Last Fall, federal Finance Minister Jim Flaherty said that his government intends to introduce pension splitting for seniors and that the Conservatives are open to income splitting for couples. The idea is to let couples split their income between them to pay lower taxes as a unit than the higher income earner or pensioner would individually. Presently, Canadians are taxed as individuals and the larger income is often taxed at a higher rate because of the tax bracket the earner falls in.

The greater the disparity in the couple’s income, the higher the tax burden for the couple. Income splitting remedies this injustice. According to Canadian Activists for Pension Splitting, an elderly couple with unequal pensions of $51,000 and $11,000 would pay $2,400 less than a couple where one spouse has a pension of $62,000. Same couple income but different tax burdens.

According to Garth Turner, an independent MP, a former financial journalist and advocate of income splitting, a couple where both spouses earn $40,000 pays $3,500 less than a couple where one spouse stays at home while the breadwinner brings home $80,000. Same family income but different tax burdens.

The current tax regime punishes couples that have a spouse stay home full or part-time with children. It also punishes senior couples where one spouse stayed home with the kids and earned less income in her career (if she had one) and consequently has a smaller pension.

Last October, CAPS held a conference in Ottawa highlighting the inequities of the current tax system and benefits of income splitting. Members of CAPS include REAL Women, Canada’s Association for the Fifty Plus, and the Royal Canadian Legion. And a CAPS position paper released a month earlier stated, “While we consider this tax penalty to be unfair to taxpayers at any age, we consider it to be especially unfair to them in their senior years, when they have fewer options to avoid it and can least afford to pay it.”

The timing was perfect. On Halloween, Flaherty announced pension splitting for seniors as part of a plan to bring income trusts under Canada’s tax regime (because many pensions are tied to these domestic tax havens). In November, in his economic update, Flaherty signaled his openness to extending the policy to all couples.

Official parliamentary estimates put the cost of pension splitting to the federal government at $310 million. That is, Canada’s seniors would collectively keep more than $300 million of their pensions that are currently taxed. The cost to bring in widespread income splitting is estimated to be more than $1.5 billion, although the government could save half-a-billion dollars if they restricted income splitting to couples with children under 12. With annual budget surpluses of more than $10 billion, this is easily affordable.

But affordability is not the main issue; tax fairness is. As REAL Women explains in the latest issue of REALITY, the “single income tax penalty is closely linked to advocacy to recognize unpaid labour as a vital part of an economy and to recognize that caregiving work at home, a historical female role, has always had great value to the nation.” As REAL Women states, “This division of labour should be recognized under our tax system.”

About a fifth of OECD countries (the 32 countries with the most advanced economies)  have some form if income splitting including Belgium, France, Germany, Poland, Portugal, Spain, Switzerland, and the United States.

The U.S. permits married couples to file their income taxes either together or jointly, whichever way will reduce their total tax load.