My weekly column, on why this country still needs a Family Tax Return. This, and pension-splitting, will be a major focus of mine over the coming months. I would certainly appreciate your comments. Your help would be even better.
So, it was a good budget. Good, but not perfect. There are two groups of people in our middle class world who I think deserve some more attention, and I will be working over the next few months to try and see that this happens.
First, families. Of course the income tax cuts were welcome. The GST slash was fantastic. The child care benefit – actually a tax cut for families with kids – was a great initiative. All of that certainly helps ease some of the financial strain families in Halton and across the country feel right now, given the hideous price of gasoline, hikes in hydro and natural gas prices, a property tax explosion and six increases in mortgage rates.
But we need more. We need income-splitting and, to get it, probably a Family Tax Return. Here is some of what I wrote on this in my pre-budget report to Finance Minister Jim Flaherty, and I stick by it:
This, without question, is the most-requested tax code change in Canada. There is a wide-spread perception that our system, which is based on the individual, is patently unfair to many families, particularly those with a single income.
Typically, this family has one wage-earner while the other spouse stays home and cares for children. When this family’s income is equal to that of a dual-income family, then invariably, the single-income family pays more in tax and has less disposable income.
As a result, we have families making the same amount of household income and yet being taxed at different rates. At the same time the immense contribution of care-givers is not being adequately recognized by the tax system, even with the new child payment. And we are, ironically, taking more disposable income from the hands of parents than we are from childless, working couples who may incur less in the way of household living costs. That’s fair?
By creating a Family Tax Return, akin to the Joint Return which exists under IRA rules in the United States, we could level the playing field and tax families more equitably and realistically. This would also allow for:
- Income-splitting between spouses, so that stay-at-home caregivers would assume part of their spouse’s earnings and pay tax on it, while the other spouse would be taxed in a reduced bracket. It is interesting to note that France allows income-splitting to occur even between parents and children.
- Stay-at-home caregivers to make RRSP contributions in their own name, since they would share in the earned income of their spouses. This focus on retirement savings is a critical one, given our aging population and general unpreparedness of most Canadians for their after-work years,
- Single-income families to make better financial planning decisions and to be less preoccupied with tax avoidance.
- Families to make better lifestyle and personal care decisions, such as opting for income-splitting to allow a spouse to stay home and care for disabled family members or aged parents. The more home care which can be provided, the less impact there will be on precious and strained government resources.
- Canadians to better cope with financial pressures over which they have no control, such as the rising cost of residential real estate. As home prices escalate, more income is diverted into debt servicing costs, creating a huge strain on those families who choose to provide in-home care for children or elders.
- Recognition of the family as the basic economic unit of Canada. For this purpose, “family†could certainly be defined in traditional terms, or as a single-parent entity or same-sex union, provided that a child or children are included. Income-splitting among childless, working couples, or working couples with children of a certain age, would be too problematic and expensive to consider practical.
What do you think? Is income-splitting for single-income families with kids a good idea? Or too expensive to implement? Is it still necessary now that we have a $1,200-per child-per year tax break about to begin? Is it time to make the family the basic unit of the tax system?
And if you agree with that, then I think we have to talk about the other dirty little secret of the tax system – the unfair way we tax retired couples with a single pension income. More on that, what I intend doing about it, next week.
28 comments ↓
Just finished watching a Fox News special. The host talked about the new Canadian government having agreed in principal to send troops into Iraq to support the US in that country. Now that comes as a shock as we have been told all along that Canadian troops would not be sent there. Garth, what is happening here. Last week it was word out of the US that the BMD was back on the table and now this.
Yikes – news to me!! — Garth
Subject: Banks who want to sell insurance
I would agree with those who feel that there is more than enough competition in the insurance sector without the Banks getting more involved.
Many insurance brokers make house calls at a time of the client’s choice.
If the Bankers are willing to make house calls in order to be able to sell more insurance, then maybe they could be allowed to expand their insurance business.
However, if they are willing to make house calls for insurance clients, would they also be willing to make house calls for some of their banking clients, since many of their customers are not able to get into their bank during normal banking hours?
This should simplify the decision making process. After all, it is really the service that counts.
Cheers.
John Zalischuk
Garth,
Stop fiddle farting around the means on how to lower the tax burden on families and pensioners. Keep it simple, give a straight forward tax cut.
No formulations, no fancy calculations, no more pretty schedules, keep it simple, a straight tax cut.
Hi Garth, I’ve just read your weblog on income
splitting. You present a great argument and have some
valid points. You asked for comments, and being
somewhat “on the fence” on this one, I will play the
role of devil’s advocate. Many Canadians will welcome
such a plan [those who will benefit from it of
course]. I do however,feel that it may put the antlers
hat on you during moose season in some regards.
However intended, many will see this as punishing
working moms. Women’s groups will be all over you on
this. Although working moms are also enjoying the tax
cuts they are entitled to, you know as well as I the
optics presented by such a plan.
Secondly, it is in our nature to assume that while
Paul’s getting paid, Peter’s getting robbed. This may
prove to be a setback in those urban ridings that you
guys will no doubt be courting in any bid for a
majority. These ridings have a lot of single Canadians
in them. This could prove a problem.
My final point may be a little difficult for a simple
man such as myself to communicate effectively but I’ll
try my best. Let’s cast aside the age old debate of
“duel income” parenting versus “single income and one
parent staying at home to raise the the child”
parenting and focus only on the quantitive. Our
economy, rightly or wrongly, has become hugely
dependent on women in the workplace. Any policy that
would have a significant impact on whether or not one
parent puts a career on hold to raise a child may may
also have a significant impact on business. Such a
shift may, systematically or systemically, affect the
recruitment and promotion policy at the workplace.
Garth, I don’t necessarily disagree with you on this
one. Like I said, I’m on the fence and am only
assuming the role of devil’s advocate. In fact, I
could write you back arguing against every point I’ve
made, but I’ll leave that to you.
Take care Garth,
Andrew McDonnell
Oakville
Well reasoned Andrew. I’ve said for a while that income splitting is a nice idea on the surface, but that someone will be paying for it, and frankly, that person is me. As a single guy making a decent living, i would be paying a much higher % than my neighbour who is married with no kids, and all my other neighbours with kids. Now don’t get me wrong – they’re great people. But you don’t see me handing over envelopes of cash to these guys, and that’s the net effect of a family tax return. You’re basically allowing those people who are married to (for the most part) drop out of the top tax bracket.
I think a much smarter and simpler solution is a commitment to progress towards a flat tax. If the fed gov’t took the same % from everyone, that seems fair to me. I’ll still pay a shitload more than the guy making minimum wage, but now the 2 income and 1 income families will pay the same tax as well. I doubt this idea will go anywhere – it sounds just like the sort of policy that a conservative gov’t would propose, but this is a minority gov’t, and it would probably be political suicide.
I’m not sure if this has been said before. I’ve read the budget report,and this point is hinted at but not stated outright, so I’m just going to ask.
I would not support straight income splitting for all couples (I do support another kind, as stated later) It would mean that a couple with one working parent would be in the same tax bracket as a dual-income family working twice the hours. Furthermore, a direct income split would be a huge tax break for single income couples, and that money will have to be made up somewhere or cut from various programs.
There is also no point in providing income splitting to families with no children. The reasons for that should be obvious.
However, I would support a set amount of income you can spilt for each dependant child. It would be another tax break for you to spend on your children, for when you have 3 or 4 they become rather expensive. Also, the more children you have, the more difficult it becomes for both parents to work.
So I’ll state the questions bluntly;
1) Are you proposing straight income splitting for any married couple, or just for families with children?
2) If the latter, would the amount of income split be dependant on the number of children the family has?
3) Just for interest’s sake, would there be a parallel plan for single working parents?
(1) For families with children or other dependents, such as aged parents or disabled adults. (2) No, I’d propose families (as I did in my report) get to decide how to split income between them regardless of the number of dependents. I also proposed that a decision to do this preclude them from collecting the $1,200-per child benefit. (3) Not if it meant splitting income with a non-taxpaying dependent. The point here is to keep making all income taxable, and to allow stay-at-home caregivers to be a part of the CPP-RRSP world. — Garth
Garth, is there any chance of ending the practise of GST on gasoline purchases being taxed on top of other levels of taxation? As repugnant of the cost of gasoline is now, the idea that we’re paying GST on road tax & municipal tax is over the top.
Would the difference be statistically significant and/or worth the technical changes required? I remember this notion being bandied about in the past but it seems to have disappeared in recent years.
Mac:
The way a litre of gasoline breaks down is as follows:
49% – crude costs
15% – refining margin
3% – marketing margin
33% – provincial taxes
so with gas at $1 per litre (for ease of calculation) we’re paying about 2 cents per litre in GST (calculated at 6%) JUST on the taxes. So for a 50 litre tank for every fillup we’re paying an extra dollar in GST on the damn provincial taxes!!! So of all the GST we pay on a litre of gas (6 cents on a buck) ONE THIRD of that is tax on tax.
So the question is how much would be dipped out of the federal coffers if we were only taxed GST on 67% of the per-litre cost of gasoline?
That being said, however, I believe the same thing happens on alcohol. The shelf price includes a buttload of taxes (I’m not sure of the breakdown) but when you go to the till you get GSTized as well. There are probably other things doubledipped this way (and I’m not so opposed to making booze and smokes more expensive) but fuel is a necessity, not a vice so extra taxes on an already oppressive price is, as you put it, repugnant.
Garth,
Thanks for answering my questions. Income splitting between dependants (and not just couples) sounds like a good idea – works for all families, including single working parents.
It also sounds like a big idea that needs some serious number-crunching to see just how much it’ll cost. I would be interested to see a proposal that includes the costs and benefits of different applicable formulae.
Overall it sounds like a good plan. Add one more in favour.
Garth,
I’m 100% with you on this one. It’s a simple issue to understand.
When people get married they share what they have. They don’t say to each other “I paid for that car therefore you cannot drive it”. They don’t say “I paid for 30% of the house, therefore this section you cannot use.” The family income is shared.
With that in mind, it is fundamentally wrong that two families with the same family income can end up with a different total tax bill simply because of how the family income splits between the spouses.
It is a question of fairness, nothing more nothing less.
As you have pointed it, income splitting would also allow a non-working spouse to earn RRSP contribution room, another plus.
I *applaud* you for not dropping this issue. The current system could not even withstand an *elementary* fairness test.
Thanks, K2. I’ve never looked into the price breakdown. I just sigh and pay.
I love the idea of income splitting, but reading the sample of comments above, all I see is more forms to fill out, and as a result bigger tax bureaucrazy.
Give us a flat tax – the effect is the same – and for good measure, take away all of the deductions. So if I want to give to charity or a political party, save for retirement, but into a Canadian film, or throw it into a labour-sponsored fund, it’s my money.
Just imagine how much money we’d save if all that was required at tax time was multiplying by 15%.
Hi Garth
I really appreciate your thoughts on a family return. It make absolute sense. I lived and worked in the U.S. for 5 years, filing a joint-return with my spouse. The joint-return is seen in the U.S. as a mechanism to recognize that the family is the basic unit of society. Individuals do not resent families that file jointly; these are either largely indifferent or recognize that it makes sense to tax income attach to a family as a whole, rather than simply and just the component individuals. The changes are you recommend are long overdue – and represent some of the most important needed alterations to our tax system. Kudos to you for having the courage to bring this issue up; I don’t see any other politicians expressing these views. I hope you are able to convince your Conservative colleagues of the need for this change….Many middle-class, single-income earning families are counting on it!
Tim
Thank you for acknowledging that the Child Care Benefit was actually a tax cut and has nothing to do with allowing families to access or afford quality child care. And lets remember that this tax cut applies to families who least need it-the wealthy-so instead of “Beer and Popcorn”, they, the wealthy, can buy “Champagne and Caviar” with their $100. a month-what a great Child Care Benefit-I hope the kids enjoy!!!
Judy,
Yes, the CPC Child Care Allowance (yes, it is an allowance) will not pay for all child care. However, the Liberal’s plan was little more than a token effort. It was only funding 3 provinces, and even in those the money wasn’t being used to create anywhere near the number of child care spaces advertised.
The amount required for true national child care has been estimated between $20 and $25 billion by various groups. To pay for that promise a government would have to do little else. If that’s what the Liberal’s plan to provide, fine. But trying to pass this pittance as a national child care program is a joke. They’ve just written the cheque to the provinces instead of the parents.
As for the “Champagne and Caviar” remark, I trust parents with the money far more than bureaucrats or politicians. And this will put more than twice the amount of money towards child care than the other plan.
Judy,
There are a lot of families that give up 50% of their gross income because they believe in nurturing their children instead of turning them over to the government. There are a lot of families who live in areas that would never see day care facilities under a state program.
I will wager that very few of them are wealthy, but are appreciative that government has finally recognized their contribution to society.
Judy, who anyone is spending their child care allowance on beer, popcorn, champagne or caviar? Don’t make accusations unless you can prove it. This money can greatly subsidize families with a child in preschool or similar activity. If a family chose to complete a family tax return, they would no longer get this benefit either.
Anyway Garth, about the income splitting. I am 100% for it no matter how many forms I have to fill out. I don’t think working moms will be all over this because it does not affect them, unless they want to be home with the kids, then it will affect them very positively. I think single income families are being seriously discriminated against and hope you and Mr. Flaherty can find a way to change that. Of course, I would be willing to forego the child care allowance which working couples would still get (so they’re still ahead) in order to do a family tax return.
NOthing’s been said of this way this benefit is applied. It’s absolutely lopsided. Single parents, the one’s who absolutely need it, see less of this benefit that is largely a social policy than two parent families and less than two parent families with a single income.
As a man who was raised by a single mother I think this is reprehensible. The Cons are constantly saying that it’s needs to get out of taxpayer’s lives it seems to try very hard to affect it by withholding money from families who don’t represent their social con base.
I really wish could hear the self-rightousness from this end. THere’s a large part of the population that could never give up 50%, or doesn’t have a second parent to give up an income to stay at home with the kids. It just doesn’t reflect the real situation confronting families today.
William and Garth,
I admit I am largely ignorant of the tax breaks/benefits available to single parents. They way people talk, it sounds like they get nothing or next to it. Can someone fill me in on the benefits available to a single working parent?
Thanks in advance.
In my opinion two things that could be done and as yet not addressed: Mortgage interest deductibility and a return to real deductions instead of tax credits on the tax form.
This has represented the grossest tax bite in recent years, yet no one seems to mention that all those deductions used to be real deductions and not a tax credit which is a small percentage of the overall tax deduction. ( 15 or 15.25 or whatever it will be)
OR a simple and easy 15% of income taxed and a complete elimination of tax on tax.
As it stands now, we pay property taxes on already taxed income.
Actually, I would like the Conservative government to prove that parents ARE spending the money on actual child care!! I would like them to prove me wrong-that mom and dad aren’t spending the $2.50 per day on a Tim Horton’s coffee-they said they would account for taxpayers dollars-so start accounting!!!
Luke: So what you are saying is the Conservatives have just traded on “pittance” for another?
Because there are no plans for new day care spaces-they are relying on willing businesses to create them for them. And who is going to monitor the quality of care at these “new” spaces? Will there be qualified Early childhood educators who have been college-trained? I don’t know of too many businesses who have signed up for this.
So please don’t tout this Conservative handout as a Child Care plan. Even Garth admits it is not a Child Care Benefit , it is a tax credit.
In my small town that $2.50 a day will get me 15 minutes of baby-sitting by the 14 year old around the corner.
Oh, and when these families with 2 kids under 6 STOP receiving the benefit in a few years, who is preparing them for a $2400. pay cut??? The poorer families will surely be in dire straits after relying on these $$$$$ for 3 or 4 years.
I’d like to comment on the new budget’s GST reduction and how it ’supposedly’ benefits new home owners. The 1% reduction in GST does not in ANY way benefit new home owners. Every penny of savings will go directly to the builder’s pockets. We recently purchased a new home that has a July closing date. The GST is INCLUDED in the price and the builder remits the GST on behalf of the purchaser. Our agreement contains a standard clause that states that all ‘GST rebates’ must be handed over to the builder — this is common practice. Our builder stands to make $5000 on our house alone … for nothing. Our lawyer tells us that this ‘tax cut’ is a complete windfall for builders. I spoke to another big builder in Ottawa and asked it them if they were planning on lowering their prices by 1% come July. They told me they had no intentions of doing so. When I asked how the GST rebate would work, they re-iterated our exact situation — that they would continue to remit the GST on behalf of the purchaser and thus realize the savings. Here’s yet another example of a tax break for big business disguised to benefit consumers!
With all of the statistics I have seen by the day care advocates creating new day care spaces would appear to be at a crisis point. There is such a pent up demand, apparently, that the marketplace should get involved. Day cares are income generating businesses – not for profit or for profit, doesn’t matter. With rates quoted at between $600 to $800 or more per month centres should pay for themselves and, as is the case today, the subsidies to cover these costs follow the child.
Since the parents are going to work to make an income and since the day care costs are tax deductible and since low income earners or families qualify for subsidies from the provinces the day care would still get the per month rate per child. The provinces also regulated them and set the standards.
For the life of me I can’t even see that this should be a Federal matter at all.
Garth,
Can you please bring up an important matter with your House colleagues? I watched Question Period and I was so dismayed at what I heard and saw.
Ruby Dhalla and her Liberal buddies did so much anti-American rhetoric.
It may be politically beneficial for Ruby Dhalla and her Liberal buddies to play into some groups in Canada, but, she and her buddies are doing a great disservice to our trade between our two countries.
Does she not realize that Canada does a trade surplus with US? This trade financial benefits 1 in 4/5 Canadians!!!!
I would rather be trading with US than India and China, where human rights abuses go hardly unnoticed.
AND, Ruby Dhalla must understand that many Canadians do have close family members, who are born and raised in the USA! Enough of this bashing and prejudiced behaviour! I’m totally disgusted with these so called dignified MPs.
Why doesn’t Ruby Dhalla condemn the human rights abuses in India and China!
Judy,
Actually, that was my point. They are trading one pittance for another. But instead of giving $5 billion to be eaten away by bureaucrats (and it was – Ontario was averaging $44,000 per child care space instead of the $11,000 they were supposed to, and the spaces were not subsidized for parents) he’s sending $10 billion to the parents.
Twice as much money. No money being eaten away as it gets filtered through the provincial government, to various provincial daycare providers, to individual daycare providers.
It’s ridiculous to require parents to prove that they spent their $1200 on their children. Children cost much, much, much, much more than $1200. If each child under 6 is not receiving at least $100 per month for food, clothes and living expenses, the state should take them away.
Neither plan is perfect. I prefer the CPC plan, as I feel the Liberal plan is yet another useless announceable. As an expectant father (just found out this morning – feel free to congratulate me!) my opinion should count for something on this.
Do you have children, or is this a theoretical argument to you? Because yes, in theory a National Child Care Plan would be great! We just never had one.
Congratulations Luke!!!
Now the fun will begin for you: and the learning and the sacrifice and the late nights…
I can’t wait to see how things change for you in the coming years.
So, sit back and enjoy.
David
sprint pcs vision
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