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Income Tax Act s. 119.1 (repealed)
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.
A qualifying individual for the purpose of the FTC is an individual who:
An eligible relation of a particular individual for a taxation year is an individual who
Family Tax Cut Not Available
The Family Tax Cut will not be available if the individual or the individual's eligible relation
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
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.
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.
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
Canada Revenue Agency (CRA) Resources
Schedule 1-A Form for calculating Family Tax Cut for 2015 taxation year
Revised: January 30, 2021
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca