# determine person with lower net income



## peterns (Apr 16, 2015)

Hello all:
I am confused about how to determine the person with lower net income in a family. For example, child care expenses should be deducted under the person with lower net income (I double checked tax document and it says "net income" rather than "total income"). However, the calculation of net income relies on who claims child care expenses. (Line 214 of child care is used to calculate Line 236 for net income in T1)

Say the total incomes of husband&wife are $50k and $45k and the child care fee is $10k. If child care is under husband, their net income will be $40k vs $45k. If child care is under wife, their net income will be $50k vs $35k. 

In either way, the child care is under the person with lower "net" income. Apparently the first claim is better but are you allowed to do this? What is the number being used to determine lower net income? Does it include other deductibles such as RSP or even child care itself?

I really get confused. Any help is appreciated.

Thanks,
Peter


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## OptsyEagle (Nov 29, 2009)

I am pretty sure they want you to compare net incomes before you deduct the child care expenses, on either return, so that you can decide which return to use.

Obviously what they are trying to do is find the person with the lowest marginal tax bracket to use for the deduction so that the least amount of tax savings is derived. You are obviously trying to do the opposite.

In any event, since their wording is designed to ask for the review of the net incomes, so that you can decide to who to use to deduct the expenses, you would need to do this BEFORE you deduct them on either return. In any case, their computers will reverse it pretty quickly if you don't do it this way, and you tell them that you are married and put the spouses SIN on your return.

I doubt it would make much difference in taxes payable in either case, but I agree some small difference would possibly arise. You could always contest it and take them to court but it would not be worth it and I suspect they would win on the wording I described above.

All that said, you are definitely thinking in the right direction. I like your style.


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## OhGreatGuru (May 24, 2009)

This is from the Definitions section of T778:

_*Net income*
Your net income, and that of the other person, is used to determine which person can claim child care expenses. This is the amount from line 236 of your returns. *However, do not include amounts for child care expenses (line 214) and social benefits repayment (line 235).*_

This is a convoluted way of wording it, and contradicts the general definition of "net income". But I guess they didn't want to create another definition for a different kind of income. But it's clear they mean what Net Income would be, if you excluded any amount for child care expenses (214) or social benefits repayment (235).


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## Retired Peasant (Apr 22, 2013)

Tax software would help would this. I know StudioTax has an 'Optimizer' which will calculate who should claim what. I assume it would include the child care, but don't have direct experience with this.


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## newuser (Sep 16, 2014)

Retired Peasant said:


> Tax software would help would this. I know StudioTax has an 'Optimizer' which will calculate who should claim what. I assume it would include the child care, but don't have direct experience with this.


Nope. StudioTax's Optimizer didn't do that for me.


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## Maybe Later (Feb 19, 2011)

It's not subject to optimization - you have no choice. If you wanted to manipulate who qualifies for the deductions a RRSP contribution in the first 60 days could have done so (i.e. a $6k contribution to the husband in your example). 

On a related note, RRSP contributions also impact the family child tax splitting benefit providing a benefit in excess of the tax refund on the marginal rate of the contributing (lower income) spouse.

In your example having the lower income spouse take the deduction may be fully or partially offset by the family tax splitting credit - depending on other factors.


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