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Who really benefits from income-splitting

Hint: it’s not families struggling hardest to get by


 
Justin Tang/CP

Justin Tang/CP

There is a figure much in the air in the aftermath of Finance Minister Joe Oliver’s 2015 federal budget: 15 per cent. You might wonder what it really signifies. The answer: nothing much.

I’m referring to the by-now-familiar claim that the Conservatives’ $2-billion income-splitting tax break helps out mainly, or even somehow only, the richest 15 per cent of Canadians. It comes up all the time. For instance, Liberal Leader Justin Trudeau alluded in the House to the Tories’ “$2-billion tax break for the wealthiest 15 per cent of Canadians,” while the NDP’s Thomas Mulcair said just outside the Commons that the “Conservatives are finding tax breaks for the wealthiest 15 per cent.”

That talismanic 15 per cent figure seems to be derived, in a distorted way, from a couple of prominent studies into income-splitting, most notably, the Parliamentary Budget Officer’s March 17 report on the controversial tax measure, which Prime Minister Stephen Harper announced last fall and dubbed the “Family Tax Cut.”

The cut lets couples with kids transfer income from the higher-earning to the lower-earning spouse, allowing that income to be taxed at the lower rate, up to a maximum saving of $2,000. The respected, independent PBO estimated that only 15 per cent of Canadian households would qualify, or about two million families.

But are these somehow the richest 15 per cent of Canadians? No, they are just those households with two parents and kids under 18. Not included are, for example, well-off empty-nesters or prosperous singles. (Struggling single-earner families and poor individuals are also out of luck, but more on that later.)

So income-splitting is clearly not only for the richest 15 per cent. But another question is worth asking: Among the two million eligible families, how is the $2 billion in total income-splitting tax relief divided up among those at different income levels? This is a question I tried to answer some weeks ago.

Oliver’s Finance department was typically unco-operative. But the PBO was extremely helpful, and provided this breakdown of where benefits flow.


Family income Families benefiting Benefits ($000) Share (%) Average benefits ($)
< $60K 376,000 $370,000 17 $985
$60K-$120K 1,011,000 $1,153,000 52 $1,140
$120K-$180K 361,000 $422,000 19 $1,170
$180K+ 233,000 $292,000 13 $1,250
TOTAL 1,981,000 $2,237,000 100 $1,129

Among other things, the PBO’s figures show that, of all the families eligible for income-splitting, about 12 per cent, or some 233,000, earn $180,000 and better, and that top 12 per cent will pocket 13 per cent of the total benefits, or around $292 million. Most of the money is actually going to middle-income families.

More than one million families making $60,000 to $120,000 qualify, and they will collect 52 per cent of the total tax gains from income-splitting. On average, each family in this $60,000 to $120,000 range will cut its tax bill by $1,140, compared to an average household saving of $1,250 for those $180,000-and-up families.

If middle-income families are set to do fine out of income-splitting, the same can’t be said for lower-income households. Here’s the main problem. Finance department figures show there are 1.2 million families with kids that make $60,000 to $120,000; fully 83 per cent, more than one million, stand to benefit from income-splitting. But of the 1.7 million families with children that the department says have incomes falling under $60,000, a paltry 22 per cent, or 376,000, have the income structure that allows them to gain from income-splitting.

That is not fair. The problem with income-splitting isn’t that it is designed to benefit the best-off families; it’s that it is not designed to benefit those who are really struggling to make ends meet.

(NOTE: The headline on an earlier version of this post suggested that all Canadian families except the poorest benefited from income-splitting. That was incorrect and I’m sorry for the error. JG)


 

Who really benefits from income-splitting

  1. Well it may not be fair but when people have small income they pay low or no taxes. Notice there are other initiatives that help these people extra $ for kids, programs that they can sign up to that some families can`t afford – sports, cultural stuff and so on. And while the amount for higher income splitting looks higher it is capped. It`s the people that pay taxes that tax relief is for. The NDP and the Libs, have a tradition of wanting handouts. This does dot say that there should not be different programs to help the lower income. It`s foolish to cry over income splitting just because one does not fit the mold.

    • Notice there are other initiatives that help these people extra $ for kids, programs that they can sign up to that some families can`t afford – sports, cultural stuff and so on.

      Are you saying there are programs for the poor that others can’t access? There may be some, but they aren’t plentiful – nor do they usually provide the level of programming that paid programs do.

      This government has given tax breaks for sports and other activities – but again, you first have to have the money to spend on the programs – leaving out the poor.

      There is an inherent selfishness to the CPC approach that appears to really appeal to their base. “It’s my money; don’t DARE let others benefit.” It’s a “Charity ends at home” philosophy.

      With a government like this one, “The poor will always be with us” seems to be a deliberate aim; something they want to ensure is maintained.

  2. So income splitting helps mostly the middle class. Is that so bad? The middle class is the largest class, and the more they save, the more they spend. And that improves the economy of the country.

    Furthermore, the present system (without income-splitting), discriminates against the families in which the women work in their homes and care for their children. Say the man in such a family earns $100,000 per year, and in a family where both parents work earn, the man earns $50,000 per year, and the woman earns $50,000 per year. Though the family income is the same in both cases, the former must pay a great deal more income tax. Is that fair?

    • Is it fair for the second family to be taxed the same as the first when the second has one spouse available to provide tax-free labour in the form of child care, cooking, shopping, home maintenance, tutoring, cleaning, etc?

      “Furthermore, the present system (without income-splitting), discriminates against the families in which the women work in their homes and care for their children.”

      Just the opposite.

    • Do you have any idea what child care costs? The double-earner family has much higher expenses than the single-earner – child care being but one (but an expensive one). If you think of it in terms of a business, the “profit” (income minus expenses) is much higher for the single-earner in your scenario.

      This is a reward for the CPC’s favoured: Those who live the 1950s ideal.

  3. The issue isn’t who it helps, the issue is this is a spending program that the government can’t afford. If this so-called tax relief were a spending program that delivered $2 billion in cheques to certain households whose last name began with H, people would have no trouble seeing this as a stupid program. But we let certain people – we are not even sure who exactly – avoid paying some tax and we call it tax relief. As far as I am concerned a bunch of people are no longer paying their share (based on their income) for OAS, defense, health and the national debt. Furthermore, for a country that is not actually doing that well economically, this is not fiscally responsible.

  4. But are these somehow the richest 15 per cent of Canadians? No, they are just those households with two parents…bit of hair splitting going on here JG. So we are talking about a big chunk of the most well off families rather then richest Cndns per se. The chart does not include all of Canada’s wealthier folks. Big deal as far as this debate goes.
    Looking at that chart i’m puzzled why the big split btwn $60 thou and $120 tho. Why not above $100 thou? How much of that 52% is weighted toward the higher end? Cuz that i make it 32% of our most well off families + whatever % is above say $100 thou [ say 1/3rd] making a grand total of 50% claiming almost 50% of the benefits. Not so good eh![ best someone double check my math]

  5. Bad language aside, let’s not pretend that this country’s poor are not losing out to the wealthy.

    Only about 20% of people in this country make over 120k yet that group is taking 32% of the money.

    I too would like to know the difference between what those making 60 – 85k are making receiving (aka the true middle class) vs. 100 – 120k of the upper middle class.

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