Canada’s Tax Policy Unfair to Single-Income Families: Economist

Income-splitting would benefit families, says advocacy group

The Canada Revenue Agency headquarters in Ottawa on Nov. 4, 2011. (The Canadian Press/Sean Kilpatrick)

The Institute of Marriage and Family Canada is hoping all federal parties will pay close attention to a paper outlining the benefits of income-splitting presented on Parliament Hill Monday.

The institute’s executive director Andrea Mrozek says the paper, presented by Jack Mintz, a tax expert at the University of Calgary School of Public Policy, puts “meat on the bones” of an existing federal government proposal.

“Finances are a stressor for families today. They work, live, and pay their bills together, as a family. So they should be taxed as a family,” says Mrozek.

“We stand in favour of this because it helps families keep more of their hard-earned money. More money means families can have more choices in how to organize their lives.”

Members of Parliament, their staffers, and senators comprised a large portion of the approximately 70 people who attended Mintz’s presentation of the paper, titled “No more second-class taxpayers: How income-splitting can bring fairness to Canada’s single-income families.”

In the research paper, Mintz and co-author Matt Krzepkowski argue that Canada’s current personal income tax system is unfair because single-income families end up paying a higher tax rate than double-income families that make the same total income.

For example, a family with just a single earner making $70,000 a year pays 30 percent more in taxes every year than a family with two partners making $35,000 a year. A single-earner family taking in $120,000 a year pays the same income tax as a dual-earning couple making $141,000 between them.

“Given that Canada’s income tax system aims to treat people in similar circumstances as equally as possible, it is certainly time to let couples split their income so they do not face a penalty in higher tax rates than those faced by couples bringing home the same amount of total pay,” reads the paper.

The authors also note that couples with just a single earner enjoy some advantages that a dual-earning couple does not, such as the unpaid time the stay-at-home spouse spends raising children and taking care of the household. This could be accounted for by adjusting the basic personal tax exemption policy, they say.

Critics of the report say income-splitting would do little to help low-income families and would encourage more women to stay at home rather than going to work.

Mintz and Krzepkowski argue that if their proposal were adopted, these concerns would be addressed.

“In our opinion, introducing income-splitting, along with restrictions on the transferability of the basic tax exemption, is a far better approach for personal taxation, as it directly increases equality between family earnings and corrects for labour market distortions due to home production provided by at-home spouses,” they write.

Mrozek agrees. “In general this tax policy actually levels the playing field. It allows families to make the choices they want.”

The Conservatives promised family income-splitting in their last election campaign, saying they would allow individuals to transfer up to $50,000 to a spouse as long as they had at least one dependent child under the age of 18.

Since it would amount to an estimated $2.5 billion in lost tax revenue, however, the Conservatives said they would only implement the new measures after the federal deficit is eliminated.

The presentation by Mintz was hosted by the Institute of Marriage and Family Canada, a non-partisan research think tank, along with Liberal MP John McKay and Conservative MP Stella Ambler.