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New income-splitting benefit subsidizes unpaid work and further reduces incomes

November 22, 2006

Source: Queen's University

Although income-splitting will sound good to many people, it will only benefit the richest and most privileged few, and, as an outright subsidy for unpaid work, it will push both men’s and women’s after-tax incomes lower according to a Queen's Law professor and top Canadian expert on income splitting.

In an unprecedented move, the federal government is expected to announce tax provisions for income-splitting for all couples across the board as early as tomorrow. Not even in the ‘get women back into the home’ days after World War II were social conservatives in Canada able to insert income splitting into the Canadian income tax system, and other generous measures aimed directly at giving benefits to parents were developed instead.

Kathy Lahey, author of Women and Employment: Removing Fiscal Barriers to Women’s Labour Force Participation (Status of Women Canada, 2005) and an earlier study on the impact of joint taxation on couples in Canada for the Law Commission of Canada, says that when it comes to the income splitting benefit at tax time:

  • only couples need apply

  • only couples who can afford to live on one high income will benefit

  • the higher that single income, the larger the tax bonus to the couple:

    o at $80,000 income, the tax bonus is approx. $3,500

    o at $140,000 income, the bonus is approx. $10,000

    o there is no upper limit on how high this bonus can go

    o it ‘s ‘upside down’

    + those who need it the least will get the most

    + those who need the most help will get none or the least

    "Single parents, single individuals with low incomes, disabled individuals, parents supporting disabled children, the working poor – all are completely excluded from this huge tax benefit, which just for retirement income will cost taxpayers (through lost government revenues) some $3.9 billion over the next 5 years and which, if extended to all income, would cost an additional $5 billion per year (and this estimate is very conservative)," says Professor Lahey.

    According to Professor Lahey, microsimulation of full income-splitting has revealed that such a tax measure would reduce both men’s and women’s after-tax incomes, because providing a large tax subsidy for unpaid work in the home will reduce pressure on high-income earners to work as hard to take home the same after-tax incomes, and will increase pressure on the secondary worker in the couple to move from lower-paid work to working for the family in the home.

    Between women and men, however, women will be much more obviously disadvantaged by any degree of income-splitting, because it creates a tax penalty on women working outside the home, and will offer large tax incentives for women to work in the home, where they can generate unpaid domestic work plus the potentially unlimited tax benefits of income splitting of their husband/partner’s incomes.

    "On a tax level, this means that unless a woman can earn more than enough to offset the loss of those large tax benefits, the family will be better off if she decides not to work for wages – and average women’s wages clearly cannot offset those tax benefits of staying home – ever!" she adds.

    Income-splitting will feed into the many pressures – which include gender bias in income levels, disproportionate responsibility for child care, housework, servicing the other members of the family – that already make it much harder for women as compared to men to plan for any type of paid work in their lives.

    In policy terms, income-splitting is a ‘blast from the past’ and not ‘the wave of the future’. Most countries that have ever had any form of income splitting have actually been moving away from income splitting and toward more complete use of the individual as the tax unit as family structures and workplaces become more egalitarian.

    Even the US, which the Tories are trying to imitate, has introduced growing numbers of income tax measures to dilute the negative effects of income splitting. The earned income tax credit for low and middle-income workers helps increase after-tax income for all taxpayers, regardless of family status, which generous income tax credits for children up through age 16 ensure that low and middle-income families can actually support their children while working.

    Lahey says that such measures can easily be adapted to the Canadian income tax system, as could re-introduction of income averaging for those who might have to withdraw from paid work for a few years or so to care for children, deal with family emergencies or health issues, or get further education or training. None of these measures would, by definition, be limited just to couples or to high-income taxpayers: All these measures would be of benefit to all taxpayers, whether married or single.

    Contacts: Lorinda Peterson, 613 533-3234, or Molly Kehoe, 613 533-2877,, Queen’s News and Media Services.

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