Caledon Study on Income Splitting for Seniors
Tax Fairness According to Canada’s New Government
Ed Tamagno and Ken Battle, November 2006
Federal Finance Minister Jim Flahertyâ€™s surprise announcement on October 31, 2006, shutting down income trusts was front page news across Canada. Little media attention, however, was given to other changes to the income tax system announced at the same time. These include two of particular importance to seniors: a proposal to allow couples to split pension income and an increase in the age credit. This commentary analyzes these proposed changes to the tax system and who will benefit if they are implemented. It shows that the splitting of pension income will provide windfall benefits to some of the wealthiest seniors, only modest benefits to middle-income seniors, and nothing at all to the poorest of Canadaâ€™s elderly. The commentary goes on to present an alternative approach âˆ’ involving changes to the age credit and pension income credit âˆ’ that is fairer and that would cost no more, and probably even a bit less, than the governmentâ€™s proposals.