Here we go again. The Federal Government has announced some new income tax changes in a way that grossly over-states what is really on offer. The ads and discussion will focus on some totally misleading numbers and will anger people who no longer have (or never had) children under 18: I get so tired of this.
Why Announce a $50 000 Tax Split If It Has No Meaning Whatsoever?
In this current round of misleading announcements, the Federal Government has said it is proposing a bill which will allow 2-parent families to move $50 000 of income from one spouse’s tax return to the other.
You can practically see the steam rising from the ears of the millions of Canadians who won’t be able to take advantage of this change.
But is the number $50 000 worthy of being announced?
NO. Because the impact of that shift is limited to a maximum benefit of $2 000!
The announcement should have been: Tax change allows families with children under 18 to save up to $2 000.
That’s it. It should not have ever quoted a misleading number like $50 000.
Here’s why.
Why the $50 000 Income Sharing Option is Totally Bogus
I only have access to 2013 tax software to run some tests with but here’s the case I reviewed:
- One parent is earning $125 000 a year.
- One parent is earning $25 000 a year.
- Two children under 18.
- Various normal types of deductions and small additional income amounts from Canada Savings Bonds etc.
How much should the higher-earning parent shift to the lower earning parent to save $2 000 in FEDERAL income tax?
(Note the proposed tax changes do not reduce provincial taxes at all.)
If they shift $18 000 in earnings from the higher earning spouse’s tax return to the lower, they save $1 667 in federal tax. (NOTE: The actual 2014 savings will vary depending on the 2014 tax return and some other factors.)
So they should keep going, right?
If they shift $30 000, they save $1 667.
What?!
If they shift $50 000 they still save $1 667.
Why??
Because after they shift $18 000 both of the family member’s are in the same tax bracket. Shifting who pays tax on it does nothing. (Many pensioners with near equal incomes are familiar with this.)
Here’s another case:
- One parent is earning $125 000 a year.
- The other parent is earning $0.
If they shift $50 000 to the lower earning spouse, they should get more than $2 000 back but they can’t.
So what do they have to shift to get $2 000 back?
For the example test case for 2013 taxes that I’m using, they only have to shift $18 500 to get the $2000 in federal tax savings.
So why announce you can shift $50 000 in income if it makes no difference!?
Because it sounds better! Because it might win votes! Because it’s a nice big sounding round number!
(And I suppose if I ran a few dozen cases, I’d probably find because it is the amount you need to shift between spouses under one or two circumstances to get the maximum $2 000 savings.)
I hate this kind of electioneering!
Why don’t they just announce, a new tax savings of up to $2 000 for parents of children under 18 who have very disparate incomes?
They don’t because $2 000 doesn’t sound that amazing, does it? It’s not even enough to top out one RESP contribution for a year.
Other Examples of an Inflated Unrealistic Tax Announcements
This is not the first outrageous announcement the government has made. How many people have seen ads telling them that families can use a $500 Children’s Fitness Tax Credit per child on their federal income tax return?
But what is the actual amount the parent saves? It sounds like $500. But the real savings is $75.
That is a $425 difference between what people THINK parents are getting and what they may be receiving.
It sounds like a family with three children could get $1500 back. In reality they get back at most $225 on their federal taxes.
Another example is the Adoption Tax Credit. It sounds amazing: $11 669! But that’s not what the parents get back. If they have $11 669 in applicable adoption expenses they can get back up to $1 750 on their federal income taxes. But again, announcing a savings of less than $2 000 isn’t the kind of big splashy number the political parties want to trumpet to the media.
What Is the Serious Negative Effect of these Intentionally Misleading Tax Announcements?
The real problem with this steady stream of misleading tax announcements is that it
- doesn’t help parents that much
- makes everyone who isn’t a parent at this time to children in that age group seethingly angry
The people who do not get any tax break see the big numbers:
- $50 000 tax splitting!
- $1000 per child sports tax savings!
- $500 per child arts tax savings!
- $10 000 (and more with inflation adjustments) per child for eligible adoption expenses!
And they think they are getting royally ripped off.
They don’t see
- MAXIMUM $2 000 but most of you won’t get that much income splitting credit
- $150 per child sports tax rebate
- $75 per child arts tax rebate
- $1 750 adoption expense tax rebate
Which would let them think, gee, is $150 back really going to pay for a kid’s skating, swimming, hockey and soccer fees for year?
Does $75 buy a lot of music lessons?
Does a child eat and require fewer clothes than $2000 a year provides?
If it costs over $11 000 to adopt a child is saving $1 750 really going to open more homes to children?
It just builds resentment against young Canadian families without really giving them much.
I wish there was a law against it! Some kind of “truth in advertising” law that would stop the government from playing this head-game with Canadians and setting us against each other.
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