October 30, 2014 / 2:13 PM / in 3 years

Canada set to unveil parental tax break -media reports

OTTAWA, Oct 30 (Reuters) - Canada’s Conservative government on Thursday will announce a plan that would put two-parent families with children in a lower tax bracket, Canadian media reported.

The “income-splitting” plan would be of most benefit where one spouse, such as a stay-at-home parent, has substantially less income than the other, enabling some of the high income to be taxed at the lower rate of the low-income earner.

Prime Minister Stephen Harper and Finance Minister Joe Oliver were scheduled to make what was billed as an “important announcement” in Toronto later on Thursday. Their media representatives declined to comment.

The Conservatives promised income splitting for parents in the 2011 election campaign. But the fate of the pledge came into question when late Finance Minister Jim Flaherty said earlier this year that he was not sure it would benefit society overall.

Supporters of income splitting say it is fairer to tax families with lower combined income less onerously than those with two big salaries. Critics say that it unfair because it does nothing for single-parent homes, and Liberal leader Justin Trudeau has pledged to revoke income-splitting if he wins the October 2015 election.

If the Conservatives put the tax measure into effect for the 2014 tax year, people will already see the benefit next spring when they file their taxes, making it more tangible when they consider the possibility that it might be revoked.

The concept is loosely analogous to the U.S. tax system, where people can choose “married filing jointly” status with lower tax rates than “married filing separately.”

But in the Canadian proposal the tax break will be capped at about C$2,000 ($1,790) per year, the media reports said.

The original campaign pledge had been to allow C$50,000 to be transferred to the lower-earning spouse, with otherwise no cap on the tax benefit.

The federal budget is expected to be in surplus by next year, and the government had long promised to deliver some of that in tax cuts.

$1=$1.12 Canadian Editing by Jeffrey Hodgson and Lisa Von Ahn

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