Personal Finance

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

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Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
Rhaegar wrote: "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".
You are entitled to your own opinion, but there have been studies done that show kids are better off in their parents care than random strangers.
Deal Addict
User avatar
Jan 28, 2012
1785 posts
693 upvotes
Luckyinfil wrote: You are entitled to your own opinion, but there have been studies done that show kids are better off in their parents care than random strangers.
I'd expect this is one of those topics where extremely biased studies exist all over the place on both sides of the discussion. Obviously a lot depends on what the parents are doing as well as the type and quality of daycare.

My son was in a home daycare from age 1-2 run by a person who we had great referrals to by people we trust. He did great there and loved it. I have several co-workers with home daycare horror stories on the other hand (including one who's kid was verbally/physically abused).

Now we have him in a center that I went to as a kid and is run by a friend of my mom. He's doing great there as well and his verbal skills development has skyrocketed.

For me personally, looking back at my childhood, going to daycare did a world of good for me and likely compensated for a lot of other negative things going on at home (parents divorced when I was 2).

I'm sure there are lots of great parents who can do as good or a better job than a daycare, but there are also lots of bad parents out there and for those kids a daycare may very well be their salvation from an otherwise negative home life.
Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
Regardless of whether it is better for the child to go to daycare or not, income splitting is an equalization tool. Those who it doesn't apply to are in no way worse than they were the day before.
Member
Jul 4, 2012
425 posts
37 upvotes
Calgary
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 clear. thanks for your response and it is so beneficial
Deal Addict
User avatar
Nov 9, 2003
2689 posts
282 upvotes
Has it been confirmed
Deal Fanatic
Sep 23, 2007
5654 posts
2168 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.
I disagree with most of what you wrote. Tax break is not the same as a subsidy. A subsidy is when you help fund certain things. A tax break is a reduction of the tax burden. I understand mathematically they may be similar but they are functionally different. Compare the difference between giving someone money to buy a certain good versus the government giving a tax rebate for the purchase of a certain good. In the subsidy case, you're pushing people who would have found the price unaffordable before to buy the good. In the tax rebate case, you are giving a benefit to people that WOULD HAVE purchased that good to begin with.

I don't see how income splitting "subsidize" people to not work. Unlike welfare, you're not giving people money for being unemployed. You only get this tax benefit if you work and would pay taxes (the WOULD HAVE above). I don't see how someone with already good income will suddenly quit his/her job due to this new income splitting rule. The marginal benefit of working is still positive. If I have the skills to get a good job, I will get a good job regardless of whether this rule exists or not. There's no point where the benefit of earning an additional dollar would be less than tax savings I could get from this new rule. This is unlike welfare. If the government would give you $500, or you have a choice to work a job that pays $400, obviously you'd take the $500 and not work.

Your mention of trophy wives is a fringe example. And a trophy wife will choose not to work whether this income splitting rule exists or not. In other words, this tax law can't possibly change people's decision to work more or less. All it does is lower the tax burden on families who don't have 2 full time workers. Some families may not have dual income earners because one of them may not have the skills. Less skilled people should fairly pay less tax. Even if it's not a skill problem, it is beneficial to reduce tax burden on people who raise children. Canada's population growth rate is very low. Even in a dual income family, it's common for one of the adults to take a break from work or work part time. Raising a child is expensive enough. I see reducing taxes on family a much more efficient way to promote family than throwing money at programs.
Deal Addict
User avatar
Jan 28, 2012
1785 posts
693 upvotes
Luckyinfil wrote: Regardless of whether it is better for the child to go to daycare or not, income splitting is an equalization tool. Those who it doesn't apply to are in no way worse than they were the day before.
Aside from the government wasting my money on an expensive tax cut that mostly benefits people who don't need it, you mean.


My wife and I would actually get about $100-200 out of this, as I make a little bit more than she does. I still don't want it, because now the government has blown their surplus and with oil crashing god knows what they are going to do next to try and balance the budget in time for the election.
Deal Addict
Oct 11, 2006
1507 posts
61 upvotes
Toronto
Honestly I haven't read enough on this so the 50K is news to me. To me that makes this pretty useless and mostly will benefit wealthier people with a stay at home spouse.

My wife and I make $50,000 or over each already. But make less then the couple where one pulls in $150,000 and the other is a stay at home, but they'll get a better tax benefit out of it.

They should have capped the total family income on this at somewhere between $120,000-150,000.
Deal Addict
Dec 27, 2013
3731 posts
1526 upvotes
Woodbridge
nabilbb wrote: This is clear. thanks for your response and it is so beneficial
Just to clarify... this was a basic example. The tax brackets are different and its not as simple as just averaging the incomes between both.
Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
Rhaegar wrote: Aside from the government wasting my money on an expensive tax cut that mostly benefits people who don't need it, you mean.


My wife and I would actually get about $100-200 out of this, as I make a little bit more than she does. I still don't want it, because now the government has blown their surplus and with oil crashing god knows what they are going to do next to try and balance the budget in time for the election.
That's not what equalization means. The single income families have been paying more than their share of tax subsidizing YOU is what it comes down to. Sure the government loses revenue, but it's revenue they would not have had if they weren't overtaxing single income families. I'm hoping harper will expand on the current limits in the next election to fully restore equality.
Newbie
Sep 22, 2007
30 posts
2 upvotes
Winnipeg
hey if you benefit from it but don't want it, don't take the tax credit. studio tax gives you that option when filing your taxes
Rhaegar wrote: Aside from the government wasting my money on an expensive tax cut that mostly benefits people who don't need it, you mean.


My wife and I would actually get about $100-200 out of this, as I make a little bit more than she does. I still don't want it, because now the government has blown their surplus and with oil crashing god knows what they are going to do next to try and balance the budget in time for the election.
Member
Jul 4, 2012
425 posts
37 upvotes
Calgary
jvnanu wrote: Just to clarify... this was a basic example. The tax brackets are different and its not as simple as just averaging the incomes between both.
I understand that. but I got the big picture now.
Thanks again
Deal Addict
User avatar
Nov 26, 2003
1286 posts
355 upvotes
we have chosen to have one spouse stay at home with the kids. To us, the benefits outweigh the income. People may make other choices, that's their business. This income splitting makes the tax system more fair - most of the eligibility for benefit programs, HST rebates, CCTB, etc are calculated on family income, not individual income. Yet we are taxed on individual income. For those of you opposed to this please explain why you think it's fair for someone who makes 100k with a spouse at home (who is therefore not eligible for tax breaks associated with paying for childcare) to pay more taxes than two people earning $50k each
Deal Addict
May 2, 2006
1362 posts
269 upvotes
This is great news for families (mine included) who've chosen to have a parent stay home and raise their child.
Jr. Member
Aug 14, 2007
183 posts
109 upvotes
Burnaby, BC
I may not completely understand how it works, but how does someone making $100,000 with a stay at house spouse benefit from this?

Prior to family income splitting the person making $100,000 could reduce his/her taxable income by claiming the spouse's base amount ($11,038). That would reduce the taxable income to $88,962.00.

Tax Paid on $100,000 - $24,882 (BC)
Tax Paid on $88,962 - $20,656 (BC)

That's a difference of $4,226.

With income splitting the most you can get back is $2,000 as you will not be able to claim your spouse's base amount any longer.
Member
Jul 4, 2012
425 posts
37 upvotes
Calgary
gbk298 wrote: With income splitting the most you can get back is $2,000 as you will not be able to claim your spouse's base amount any longer.
This is a good point. that would be useless split if I can't claim the spousal amount (11K)

any idea about this?
Jr. Member
Aug 14, 2007
183 posts
109 upvotes
Burnaby, BC
gbk298 wrote: I may not completely understand how it works, but how does someone making $100,000 with a stay at house spouse benefit from this?

Prior to family income splitting the person making $100,000 could reduce his/her taxable income by claiming the spouse's base amount ($11,038). That would reduce the taxable income to $88,962.00.

Tax Paid on $100,000 - $24,882 (BC)
Tax Paid on $88,962 - $20,656 (BC)

That's a difference of $4,226.

With income splitting the most you can get back is $2,000 as you will not be able to claim your spouse's base amount any longer.

Found a link that indicates you can claim your spouses base amount as well. If you look at the family with an income of $122,400 the pre-credit federal tax is $20,279 instead of $22,936. This would indicate that the higher earner was able to claim the spouses base amount prior to income splitting. After income splitting the total federal tax paid is $18,279.

https://simpletax.ca/files/SimpleTax_Fa ... 141229.pdf
Sr. Member
Dec 4, 2004
730 posts
729 upvotes
GTA
gbk298 wrote: I may not completely understand how it works, but how does someone making $100,000 with a stay at house spouse benefit from this?

Prior to family income splitting the person making $100,000 could reduce his/her taxable income by claiming the spouse's base amount ($11,038). That would reduce the taxable income to $88,962.00.

Tax Paid on $100,000 - $24,882 (BC)
Tax Paid on $88,962 - $20,656 (BC)

That's a difference of $4,226.

With income splitting the most you can get back is $2,000 as you will not be able to claim your spouse's base amount any longer.
Income splitting is an unfortunate misnomer for this tax credit. The actual name is the Family Tax Cut. The important thing is that there is no actual splitting of income, it is a notional transfer of income for calculation of the credit only. You will still be able to claim unused spousal amounts just like before. However, the calculation of the credit will assign credits to each spouse accordingly.

Basically, what happens is you calculate your income normally as though there is no split happening, claim all credits including the unused spousal amounts, and come up with your total federal tax payable.

Next, you calculate your combined total federal tax payable between you and your spouse if you were to split up to $50,000 of income, using appropriate credits for each of you.

The difference between the two amounts is your tax credit (up to $2,000).

Read about the Family Tax Cut here: http://www.fin.gc.ca/n14/data/14-155_1-eng.asp
You can use the tax calculator at TaxTips.ca to estimate your taxes here: http://www.taxtips.ca/calculators/canad ... ulator.htm

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