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Kathleen Lahey (Queen's University)

Kathleen Lahey

(Queen's University)

KATHLEEN LAHEY

Income splitting won’t help parents who really need a tax break Add to ...

Kathleen Lahey is a professor of tax law at Queen’s University Faculty of Law.

The Harper government’s parental income splitting plan is designed in such a way that guarantees it will only make a difference to the richest Canadians. By design, it cannot help those who need assistance with child care the most.

Single parents cannot get any help from income splitting at all – it takes two adult taxpayers to take advantage of income splitting. Most single parents are women, and women’s average earnings are much lower than men’s. Furthermore, women are often caught in the constant bind of low earnings and not having enough income to pay for affordable child care so they can spend more time in paid work.

The federal government seems to expect single parents to live in poverty to raise children and to support them in that impoverished condition.

A couple with low earnings have nothing to split, and nothing to gain from splitting. When both spouses/partners are working at low wages, they will be in the same tax bracket, and will not get any benefit from income splitting. One worker would have to quit working altogether to get even a small benefit from income splitting. And that sacrifice, in terms of family incomes, is just too high to receive pocket change from the government to help make that sacrifice.

The chart accompanying this article shows that women who are the main breadwinners will receive just a tiny fraction of the benefits from income splitting. This is because relatively few women earn more than their spouse/partner, and even when they do, they do not have average earnings equal to those of men. Thus they will not have as much income to split, and therefore their splitting benefit will be much smaller than the average male breadwinner, who is supporting a low- or no-earning partner.

Even moderate-income couples will get little from income splitting, because their incomes will be too equal to benefit from splitting. Canadian society encourages women to become financially independent for a whole range of reasons. But it will be the women who are the most equal who will deprive their spouses from being able to claim much, if any, tax benefit from income splitting.

The chart shows that the lion’s share of the tax benefits will go to high-income men who can easily afford child care – and do not need help supporting their wives to stay at home. The $2,000 cap will not touch the average high income men’s income splitting benefits.

The very small number of taxpayers with incomes averaging well over $350,000 may lose some of the income-splitting benefit – but it makes no real difference to the many forms of discrimination embodied in this one tax measure.

Even with a $2,000 cap, the average benefits paid to the richest Canadians will remain unaffected; this costly tax benefit will not give any more help to those who desperately need child care so they can spend more time in paid work to get by.

When now-Chief Justice Beverly McLachlin and former justice Claire L’Heureux-Dube ruled on a similar type of parental income splitting law in the 1990s (child support splitting), they each concluded that it violates the equality provisions in the Canadian Charter of Rights and Freedoms in numerous ways, because it did not help those it was intended to help, and actually undermined the important goal of supporting women to become financially independent. They found that because the biggest benefits went to those with the highest incomes, and placed heavier burdens on those with lower incomes, it did not really do what it pretended to do – help parents raise their children.

Parental income splitting is even worse than child support splitting, which the government then changed to make more fair.

Parental income splitting will give shockingly expensive tax gifts to the rich while throwing small token payments to middle income families and nothing to those who need real solid programs they can count on the most.

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