With an election on the horizon for next year, there was much anticipation for November’s release of the 2014 Fall Economic Update, the first from Finance Minister Joe Oliver since taking over from the late Jim Flaherty. As it turned out – at least at the general individual taxpayer level – the update mainly pulled together the carefully orchestrated announcements from the preceding few weeks.
The expected surplus was used to dole out a variety of tax breaks, as summarized below, though conspicuously absent was the promised doubling of TFSA room. Of course, there is still the 2015 Federal Budget to be tabled in the spring, and few should be surprised if the surplus is a bit larger at that time, together with a few more goodies.
In the meanwhile, here are the key items from the Fall Economic Update.
Family Tax Cut
Rather than being an actual income split of $50,000, the follow-through on this Conservative Party promise (from the 2011 election campaign) has been converted into a federal non-refundable tax credit. This simplifies matters for the provinces, as they can effectively ignore this, rather than having to take active steps to keep it from affecting respective provincial tax revenues.
To qualify, there must be at least one child under the age of 18 residing with the parents/spouses. The spouses calculate their tax due (including the main non-refundable credits) and compare that to the notional net tax due based on transferring (up to) $50,000 income from one spouse to the other. The resulting “savings” may be claimed as a tax credit, to a maximum of $2,000, even if the formula yields a larger tax difference.
Generally, it would only be worth splitting a sufficient amount that would bring the spouses into the same federal tax bracket, though movements within the same bracket may bring some small benefit where clawback of non-refundable federal credits is reduced.
Federal tax brackets, 2014
To $43,953 15.0%
From $43,953 22.0%
From $87,907 26.0%
From $136,270 29.0%
Increasing the Universal Child Care Benefit (UCCB) for children under the age of six
The UCCB pays $100 per month to a parent for each child under the age of six. The monthly amount will be increased by $60 for a total of $160, effective January 2015, though it will not begin being paid until July when there will be a six-month catch-up payment. The UCCB is a taxable amount to the recipient parent, generally the lower-income one. The total additional amount of UCCB would be worth $720 pre-tax annually.
Expanding the UCCB to children aged six through 17
The UCCB program will also be expanded to provide $60 per month for children aged six through 17. Again, this will be effective January 2015 (with the same catch-up in July as mentioned above), and will be a taxable payment to a parent, up to $720 pre-tax annually. (In the year the child turns 18 it will only be paid to the birthday month.)
Repeal the Child Tax Credit (CTC)
Together with these two preceding UCCB proposals, the CTC (Line 367 – Amount for children born in 1997 or later) will be repealed. The value of that credit in 2014 is $338 per child, an after-tax figure that is in the form of a tax credit.
The net effect of the pre-tax UCCB revisions and after-tax CTC elimination depends on the relative marginal tax rates of the parents/spouses, though it appears that, generally, this should be a positive result.
Increasing the Child Care Expense Deduction dollar limits by $1,000
As its name makes clear, this provision is an enhancement to an existing deduction, which generally must be claimed by the lower-income spouse. The additional $1,000 deduction could yield as much as $290 in after-tax value based on the individual’s federal marginal tax bracket rate, applying on a per-child basis.
Doubling the Children’s Fitness Tax Credit (CFTC)
Another of the Conservative Party’s 2011 election campaign promises, the CFTC reference amount is doubled for 2014, from $500 to $1,000. This increases the total potential value of the credit from $75 to $150 after-tax. This is presently a non-refundable tax credit, but will be made refundable for 2015 and later. No mention was made of the related campaign promise to extend the fitness credit to adults.