Pension-splitting’s in, so stop calling me! Just deduct!
While history may remember me as the MP who got himself thrown out of Stephen Harper’s party for standing up to the prime minister, I’d like something else written on my political tombstone: Income-splitting. Here rests the guy who got it.
Well, partly. My quest for income-splitting for all families will not be over until the government adopts a Family Tax Return, and it looks like that won’t happen until after the next election. Our deeply flawed tax system has to change, adapt, and reflect Canadian society, since today we are penalizing some families, overly rewarding others, and causing people with identical incomes to pay wildly differing rates of tax. There is no reason Canada cannot join other progressive countries and tax people the way they live and organize themselves – as families.
In the meantime, we have a partial victory with the advent of pension-splitting. This means retired couples now have the ability to share pension income between them, giving the potential in many cases for sharply reduced income tax.
The idea is simple: Many retirees today live with spouses in households where one person gets a decent pension and other person earns extremely little. Without pension-splitting, the lion’s share of the household income was taxed in the hands of the recipient, often putting that person in a high tax bracket, while the spouse paid no tax. But another couple making the same money, earned equally between the two, paid far less tax.
That’s the unfairness which pension-splitting ends. So I was pleased when the government agreed with my lobbying effort, and announced it last October. Yes, I know pension-splitting was an offset for the draconian and unjustified tax on income trusts – but still, progress is progress.
However, good news has been replaced with confusion lately, as shown by the huge number of calls people have been making to my riding office. Seems the bureaucrats at Canada Revenue Agency have been telling seniors that pension-splitting has not yet been declared the law of the land, so taxpayers should not be adjusting their quarterly payments downwards as a result.
That’s wrong advice. Here’s why.
The minister of finance announced on October 31st that pension-splitting would become law. A ways and means motion to that effect was passed in the House of Commons in November, which meant the change was enacted as of January 1st. The 2007 federal budget confirming pension-splitting was brought down in March, and enabling legislation has been debated in the House and will be passed sometime in the future.
But while that last bit has yet to go to a vote, the reality is any tax change announced by a finance minister is effective from the time it is uttered. That was exactly the case with the November, 2005 Liberal budget which dropped the bottom income tax rate to 15%. Although that budget was never passed, or came to a vote, that was the effective rate until Jim Flaherty’s first Conservative budget more than six months later raised the rate back up. During the time between the two documents, Canadians enjoyed the lower rates and had a few more bucks in the pay packets.
And so the situation today is the same. From January 1st, 2007, anyone who is retired with a registered pension plan can share that income with a spouse. Anyone over the age of 65 can also be splitting RRSP or RRIF income with their squeeze. And in both cases, you should be changing your quarterly payments so that you are contributing less, and avoiding an overpayment.
If any CRA minion tells you differently, ask them how much they want to bet. If your tax planning professional tries to convince you to make as big a tax payment as in the past, get a new advisor. Even if an election were called tomorrow and the Harper government went down to defeat, with the budget legislation never passed, pension-splitting would still be in effect.
And the next government, if we’re lucky, will extend this sane and sensible reform to all families.
34 comments ↓
Hello Garth, indeed, i’m glad you pressured the Federal Conservatives to adopt Pension-Splitting. In my opionion, Newfoundlanders and Labradorians have benefited greatly from this move.
So ya, if only they’d change the Tax system to tax people as families,NOT Individuals (What about people who aren’t married?)
Thanks Garth!
There is considerable confusion over who is eligible for income splitting and what income in eligible. Flaherty has continually given information that conflicts with Revenue Canada. When will the regulations become available to the public?
So ya, if only they’d change the Tax system to tax people as families,NOT Individuals (What about people who aren’t married?) – Jordan
The flip side of this argument is what about the stay ay home mum/dad who hasn’t earned a pension, or because they weren’t working for a period of time end up with a smaller pension? I know CPP will give you make up credits but RRSP and company pensions, if you’re lucky to have one, will be less.
Questions I hope you can answer that will clear things up for me on this issue as I am a bit confused:
1. Couple A, no children, has a man making a $100,000 salary. Wife stays home because they decide they can afford to since the man is able to find a good paying job. If she wanted, she could get a job paying $40,000 a year, but doesn’t. Couple B, no children, each is only able to have a job paying $50,000. That’s as good as they can get. Wife decides she can’t stay home because if so they couldn’t pay the bills. Are these “families” “equal” in your opinion? Should they pay the same in income taxes?
2. Take couple A from the previous example. Now take a single female earning $100,000 a year. 2 individuals using government services versus 1. Should Couple A be able to split income and pay less tax than the single female?
CRA is in the business of graping as much money from the people as they can possibly do. Relying on CRA for tax advise does not sound like a smart idea. If you don’t understand the tax codes, you will be taken advantage of. Yes, even by your own govt or its agent.
By Phil on 05.06.07 8:51 pm
Phil has presented a couple of good questions, Garth.
In case 2, the couple is already paying less tax than the single person as the husband can claim a basic exemption for the wife, but is it fair to have that tax reduced even more?
I, too, would like to hear your response to these questions.
The examples assume there would be no income restrictions or limits put on income-splitting, which we all know would not be the case. A Family Tx Return would have the goal of delivering the greatest amount of good to the largest number of people, and I have no doubt the end result would be a more equitable system. The current one is rife with unfairnesses far more blatant than the examples given. — Garth
The current one is rife with unfairnesses far more blatant than the examples given. — Garth
I would appreciate it if you could give me three or four examples to justify this comment.
____________
A Family Tx Return would have the goal of delivering the greatest amount of good to the largest number of people — Garth
This sounds like political gobbdygook. Who benefits? Who loses?
In case 2, the couple is already paying less tax than the single person as the husband can claim a basic exemption for the wife, but is it fair to have that tax reduced even more?
- That’s not entirely true. The single mom can claim one of the kids as “Equivalent to spouse.” until they turn 18. So they should be paying the same taxes, as they are eligible for the same deductions.
There are many reasons professional tax preparers warn their clients to make the installments despite the expected refund next year:
1) The government falls and for whatever reason the legislation doesn’t go through in which case the taxpayer who didn’t pay the installments now is looking at installment interest and, of course, blames his accountant.
2) The client, expecting great tax savings from pension splitting sells his/her shares in XYZ Co. The same shares he/she bought back in 1974 for $2 each and now sell for $180. The capital gain is so huge that the taxpayer ends up paying more in tax even with the pension-splitting savings.
3) The person misunderstands the rules and takes a bunch of money out of his/her RRSP expecting that it will be split with his/her spouse. No big deal right?
Wrong – this is not an annuity payment but a regular withdrawal and, therefore, not eligible for splitting. The client was supposed to transfer the RRSP to a RRIF and then withdraw it to make it eligible (assuming the client is 65+, of course).
The list goes on and on.
There are many good reasons why tax accountants are telling their clients that this year is difficult for tax installments.
If someone relies on this column to not make tax installments, and, if for any reason above or otherwise he/she has tax installment interest to pay are you going to offer to pay it for him/her?
With luck, we will have certainty over this issue in the next few months and can start advising our clients on an individual basis accordingly.
Until then we still don’t know if this damn legislation will lead to OAS clawback savings or not since we don’t know if the deduction takes place prior to line 236 or after line 236.
You must be an accountant, but try to read my words more carefully. If the government falls, the tax change remains in place until repealed by a subsequent government (which will NEVER happen). Second, stupidity or avarice is always a problem, which is why taxpayers have infallible people like you to remind them they are fallible. — Garth
Income trust – lie
Oda-sponsorship – lie
Blackburn expenses – lie
Detainee issue – lie
Hiding polling done – lie
…and that’s only in May (except income trust)
And, now I read where they’ve purchased more military equipment from the U.S. without informing anyone.
…it gets worse every day.
“do as I say, don’t do as I do” government that’s for sure.
You must be an accountant, but try to read my words more carefully. If the government falls, the tax change remains in place until repealed by a subsequent government (which will NEVER happen). — Garth
NEVER….. I don’t want to put you in the same basket but didn’t a certain PM and Finance Minister promise NEVER!
We’ll watch the political suicide on this one at the next election…but politicians of all stripes have this habit of falling on their swords! So never say Never!
When cows fly. — Garth
When cows fly. — Garth
That’s, “When pigs fly”….and there’s a famous (or imfamous) photo of said on a Pink Floyd album. Mysteriously, it got loose and was seen flying over Battersea Power Station.
So removal of pension splitting, improbable but still possible! As I said, never say never! Politicians are a strange, unpredictable bunch! Cretien with the GST, Harper with the IT’s….whose next?
That’s why I said cows. — Garth
Garth,
Can’t you just answer my questions? This ain’t QP?
And I am travelling to Ottawa. — Garth
Hi Garth,
Do you think Monte Solberg will repeal this decision when he becomes the new finance minister?
I hear Mr. Flaherty’s days are numbered.
-R
Economic, legal, political, and cultural integration of U.S., Canada, and Mexico “going forward” by 2010.
All this is happening without the consent of Congress or the Canadian Parliament, or any mention by the main-stream Media.
Newest Lou Dobbs video with transcript discussing the Security and Prosperity Partnership as the “biggest story of our lifetime”.
http://www.aim.org/static/5351_0_7_0_C/
“…And the Cow jumped over the Moon!”
Just remember what happened to Shiela Copps when she stood up and kept her promise over the GST. To be filed under, “Where are they now?”
Ah, she’s here. — Garth
Lou Dobbs Interviews Robert A. Pastor about the Security and Prosperity Partnership and the North American Union. The Banff conference is mentioned.
http://video.google.com/videoplay?docid=5840790742263789436&q=lou+dobbs+nau&hl=en
Garth,
I’m an Alcan shareholder and while I’m getting a short term profit due to the US takeover of this company, I’m saddened that another great Canadian company is being taken over. The President of Alcan warned shareholders that Flaherty’s new tax policy was making them vulnerable to a takeover and that seems to have been confirmed. This is in addition to the weekly buy outs of income trusts. I would be grateful if you could raise the issue of the Tory tax incompetence and (lack of) industrial, economic policy to help Canada become a strong industrial country. Why do we always put down local Canadian investors and help foreigners???
Thank you very much and I appreciate your excellent work,
Chris in Vancouver
Re: Should singles pay more than couples?
If tax liability is supposed to be based on ability to pay, it follows that a single person has a lower cost of living and thus can pay more taxes. I mean, can you show me a country where singles pay less tax than couples/families with the same income.
The question to be answered is, “how much of a break should couples/families receive”. I think the current down-the-middle splitting of income is the least fair approach. It would be better to follow the US model and create tax brackets for joint filers which are wider – but not twice as wide – as those for singles.
Keep in mind that, on the benefits side, we treat all families the same, based on pooled income. It’s only on the tax side that the government refuses to consider joint income.
Chris,
Here is how it really is:
The REAL U.S. Flag
Charles,
Thanks for the links. While I am not a Lou Dobbs fan (or CNN) a lot of people are and he at least is talking about the NAU with Robert Pastor no less. Good on him.
I do wish he’d speak to Maud Barlow or read a book or two as he says he does when he wants to learn about a topic. Lou probably is unaware that CNN is available in Canada. Oh well.
Still a good interview with Pastor.
Bill Muskoka. George Carlin has a very good idea for a new US flag. His idea is an animated flag of a fist stroking. It would be good if Canada could adopt this animated flag before it gets patented as that is what governments do best is to screw and stroke the people of the land.
Marc,
Leave it upto George to be on top of things. LMAO!
If you have a link, please post it.
Sorry Bill no link as yet. I saw his show in Vancouver area on Saturday night and it was a skit he used. My 3rd time seeing the man live but hopefully not my last. You might see him use that on his new HBO dvd that is out on the market now. I have not bought that one yet but will soon. Regards
Pat,
My point is that the “break” (relatively less tax payable) should be given to Couple B with two $50,000 earners, since they are finding it harder than Couple A where the other spouse can work but chooses not to because it is not necessary since one spouse is earning $100K.
If a single person earns $100K, are you saying that they should be “punished” for not getting married?
By allowing couple B to split income, not only are you reducing taxes, but there are also lost taxes because the spouse who stays home doesn’t contribute to the tax base by working – that’s a double hit.
People all around complain when someone on welfare doesn’t work. Why don’t the same people complain when someone chooses not to work because they happen to be married to a 100K earner?
Remember – my examples assume no children.
I hope Garth can answer my questions.
You have just posted six times in the last five minutes under three different names. Is there a reason for that? What’s your question? — Garth
So let’s see if this works.
Pat, my point is that Couple B should get the “break” since they have it harder. Also, are you saying that a single person earning 100K should be punished into paying more taxes because they choose not to get married?
People all over complain when someone on welfare doesn’t find work, why don’t these same people complain when someone doesn’t work because they were lucky enough to marry someone who earns 100K?
Phil
Questions for Garth in the 4th post.
Repeat them and I will try to answer. — Garth
And it looks like you took 21 minutes to decide to post my comments.
Ah, poor you. Imagine my audacity at keeping you waiting while I had to vote in the House of Commons. — Garth
Questions I hope you can answer that will clear things up for me on this issue as I am a bit confused:
1. Couple A, no children, has a man making a $100,000 salary. Wife stays home because they decide they can afford to since the man is able to find a good paying job. If she wanted, she could get a job paying $40,000 a year, but doesn’t. Couple B, no children, each is only able to have a job paying $50,000. That’s as good as they can get. Wife decides she can’t stay home because if so they couldn’t pay the bills. Are these “families†“equal†in your opinion? Should they pay the same in income taxes?
2. Take couple A from the previous example. Now take a single female earning $100,000 a year. 2 individuals using government services versus 1. Should Couple A be able to split income and pay less tax than the single female?
I didn’t realize it took 21 minutes to vote in the HOC. Why were some of my postings put on and then wiped off??
Because you posted multiple times with the same message and various names. You were being a pest, so I swatted you. By the way, I responded to this post on the weekend. — Garth
Wow, that was posted right away.
Marc,
If you haven’t read Carlin’s ‘When Will Jesus Bring The Pork Chops’ do so. You will be gasping from laughing so hard.
I love his ‘Every man’ routine! His PC routine is priceless as well!
Ah, she’s here. — Garth
Umm…Deputy leader, MP for eons…unceremoniously given the nomination boot following a boundry change….to reporter/correspondant for the Toronto Sun. As I said remember….(The Sun doesn’t have a large circulation in these parts although those pesky telemarketers keep trying!)
And it looks like you took 21 minutes to decide to post my comments.
Ah, poor you. Imagine my audacity at keeping you waiting while I had to vote in the House of Commons. — Garth
By Phil on 05.07.07 8:09 pm
Sheesh ! Some peoples kids .