Family Tax Cut benefits 15% of households: PBO

Family Tax Cut benefits 15% of households: PBO

Income splitting could entice some spouses to quit their jobs



OTTAWA – Canada’s parliamentary budget office believes the Harper government’s controversial income-splitting tax plan will encourage workers to leave the labour force.

In a new report released today, the federal budget watchdog estimates the so-called “Family Tax Cut” will reduce the workforce by the equivalent of 7,000 net full-time jobs as the lower earning partner in some families opts to stop working.

The Conservative government’s multibillion-dollar tax measure was introduced at a time when the country is trying to attract lower-wage workers into the labour force.

The measure was announced last fall and allows eligible taxpayers to transfer up to $50,000 of income to his or her spouse in a lower tax bracket in order to collect a non-refundable tax credit of up to $2,000 per year.

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The report also says the measure primarily benefits middle- through higher-income households — while earners in the bottom 20 per cent have “near zero” eligibility for the tax credit.

On the other hand, it says about 27 per cent of households in the 80th income percentile are projected to be eligible for income splitting.

The office also says income splitting will cost about $2.2 billion in 2015-16 — higher than the government’s projection of $1.935 billion.

It also agrees with other studies of the income-splitting measure in saying only 15 per cent — or two million households — will be eligible to benefit from the plan.

The income-splitting proposal was a key pledge in the Conservatives’ 2011 election platform.