In October, 2014, Prime Minister Stephen Harper introduced the Family Tax Cut and various other reforms to existing tax credits to reduce the tax burden on families with mid to low levels of income, and for families where only one individual earns income.
Since this credit was intended to be available for 2014’s tax return, many taxpayers were eager and claimed it on their 2014 return. However, there are some who missed out on claiming this benefit on their tax return and have requested a reassessment from the Canada Revenue Agency (CRA). Unfortunately, they will have to wait until June, 2015.
The Family Tax Cut Credit is claimable for tax years 2014 and beyond, so an initial hiccup should not get taxpayers worried. For all of those who are still not aware of the Family Tax Cut Credit, or those who are not sure how it works, AG Tax has prepared a brief overview. If a taxpayer has any questions he/she may reach out to their personal tax return preparer or contact us using the contact numbers mentioned below.
Why the Delay?
While those who have already claimed this credit can anticipate their refund, those who missed out on it, and have filed for reassessment, should not expect a response from the CRA officials since they have been asked to put all such requests on hold until the tax cut (Family Tax Cut Credit) is formally/officially introduced.
The issue being that in October last year, the Prime Minister introduced this credit along with various reformed credits for families to be applicable for 2014, and the subsequent years. While the credit was promoted through most mediums to inform taxpayers, it was only in its emerging stages at that point. Only recently did the government realize that the tax credit should be put on hold until the Parliament has approved it, tax codes have been generated, and the tax cut has been legally introduced as a part of the tax laws. This is expected to be complete by June, 2015.
What is the Family Tax Cut?
The Family Tax Cut is a non-refundable tax credit (limited at $2,000), for couples with children below 18 years of age. It is based on the net reduction of federal tax that would occur if the spouses were able to split income (maximum $50,000) from the spouse earning a higher income to the spouse or common-law partner with lower, or no income. It is important to note that this is not income splitting, but a credit which allows for a tax savings in instances where income splitting, were it available, would save the taxpayer money. Also note that this tax credit is only able to be claimed by one of the spouses.
Example: If a taxpayer’s taxable income is $120,000 and transfers $50,000 to his spouse. The adjusted tax income of each spouse will be $70,000 and $50,000 respectively. Thus, the family tax credit will be $2,000 (the maximum limit on $50,000 transfer), which either of the spouses can claim.
Likewise, if the income is $50,000 with the other spouse earning no income, and the transferred amount is $25,000. Then, the family tax credit amount will be $423 (the difference between the tax payable on the full income and tax payable after splitting. In this case, before the split the taxpayer would have a tax liability of $7,923.29 (15% on $43,953 and 22% on the remaining $6,047) but with the split each spouse would be subject to a 15% tax rate on the $25,000 per person, which would bring down the tax liability to $3,750 per person (Total $7,500). Thus, the family tax credit would be $423 ($7,923.29-$7,500)
Prerequisites for claiming the ‘Family Tax Cut’ Credit
A Canadian taxpayer can claim this credit, if:
- They are resident of Canada on December 31 of the year;
- The spouse/common-law partner has not claimed the Family Tax Cut credit for the year;
- They have a child below age 18 living with the taxpayer or spouse/common-law partner throughout the tax year;
- They have not been imprisoned for at least 90 days during the tax year, nor become bankrupt;
- The taxpayer and spouse/common-law partner have not elected to split pension income for the year; and
- Both the taxpayer and the spouse/common-law partner file their income tax return for the year.
Current Status of the Tax Cut
As mentioned earlier, any applications for reassessment for this credit have been put on hold. Normally the CRA officials send a reassessment notification to taxpayers if they feel that the taxpayer qualifies for certain credits under law. However, since the CRA cannot send a reassessment for credits that are currently in the proposed stage, which applies for the ‘Family Tax Cut’, the CRA cannot do much about it until it has been approved.
Any reassessment requests will be put on hold and concerned taxpayers will be notified of the existing situation once the tax cut becomes law.
That being said, taxpayers should not be confused or have any doubts regarding the execution of this tax cut as it has already been approved by the House. However, in order to officiate the tax cut into a law, certain protocols have to be followed, which can be time-consuming.
It is advisable that taxpayers who think that they qualify for this credit but have not claimed it on their 2014 tax return consider consulting their tax professional to review their tax return and request that the CRA put their returns in for reassessment in June, once the credit is officially law.
AG Tax LLP Can Help
Tax situations can be very complicated, especially if there are minor situations which can have severe impact on one’s taxes.
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
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Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
