each year).

Under new rules, there is an additional reduction in tax payable, but it's capped at $2,000 so it's not quite the same as just splitting the income in half and paying tax as if the other person earned it.
Deal Addict
Dec 27, 2013
3586 posts
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Woodbridge
greenmoon wrote: This is how it would work in an idealized situation, but this is not how Canadian tax law works.

Under old rules, in your example Spouse 1 would be able to claim an additional deduction called "Spouse or common-law partner amount", which would reduce the total tax burden by about $1,500 (the amount changes a little each year).

Under new rules, there is an additional reduction in tax payable, but it's capped at $2,000 so it's not quite the same as just splitting the income in half and paying tax as if the other person earned it.
Yes, the actual laws are different. I was just giving a simple example to illustrate what income splitting could look like and that its by individual not family. Thanks for clarifying!
Deal Guru
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Jun 1, 2006
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It will be gone when Mr Trudeau gets in power since he said he wll get rid of it.

He says only 15% of Canadians will benefit. Is that accurate?
Have a nice day!


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Jan 28, 2012
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Luckyinfil wrote: It's not about incentives, it's about removing the subsidies that dual income families have been getting (where income discrepency is zero or low)
It's not a subsidy to tax dual income families the normal amount. A subsidy is providing blanket tax cuts to anyone who happens to have a non working spouse at home for whatever reason (that includes trophy wives for rich people).

The normal situation in our society is for both able bodied adults to be working and paying taxes. We should not be subsidizing people to not work.
Deal Guru
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Jun 1, 2006
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Rhaegar wrote: It's not a subsidy to tax dual income families the normal amount. A subsidy is providing blanket tax cuts to anyone who happens to have a non working spouse at home for whatever reason (that includes trophy wives for rich people).

The normal situation in our society is for both able bodied adults to be working and paying taxes. We should not be subsidizing people to not work.
We do already do that. Its called welfare.
Have a nice day!


Penalty Box
Aug 11, 2005
4175 posts
1430 upvotes
Rhaegar wrote: It's not a subsidy to tax dual income families the normal amount. A subsidy is providing blanket tax cuts to anyone who happens to have a non working spouse at home for whatever reason (that includes trophy wives for rich people).

The normal situation in our society is for both able bodied adults to be working and paying taxes. We should not be subsidizing people to not work.
Except it's not a normal amount. It's less than what single income families are currently paying. When all your benefits take into account the family unit of income, it's only logical and fair to have deductions/taxes take into account the family unit of income as well. Just because those that are single income families (or with income disparities) are subsidizing you right now, doesn't mean that it is unfair to to take away your subsidies.
Deal Addict
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Jan 28, 2012
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LonesomeDove wrote: We do already do that. Its called welfare.
Sure, but we aren't giving welfare to unemployed people who have spouses that work and make a good salary. Until now that is
Deal Expert
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Oct 26, 2003
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Rhaegar wrote: It's not a subsidy to tax dual income families the normal amount. A subsidy is providing blanket tax cuts to anyone who happens to have a non working spouse at home for whatever reason (that includes trophy wives for rich people).

The normal situation in our society is for both able bodied adults to be working and paying taxes. We should not be subsidizing people to not work.
come on, homemaking is legit work, doesn't have to be the wife, men can do it too, get on with the times.
WTB amazon gc @90%
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Jan 28, 2012
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divx wrote: come on, homemaking is legit work, doesn't have to be the wife, men can do it too, get on with the times.
"Homemaking" is bullsh$t. The only reasonable excuse to stay at home and not work is for child care, and even then I think it would be better for all kids if there were affordable childcare centers available to all instead.

Nobody (husband or wife) needs to be at home full time cleaning and cooking, etc i.e "homemaking".

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