Family Tax Cut

Notice to the reader

For 2014 and subsequent years, Budget 2015 introduces a change to the calculation of the Family Tax Cut to allow the unused tuition, textbook and education credits transferred from a spouse or common-law partner. This change will affect a very small percentage of families, and will ensure that these families receive the appropriate value of the Family Tax Cut. The change may provide affected taxpayers between $2 and $750 more for the Family Tax Cut.

The CRA will automatically reassess taxpayers now that Royal Assent has been received, where it is apparent that they are entitled to an increased amount of the family tax cut for 2014. If you are in this situation, you won’t need to ask the CRA for an adjustment.

What is the new Family Tax Cut?

Under Canada's tax system, federal personal income tax rates increase with the level of taxable income of the individual. As a result, a couple in which one individual has a higher taxable income than the other often pays more federal income tax than a couple where both individuals have equal taxable income.

The October 30, 2014 announcement included a proposal to introduce the Family Tax Cut, a new non-refundable tax credit of up to $2,000 for eligible couples with minor children based on the net reduction of federal tax that would be realized if up to $50,000 of an individual's taxable income was transferred to the individual's eligible spouse or common-law partner. This would take advantage of a spouse's lower income tax bracket.

Example:

  1. A one-earner couple with children earning $73,000 gets about $2,000 from the Family Tax Cut for 2015
  2. A one-earner couple with children earning $66,000 gets about $1,500 from the Family Tax Cut for 2015
When will the new Family Tax Cut be effective?

This new tax credit will be effective for the 2014 and subsequent tax years.

Will the new Family Tax Cut be included in the 2014 individual income tax and benefit return to be released in January 2015 for the upcoming filing season?

Yes

Who is considered an eligible spouse or common-law partner for the purposes of the Family Tax Cut?

To be eligible, your spouse or common-law partner must be a resident of Canada on December 31 of the year (or on the date of death) and you were not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days or more beginning in the year.

Can I claim the Family Tax Cut?

You can claim the Family Tax Cut for a tax year if:

  • You were a resident of Canada on December 31 of the year (or on the date of death);
  • You have an eligible spouse or common-law partner for the year who has not claimed the Family Tax Cut;
  • You have a child who is under 18 at the end of the year who ordinarily lives throughout the year with you or your eligible spouse or common-law partner;
  • You were not confined to a prison or similar institution for a period of at least 90 days during the year;
  • Neither you nor your eligible spouse or common-law partner became bankrupt in the year;
  • Neither you nor your eligible spouse or common-law partner elected to split eligible pension income in the year; and
  • Both you and your eligible spouse or common-law partner file an income tax and benefit return for the year.
How will I claim the Family Tax Cut credit?

To claim the credit, complete new Schedule 1-A, Family Tax Cut, and enter the amount calculated on line 423 of the Schedule 1, Federal Tax.

Can I share the Family Tax Cut with my eligible spouse or common-law partner?

No. Either you or your eligible spouse or common-law partner can claim the Family Tax Cut for a year, but not both. This credit cannot be shared.

My former spouse and I have joint custody of our child, who is under 18 years of age. Can we both claim the Family Tax Cut?

Because of a joint custody arrangement, your child may have ordinarily lived with both you and your former spouse or common-law partner throughout the year. Provided that you and your former spouse each have an eligible spouse or common-law partner for the year, and all of the other conditions for claiming the Family Tax Cut (see Can I claim the Family Tax Cut?) are met, you can both claim the credit for the year.

Will my net income or taxable income change if I claim the Family Tax Cut?

No. This credit is calculated as if an individual allocated up to $50,000 of taxable income to an eligible spouse or common-law partner of the individual. Your actual net income and taxable income will remain unchanged.

If I claim the Family Tax Cut, will it change the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, Canada Child Tax Benefit (CCTB), and other federal or provincial benefits and tax credits?

No. Unlike pension income splitting, your net income and the net income of your eligible spouse or common-law partner will not change if you claim the Family Tax Cut. As a result, benefits and tax credits that are calculated based on net income, such as the GST/HST credit, the CCTB, the age amount, and the spouse or common-law partner amount, will not change.

If I intend to claim the Family Tax Cut for 2015, can I reduce the tax being withheld from my employment income or other income during the year?

The CRA cannot approve a reduction of tax withheld at source based on a claim for, or the intention to claim, the Family Tax Cut.

If I intend to claim the Family Tax Cut for 2014, can I reduce my instalment payments?

Many individuals are required to pay tax by instalments, and the CRA issues instalment reminders to them indicating the amounts to be paid by each instalment due date. However, as an alternative to paying the amounts shown on the reminders, instalment payments can instead be made based on either the individual's prior-year net tax owing and CPP payable, or his or her estimated current-year net tax owing and CPP payable.

Under the current-year option, an individual can estimate his or her current-year net tax owing for 2014 based on the intention to claim the Family Tax Cut. However, if the instalment payments are insufficient, instalment interest may be charged.

Where can I get more information about the proposed Family Tax Cut?

The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.

In the meantime, please consult the Department of Finance Canada's announcement for further details.

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