What is the maximum gst credit for the family

Reference no: EM132208455

Question: Consider a Canadian family of five - two adults and three children (age 5, 9 and 12). Currently there are two wage earners in the family - the husband's annual income is $50,000 and the wife's annual income is $5,000. Assume that only federal taxes are paid (that is, ignore provincial taxes) and use 2018 brackets and rates.

(a) If the husband's income increases by $8,000, by how much does his tax liability increase?

(b) If the husband's income increases by $8,000, by how much does his tax liability increase due to the GST credit clawback? The GST credit is clawed back by 5% of the amount by which the family income exceeds $36,976 but under $57,276.

(c) If we consider the same income increase as in (a), but now look at the payroll taxes CPP and EI. Given that employee's share of CPP is 4.95% and employee's share of EI is 1.66%, by how much does his payroll tax liability increase? The individual income limit for CPP is $55,900 and a similar limit for EI is $51,700.

(d) Combining (a), (b) and (c), what is his effective MTR?

(e) Now consider the Canada Child Benefit (CCB) which is $6,496 per year for a child under 6 and $5,481 for a child between 6 and 17. It is clawed back by 19% if the family income is between $30,450 and $65,976 and by 8% if the family income exceeds $65,976. Calculate annual CCB before and after the husband's $8,000 income increase. By how much does the husband's tax liability increase due to the CCB clawback? Recalculate the husband's MTR from (d) with this measure added.

(f) If the husband's income stays at $50,000, but the wife's income increases by $8,000 (to $13,000). How would your answers in (a) - (d) change? Remember the personal tax credit. What is her MTR if the CCB clawback due to her income increase is added to your calculations?

(g) What is the maximum GST credit for this family? Refer to the information on the GST credit provided in (b).

(h) A year ago (2017), the Canada Child Benefit amounts were $6,400 per year for a child under 6 and $5,400 per year for a child between 6 and 17. If the inflation rate in Canada is 2% per year, are the current CBB amounts in line with the annual inflation? Why would the indexation percentage differ from the actual inflation rate? (HINT: consider effects).

Reference no: EM132208455

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