The federal government proposes in Tuesday’s 2015 federal budget to make an adjustment to the recently announced Family Tax Cut (FTC) that will allow couples to transfer education-related tax credits without reducing the potential value of the FTC to them.

“This change will allow individuals affected to both transfer education amounts, while properly making use of the FTC,” says Debbie Pearl-Weinberg, executive director of tax and estate planning in CIBC’s wealth advisory services unit.

The FTC is a proposed federal non-refundable tax credit, capped at $2,000, for couples with children under the age of 18. The FTC allows a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to a spouse. The credit is intended to reduce the difference in federal tax payable by a one-earner couple relative to a two-earner couple with a similar family income. It will apply for the 2014 and subsequent taxation years.

Currently, in cases in which personal income tax credits have been transferred from one spouse to the other, the FTC suppresses the use of those credits in the transferee’s hands. Instead, the personal income tax credits previously transferred are taken into consideration in the calculation of the transferor’s adjusted tax payable. This prevents the double counting of these credits in the calculation of the FTC

In the same manner, the FTC rules prevent transferred education-related amounts, such as tuition, education and textbook tax credits, from being included in the FTC calculation.

However, due to the rules for calculating these education- related credits, the double-counting that is typically associated with the transfer of other personal income tax credits is not present. This may therefore reduce the value of the FTC for couples who transfer education-related amounts between themselves. The government suggests only a small percentage of couples were affected by this for the 2014 taxation year.

In Budget 2015, the government proposes to revise the calculation of the FTC for the 2014 and subsequent taxation years to reflect the proposed change in the rules.

After the enacting legislation receives Royal Assent, the Canada Revenue Agency will automatically reassess affected taxpayers for the 2014 taxation year to ensure that they receive any additional benefits to which they are entitled under the FTC.

“What’s great about the change is that the government will automatically re-assess individuals for the 2014 tax year without individuals having to take steps to do so,” says Pearl-Weinberg.

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