2016 Update

After all Family Tax Cut is not dead yet, so this week I updated all the tax rates and forms for the year 2015. Enjoy the cut while it lasts.

BTW, comments functionality was moved to the Facebook page to make housekeeping easier on this site.

Nice Hair Though

It seems income splitting is over. Canada chose a new prime minister – Justin Trudeau (try to spell his name). Why Trudeau is beyond me. I looked again at his promises and nothing really stands out. My theory is that the choice is mainly irrational, change for the sake of change. “Better is always possible”. We are all kids deep inside and believe in miracles. It’s naive but understandable. The problem though is exacerbated by our broken election system where small differences in popular vote are disproportionately amplified and 40% of votes become 55% seats in the House of Commons. And each party promises electoral reform (including Liberals by the way) until they start benefiting from the broken system and forget about their promises.

I need to admit that hatred towards Steven Harper was professionally orchestrated and was very efficient. Now when he is leaving the office, his bashing gets even stronger. And it is sad. Steven Harper is a man of integrity, which is rare and not particularly popular among politicians. He has courage to name white as white and black as black. He is a man of his word. He did what he thought was right for Canada. Yes, for many of us life is getting tougher over years, there is not much progress for the middle class over last 20-30 years. But that is an unfortunate global trend which is very hard to change. Even Mr. Harper opponents have to admit that Canadian economy withstood the global crisis better than many other G7 countries. I’d like personally to thank Mr. Harper for his service and I think 30% of Canadians who voted for him in the last election would join me as well.

So why not Trudeau? Well, he is a son of Pierre Trudeau and I don’t want three Bushes here in Canada. He is from Quebec, the province that always thinks about separation. And did he ever work in his life outside of politics? Wikipedia is somewhat shallow on that aspect. Does he have any record of real achievements? Prime Minister job may be a bit too high to start your work experience. Is he ready? Well, let’s hope he is and “better is still possible”. And yeah – nice hair.

Line 498/Line 303

The tax year is almost over and I started to prepare my taxes. I’ve been using TurboTax for many years – not necessarily the best choice, but I got used to it and am too lazy to switch. I don’t particularly like the process and every year procrastinate till the very end. It’s usually midnight local time on the last day when I press the Send button. This year we are lucky and got five extra days. I decided not to wait till the very end and started with the process on May 1st (yeah, I know). I went through all of the Easy Steps screens and came to the Review screen. I paused there and decided to have my moment of joy looking at the family tax cut. I opened Schedule 1A and – oops – the number is far lower than I expected. I started to panic. I looked at the online calculator and it clearly showed me that my rebate is a full $2000. Does it mean I was lying to all the people visiting this site? I took a deep breath and started to compare forms in TurboTax and online line by line. Soon enough I came to the line 498 of the Schedule 1A which showed in TurboTax a full basic amount of 11,138. That was weird. The comment to that line said that it’s coming from the line 303 of the Schedule 1. I checked it and sure enough it had 11,138 too. The comment in line 303 refers to Schedule 5, which is Amounts for Spouse and Dependants. No idea what that amount is. So I opened the tax guide from the CRA site and checked their explanation as to what line 303 and Schedule 5 are. You can claim an Amount for your Spouse only if she earns less than the basic amount, which definitely was not my case. That was puzzling. I called the TurboTax Help line and talked to their support guy and then to the certified accountant. I deal with support myself and I know how hard it is to troubleshoot a complex program when you don’t even see the screen where the problem occurs, in front of you, let alone having the logs from the program. They did agree that the Amounts for Spouse were wrong in my case but we could not find anything in my data that could cause that. It seemed completely bizarre. Running out of ideas we decided to go through the review step of the TurboTax interview and – eureka – it complained about an error in the report and suggested an automatic fix. Yes, please fix it, and it did. Suddenly Schedule 5 was gone and line 303/line 498 reset to empty values as expected. The tax cut went up to $2000! Horray! But wait a second, what happened to the refund? My refund suddenly dropped the whole one thousand dollars – oops … Oh well, at least the online calculator is correct and stands strong. True story.

Family Tax Cut Calculator

It was freezing cold this Family Day weekend. A good excuse to skip skiing and skating and finish this project update. Joggling between my son’s swimming competitions and this project I managed finally to finish version 2 of the calculator.

This calculator version is more focused as there are tax forms available from the CRA website (Schedule 1a). I dropped all provincial taxes, graphs and variations in the transferred amount and just followed the prescribed process. The tax forms featured as a part of the calculator closely resemble the official forms.

There are still some issues with the mobile (although landscape mode looks better) and the overall page size became larger, but alas you cannot have it all.

Hopefully this update will be useful to some of you before April 30th comes.

About This Calculator

I am not an accountant. Mind you. Not even close. Every time I open that brown envelope from the CRA I do not expect any good news. Quite the opposite. However, this year the tax news announced by the Conservatives were quite exciting. Income splitting definitely applies to my family and I am more than happy to see how at least some fairness returns to the Canadian tax system. I do understand that the timing is not completely random and upcoming federal elections are a big factor. Whatever. My family will still benefit from the change.

Right after the announcement there were many discussions and the most vocal opinion was that rich benefit once again. Wait! If family incomes are $10K and $70K and the family pays roughly $10,600 federal tax, while another family with the same total income (say $40K and $40K) pays roughly 8,600 federal tax, what exactly is fair in such an arrangement? Who exactly is rich here? This is puzzling to say the least.

To see the actual numbers coming from the proposed income splitting, I started to google for an online calculator. I did not find one and decided to make my own. And this page is the result.

The current proposal is definitely not a real income splitting system – with all kinds of constraints it is better than nothing, but still far from fair. Just check the table with the 50/50 split scenario for your case. And provincial taxes are not even mentioned yet.

I called the CRA in an attempt to get some clarifications on the matter, but obviously until all official tax forms are ready there is no information on any details. It means the whole calculation may be totally off, if there are some nuances, that I interpreted incorrectly. Sorry about that, but this is my best shot given the current lack of detailed information. Still, I hope this calculator is at least somewhat useful.

If you find any issues with this calculator or have any idea how it may be improved, please drop a word in the comments section. If you have any questions about any of the tables/results please ask. And if you completely disagree with the whole idea of income splitting you are welcome too, though I obviously have a different opinion!