How the Family Tax Cut actually work?
The Canadian tax system taxes individuals and families based on there marginal tax rate. The more money you make the more tax you pay. As a result, when one person in a family has all the income, they end-up paying more tax than if the income was split amongst the couple. As an example, if the husband has $100,000 taxable income and the wife has zero taxable income, they would end up paying more tax than if they each had $50,000 taxable income. This is where the Income Splitting Family Tax Cut comes in and transfers part of the income to the lower income spouse.
The Family Tax Cut allows a spouse to transfer up to $50,000 of taxable income to a spouse in a lower income tax bracket, providing tax relief up to a maximum of $2,000. To qualify for this tax credit the both partners have to complete their tax return at the same time. This credit is effective for the 2014 tax year and subsequent tax years after.
Who can apply for the income splitting Family Tax Cut in 2014?
- You are a resident of Canada on December 31, 2014
- You have an eligible spouse or common-law partner for 2014 and they have not claimed the Family Tax Cut;
- You have a child who is under 18 at the end of 2014, who ordinarily lives with you throughout the year
- You were not confined to a prison or similar institution for a period of at least 90 days during the year;
- Neither you nor your eligible spouse became bankrupt in the year;
- Neither you nor your eligible spouse elected to split eligible pension income in the year; and
- Both you and your eligible spouse file an income tax and benefit return for the year.
Can the credit be split?
The Family Tax Cut can not be split and has to be claimed by one spouse.
How to apply?
The credit can be claimed on your T1 personal income tax return on Schedule 1-A and enter the calculated amount on line 423 of the Schedule 1.Google+