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2014 Federal Taxation Update

On Thursday, October 30, 2014, Prime Minister Stephen Harper announced certain tax proposals which contain several measures of interest to clients of Investors Group. This summary contains highlights of these proposals, which are not yet law. Clients should contact their Investors Group Consultant for information on how these proposals may affect their financial plans.

The Family Tax Cut

The government proposes to introduce a new federal non-refundable tax credit for couples with children under 18, effective as of the 2014 taxation year. The proposed changes would allow the parent with the higher income to transfer up to $50,000 of income to the lower-income parent to be taxed at the rate applicable to the lower-income parent. The credit, however, is limited to $2,000 even though a larger amount may have been determined based on the difference in the parents’ income tax rates. In order to be eligible, the couple must have a child under the age of 18 years at the end of the year who ordinarily resides with them.

The ability to benefit from this credit will depend upon the income of both spouses since the rate of tax paid on personal income increases with the level of income. For 2014, the federal tax rate on the first $43,953 of income is 15%; on income between $43,954 and $87,907 – 22%; on income between $87,908 and $136,270 – 26%; and to the extent income exceeds $136,270 – 29%. These rates are imposed on an individual basis, and as a result, a family with one spouse earning higher income than the other will usually pay more tax than a family where both parents earn income of equal amounts. The following are examples of the federal tax savings that will result under different income scenarios:

Income of Parent 1 Income of Parent 2 Savings
$60,000 $12,000 $1,260
$100,000 $30,000 $1,461
$150,000 $50,000 $1,928
$200,000 nil $2,000

Universal Child Care Benefit

The Universal Child Care Benefit (UCCB) currently provides all families with $100 per month for each child under the age of 6. The Government is enhancing the UCCB as follows:

  • The monthly benefit for children under the age of 6 is being increased from $100 to $160 per month; and
  • There is a new benefit of $60 per month for each child between the ages of 6 and 17.

These enhanced benefits will take effect in January 2015 and would be reflected in the monthly UCCB payments starting in July 2015. The July payment will include up to six months of benefits to cover the January to June 2015 period. The UCCB is taxable in the hands of the lower-income spouse.

Child Tax Credit

With the enhancements being made to the UCCB, the existing Child Tax Credit is being eliminated as of the beginning of 2015. Eliminating the Child Tax Credit would mean that the Family Caregiver Tax Credit would not be available in respect of infirm, minor children. The Income Tax Act will be amended to ensure that the Family Caregiver Tax Credit will continue to be available in respect of an infirm, minor child after the Child Tax Credit is eliminated.

Child Care Expense Deduction

This deduction allows child care expenses incurred to earn employment or business income, pursue education, or perform research to be deducted from income. This deduction is claimed by the lower-income spouse. The deduction limit is the least of:

  • the total amount spent on child care expenses;
  • 2/3 of the lower-income taxpayer’s earned income; and
  • dollar limits, based on the child’s age or eligibility for the Disability Tax Credit.

These dollar limits are to be increased as follows, effective for the 2015 taxation year:

Age of child Current Maximum New Maximum
Under age 7 $7,000 $8,000
Between 7 and 16 (and infirm children over 16) $4,000 $5,000
Any age, and eligible for the Disability Tax Credit $10,000 $11,000

Children’s Fitness Tax Credit

As previously announced, the Children’s Fitness Tax Credit amount will double with respect to 2014 and future years. This is a non-refundable tax credit that is available where the child is under age 16 (or under age 18 if the child qualifies for the Disability Tax Credit) and takes part in eligible activities. Until now, this tax credit was 15% of the expenses incurred for eligible activities, to a maximum of $500 of annual expenses. The $500 limit has been doubled to $1,000.

Starting in 2015, this will become a refundable tax credit, which will benefit low-income families.

This report specifically written and published by Investors Group is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal or tax advice. Clients should discuss their situation with their Consultant for advice based on their specific circumstances.