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Moncton Times & Transcript ~ Tax Help Plus ~ Trick or Treat ~ October 31, 2006 - 29 Nov 2006 by TaxHelp
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You might have caught my chat with Paul Castle yesterday afternoon on CBC Radio One’s afternoon drive show ‘Shift’. Before you are spooked later this evening you may want to think about trying to influence Ottawa into providing seniors with a treat.
It’s the time of year when the people in the Finance Department shape the year-end economic statement normally delivered sometime in the next couple of months. It also allows a number of trial balloons of a tax nature to be floated. One that has been off the radar for a number of years now, but that has become very hot as of late is in the area of income splitting for seniors.
Many people are aware that Garth Turner, MP for Halton is currently sitting as an Independent. Before his life in politics Mr. Turner was a financial commentator with his finger on the tax and investing community. One of his concerns has been in the area of championing the issue of perceived unfairness in the area of senior taxation. It’s been suggested that Federal Finance Minister Jim Flaherty has not heard much from the affected constituency, so it’s been on the outside edge of his radar’s periphery. However, in response to a question from Mr. Turner, Mr. Flaherty indicated that he was considering the allowance of senior couples to split pension income for tax purposes.
A number of years back the Canada Pension Plan began to allow couples the opportunity to split payments out of the program. While this may have limited benefit for very low income seniors, it certainly makes a difference for anyone who has additional retirement income. That’s because the tax we pay is based on how much we make – the more, the more! By transferring some of the income into the lower earning spouse’s hands, a couple can reduce the total tax liability.
For those beginning to take their CPP at age 65, the maximum amount of retirement benefit annually is slightly more than $10,000. In addition, there is the Old Age Security which pays just under $6,000 in 2006. A couple that each received OAS and with one of the spouse’s qualified for maximum CPP and a pension from employment of $25,000 paid a combined total tax of $6,474 in 2005. By splitting the CPP payment with the lower income spouse, the combined tax bill was lowered by more than $75 a month. By further splitting the employment pension, the total family tax bill would be less than $5,000.
Some people might question whether this is fair. An argument could be made that we need to look at the sociological structure of those in retirement. While it is less common today to see the traditional nuclear family of the dad out working and the mom home with the kiddies, indeed this is the case for many of the folks currently in retirement. While there has been a long on-going debate on whether stay-at-home parents should be entitled to contribute to CPP, the answer is currently no. When the child rearing is done, often the returning to the workforce parent is too late to pick up with a career that has significant retirement benefits. Family practice lawyers continually make the case that these types of assets should be split upon marital breakdown. Splitting retirement income from a tax perspective just extends the argument and allows more money to be left in the home, when the ability to earn any substantial income has ceased – a position I believe most Canadians would deem to be fair.
While it would be a legislative nightmare to try and get all the affected stakeholders on side – pension providers, legislators, RRSP carriers to name but a few – the same result could be accomplished by a relative simple administrative change directly on the tax return, much like the way investment income is reported.
It is common practice to split interest income reported on a T5 based on the percentage of contribution to the bank account. For instance, if the slip reports $100 in interest, as long as both spouses report a cumulative total of $100, the reporting arrangement is generally not questioned. In fact, most computerized tax packages have a percentage reporting field built right into this module of the software.
One would assume that a direction to the Canada Revenue Agency to allow taxpaying couples the opportunity to split retirement income in the same way would be the quickest and easiest way to implement this consideration. It’s probably a good time to let your federal representative know your thoughts if you feel that this would be both an appropriate and fair consideration for seniors. It’s seems a shame to have retired couples feeling tricked into paying more than their collective share.
Roger Haineault is with Help 4 Taxes. His column "Tax Help Plus ..." appears each Tuesday. For questions, comments or column suggestions he can be reached by calling 855-HELP (4357) or by emailing roger@help4taxes.ca
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