Canadian Personal Finance Blog

We have seen now that the Publics (John Q. , Jane and the kids) pay less income tax if their family income was spread out between the two of them, and the amount of the difference is about $6000 (that is after tax money).

As I have stated this is a very pedagogical model, where I have not taken into consideration some vital concepts:

• The fact with two incomes there would be a need for daycare (unless the Publics had family who would watch the kids or something similar) and that as I have read in my comments is not inexpensive. Having said that, with two incomes the costs of daycare will eventually drop, but the Publics will still be allowed to write off costs of day camps in the summer, and other similar programs, that would not be available if they had a single income in the household.
• The detail that both spouses make the same amount in the dual income model is a little synthetic as well, since usually the female spouse makes 60-80% of what the male spouse makes (from studies, remember, I have daughters, I am not saying I like this, just that, this is the case).
• There are other tricks that can be tried with single income families about loaning moneys and such, but most single income families don’t know, or do such things (that I have spoken with).
• The family income assumed is much higher than the Canadian Median, so whether this is a model for most Canadians, is debatable as well.

My view of this is the tax system does not help out families of all kinds very much these days, and the single income family does not get a lot of the advantages that a dual income family receives.

How could this be changed?

• Introduce the concept of the family income or household income. This would level the playing field for single income families. If there is only one spouse, but there are children under 18 being supported, allow the income earner this option as well (as is the case with families where the spouses are separated or divorced).
• Resurrect a child tax credit for each child under 17 years of age still living at home. This would help both families deal with the expenses of raising children.

Income splitting is allowed currently for retirees, and I think that is a good thing, I’d love to see that program expanded to be a general program.

So the Publics (Jane and her spouse John Q.) have a good life and an above average household income of $100,000.00 per year.

Single Income model:

• Income tax paid would be $27,661.98
• They would pay a total of $2640.00 in CPP and EI payments
• Final score around $30K in taxes and payments.

Dual Income model:

• Income tax paid would be $20,561.46 (paid by both)
• They would together pay $5280 in CPP and EI payments
• Final score around $26K in taxes and payments

Interesting so the gap for this family as laid out is about $4000.00 or so. Now this is after tax money, so the single income earner model would need to may about $7000 more gross income to be the same net income.Now I have had some very good comments from various readers (I am impressed that this has caused such discussion), commenting that I am not taking into consideration the high costs of day care and such. Those are good points, but remember that the dual income family also gets to write $7000 worth of that from their income, and no I am not saying it is a “wash” but that needs to be considered. There are other points as well that can be made, but it makes the argument quite complicated.My conclusions and final comments on this topic will be posted tomorrow.For those of you who agree or disagree, I open my forum to you, if you wish to write a rebuttal or supportive article, I am willing to post it (after reviewing it myself, it is my blog, after all). Leave a comment, I will contact you.

So far we have looked at what John and Jane Q. Public’s taxes were like if they both had equal paying jobs, but today we look at what if one of them had a job that paid as much as the two combined in the previous scenario.

Being the father of 3 daughters, I naturally have chosen that Jane is a high flying executive at Generic Co. and her husband John stays home with the kids (remembering that Mary their daughter is now much younger, thanks to the correction we did yesterday). Do the Publics pay more in tax now, or less than if they both worked?

Have a look at Quicktax version of this scenario:

So the final total in this scenario is $27,661.98 owing in Federal and Provincial taxes.

Note that John got to write off the UCCB grant since he had no other income.

Tomorrow, let’s discuss what we have seen the past two days, shall we?

So, John and Jane Q. Public both have successful careers at Generic Co. and are both pulling down the same salary, here is what Quicktax’s Tax Summary report says about how much tax they will owe this year.

If you click on this you can see the full size version of the image. The final income tax they both owe is $20,561,46 (in this specific scenario with the parameters that I have set, total tax for both John and Jane). Now to me that sounds like a whack load of money to pay, but surprisingly this is lower than what they would have paid a few years ago.

Remember these numbers come from Quicktax so if the math is wrong, don’t blame me.

Tomorrow, what if Jane wasn’t working, wouldn’t they pay about the same taxes if their family income was the same? In a word, No.