The James Hausman Tax Law and Policy Workshop Series
presents
Alan Macnaughton
School of Accounting and Finance
University of Waterloo
Income Splitting and Anti-Avoidance Legislation:
Evidence from the Canadian “Kiddie Tax”
Wednesday, November 19, 2014
12:30 - 2:00
Solarium (room FA2), Falconer Hall
84 Queen's Park
We examine whether “kiddie tax” legislation in Canada, effective as of 2000, deters income splitting between parents and minor children by taxing at the top marginal rate certain types of non-labour income received by children. OLS estimates based on cross-province and time-series data reveal that the share of dividend income reported by children aged 19 and under declines by 86% after the introduction of this anti-avoidance rule. The estimates also reveal that the share of capital gains (income not covered by the legislation) reported by minor children increases by 70% in the post-legislation period, suggesting that parents are switching to an alternative income splitting technique. However, the latter percentage effect is on a small base, and thus the decrease in dividend income is much larger than the increase in capital gains income. Hence, our analysis suggests that the “kiddie tax” is an effective method to deter income splitting.
Professor Macnaughton's main interest is tax policy. He is a former director of personal income tax for the federal Department of Finance in Ottawa. Since joining the University of Waterloo in 1985, he has written articles on various issues in Canadian income tax issues, including: contributing employee stock options to Tax-Free Savings Accounts; compliance costs of research and development incentives; taxation of child support; the taxation of non-resident athletes. Alan has consulted on the redesign of corporate tax forms for the Canada Revenue Agency, made a presentation to the Department of Justice, and testified on tax compliance issues before the House of Commons Committee on Finance. He is a co-editor of the Canadian Tax Journal.
A light lunch will be provided.
For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca
