Individual Taxation with an Election System
10.26. The provision of the option to be taxed on a family unit basis would not reduce the necessity, which the Committee regards as urgent, to remedy tax avoidance by income-splitting within a family which has not exercised the option. It would be necessary, at the least, to deny the tax effects of tax-avoidance transfers of income by parents to children. Furthermore, spouses who were taxed as individuals and who had incomes of unequal magnitude would still have an incentive to make tax-avoidance transfers of income to enable more equal incomes to be returned for taxation purposes. By choosing to be taxed as individuals they would have asserted a claim to behave, in their financial dealings, as if they were at arm's length, and it would be important to ensure that this relationship was reflected in their tax liability. Measures directed against income-splitting are proposed in Chapter 11. Consideration must also be given to the accumulation in a trust estate of income to which a member of a family is contingently entitled. This matter is considered in Chapter 15.