Politicians Divided on Income Splitting

Over the past few months, we’ve been hearing a lot about Income Splitting.  Despite reservations expressed by Federal Finance Minister Jim Flaherty, the Prime Minister has publicly stated that he remains committed to his party’s 2011 campaign promise to provide tax relief to Canadian families in the form of income splitting.

Income splitting would allow families with minor children to “pool” their income by transferring up to $50,000 dollars in taxable income from the higher earning partner, to take advantage of a lower base tax rate paid by the partner with the lower income.

The families that would benefit most from this arrangement would be those in which one partner does not earn income, or where there is a large difference in the income earned between partners.

Supporters of Income Splitting say that the current tax rules are discriminatory – they provide fewer tax breaks for families in which one partner earns the bulk of the money, despite the fact that most families pool their income to pay for living expenses.  Stephen Harper has said that the current rules “treat families the same as roommates living under the same roof with no financial attachment.”

Opponents point out that income splitting would benefit a relatively small number of Canadians, but carry a high price tag.  (Some estimates putting the total cost to the federal government at 2.7 billion dollars in lost revenue!)

The 2011 promise from the Prime Minister was contingent on a balanced budget, which is almost certain to happen with the delivery of the 2015 budget next April.  With a federal election likely to happen within a few months of this date, you can be certain that Stephen Harper would like to be able to tell Canadians that he’s made good on one of his key election promises – so it’s quite likely that income splitting will become a reality next year! Stay tuned for more updates on this subject.

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