It is 8 a.m. You’re desperately trying to corral your sleepy children into their snowsuits so you can bundle them off to daycare. Your son can’t find his teddy bear, and your daughter is ineffectively tugging a brush through the rat’s nest that is her hair. The breakfast dishes are still on the table, and will be when you get home tonight, just in time to begin the frantic dinnertime rush.
Sound familiar? If you ever find yourself fantasizing about becoming a stay-at-home parent, you’re not alone.
A Statistics Canada report showed that the majority of dual-earner families felt they were caught in a time crunch and that they didn’t have enough time to devote to family and friends. Fully 69% of the women and 51% of the men reported that they often felt stress because of the time pressure.
So why don’t more parents give up the two-career rat race? For many, it’s purely a question of money. For one thing, Revenue Canada penalizes single-earner families, by taxing individual earnings, rather than household income.
In the case of a two-parent family of four with an income of $60,000, for example, the single earner would pay $13,800 in income tax a year, compared to the dual earners who would pay a total of $9,600 in tax. So although their household income is the same, the single-earner family would pay an extra $4,200 in tax. That said, there are some offsetting effects from having a parent stay home.
Tax credits (like provincial tax benefits, the federal Child Tax Benefit, sales tax credits and GST) are based on household income. So if one of you quits your job to stay home with the kids, you’re likely to get more back from the government. For example, if your spouse makes $60,000 and you give up your $30,000-a-year job (in Ontario), you could expect an additional $1,524 in the form of a spouse dependant credit, and Child Tax Benefit payments of $1,200.
Charles Long, author of How to Survive Without a Salary (Firefly Books, 1998), contends that, if money is the only thing holding you back from doing what you really want, you should look closely at how much you’re actually spending in order to work. By the time you subtract taxes, lost tax credits, child care, commuting costs, additional income tax, working wardrobe, and occasional take-out meals, unless you’re making a fairly hefty wage, you’re probably not that far ahead of the game.
How much of that second salary are you keeping?
If you’re earning $30,000 or less and have to pay for child care, it may not pay to work, says Frank Jasek, an accountant with Burlington, Ontario-based Prapavessis Jasek.
Our hypothetical example assumes a couple with two children under the age of seven, wherein one spouse (the primary earner) makes $60,000 a year, while the secondary earner makes $30,000. Take a look at how that $30,000 second salary disappears.
EXAMPLE: SECOND INCOME OF $30,000
|TAXES (Combined federal and provincial tax, Ontario)||
|CPP (Pension Plan)||
|EI (Employment Insurance)||
|Lost Spouse Dependant Credit||
|Lost Child Tax Benefit||
|Daycare (real cost after tax deduction)||
|Commuting (second car, gas, repairs, insurance)||
|Meals/snacks at work ($25 per week)||
|Dry cleaning ($20 a month)||
|Paying to have things done ($60 per two months)||
|Order out and convenience food ($25 per week)||
|TOTAL EXPENSES OF WORKING||
|TOTAL TAKE-HOME FROM SECOND INCOME||
Using an Ontario couple as an example, the primary earner will lose a $1,524 deduction if he can’t claim his spouse as a dependant, as well as Child Tax Benefits worth $100 a month ($1,200 a year).
Assume daycare costs of $125 a week per child ($13,000 a year), minus the tax deduction for child care of $3,001 a year at the $30,000 salary level, for a total of $9,999 in daycare expenses.
Runzheimer Canada estimates that it costs approximately $10,072 a year to drive a 2001 mid-size car in Canada (a Toronto Transit Commission pass costs only $1,122 a year).
Also, our hypothetical couple may be able to claim provincial tax credits, depending on rent or property tax paid if only one of them is working.