The issue of how children should be treated in the tax system.and more - Assignment Example

The Canada Child Tax Benefit came to existence as a response to a commitment made by the parliament of Canada in the year 1989, to completely eliminate child poverty in Canada by the end of that millennium. For a person to qualify for this payment they must be living with and providing care to a child of bellow 18 year, must be Canadian residents, and must have a common-law partner or a spouse. This paper aims at discussing how children should be treated in the tax system. The first time Canada introduced financial assistance to families with children bellow the age of 18 was in the year 1945.

This was made possible through the Family Allowance Act of 1944. In 1979 the monthly rate of family allowance was reduced from 25.68 dollars to 20.00 dollars. When income taxation was introduced in Canada in the year 1918, tax exemption was allowed for each child. The Canada Child Tax Benefit was introduced in the year 1992 and took effect in the year 1993. The Canada Child Tax Benefit aims primarily at low income families with dependent children. The net effect of all these changes was that higher income families were treated the same way for tax purposes independent of the number of dependent children in the family (Hale, 2002).

The Harper government reintroduced some modest tax breaks for higher income families with children, including tax credits for dependent children and children’s fitness and arts credits. The Harper Government also introduced the Universal Child Care Benefit which pays $1200 per child as taxable income to parents. According to Robert M. Haig and Henry Simons income is defined as values of commodities and services that a citizen consume minus or plus any change in net worth in a given period of time.

This definition of income is commonly known as Haig-Simons definition of income. In this contest both outflow and inflow of resources are taxable (Hale, 2002). Given that children bellow the age of 18 do not have any activities that generate income but have activities that require resources it will be unfair if their consumptions are taxed equal to the grownups. When parents or guardians spend money on commodities and services that relate to the upbringing of their children, there is a certain amount of money that is taxed.

This might make life harder for families with children, especially those with low income. This explains the necessity of the Canada Child Tax Benefit. The Canada Child Tax Benefit highly contributes to the horizontal equity in the Canadian tax system. Horizontal equity in taxation refers to equal taxation of individuals with the same amount of income. In a case where two people have equal gross income, people with children will be taxed more. This is because they always have to spend more as compared to the childless individual.

The increased expenditure is because they have extra person to take care of. The Canada Child Tax Benefit creates equality by making sure that those with children get some tax relief thus making their general taxation almost the same to that of people who do not have children (Hale, 2002). This makes sure that no income earner is subjected to unfair taxation. It also ensures that the low income earners have an easy time bringing up their children. The Canada Child Tax Benefit can also contribute to vertical equity in taxation.

Vertical equity is a principle which states that citizens with higher income should always pay more taxes as compared to those with low