One thing all political parties agree on in Ottawa is the need to provide more support for Canadian families to help offset the considerable costs of raising children. Where there is disagreement is on what is the most effective means on how to achieve this goal that is also further compounded by the fact that Canadian is a very vast and diverse country and what programs may be of benefit to some families may not be of benefit to others.
As an example, recently the NDP (if elected as Government) announced a future program for a nationally subsidized daycare program. Providing subsidized day care would be more of a benefit for families in large and moderately sized cities than it would be for remote rural families where no daycare services might be available. Furthermore, for families with a single parent who is either unemployed or unable to work because of disability, subsidized daycare is of no benefit whatsoever. Likewise for families who do not require childcare because of grandparents, extended family, friends or a stay at home spouse they would also not benefit from a subsidized daycare plan. I raise these issues not to criticize the NDP but rather to point out the challenges of any one size fits all Ottawa imposed program that may not meet the diverse needs of Canadian families.
Last week, our Government also announced a range of measures to help assist Canadian families that also in some cases will of more benefit to some families than others. The first announced measure I will discuss is the opportunity for families to pay less tax to Government through income splitting. What this means is if one spouse earns significantly more money than the other spouse they can transfer a portion of the higher income to the spouse with the lower income in order for the higher income spouse to end up in a lower tax bracket and pay less in tax. The maximum amount of tax that can be saved by income splitting has been capped at $2,000 to ensure that upper income earners do not excessively benefit from this program that also creates tax fairness. How does income splitting create tax fairness? Currently if both spouses each earn $40,000 for a combined household income of $80,000 the amount of federal income tax for each spouse is 15%. However if another household also with an $80,000 total income has one spouse earning $60,000 and the other spouse earning $20,000 that would result in one spouse paying 22% in income taxes compared to 15% for the lower income spouse. In spite of having the same $80,000 household income one family ends up paying more tax than the other family thus creating unfair tax policy. In this example the spouse with the higher income could transfer part of that income to the lower income spouse in order to be in a lower tax bracket and pay less in tax similar to what other families would pay with the same household income.
Some have suggested that the tax fairness achieved by income splitting only benefits wealthy families. This is also largely false and I will provide an example to illustrate why. In an affluent household where both spouses earn in excess of $150,000 (or more) each spouse is already in a top tax bracket and thus there is no excess income to transfer from one spouse to the other spouse to take advantage of a lower tax bracket. That is not to suggest income splitting works for all families. For example an extremely low income family that is below the income earnings threshold and is not currently paying income tax obviously would not benefit from paying less tax when they are not currently paying income tax. Likewise for a single parent with no spouse to split income with there is also no tax benefit to income splitting. It is for these reasons that our Government also announced a significant increase to the Universal Child Care Benefit (UCCB) that is payable to all qualifying families including low income and single parents.
The announced increase to the UCCB will be a 60% increase to parents for each child up to 6 years of age increasing the current monthly payment of $100 to $160. The UCCB will also be significantly expanded– for the first time ever the UCCB will also provide direct support of $ 60 per month for each child between the ages of 6-17. Collectively the increased UCCB will provide increased direct benefits to roughly four million Canadian families. It should also be made clear that the existing child care benefit for low income families is also being fully maintained. Aside from income splitting and increased UCCB the Government also announced an increase to the child care expense deduction to $8000 per child up to 7 years of age and $5000 for children aged 7-16. These changes will apply in the 2015 taxation year. The Children Fitness Tax Credit will also be doubled to $1000 in the 2015 taxation year and allocated as a refundable tax credit to ensure low income families can benefit from this credit.
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Dan Albas is the Member of Parliament for the riding of Central Okanagan-Similkameen-Nicola.