Tuesday, February 13, 2007

marriage dissolves, income splitting could have long-term effects!

Income splitting debate heats up
February 12, 2007 CBC News

The federal government proposal for family income splitting for tax purposes could be devastating for women in the event of marriage breakdown, warns an economics professor at the University of Victoria.

Income splitting allows couples to pay taxes on their combined incomes instead of individually. That can result in substantial tax savings for couples when one partner has a much higher income than the other.

Economist Elisabeth Gugl said it favours the breadwinner model, in which one person earns most of the family's money and the other, often the woman, stays home and looks after the children.

The UVic economist said that as long as the couple stays together, there would be financial benefits with income splitting.

But she argues a tax system that encourages women to unplug from the workforce would be devastating for them if the marriage breaks down.

"If there's a divorce, then having spent a long time at home, or not as attached to the labour market, it's going to hurt them in terms of the earnings that they can have afterwards."

Gugl says there is also well-established research that shows when a woman earns more of the family income, a larger percentage of it is spent on children's items.

"Sometimes it happens that depending on who is earning how much income, it's going to affect the amount that is spent on children," she said.

The debate continues to rage in Ottawa about the possible impacts of income splitting, including the fact that it would cost the government about $5 billion a a year in lost tax revenue.

However, federal Finance Minister Jim Flaherty said last week the plan is still a possibility in the upcoming budget in March.


Torian said...

so where is her concern for SAHM's now who, upon divorcing, are left with next to nothing?

At least with income splitting, the couple can keep the extra cash and put it away for her, rather than giving it to the government.

Im guessing her concern is pretty disingenuous.

audacious said...

pending on how many years you stay at home to raise your children, it can be tough to re-enter the work force at the same level you left. however, regarding this article, my concern would be; if a marital breakdown occured, how would / could income splitting effect child support? divorce is a nasty game; and support payments are based on income; would they consider it really is one income and not two? thus, this income splitting could have a greater range of effects.