The New $2000 Family Tax Cut

This new federal non-refundable credit will provide up to a maximum of $2,000 in tax relief to benefit one-earner or two-earner couples where one spouse’s income is taxed at a higher rate.

The higher income spouse can transfer up to $50,000 to the lower- income spouse. To qualify for the Family Tax Cut the taxpayer must

• be a resident of Canada at the end of the taxation year;

• have a spouse or common-law partner;

• have a child who is under the age of 18 at the end of the year and who resided with the taxpayer or their spouse or common-law partner; and

• not be confined to prison or similar institution for 90 days or more during the taxation year.

To claim the Family Tax Cut credit, couples must file income tax returns. Either parent can claim the credit but not both. However, if the parents of a child are divorced or separated, and have remarried or have a new common-law partnership, one parent in each of the new family may claim the credit of up to $2,000. The child must reside with each couple during the year in that case. If the parents have joint or shared custody, there may be cases where it is the same child who resides with each parent.

The Family Tax credit cannot be claimed for a year in which the couple does not file an income tax return; elects to split pension income; or in cases where one of the spouses becomes bankrupt.

The Family Tax Credit will be calculated as the difference between

• the combined taxes payable (after all credits are claimed) by the couple, and
• the combined taxes that would be payable by the couple, if the higher income spouse could have notionally transferred taxable income to the lower income spouse.

If the difference exceeds $2,000, then the credit would be limited to $2,000.