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Taxrage
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Yeah, it's definitely going to have to be creative...and in place for the 2014 return! I looked at the ways & means legislation (4-5 pages). It basically requires filers to do some sideline calculations (like RRSP room) to determine the hypothetical federal savings that would result from an income transfer. I didn't quite understand how the spousal credit worked. Didn't have a dark room and a single light bulb to study that one.
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"More to the point, if the conservative governments is trying to help families with children, why on earth would they pursue a policy where most of the benefit accrues to families who need it the least." I think we can say that (gov't trying to help families with children) w.r.t. UCCB and other benefit payments. Can't say that w.r.t. daycare subsidies and deductions, since they don't apply to 30% of families with young children who look after them by themselves. We could say that w.r.t. helping families put a 2nd (or in the case of a single parents, the 1st) spouse back to work. Where is the objective for daycare stated anyway? Why do we (to use my 1% example) help a $400K income family put a 2nd spouse back to work? Makes sense, I guess, if the only objective is to get the 2nd spouse back to work. Just don't dress it up as it being for the kids. Why do we let a retired bank (or Nortel) president save $30K through pension splitting? Again, can you provide a reference/link where I can look it up? In the case of a the free $2,100 ghost spouse credit we provide a single parent, I can see that the government wants to tax the single parent the same as a 1-earner couple family, even in the case of a $400K income. We could perhaps say that parental leave is to benefit the child, but this is an expensive (52-week) benefit. There are probably a few goodies that I left out, but you see a pattern, which is there is a targetted benefit for just about every type of family with young children except the type that looks after their own kids. If it's really for the kids, then why is the only thing thing that accrues exclusively to this group, is a $7,300 tax penalty? Is that all this group deserves from the tax system? Currently, the answer is apparently YES.
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"I'd go further, as even on your numbers you beautifully illustrate France' case against income splitting.". CPP and EI aren't taxes though. CPP builds a pension (which 1-earner loses out on) and EI is employment insurance, which provides income in the case of job loss. One could view these as just other forms of work-related expenses. You pay them only if you have employment income. At the end of the day, if the government is going to help families with $400K incomes to pay their daycare expenses (or provide subsidized spaces), then they have to put something on the table for families that look after their own kids. Simple as that. Income splitting is one way to put something on the table that helps achieve this, but it's the proverbial bird in the hand.
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"You apply the credit for EI and CPP, do you take into account the tax actually paid - that's not reflected in your chart. " My algorithm works as follows: Family has spouse A and spouse B. One or both work. Aggregate family income is apportioned either 100% to A or 50% to each (if both work then, I calculate A's taxes on his/her 50% then, at the end, I just double the tax for A). For A, calculate all fed/prov taxes in each bracket, including ON surtaxes (admittedly, I didn't calculate ON health levies - note to self). Subtract all (non-refundable) personal credits for A (personal, employment, CPP/EI), as well as fed/prov spousal credits if only earner. You had me worried that maybe I doubled the spousal credit, but it's only added in the 1-earner case, hence would not be doubled. So, the only inaccuracies should be due to my having left out the FSHL, but both 1 and 2-earners pay this, perhaps to slightly different degrees. Perhaps I'll add this tweak over the weekend.
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"Taxrage, you're just wrong. Let me guess, you went to some online tax calculator and typed in $50K and $100K and from that you conclude that a single-income family making $100 pays $7000 more than than a two income family with the same income. Am I right, because that's the only way you can come up with that number. " Bob, are you really a tax lawyer? Sorry, I'm not wrong. It's actually $7,339 (2014). I created a Visual Basic macro for Excel, and used the federal brackets (cut/paste here: Array(0.15, 0.22, 0.26, 0.29), Array(0, 43954, 87908, 136271)) as well as provincial (Array(0.0505, 0.0915, 0.1116, 0.1316), Array(0, 39724, 79449, 509001)). I apply credits for personal, spousal, CPP/EI and employment, as well as the $3,500 that is exempt from CPP. I'm a software developer. What would convince you, the actual buckets of fed/prov tax calculated in each bracket? Like, this is very simple stuff. I don't need online calculators, which usually don't try to make assumptions regarding your credits. I'm perfectly capable of *building* them.
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Here was one of the media stories on the topic of provinces being in or out of income splitting: http://business.financialpost.com/2014/09/18/income-splitting-canada-provinces-cost/ Note 2nd paragraph.
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"So let's not pretend that your $7000 number has any meaning.". Assuming the provinces don't change their ITAs, this is the approximate tax penalty that any Ontario family a single $100K income pays. Why is that meaningless?
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"assuming that the provinces follow the federal lead (unlikely)" Did you miss the recent media stories about how the provinces would pretty much have to follow the feds lead, unless they're going to amend their provincial ITAs? Did even one of them try to opt out of pension splitting?
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It has caused division for over 45 years. Like bilingualism, this is a political issue, more so than an economic one. I'm not sure if $3B is significant at the federal level. $3B buys you a 12 km LRT line in Ottawa (that goes nowhere). What I can tell you, though, is that $7,000/yr is a lot of money for a family, especially a 1-earner family. What simply has to happen, now that the issue is front and centre, is that this differential must be scaled down to a level that removes it from the policy radar for the next 45 years. Perhaps something like $2,500 (higher tax paid by a 1-earner vs a 2-earner) penalty would be more palatable; I'm even being generous here. Few 1-earners would begrudge their 2-earner counterparts a minor tax advantage, but not to the tune of $7,000. Economic arguments will come up short at the ballot box. The 30% of families who look after their own children rather than pay someone else to do it have waited a long time...and the iron is hot.
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Yes, gotta love pension splitting. No limit or age restrictions. Max $30K benefit for someone like former Nortel CEO John Roth. Not a peep of opposition from the mainstream media. Whoa! Rewind. Are we talking the same mainstream media that has been fighting income splitting from the get-go? Which represents more fairness: a $2K break for a $60K bus driver supporting a wife and 2 kids, or a $30K break for John Roth, who walked away from Nortel with $100M and a $750K/year pension? Which is facing more opposition from the media and progressives?
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It's been a thorn in the side of 1 and mostly 1-earner families since 1968 (Carter Commission), who are about the only group which has no special tax accomodation for *their* choice. If the issue hasn't gone away after 45 years, it's never going to. Let's get it done, so we can move on.
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Determinant, Not sure what you're talking about, salary deferral etc. Nortel had a DB pension plan, which paid 1.3% * nYears. I believe John Roth was earning something like $2M/yr, and after 30 years would be eligible for roughly 40% of his best 5 years' salary. At age 60, he'd be eligible for over $750K/yr as a pension, pure and simple. The worksheet referenced by the URL you provided does not introduce any limit on a split pension, other than life annuities etc. I am only familiar with the DB plan that Nortel had, which would not be subject to any limits. I probably read the income splitting guide when I did my parent's return. Both had public sector DB pensions. I also read the relevant sections of the Income Tax Act, and I don't recall any age/pension limits being described therein.
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More to the point, I hope you appreciate the irony that you objection to the current treatment of child care expenses (namely that, in dollar terms, they tend to benefit the wealthy) is the same objection to permitting income splitting. Apparently in one scenario you find it offensive, in another it's not. I think my point was that no one objects to rich families getting to write off daycare expenses, but there is a huge outcry over any attempt to provide tax assistance to families who look after their own kids. Ditto for being able to split $1M in pensions. Income splitting is far from perfect, but I'll take it over the status quo. I'm okay with any reform that brings the tax liability for two families with the same aggregate income closer to parity. I'm even okay with the 1-earner family paying more - but not $8,000 more. Either tax and deliver benefits to individuals based on their own income, or tax and deliver benefits to families based on the combined income. Let's stop pretending that the individual is the basis of our system, when the individual completely disappears from the calculation of benefit and tuition loan eligibility.
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ChrisJ, It's not retired people who can split pensions. Any pensioner can split. John Roth left Nortel with $100M in stock options and a $750K pension. I think he was still in his 50s. He wasn't quite ready for a nursing home, but that entire $750K pension was splittable, for a savings of about $30K in taxes in Ontario. A 35 year-old retired CF-18 pilot can split his CF pension, get married, start a family etc. As you can see, the *can't work* arguments isn't really valid. Do you recall any outrage over people being able to split even a $1M pension? This whole policy change in came in with zero fanfare from announcement through to implementation. Now, try to suggest that the rich, good-for-nothing stay-at-home wife of a $60K bus driver be allowed to save a few tax dollars through income splitting and it's front page news of every newspaper in Canada and social media goes haywire. Why? Yet, two married doctors with $500K family income can write off the cost of a nanny. Ah, but you see, the nanny is a form of paid daycare. Paid daycare is good in Canada. Income splitting is viewed as a threat to paid daycare...based on the fact that splitting $1M pensions and allowing $500K income families to get a 50% discount on their daycare costs never get attacked in the media. The knives will come out when I suggest this, but just watch. Pension splitting and full deductions for daycare won't even be mentioned by the media in the run-up to the next election, but once the words are issued again by Joe Oliver, it will be front-page news on every newspaper and the Twitter universe will go into overdrive.
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"More to the point, as a country I can think of infinitely more pressing concerns that could be addressed with $3 billion in foregone tax revenue then righting the alleged inequality inflicted on certain upper middle-class families by an individualized tax system." In 2015, all that will matter is whether income-splitting will bring out the base to defeat the Liberals. I can't predict exactly what the tax change will look like, but I'm fairly certain that the current tax differentials between 1 and 2-earner families will be narrowed considerably...if not altogether. We'll know fairly soon.
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"Apart from the equitable considerations I discussed earlier (which you don't seem inclined to rebut), there's also the reality that it sharply discourages participation in the labour market for lower-income spouses (since it means that the low-income spouse pays tax on their income at the marginal rate of the higher income spouse." I see this argument a lot. Makes no sense to me. The lower income spouse has the right to not split income with the higher income spouse, and start paying tax at the lowest marginal rate. Of course, that leaves the income of the higher-income spouse back up close to 50%. Otherwise, yes, the lower-income spouse is taxed at the marginal rate of the higher-income spouse, which has dropped about 20% (fed+prov) thanks to income splitting.
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"First, for most Canadians, income splitting translates into a few hundred bucks, at most (in fact, unless the provinces followed the federal lead - which none of them can afford to do - the maximum tax reduction would be~$6500, so I don't know where you think the $8,000 figure comes from). So the only pony they're getting from income splitting is the diseased one on its way to the glue factory." You're the tax lawyer. I'm sure I don't have to point you at the various provincial income tax acts which all use the federal definition of income. I didn't see any of the provinces rush to change this definition for pension splitting. Why does everyone try to suggest that the provinces don't have to go along? Unless they change their ITAs, they are automatically IN.
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"Members of the CF have pretty generous pension (though they literally have to kill for them), but if you think there are a lot soldiers running around with six-figure pensions, you're kidding yourself. Badly." I didn't say just soldiers: RCMP, CF and (meant to type) police. The point is, this group can collect a pension in their 40s (used to be in their 30s for CF, e.g. retired CF-18 pilots) and split them, start another career, get married, have kids etc. Most are not 6-figure pensions, but does that matter? I have a neighbour down the street in his 40s, doing exactly this. He was in the CF, and never fired a shot. @Determinant, no, the age 65 restriction only applies to RRSPs, not pensions. There is no age restriction on pensions.
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whitfit, Not sure why you think it's not all that clear. Seems to me that the only thing missing from using the family as the unit as taxation is that we don't have the ability to split salaries. Everything else can be split (or organized to be), plus benefits and tuition are based on net family income. When 40-somethings have unlimited ability to split pensions, we're pretty much there.
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Miguel, In Canada, if you receive a pension, you can transfer up to 50% of that pension to your spouse. There is no dollar limit on the amount that can be transferred. In Ontario, since the top tax bracket kicks in on something like $509,000, then a $1,018,000 pension could be split in two, saving > $30,000 in tax. The Harper gov't has proposed allowing up to $50,000 of salary to be transferred from one spouse to another for tax purposes. In Ontario, this could result in a tax saving of > $7,000 on the first $100,000 of income - more if the transferor was in a higher tax bracket, e.g. $509K in Ontario. The result would be that all families would pay the same tax on the first $100,000 of family income...which is not the case today unless each spouse earns $50,000/yr. This is not quite the same as the tax system in the US which has a joint tax return for married people, as well as a single tax return for singles. The tax brackets for the joint tax return are 175% the width of the singles' brackets.
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"In any event, the tax system will always have various imperfections or absurdities in it. It's an axiom of tax policy that three are three attributes of a perfect tax system, fairness, efficiency and revenue collection. You can have any two of those attributes (or varying degrees of all three), but you can't have everything. On this we agree. Have you seen the Ally Bank commercial in which two kids are asked if they would like a pony, and one gets a toy pony while the other gets a real pony? The look on the face of the girl who got the crappy plastic pony is priceless. Pretty difficult to explain to her that she and the other girl were treated fairly, since they each got a pony. Our tax system is not unlike the commercial. While some differences are viewed as fair (e.g. the two girls would be okay with a real (or fake) pony that was a different colour, it is quite unfair to give one a real pony and the other a piece of plastic. Is this a silly example? Well, actually, $8,000 buys you a nice real pony, so in effect we give one family a real pony and the other a fake substitute. Why? Okay, some will argue that there are other considerations, and perhaps an $8,000 tax difference is justified. All right, how about the way former Nortel CEO gets a $30K tax break if he splits his $750K pension, while the $750K Bell VP pays the full shot? At middle-class income levels, how about the fact that someone coming out of the RCMP/CF/military in his/her 40s, split a 6-figure pension, and rejoin the workforce? The fact is, you cannot justify these very real scenarios, and pension splitting has, at least for salaried folk, really changed the rules of the game. Time to extend those rule changes to everyone.
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@Majromax, no, the tax differential I quoted does not account for payroll taxes, but one is insurance (EI) and the other a pension (CPP). There are many facets to this issue. What is really needed is tax reform, vs more barnacles. We dance around taxing individuals, doling out benefits to families, allowing pensioners unlimited pension splitting while denying a bus driver the ability to split $1 of income for an at-home spouse. I see income-splitting as finally putting Canada on track to meaningful tax reform, recognizing the family as the unit of taxation. We don't seem to have a problem creating something like a trust to defer/minimize taxes on millions of dollars of family wealth, but for some reason the idea of families with the same income paying the same taxes is somehow unjust. Go figure.
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@Majromax, I just don't think Taxdove works as well as a moniker. :-) It goes without saying that two high-income earners wouldn't be pushing for income-splitting. They already benefit from it by virtue of their income distribution.
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Yes, an at-home spouse provides advantages. In BC right now, I expect a LOT of at-home spouses have a pile of their 2-earner neighbour's kids under their watch. In ON, if you visit your local elementary school, don't be surprised to find a lot of at-home spouses volunteering to provide assistance with reading for kids that are having difficulty keeping up with their classmates...when they're not off in their SUVs getting their nails done or playing tennis, I mean. People are too quick to judge the $100K family as either a well-off 1-earner or a 2-earner family working twice as many hours @ $50K/year each. Everyone seems to forget the $75K+$25K or $85K+$15K families, who also have both spouses out working...and paying a lot more taxes than the $50K+$50K families. The working twice as many hours argument falls apart the minute the 2nd spouse enters the workforce. My wife and I both work, so why should our tax liability be $8K more than our neighbours, who also both work, but just happen to have a more optimal split in their incomes? Yet, the government views both families as having identical need for tax-delivered benefit payments and tuition loan assistance. The neighbours can do a LOT with that extra $8,000. Someone please explain to me why this is fair. Meanwhile, that 50-something high-profile general that just retired who is considering running as a Liberal MP can split his $150K pension with his spouse and save $15K-$20K in taxes. No outrage over that. Quite a different story, though, if we talk about allowing a $60K bus driver split his income with his stay-at-home wife and possibly save $2,000. The reason people don't get that domestic work should be taxed is because no country on the planet: a) attaches a monetary value to it and b) taxes it. Ditto for my snow shovelling, taking out the trash, doing laundry, cutting the grass etc. What people do understand is that some families pay wildly different amounts of tax on identical household income, while retirees and others have tools to equalize family tax liability. Time to end this inequity.
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Bob, BTW, can you imagine the shock and indignation among business owners and self-employed when they see the rest of us splitting income??? :-)
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