October 30, 2014
The Family Tax Cut
The Government of Canada is proposing a new Family Tax Cut of up to $2,000 for couples with children under the age of 18, effective for the 2014 tax year.
The proposed Family Tax Cut will take the form of a federal non-refundable tax credit that will allow the higher-income spouse to transfer up to $50,000 of taxable income to a spouse in a lower income tax bracket, up to a maximum benefit of $2,000. Tax relief is calculated on the basis of a difference in federal tax before and after the transfer of income.
The Family Tax Cut will apply for the 2014 and subsequent taxation years. Couples will be able to claim the credit when they file their 2014 tax returns. To benefit from the credit, each spouse must file a tax return. Either spouse may claim the credit.
This measure is estimated to reduce federal tax revenues by approximately $2.4 billion in 2014-15 and $1.9 billion in 2015-16. More than 1.7 million families are expected to benefit from the new Family Tax Cut. This proposal will not affect provincial or territorial tax revenues.
Universal Child Care Benefit
In 2006, the Government introduced the Universal Child Care Benefit (UCCB), which provides all families with $100 per month for each child under the age of six. The UCCB currently provides direct federal support to approximately 1.7 million families with young children.
The Government is proposing to enhance the UCCB by providing $160 per month. In a year, parents will receive up to $1,920 per year for each child under the age of six.
The Government is also introducing a new benefit of up to $720 per year for children age six through 17.
Enhanced payments for the UCCB will take effect as of January 2015 and will begin to be reflected in monthly payments to recipients in July 2015. This measure is expected to cost the federal government approximately $1.1 billion in 2014-15 and $4.4 billion in 2015-16. Approximately four million families are expected to benefit from the enhancements under the UCCB.
The enhanced UCCB will replace the existing Child Tax Credit for the 2015 and subsequent taxation years. The enhanced UCCB combined with the repeal of the Child Tax Credit is expected to cost the federal government approximately $700 million in 2014-15 and $2.6 billion in 2015-16.
Child Care Expense Deduction
The Child Care Expense Deduction (CCED) allows child care expenses incurred to earn employment or business income, pursue education or perform research, to be deducted from income for tax purposes. Generally, only the lower-income spouse can claim the CCED.
Currently, the maximum amount that can be claimed under the CCED each year is limited to the least of:
•The total amount spent on child care expenses;
•Two-thirds of the lower-income taxpayer’s earned income; and,
•The total of the maximum dollar limits for all children, that is $7,000 per child under age seven, $4,000 for each child aged seven through 16, and $10,000 for children who are eligible for the Disability Tax Credit, regardless of their age.
To better reflect the cost of child care expenses, the Government will increase the dollar limits of the CCED by $1,000 – i.e., to $8,000 from $7,000 per child under age seven, to $5,000 from $4,000 for each child aged seven through 16 (and for infirm children over age 16), and to $11,000 from $10,000 for children who are eligible for the Disability Tax Credit.
These changes will apply for the 2015 and subsequent taxation years, and will reduce federal revenues by an estimated $15 million in 2014-15 and $65 million in 2015-16. More than 200,000 families are expected to benefit from the increases in the CCED limits.
Doubling the Children’s Fitness Tax Credit
The Government will double the Children’s Fitness Tax Credit (CFTC) and make it refundable to further help families making the choice to put their children in fitness activities. Making the tax credit refundable will ensure that lower-income families benefit from this measure.
Parents will be able to take advantage of the new $1,000 maximum limit in the spring of 2015 when they file their tax returns for 2014. The credit will be made refundable as of the 2015 tax year, increasing benefits to low-income families claiming it for that year and subsequent years.
Together, the proposed enhancements are expected to cost the federal government approximately $25 million in 2014-15, and $35 million annually thereafter.
The CFTC was introduced by the Government in Budget 2006 to help promote physical fitness among children by making it more affordable for Canadian families to register their kids in fitness activities. When fully implemented, the proposed enhancements to the CFTC will fulfill a commitment made by the Government in 2011. The enhancements will deliver additional tax relief to about 850,000 families who enrol their children in eligible fitness activities.
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