Families earning more than $233,000 will gain most from Conservatives' income splitting plan, says new report Print
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Written by Joan Russow
Tuesday, 27 January 2015 22:23



Tuesday, 01/27/2015 10:22 am 

'For low-income families with children, the probability of making even $1 is very low with only one in 10 getting that much,' says CCPA report.


Photograph courtesy Prime Minister's Office

Prime Minister Stephen Harper, pictured in October 2014, announcing a children's fitness tax credit.
LPARLIAMENT HILL—Families with income more than $233,000 a year stand to gain most under the Conservative government’s controversial income-splitting tax break, a new study of the costly program has found.
“The richest families are most likely to make at least $1,000 from the new policy,” says the study released Tuesday by the Canadian Centre for Policy Alternatives.
While two-thirds of the richest families will get at least $1,000 by splitting spousal income, with the lower-income spouse being assigned up to $50,000 of the other spouse’s higher income for income tax purposes, that chance that a middle class family will receive a benefit of even $1 is “as good as a coin toss,” says a 40-page report on the analysis.
“For low-income families with children, the probability of making even $1 is very low with only one in 10 getting that much,” the report says. “The probability of receiving at least $1,000 is vanishingly small.”
The study prepared by senior economist David Macdonald and Kate McInturff, a senior researcher with the policy think tank, provided the NDP and Liberal parties with fresh data Tuesday as the Commons was set to debate a New Democrat motion calling on the government to immediately prepare and table a new fiscal and economic update as Parliament awaits a federal budget that the government has delayed at least until sometime in April, possibly longer, because of the havoc plunging oil prices have wreaked on federal government revenues.
The Conservative income-splitting plan, which it calls a “family tax break” in ads and web promotions that have been running almost since it unveiled the plan last Oct. 30, is central to the fiscal upheaval the government faces, with a price tag of $2.4-billion for 2014 alone and further costs of about $2-billion each year for the next five years.
“We know Canadians work hard for their money; we know they work hard raising their families too,” Prime Minister Stephen Harper (Calgary Southwest, Alta.) said in October when he announced the plan. “Under the plan we have announced today, every single Canadian family with children will benefit. Everyone will have more money in their pockets.”
Presenting more bad news for the government as it comes to terms with a new economic reality that could scupper its plans to balance its budget in election year 2015, theParliamentary Budget Office released a report on Tuesday that forecast if oil prices remain as low as their current level it would “more than exhaust” the government’s $3-billion contingency fund currently forecast for each of the next four years under the last fiscal update the government tabled last Nov. 12.
Government ministers insisted on Monday, after the Commons resumed sittings following a long winter recess, that it will table a balanced budget this year despite the upheaval over the petroleum price shock—without new spending cuts.
Finance Minister Joe Oliver (Eglinton-Lawrence, Ont.) told reporters that on Monday. “We are going to honour our commitments and we’re not planning any major cuts,” he said. “I’m not precluding the use of the contingency fund.”
When asked to elaborate, Mr. Oliver said, “Look, understand the contingency fund is there for unexpected and unavoidable events of which a precipitous decline in oil prices is. So we may or may not need to use the contingency fund but if we do it will be entirely consistent with government policy. To the extent of course there’s contingency left over, that goes to reduce debt. That’s the way government accounting works.”
Treasury Board President Tony Clement (Parry Sound-Muskoka, Ont.) reiterated Mr. Oliver’s comments on his way into the House on Monday. “Just watch us, we’re going to be delivering a budget and it will balance the books,” he said. “We’ve got a great, resilient economy. Our fiscal management is prudent and the Canadian economy has great resiliency.”
Mr. Clement said that he’s not going to overreact to news of government revenues decreasing. “I‘m not one of the people, as you know, that whenever there’s a bad number that comes in we immediately light our hair on fire and run around in circles,” he said. “I don’t think that’s what Canadians expect of us.”
Despite the government’s confidence, the Parliamentary Budget Office, which published a brief, special report exclusively on the effect of low oil prices on government revenues and forecasts, predicted the drop in federal revenue, primarily because of lower income tax revenues, will lead to a deficit of $400-million this year. The government forecast last November a surplus of $1.9-billion, plus the $3-million set aside as a contingency.
The report from the Canadian Centre for Policy Alternatives contained withering criticism of the Conservative income-splitting plan, which the Canada Revenue Agency has already made available for tax filers to claim for 2014.
“Income splitting is also expensive,” the report said. “The estimated cost to the federal government will be $2-billion a year in revenue lost from income splitting.”
“Despite the substantial cost, the benefits are quite concentrated and exclude most families,” the report said.
“In fact, 89 per cent of all families (including families with children under 18 and couples or singles without children) gain no benefit from income splitting. Only three per cent of all families in Canada will get the maximum benefit of income splitting worth $2,000,” the report said.
The study found that the bottom 40 per cent of families, in terms of annual income, have “essentially no probability of getting anything” through income splitting and a chart in the report shows families with incomes under $68,000 annually have either no chance of any benefit from income splitting or a chance of barely over one per cent.
The chance of any benefit at all increases to just under 10 per cent at $53,000 to $67,000 in family income, and only 25 per cent at $67,000 to $86,000 in family income.
“Only 48 per cent of families with children will receive $1 or more from income splitting,” the report said. “Of that half of families with children that do gain, 20 per cent will receive roughly a dollar a day from income splitting.”
“While the maximum benefit of $2,000 may be desirable to families, there are few who will see that much money. Only 12 per cent of families with children will top out at $2,000 from income splitting,” the report said.
Aside from the fact that substantial gains will be available to a minority of wealthier families, which are also more likely to have only one income-earning spouse, the report cites income-splitting systems that are in place in other countries to argue such schemes have negative socioeconomic results—including a drop in the rate of married women participating in the work force, with a minimal increase in the male labour force population.
The study found that under the Conservative plan only 17 per cent of the families that would qualify for income splitting are single-earner families. The other 83 per cent consist of families where both parents are working and each makes at least $5,000.
Families must have at least one child under age 18 to qualify for the tax benefit. “The impact of income splitting will be to widen inequality of choice, not to mention after-tax income, between families,” the report said. “It will also contribute to greater inequality within families.”
It notes men are predominantly the higher income earner in most families—and also the direct recipients of the tax breaks.
It notes gaining access to the tax “loophole” will require the correct calculation of up to 85 new steps in the 2014 tax return.
“In general, the wealthier a family is, the more likely they are to gain from income splitting and the larger their gain will be. The complexity of the loophole may well restrict its full use to those employing tax professionals,” the report said.
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The Hill Times
Last Updated on Tuesday, 27 January 2015 22:32