News: What impact will income splitting have on Canadian households?

This was one of the promises of the Conservative Party in 2011. Income splitting for couples with children will be applicable beginning with the 2014 tax year. But this measure, covering only a few households, could also encourage more women to leave the workforce.

The parliamentary promise has created dissensions within the Conservative government. Well before being implemented, the former Federal Minister of Finance, Jim Flaherty, expressed doubts about the relevance of income splitting, much preferring to use budgetary surpluses to reduce taxes or public debt.

 

Only 15% of households

Recall that this new measure will allow the spouse with the highest income to transfer up to $50,000 in taxable income to their spouse with the lower income. The benefit generated cannot however exceed $2,000 per household per year. However, it turns out that the measure will only benefit 15% of Canadian households, according to Jean-Denis Fréchette, Parliamentary Budget Officer (PBO).

In a report he has just published on income splitting, he confirms that the most affluent taxpayers are those who will benefit the most from the tax relief. On the menu, he explains that 50% of this plan’s budget ($2.2 billion) will benefit taxpayers where one spouse earns more than $80,000.

 

7,000 full-time jobs los

But this measure could also encourage more women to leave the labour market in favour of the home, as women are statistically those which often receive the lowest income of a couple. The PBO report assessed that income splitting would lead to the loss of 14,000 full-time jobs. This loss would be partly compensated for by the increase in hours worked by the spouse earning the highest salary, which would be equivalent to 7,000 full-time jobs.

This measure would therefore involve a net loss of 7,000 full-time jobs on the Canadian labour market. It equates to a reduction of 0.04% of the total number of hours of labour. 

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