By Gord Hawley
Our Conservative federal government made recent announcements that got me back into the writing mood. I was absent for a couple of years thanks to some health issues that led to my double bypass last August. Im now healthy again and the doctors say Im good for another 20 years yeah!
Prime Minister Harper announced two new major changes to our tax and incentive programs. Many of you will benefit from these programs. Here are some of the facts.
I am going to use the example of a farm family with four children: ages one, four, 11 and 14.
Under the old rules, each child under age six qualified for the Universal Child Benefit, which was $100 per month, a taxable benefit paid directly by the government.
Canada Revenue Agency (CRA) issues an RC62 information slip for tax purposes for the Universal Child Benefit and it must be claimed as income by the lowest income earning parent. This often makes this “baby bonus” non-taxable to the stay-at-home parent or the parent earning little income.
There are two major changes under the new rules starting in January 2015. First, for those who qualify, there is a raise from $100 per month to $160 per month for those children under age six and those children ages six to age 17 will now get a new benefit of $60 per month per child. These new benefits are to be accumulated from Jan. 1 and the first payment will be in July 2015. In my example of the family with the four children this will amount to a lump sum of $1,440 in July and $440 for each month after that.
The second announcement was the often talked about income splitting program and includes factual couples, those who are not married but living together for three years or who have had a child together. Although we have not seen the new tax forms for this program, it appears that the higher income earner can move up to $50,000 to the lower income spouse. The maximum tax savings is capped at $2,000.
In my farm family example, lets say one parent is a farmer, who has a net taxable income of $0 because of allowable tax write-offs, including depreciation and amortization of quotas and other tax rules. The spouse is a nurse or teacher or other professional making $80,000 per year. That spouse would normally pay $15,000 in taxes. But she could choose to move half of that amount, $40,000, to the lower income person and together would pay about $13,000 in federal and provincial taxes. There might also be an issue of adjustments for CPP. But we dont know yet how it will be calculated on the tax forms.
But we do know that a total of $3,440 would be paid to my family farm example. Oh, it must be election time soon!
Not too many years ago, I wrote about the Home Renovation Tax Credit wherein taxpayers were allowed to write off up to $10,000 of qualifying renovations on their personal home as an expense. When the paper work was finally completed by CRA and we started to file tax returns, we found out that the first $1,000 of the renovation did not qualify for the tax reduction. Many people had done renovations, but for less than $1,000 and ended up getting no tax benefit. I had lots of unhappy people that year.
Like most tax changes, dont count your chickens before they hatch. The Liberals have vowed to cancel the income splitting provisions if elected. There is a possibility of a spring election, although most feel it will not happen now until after the government has paid out the Universal Child Care Benefits in July.
So, maybe an election in the fall. It makes it harder for opposition parties to run on the basis of taking away benefits you will already have. There is still much discussion of how the government is going to make up for these lost tax dollars with these new programs, as well as where the money is coming from to pay the new increased Universal Child Care Benefits.
If government economists find the programs are too rich, then what will be cancelled to pay for it or will it need to be scaled back? Only time will tell.
Gord Hawley is an Ottawa-based independent farm tax planner and can be reached at 613-716-2280 or at email@example.com.