A new Federal non-refundable Family Tax Cut Credit was recently introduces that will create tax savings for families with children less than 18 years of age. To be eligible for this credit an individual must:
- Have a spouse (including common-law partner); and
- Have a child under 18 years of age at the end of the year who resides with the individual or the spouse.
Effective 2014, the family income splitting measures allow a higher income spouse to allocate up to $50,000 of income to the lower income spouse for the express purpose of determining this new federal tax credit. The maximum allowable benefit that can be attained from this transfer is a $2.000 non-refundable federal tax credit. Please note that the Family Tax Cut Credit can only reduce federal income tax at this point and there is currently no reciprocal provincial tax credit.
For separated families, who have joint custody of a child under 18 years old that resides with both parents throughout the year, each family will be eligible to claim the Family Tax Cut Credit providing both parents have a spouse of their own and all other conditions are met.
There is already a common misunderstanding that the Family Tax Cut Credit is similar to the Pension Income Splitting measures, which is not the case. There is no income actually being transferred between spouses. The net income of both spouses remains the same, the only difference will be the additional federal tax credit claimed by the higher income spouse.
As a result, personal tax benefits such as the GST/HST credits, the Canada Child Tax Benefit, age amount and the spouse and common law partner amount, will not change.