Income Splitting Is Not A Good Idea

Stephen Harper’s Conservative government is at it again. Not only do they want to place huge amounts of red tape on labour unions with their infamous Bill C-377, now they are devising an income splitting scheme that will only increase the deficit and provide a tax break to a small percentage of wealthy Canadians across the country.

Income splitting allows a married couple with children who are under the age of 18 a clever way to reduce their income taxes. For example, under current income tax rules, if a father earns $70,000 a year and a mother stays at home taking care of their children, the father will pay about 21.3% in income taxes, or about $15,000 a year. But if this man could split his $70,000 income evenly with his wife, they could file their taxes as if they both earned only $35,000 a year. Both of them would only pay 13.9% in tax, or about $5,000 each. They would save about $5,000 annually.

But there are some big problems with this plan. According to the C.D. Howe Institute, a prominent think tank respected by Conservatives, Liberals, and New Democrats alike, said only 15% of Canadians will benefit from this tax change. The people who would save the most in taxes are likely to be wealthy people who earn about $125,000 a year and whose partner stays at home taking care of the kids. Anyone who is unmarried, a single parent, married without children, or married with children over the age of 18 will not benefit from Harper’s tax plan. It gives wealthy people the power to cut their taxes by thousands of dollars they don’t need in the first place. Married families who earn around the same amount each will hardly see any improvements in their tax bill. 

What’s funny about Harper’s income splitting plan is that it contradicts his own conservative philosophy . Harper’s Conservatives talk a lot about fiscal restraint but now they want to pass a huge tax cut that will subtract nearly $2.7 billion from the federal treasury . That isn’t a great idea considering we are running a deficit worth nearly $20 billion.

That’s one of the reasons why the late and former Finance Minister Jim Flaherty opposed the plan. He even told reporters “it benefits some parts of the Canadian population a lot. And other parts of the Canadian population virtually not at all. I’m not sure that, overall, it benefits our society .”

This plan doesn’t have much support among the provinces either, especially Ontario. Finance Minister Charles Sousa wrote an angry letter  to Federal Finance Minister Joe Oliver demanding to know if Harper plans to cover the $1 billion shortfall from Ontario’s coffers. That is a lot of money the Ontario government could be using to invest in our healthcare system, strengthen our schools, and improve our infrastructure.

Let’s hope there is enough public support to kill this tax bill  and use the money we would lose to continue to invest in our social infrastructure.


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