Tax relief for Canadians

On 30th October, 2014, the Canadian Prime Minister has announced a series of tax-cutting measures, which could bring some relief to Canadian taxpayers.

Family Tax cut is a federal tax credit, which allows splitting of income between spouses. With this credit, the spouse with a higher income can transfer $50,000 of taxable income to the spouse with a lower income and thus save on federal taxes on this amount. The family tax cut has a maximum credit limit of $2,000, and it is available for couples with children below 18. This tax cut is expected to benefit over 1.7 million Canadian families.

How does this affect you?

Let's say a husband is earning $75,000, and his stay-at-home spouse has no income. Before the family tax cut, the husband was required to pay a federal tax of $11,752 on this income. With the Family Tax cut, the husband can transfer some of his income to the spouse and pay lower taxes. Let's say if the husband transfers $35,000 to the spouse, the couple's combined tax liability will be $7,908 ($4,329 of the husband plus $3,579 of the spouse). This way the couple can save up to $2,000 in taxes, which is the maximum credit available as part of the family tax cut. Note that even though the family is saving $3,844, they cannot claim more than $2,000.

The benefit will be available from spring 2015 during the filing of 2014 tax returns.

Universal Child Care Benefit (UCCB) for children below 6 has been increased to $160 per month. Presently, the government provides a UCCB of $100 per month to all Canadian families with children below 6 as a support for child care. In addition, starting Jan 1, 2015, the Government has introduced a UCCB of $60 per month for children between age 6 and 17. Nearly 4 million families are expected to benefit from this rule.

How does this change affect you?

If you have a child under 6 and you were receiving $100 per month under UCCB, you will now start receiving $160 per month. And, if you have children between 6 and 17, you will start getting $60 per month from the Canadian government. If you are not already registered, you need to register for UCCB with the Canada Revenue Agency (CRA).

Families will receive the revised UCCB payments from July 2015. The first payment will include 6 months of benefits from January to June 2015.

Child Care Expense Deduction has been increased by $1,000 per year, starting from the 2015 tax year. Child care expense deductions are available to parents who need to go out to generate income or attend school, and so they have to pay someone to look after their child. Under childcare expense, you can claim a deduction for expenses on caregivers, day care centers, boarding schools and other expenses related to child care. Note you cannot claim a deduction for any educational or transportation expenses.

How does this change affect you?

If you are claiming a child care expense deduction, you can now claim $1,000 more than what you were deducting earlier. The revised deductions will be as shown below.

Original DeductionRevised Deduction
Children below 7$7,000$8,000
Children between 7 and 16$4,000$5,000
Children with Disability Tax Credit$10,000$11,000

This benefit will be available from the 2015 tax year.

As per the Canadian government, the tax relief measures introduced so far (excluding the recent changes) have provided average tax savings of $3,400 in 2014 for a double-income family with two children.

Use the Canadian tax calculator to assess the impact of the recent changes on your taxable income.