It's Fair to Share - reducing taxes in Canada by sharing income
Pros of Income Splitting
Pros of income splitting why we should permit a household based or joint taxation option
1a. it provides horizontal equity households earning the same income pay the same tax.
The state does not tax preferentially based on how money was earned or who earned it but on the money earned itself.
1b Being akin to a single rate tax or flat rate tax, it taxes based on ability to pay and does not meddle in personal
decisions about lifestyle
2. It is more consistent with some peoples experience.
For couples who do share income, it is logical to tax them to recognize that two not one live off a given income. Individual
tax rates in its literal interpretation assumes that the earner is entitled to all of the money except a small portion, that
he or she allots that small amount to the dependent and can keep the rest. This assumption of the dependent deduction is
not consistent with the experience of many couples who share income, share lifestyle and benefit jointly or suffer jointly
from income ups and downs. Many couples have a clear personal understsanding that they are both equal partners, live in the
same house, eat the same meals, have the same vacations. The reality of their sharing of income is however not recognized
by a tax code that assumes they do not share it and that they effectively live as individual earners only.
3. The wealthy will not try to find tax loopholes and ask for special privilege
because there is no advantage to transferring income to the nonearner or lower earner to avoid tax.
Jamie Golombek of AIM Trimark Investments has said that allowing income to be taxed as a family unit would ease the administrative
burden and negate the need for complex and convulted income splitting strategies that people currently use to get around our
arcane attribution rules
4.For some couples sharing their finances is part of their moral and ethical commitment to each other and it is consistent
with their interpretation of couplehood. For those who are friends or siblings or parent and child, it also shows the comm.
itment of the mutual approach to handling life.
5.allowing income splitting would reduce the need for so many types of extraneous other deductions and in the case of
a single rate tax for instance, would cost much less to administer
6 Income splitting recognizes even those couples who are childless for the full contribution of the unwaged partner to
The option to income split therefore more broadly and without prejudice recognizes sharing wherever it happens, including
between siblings or unmarried individuals, and could include those who are separated or divorced but who have chosen to link
their finances still in terms of support. The income splitting option could also be used for single parents who could declare
income of any teen earner as also shared if to do so would be of tax benefit.
7 Many nations already permit income splitting as one tax option.
As of 1998, household or shared income was the basis for taxation in Germany, Greece, Luxembourg, France and Switzerland.
Many nations permit the taxpayer to choose to be taxed as an individual or as a household or have other options for transfer
of funds to an unwaged partner including Belgium , Denmark, Ireland, Norway, Portugal, Spain and the US.
The single rate or flat rate tax is also followed in some jursidctions, and this is a form of income –splitting.
Since earners are taxed at the same tax rate whether individual or sharing income, there is no penalty for the family that
shares income and no advantage for the wealthy to reassign income to a nonearner or lower earner to evade tax. The single
rate tax is now policy in Alberta as well as in several European nations and several US states.
Nations which do not permit income splitting have often have in place generous mechanisms to recognize the unpaid care
work of the athome spouse. Canada does not do that either. Family allowance and other cash allowances to the parent at home
are given in France and Hungary. Universal family allowance has recently been reintroduced in Canada in the form of a child
care benefit of $1200 per child but it is taxable and subject to clawback, and it ends at age 6. In many nations the allowance
is more generous, last longer and increases with the number of children in the home.
In Australia, Austria, Belgium, Denmark, Finland and Israel family allowance was designed to increase per child in larger
families. Many nations give birth grants Canada does not give – including Belgium, Austraia, Bulgaria, Czecholovakia.
Many nations continue family allowance to young adulthood to age 25 in Czechoslovakia, 26 in Yugoslavia, 18in Israel, 26
in Italy, 21 in Switzerland. Many nations make the per child benefit significant. In France it was designed at 22% of the
base way for the second child and 33% fo reach additional child.
9. Income splitting corrects a disadvantage against a couple where one partner has a disability or serious illness and cannot
earn, who has no choice. Current legislation in effect penalizes illness.
10. Allowing income splitting effectively lowers tax in many households which choose that option and the lowering of taxes
has been deemed vital to increasing productivity and raising the GDP.
2002 Heather Scoffield of the and Mail notes that high personal taxes have led to a drop in the countrys gross domestic
11. Allowing income splitting would keep a promise. The Conservative government for years has defined incomesplitting
as a defined goal.
12. Income splitting would permit more options about childrearing including the preference some parents have for a parent
at home, homebased office, taking the child with them to work or other informal homebased care arrangement such as a sitter
who comes into the home. Current childcare legislation favors only 3rd party daycare in approved institutional settings.
Income splitting would permit an adjustment to the favoritism and bias of that policy. For some children with developmental
delays, severe allergies or shy personalities daycare is not a preferred option or even possible. Many children are not near
a daycare facility so the parent is at home. Income splitting would permit recognition of the value of care work of those
in such circumstance.
8. To permit income sharing as an option would be responsive to the public will.
13.Permitting a penalty against those who share income and favoring those who do not share could be seen as a government
intrusion into what is a personal lifestyle decision and a case of unequal treatment based on ones belief . As such it is
a contravention of Sectcion 15 of the Charter of Rights. To permit tax declaration based on income sharing would respect
one of the basic freedoms in Canada.
14 making the sharing of income a declared and formal option would remove from many coples the need to seek costly professional
service to formalize it when they wanted to share income. Currently the sharing of income is only deemed official on separation
or divorce, and often only after consultation with a lawyer and an accountant.
15 ermitting the declaration of income sharing is consistent with other current legislation that not only assumes but
requires sharing. The inconsistency in current laws has troubled taxpayers for some time and permitting income sharing would
correct it. Currently people are based on individual income only but the state does require that household income, not just
individual income, be the base for GST rebate, guaranteed income supplement, Ontarios GAINS program, child care expense deduction
and the OAS rebate.
There are some provisions for income sharing currently but few people in poverty can access them.
Currently under attribution rules a person can share some property credits with a spouse or child. Under rollover rules
capital gains are exempted when exchanged between spouses. Unused tax credits can be transferred to children and tuition
credit and disability credits can be transferred between family members. Blood relatives can shelter savings to be given each
other under multiple beneficiary RRSPs and the money is taxed on the recipient not the donor.
16 To have a national tax option for income sharing would help synthesize myriad confusing differences across the provinces.
Right now Alberta has a single rate tax but all other provinces do not. This creates a benefit to moving to Alberta which
disadvantages other jurisdictions.
As of 2001, Alberta had one tax rate, while BC and Quebec had 3 and Manitoba had 3 tax rates plus indexing of tax brackets.
NS and Nfld had 3 tax rates plus surtaxes and Ontario and PEI have 3 tax rates plus indexing, plus surtaxes. NB had 4 tax
rates plus indexing of tax brackets and BC had five tax rates and indexing of tax brackets.
Provinces differ in personal deductions.
In 2001 the basic personal federal deduction was $7412.
In the provinces the basic personal deduction was $7412 in PEI but $12900 in Alberta.
Provinces also differ in amount and proportion of spousal deduction.
In 2001 the spousal deduction was $6294, much below the basic personal of $7412.
In Alberta, Saskatchewan and Quebec the spousal deduction was equal to the personal deduction, while in other provinces
the athome caregiver spouse was given a lower than full personal deduction.
17 To permit income splitting would carry through on a promise and historical commitment many studies and previous governments
1907 On April 18 Sir Richard Cartwright in a Senate and House of Commons debate about pensions said that ;any lady who
likes can come in Most women at the time were homemakers.
1974 Of 15,853 pension plans in force in Canada, just over 400 were exclusively for men and specifically excluded women
1976 and 1986 a dozen major committees were convened to examine Canadas old age security system.
1980 In Ontario of women ages 35 to 44 only one third had pension coverage and by age 64 only 44% had pension coverage
1983 Parliamentary Task Force on Pension Reform says the problem of pensions is largely a womens problem. It suggested
19 amendments including a pension for homemakers. Louise Dulude of the Canadian Advisory Council on the Status of Women observes
that every report on pensions for the previous 5 years has noticed women are victims, but then has recommended reforms that
benefit men more than women.
1984 a homemaker pension was part of the Tory campaign strategy.
1985 December Ottawa and the provinces agreed to a study of homemaker pensions, which was completed in 1987 but no pension
1985 Quebec government promises homemaker pensions but by 1989 has not kept the promise and lassociation feminine d’education
et daction social and le Cercle des Feermieres, and la federation des femmes du Quebec raise objections to the delay.
1995 Monica Townson of the Canadian Advisory Council on the Status of Women notes that women who were home to raise children
face poverty in old age. Her research also finds that even women who return to paid employment when the children are older
do not recoup the salary loss. Only 35% of women in the paid labor force are covered by private pension plans.