How to get in on the new income-splitting program

Family tax cut provides tax credit of up to $2,000.

Matthew Elder 7 April, 2015 | 5:00PM

A new family income-splitting program, announced with much political fanfare last fall, took effect at the beginning of this year. With Canadians now shifting their attention from RRSPs to income tax, it's a good time to investigate the Family Tax Cut and find out if you qualify to receive this handout, which is claimed as a non-refundable tax credit on your income-tax return.

The Family Tax Cut allows the spouse with the higher income to, on paper, transfer up to $50,000 of his or her income to the lower-income spouse. Not only does this provide a tax credit worth up to $2,000, it reduces the higher-income spouse's taxable income and thus may reduce his or her income tax payable. The Family Tax Cut may be claimed by one spouse or the other, but cannot be shared. It applies only to federal income tax, not at the provincial level.

"It should be noted that the Family Tax Cut is notional income splitting, as income is not transferred from the tax return of the higher-income spouse to the tax return of the lower-income spouse, as it is for pension income splitting," says Ed Bartucci, a tax partner with KPMG Enterprise. "As a result, it is important to understand that other tax items tied to income are not impacted by this calculation."

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Matthew Elder

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