Finance Committee on March 20th, 2007

[William Gleberzon]

Can I read it now?

[The Chair, Conservative, Brian Pallister]

Okay, sure.

[William Gleberzon]

It reads:

that the committee consider adopting a sliding progressive scale, ranging from 50% to 85%, based on income, including grandfathering the 50% exemption rate for all those who have retired or were about to retire in 1997.

And that's not to make it retroactive, but to begin at this point in time.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

There are two parts to the amendment. The first part provides for a range of between 15% and 50%, rather than for a set amount of 50%. I would imagine that calculations would be done on the basis of income. Is that correct?

[William Gleberzon]

Correct. That's what we're saying.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

As for the second part and the “grandfathering clause”, what exactly are the implications of that provision?

[William Gleberzon]

What we're trying to say is that those people who were affected by the bill when the change came in 1997 are now, as Mr. Watson suggested, older and frailer and they need more support, so henceforth they should be allowed to pay tax on only 50% of the social security they receive.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I see.

[Jeff Watson, Conservative, Essex, ON]

The nature of the amendment I'm proposing is different from that of Mr. Gleberzon. If we wanted to address it, the amendment I would propose would address the grandfathering issue only, not make any further progression about how retirees after January 1, 1996, would have been treated, or would be treated in future tax filings.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I'm trying to get a good grasp of the issue. Would I be wrong in saying that if the bill passes as it is now worded, everyone would be taxed at a rate of 50%, that is new retirees as well as long-standing ones?

[Jeff Watson, Conservative, Essex, ON]

That's correct.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I'm still having a problem with the “grandfathering clause”. What implications does it have?

[Jeff Watson, Conservative, Essex, ON]

It depends on what the committee itself sees in this argument. Let me take into account some of the debate that's occurred over this bill. Some would suggest this creates a further inequity among taxpayers, so the bill itself as a whole shot should be defeated. The idea of raising the grandfathering issue would simply be to address the initial injustice that was created for people who have already retired. I guess that's a separate track to be talking about.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

The purpose of this clause is to remit taxes paid between the time the tax treaty came into effect and the eventual adoption of this act?

[Jeff Watson, Conservative, Essex, ON]

No, it would only correct on a go-forward basis. It would return them to the way it was taxed.

[The Chair, Conservative, Brian Pallister]

Merci beaucoup, monsieur St-Cyr.

For the information of committee members, our researcher has prepared a paper. Unfortunately it's only in French, so it'll have to be translated and distributed in both official languages, unless we can get the unanimous consent of the committee. No.

In any case, it is helpful, and I've asked him to have it translated and distributed to you. It shows tables that compare the treatment of taxpayers. For example, if you are a U.S. resident receiving Canadian social security benefits and make $30,000, your rate of inclusion for tax calculation in the U.S. is zero, but the rate of inclusion would be 85% for that same taxpayer in Canada. If you're making $35,000 and you're in the U.S., 25% of your Canadian social security would be included in your tax calculation. In Canada, of course, it would be 85%. Once you get to $39,000, the rate of inclusion is 50% and remains at 85% in Canada.

I'll have this paper translated and distributed to you because I think it's an excellent summary, perhaps even a little better than the other summary we have. It adds some meat to it.

We'll continue now with Mr. Dykstra, five minutes.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

I want to commend Mr. Watson for his continued efforts to move this forward. You are certainly to be complimented on the work you're doing on behalf of the folks in this country, but specifically in your riding.

One of the questions I have comes out of the grandfathering portion of it, and I don't mean to bring that in to confuse folks, but I'm looking for a bit of clarification as to exactly how the grandfathering would work. I'm assuming it works under the amendment more than it does anything else.

[Jeff Watson, Conservative, Essex, ON]

Maybe the discussion of grandfathering was a bit premature—

[Rick Dykstra, Conservative, St. Catharines, ON]

An oxymoron....

[Jeff Watson, Conservative, Essex, ON]

—because it has clouded the discussion here around the bill.

Again, for any of the folks still alive who were originally affected, this would simply change the rate as they file a tax return from now, on a go-forward basis. It would mean a change for them, a positive change, but we're not asking in this bill for retroactivity. To go back and correct all the tax forms for all of these people over the years would be quite costly, I imagine, and quite significant. We're simply looking to redress, on a go-forward basis, the wrong that was done at that time.

When you think about it, these people who were already retired got three weeks' notice that things were being changed. If you want to draw a comparison with the income trust situation, for example, there's some transitional period, moving forward, for people who are going to be affected by a significant tax change. These guys got three weeks. Things changed instantly for them in a very detrimental way.

Take the example of somebody who makes just over $20,000, their gross U.S. social security benefit at about half of that. Their taxes in 1995 were just over $1,000. In 1996 that jumped to $2,600. In 1997, with the tax change down to the 85% inclusion rate, it was still at just over $2,000--a far cry from the $1,000 in taxes they paid two years before.

So this really hurts people even at low-income levels. That change on a go-forward basis would restore some of that $1,000 income back to people at low-income levels, and of course at other levels of income as well.

[Rick Dykstra, Conservative, St. Catharines, ON]

As a follow-up to that, have we actually calculated what the average tax savings might be? That might come through in the chart, though, as suggested.

[Jeff Watson, Conservative, Essex, ON]

No, the numbers I've raised in my example compare the years 1995 through 1997. I mean, any number of tax changes since then may have affected that total, but I do that simply to show the difference between—

The argument by the Government of Canada at the time was that, as they were changing from U.S.-source taxation under the third protocol back to the fourth protocol, they would be returning to the way things were before January 1, 1996. I think many seniors were led to believe that, but that in fact was not the case; their taxes were still left, or the taxes they paid wound up still being significantly more, double in some cases, at the lowest income levels than what they were paying prior to January 1, 1996.

So we need to bring that back into line for them, I would suggest.

[Rick Dykstra, Conservative, St. Catharines, ON]

Through you, Chair, to our contributor from the finance department, have we actually been able to calculate a cost around where this would put us?

[Jeff Watson, Conservative, Essex, ON]

Yes, tell me.

[Andrew Auerbach]

We haven't done a cost on a per-taxpayer basis, but we estimate that the cost overall would be approximately $37 million. That does not include an additional $29 million in entitlement to the guaranteed income supplement that would stem from Bill C-305. And there's an additional $20 million cost to the provinces, assuming Quebec follows suit.