Filing Your Return -> Family Tax Cut (FTC)
Family Tax Cut (FTC) - Line 423
- eliminated for 2016 and later years
Income Tax Act s. 119.1 (repealed)
Legislative proposals announced on December 7, 2015
The Family Tax Cut, announced by the federal government in an October 30, 2014 Tax Update, is effective for the 2014 and 2015 taxation years only. Although it is not technically "income splitting", it allows a non-refundable tax credit of up to $2,000 based on a "notional" transfer of income.
The Family Tax Cut allows eligible couples with children under the age of 18 to notionally split the income of the spouse with higher earnings, transferring up to $50,000 of taxable income to the lower income spouse in a taxation year. Because this is being done as a non-refundable tax credit, it does not affect the calculation of provincial or territorial income tax. For Quebec taxpayers, the application of the tax abatement reduces the maximum FTC tax savings to $1,670 (83.5% x $2,000).
The non-refundable tax credit can be claimed by either spouse, but cannot be shared.
Qualifying Individual
A qualifying individual for the purpose of the FTC is an individual who:
 | has an eligible relation for the year who has not claimed the FTC; | ||||
| has a child who:
| ||||
| is resident in Canada at the end of the taxation year, or on the date of death in the year; and | ||||
| is not confined to a prison or similar institution for a period of at least 90 days during the year. |
Eligible Relation
An eligible relation of a particular individual for a taxation year is an individual who
| is resident in Canada at the end of the taxation year, or on the date of death in the year; and |
| is at any time in the year, married to, or in a common-law partnership with, the particular individual and not, by reason of the breakdown of their marriage or common-law partnership, living separate and apart from the particular individual at the end of the year and for a period of at least 90 days commencing in the year. |
Family Tax Cut Not Available
The Family Tax Cut will not be available if the individual or the individual's eligible relation
| does not file a tax return for the year; |
| was confined to a prison or similar institution for a period of at least 90 days during the year; |
| becomes bankrupt in the calendar year in which the taxation year ends; or |
| makes a pension splitting election in the year. |
Throughout The Year
In determining whether a child ordinarily resides throughout a taxation year with an individual or the individual's eligible relation, the taxation year is deemed to only include
| if the child is born or adopted during the year, the portion of the year after the child's birth or adoption; |
| in the case of an individual who marries or becomes a common-law partner at any time in the year, the portion of the year after that time; |
| in the case of an individual, an eligible relation of an individual or a child who dies in the year, the portion of the year before the death; and |
| in the case of an individual or an eligible relation of an individual who becomes resident in Canada in the year, the portion of the year after the person becomes resident. |
Family Tax Cut Calculation
The total of the combined federal tax amounts payable by each spouse, after certain tax credits are deducted, is called the combined "base tax payable". The "split-adjusted income" of the spouses is then calculated, and the total of the combined federal tax amounts that would be payable using the adjusted income, after certain tax credits are deducted, is called the combined "adjusted base tax payable". The non-refundable tax credits used in the calculation are those on line 350 of the federal Schedule 1 form.
The tax credit is calculated as combined base tax payable less combined adjusted base tax payable, to a maximum of $2,000.
In order to calculate the "split-adjusted income", the difference in the taxable income of the individual and eligible relation is calculated. One half of this difference is the "split adjustment", to a maximum of $50,000. This amount is used to calculate the split-adjusted income, by adding this amount to the lower taxable income, and deducting it from the higher taxable income.
Examples:
| Taxable Income |
Adjusted |
2015 Family |
|||
| Spouse 1 | Spouse 2 | Difference | Split Adjustment |
||
| $50,000 | $0 | $50,000 | $25,000 | $25,000 | $371 |
| 60,000 | 25,000 | 35,000 | 17,500 | 42,500 | 1,071 |
| 70,000 | 30,000 | $40,000 | 20,000 | 50,000 | 1,029 |
| 120,000 | 0 | 120,000 | 50,000 | 70,000/50,000 | 2,000 |
| 120,000 | 60,000 | 60,000 | 30,000 | 90,000 | 1,176 |
As you can see in each case, the split adjustment amount is used to reduce the higher income and increase the lower income. The above cases assume both UCCB and child care expenses are zero.
Transfer of Education Credits - Effect on the Family Tax Cut
The 2015 Federal Budget revised the calculation of the Family Tax Cut so that the transfer of education-related credits between spouses will not reduce the Family Tax Cut tax credit. The legislation received Royal Assent on June 23, 2015, after which Canada Revenue Agency (CRA) should have automatically reassessed affected taxpayers for the 2014 taxation year, and refunded any amount to which the taxpayer was entitled.
See Transfer of Education Credits - Effect on the Family Tax Cut on the 2015 Budget website.
Canadian Tax and RRSP Savings Calculators
The 2014/2015 versions of our Canadian Tax and RRSP Savings Calculators, for all provinces and territories, include the calculation of the Family Tax Cut. It is necessary to indicate near the top of the calculator that you are eligible for the FTC. Other than that, there are no choices to be made regarding the Family Tax Cut. Although a couple can choose on their tax return which one of them will claim this non-refundable credit, the Tax Calculator automatically allocates it to the spouse with the highest tax payable prior to the credit.
Department of Finance Resources
Backgrounder: Helping Families Prosper - includes Family Tax Cut examples
Notice of Ways and Means Motion
Canada Revenue Agency (CRA) Resources
Schedule 1-A Form for calculating Family Tax Cut for 2015 taxation year