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The Trouble with Income Splitting

March 28, 2011

1-minute read

It appears likely that the Conservatives will announce a campaign promise to introduce “income-splitting”. Income splitting allows couples to divide their income between both partners for tax purposes. The Conservatives will try to depict it as a way to help Canadian families keep more of their hard-earned income. Don’t believe it.

Income splitting reduces the total taxes paid by a couple if one person earns much more than the other, which is why income splitting is adored by social conservatives with fantasies of 1950s-style nuclear families in which daddy earns lots of money and mommy stays home. Tax-law expert Lisa Philipps of Osgoode Hall Law School confirms that, “The biggest winners from income splitting would be higher-income male breadwinners. A man can reduce his taxes by shifting them to the primary caregiver in the family—but he has no legal obligation to give her the actual income.”

This tax giveaway for affluent couples threatens to blow a serious hole in federal finances. Single people and couples with comparable incomes won’t get any benefit from income splitting. Worse still, the money that will be spent on a tax cut favouring this particular kind of family unit will be unavailable to fund programs that would benefit all families.

The distressing gender implications of income splitting don’t stop there: for a government that is supposedly worried about skill shortages and an aging population, it is a strange choice to reward families where the woman stays home.

We are told that Harper’s Conservatives wish to win over women voters. Let’s hope we are given the full information about who really benefits from income splitting. If any tax expert were to set about creating a tax policy to help women, income splitting would not even make it on the list.

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