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Tax season is upon us, and if you live in Toronto, have more than one child and are in a single-income household, be prepared for a real squeeze on your tax bill this year, accountants say.
Bye-bye income splitting
The biggest change parents will notice on their 2016 personal income tax form is the elimination of the Family Tax Cut – a feature that allowed couples to income split, where the higher income earner could transfer a notional $ 50,000 of income to the lower income earner, and get up to a maximum of $ 2,000 off their tax bill.
“This change is going to hurt single income households the most, where one income earner is making $ 80,000 and the other parent stays home to look after the kids,” says Ian Edmonds, a Toronto-based accountant. “That couple of thousand dollars of tax relief is now gone for these families.”
Raising children, dropping benefits
Parents will also notice the government’s revamp of the monthly benefit they receive for raising children under 18. Last July, the government rolled three child benefit programs into a single tax-free monthly payment known as the Canada Child Benefit (CCB).
Previously, all families, regardless of income level, received a taxable payment, called the Universal Canada Child Benefit (UCCB), of $ 160 per child per month for children under 6 and $ 60 for children aged 6 to 17.
Under the new system, if you earn more than $ 150,000, you’ll only receive $ 102 per month for children under 6, and only $ 19 a month for children 6 to age 17. If you earn over $ 188,000, tough luck, you are getting zero.
“Even if you’re earning more than the average Canadian, when you factor in the costs of a mortgage and day care, many families saw UCCB payments as that little extra bit of relief,” adds Alan Posner, a Toronto-based accountant. “There is a disconnect in how the current government views the realities of a middle-class family raising children.”
Only households with a net income below $ 30,000 receive the maximum monthly benefit of the CCB, which works out to $ 6,400 per year for a child under 6, and $ 5,400 per year for a child aged 6 to 17.
According to the previous census, only 2.7 per cent of individuals in Canada earn above $ 150,000. Less than half of Canadians (40 per cent) are earning less than $ 25,000 a year.
Credits for children’s fitness and arts programs are also being phased out – halved for 2016 and completely eliminated for 2017. In 2016, the children’s fitness tax credit was reduced from $ 1,000 to $ 500, and the arts credit was reduced from $ 500 to $ 250; after using these claims, families typically got back 15 per cent in the form of a refund.
“The optics of having fitness and arts credits was nice, but the administration was frustrating for taxpayers, since most of the time it’s easy to forget receipts for those after-school programs,” says Edmonds. “I think that led the government to question the effectiveness of the credit itself and partially led to its removal.”
Edmonds adds that to ensure you still get back money for 2016 make sure you file for the credits with a proper receipt.
Other federal credits being eliminated in 2017 are those for textbooks and education; in addition, Ontario is also eliminating its education and textbook credit programs.
Also, keep in mind that income tax rates have changed on your 2016 tax return. If you are earning between $ 45,282 and $ 90,563, you’ll notice that your federal tax rate has dropped to 20.5 per cent from 22 per cent, and if you are earning more than $ 200,000, you’ll see a rise to 33 per cent from 29 per cent.
“Personally, I feel these changes are not reflecting the current realities that many households face,” adds Posner. “The income threshold for the income tax increase could be higher.”