An Act to amend the Income Tax Act (exemption from taxation of 50% of United States social security payments to Canadian residents)

This bill was last introduced in the 38th Parliament, 1st Session, which ended in November 2005.


Jeff Watson  Conservative

Introduced as a private member’s bill. (These don’t often become law.)


Not active, as of April 20, 2005
(This bill did not become law.)


All sorts of information on this bill is available at LEGISinfo, an excellent resource from the Library of Parliament. You can also read the full text of the bill.

March 20th, 2007 / 1 p.m.
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Brian Masse NDP Windsor West, ON

Thank you, Mr. Chair, and thank you to the committee for having me here.

I want to start by reading a quote from one of the debates on Bill C-265, a bill similar to this one proposed: If the government wanted to let justice happen, it could accept the passage of this bill at all three stages here tonight and send it over to the Senate for ratification. This does not need to be held up for any prospective election. This could be passed and, indeed, the finance minister could have done right by people like Olive Smith. Years ago he could have done right by them in the budget. In fact, and I do not think I am going out on a limb here, let me say that the Conservative Party would be quite happy to accept an amendment to the budget implementation act to give effect to Bill C-265.

Now, I don't know what the problem is with regard to this, but we have $66 million basically holding up 100,000 people in terms of this particular effect that it would have.

Mr. Thrasher, I'd like you to give testimony to the committee on how this affected people in your circle, in your life, when the rules were changed from underneath their feet. What did it do to individuals? As we've discussed, some people aren't even here anymore. That's a significant problem. All that money—money that was once supposed to go to individuals, who planned their lives on it, because the rules were a certain way—has been taken from them.

What happened to the people in your circle, Mr. Thrasher? What did they experience?

Committees of the HouseRoutine Proceedings

October 24th, 2005 / 3:10 p.m.
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Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC

Mr. Speaker, this means that our committee works very hard.

I have the honour to present the 17th report of the Standing Committee on Finance on an extension of 30 days to consider Bill C-265, An Act to amend the Income Tax Act (exemption from taxation of 50% of United States social security payments to Canadian residents).

Income Tax ActPrivate Members' Business

April 20th, 2005 / 6 p.m.
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The Deputy Speaker

The House will now proceed to the taking of the deferred recorded division on the motion for second reading of Bill C-265 under private members' business. The question is on the motion.

(The House divided on the motion, which was agreed to on the following division:)

Income Tax ActPrivate Members' Business

April 14th, 2005 / 6:05 p.m.
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Jeff Watson Conservative Essex, ON

Mr. Speaker, Bill C-265 would not be possible in large part without the efforts of Olive Smith, the fearless leader of CASSE, Canadians Asking for Social Security Equality, a citizens' group formed to fight the 70% Liberal tax hike on their retirement incomes, a tax hike that sent many Canadian seniors out of security and into mobile homes and nursing homes.

Olive Smith spent some of her later retirement years caring for her bedridden and ill husband until he finally passed away. Olive herself is in declining health these days and is no longer in the mobile home she shared with her late husband. Sadly, she is now in a nursing home.

Bill C-265 is for all the Olive Smiths across Canada, devastated by a callous, money-hungry Liberal finance minister, now the Prime Minister, in order to offset massive Liberal government spending.

Bill C-265 is in memory of Canadian seniors who never got to see justice before passing away. It is for those Canadian seniors still waiting for justice. Justice should come from the Liberal government and it has not. It has been eight years and still the Liberal government is fighting this measure.

I asked the Liberal finance minister to include this modest tax reduction for low income and middle income Canadians in the 2005 budget. There was no answer. There was no reply. There was no line item in the budget. It is justice denied yet again.

I should never have had to introduce this private member's bill in the first place, but I thank God that I am here today to do it, because it is the right thing to do.

Bill C-265 is a simple bill, simple to understand and simple to implement. Bill C-265 reverses a cruel 70% tax hike foisted on Canadian seniors who collect U.S. social security as the basis of their retirement incomes, Canadian seniors who lived in Canada, worked in the United States, spent their money in Canada, planned for retirement in Canada and retired under a rule that 50% of their benefits would be included for taxation. Then they had the rule changed on them. All their retirement calculations changed. Let us imagine getting to the end of our life and worrying about not having enough money to get through.

That is what happened to seniors in this case, seniors in British Columbia, Quebec, Ontario and the Maritimes. There were thousands of them with modest means forced from their homes and apartments into mobile homes or nursing homes or forced to live with family members instead of being independent. This happened at Christmas 1995. Let me repeat: this happened at Christmastime.

Adding insult to injury, this Liberal government and this Liberal Prime Minister, then the finance minister, promised a return, a solution, a retroactive rebate. All would be made well again. That was an election promise in 1997, a Liberal promise broken. It has been eight years and justice has not only not been done, but judging by Liberal speeches defending the 70% tax hike, justice is not even seen to be done.

I have spent a lot of time talking to seniors who collect CPP and who have 100% of their benefit included for taxation. Not one senior has agreed with this Liberal government's assertion that returning the rate of inclusion of U.S. social security benefits to 50% is a bad thing. There has not been one senior who agrees. Every one of these seniors agrees that this wrong should be righted. Not one of the seniors I have spoken to have said they would feel ripped off if this were to happen.

Shame on the Liberal government. Its excuse is lame. It is pathetic. It demeans the fair-mindedness of Canadians with a benevolent decision founded on a false premise. Shame.

I thank hon. colleagues in the Conservative Party. I thank the Bloc for its support. I thank the NDP for its support as well. I thank all the opposition parties.

In closing, I call on Liberal members to support this and end the bitterness and sadness of the golden years of thousands of Canadian seniors, to right a wrong and finally bring about justice and restore tax fairness. I would like to seek unanimous consent to put the following motion: that Bill C-265 now be deemed adopted at all stages.

Income Tax ActPrivate Members' Business

April 14th, 2005 / 5:50 p.m.
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Jason Kenney Conservative Calgary Southeast, AB

Mr. Speaker, it is a great honour to rise in debate on Bill C-265 introduced by my colleague from Essex, who is a new member of this place but who has already proven himself to be an extraordinarily talented, hard-working and dedicated representative of his constituents.

That is nowhere better evidenced than the fact that we are debating this bill tonight, a commitment he made when he first ran for public office many years ago that he would not forget or abandon Canadian seniors, particularly those residents in the Windsor area who depend upon their social security income for dignity in their retirement. He did not forget them. To the contrary, one of his first acts in the House of Commons was to introduce this bill to restore justice and fairness for Canadian citizens who depend upon social security for their retirement income.

This is a matter that is very close to my heart. I was the revenue critic for the official opposition when I first came to this place in 1997. The government at the time brought forward a bill to give effect to amendments to the U.S.-Canada tax treaty. The government, not surprisingly, it is part of its track record, essentially misled us back in 1997 when it told us that this huge tax amendment bill contained technical amendments that had no substantive effect on Canadians and that we should just pass it at all stages without even looking at it.

Thankfully, the day before we were to consider the bill I got a call from Bill Thrasher from Windsor, who spent an enormous amount of time on the phone explaining to me how the government had managed to betray senior citizens in Canada who receive social security. He painted the whole picture for me about a somewhat complex series of changes to the Canada-U.S. tax treaties.

The upshot of it was quite simply this. In 1995 the 80,000 Canadian senior citizens who received and relied upon U.S. social security payments for their retirement income were taxed at an inclusion rate of 50% and by 1997 the government had decided to increase the inclusion rate to 85%, increasing their effective tax burden by 70% . The government did not disclose this in the bill back in 1997. It did not tell anybody about it. It even tried to sneak it by the seniors who were relying upon this income.

Sadly, because of the Liberal government's total mismanagement of this file, people were already losing their homes, as my colleague from Windsor just described and as my colleague from Niagara mentioned earlier. This massive, uncalled for increase in taxation on the retirement income of these modest income seniors had a very concrete and devastating effect on many of them. For many of them, this was their retirement income.

Perhaps some of us do not quite understand the situation. There are tens of thousands of Canadians who principally work in the United States. They cross the border everyday or they may work there for months at a time. When they pay their U.S. social security premiums, they pay them with after tax dollars, unlike Canadians who effectively get to write off the value of their CPP premiums. Canadian recipients of U.S. social security have in effect already paid a tax burden that their counterparts here at home never had to pay in making contributions to their public pension plan.

One of the basic principles of benefits for seniors is that the state enters into a de facto contract with people in terms of promised benefits. In a sense they are politically vested benefits. If people want to have financial stability, they need to be able to calculate and rely on a certain retirement income.

I submit that it is immoral to change the rules on people, not only as they are approaching their retirement age but, worse yet, when they have retired, when they have no more choices and when they cannot generate income any longer. To pull the financial rug out from under them is immoral. That was the effective result of the changes to the tax code adopted by the government in the mid-1990s. It was a total betrayal of these 80,000 Canadians, people who had helped build this country, many of whom were veterans who defended it in foreign wars, all of whom lived by the rules, obeyed the law and tried to build a better country, most of whom raised families and invested in this country's future. I guess they made the mistake of taking jobs where they could get them in the United States and then being treated by the Liberal government as second class citizens.

What I found to be particularly disturbing, and I have ever since I first encountered this issue eight years ago, was how the representatives of many of these Canadian seniors in border constituencies, the largest concentration being in the Windsor area, were members of the Liberal government. Usually these Liberals say to people, as part of the nudge, nudge, wink, wink at election time, is, “Elect us. We will be in government. We will deliver the goods for you. We will defend your interests. We will stand up for you. They cannot do that in the opposition but we will in government”. That is what Susan Whelan said to them, what Herb Gray said to them and what the whole lot of the Liberals in the border constituencies across the country said to social security recipients. They betrayed those people and they betrayed that public trust.

Why did Susan Whelan let this go through when she had a chance to stop it? I remember sitting in the House of Commons industry committee in October 1997 fighting tooth and nail against Susan Whelan's efforts to ram through this 70% tax increase for her constituents, for her seniors on fixed incomes who were losing their homes and their apartments, some of whom were having to eat cat food. I have the letters from these people and sadly some of them have since passed on without seeing justice done.

In this bill, which I originally introduced several years ago, we are trying to undo the injustice of the tax changes in 1997. We are trying to make one very simple change: to reduce the inclusion rate on U.S. social security income from 85% back to where it was for decades to 50%.

We are not asking for special treatment. We are not asking for something that would cost a lot of money. We are not asking for anything except basic fairness and justice for people who have worked their whole lives and deserve to live with a modicum of dignity as seniors. That is why all members of the opposition parties, I believe, have endorsed this bill.

If the government wanted to let justice happen, it could accept the passage of this bill at all three stages here tonight and send it over to the Senate for ratification. This does not need to be held up for any prospective election. This could be passed and, indeed, the finance minister could have done right by people like Olive Smith. Years ago he could have done right by them in the budget. In fact, and I do not think I am going out on a limb here, let me say that the Conservative Party would be quite happy to accept an amendment to the budget implementation act to give effect to Bill C-265.

I know my colleague from Essex has worked hard on this but I see he is indicating that he too would accept allowing the government to take credit for doing this. This does not have to be a partisan football. This could and should be an all party effort to restore justice for these seniors.

I just want to say in closing that my dear friend, Olive Smith, who has been a champion on this issue of fairness for years, is now in a period of very difficult health. I want to send my best wishes to her and say that we will continue to fight and I promise her that help is on its way. We will restore justice for people who were badly done by, who had worked hard and who deserve to live in dignity.

Income Tax ActPrivate Members' Business

April 14th, 2005 / 5:25 p.m.
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Rob Nicholson Conservative Niagara Falls, ON

Mr. Speaker, I am very pleased to rise to speak this legislation. First, I congratulate a couple of my colleagues who have helped push this matter. One of course is the member for Calgary Southeast. In the previous Parliament he brought this to the attention of the House and asked a very reasonable request of the government and the House to make changes on this. That was not forthcoming. Therefore, I congratulate my colleague, the member for Essex who has been an outstanding representative in this chamber. He has been a very effective member of Parliament. I told him immediately, when he was putting the legislation together, how pleased I was and how important it was.

Bill C-265 is an act to amend the Income Tax Act to reduce from 85% to 50% the inclusion rate on United States social security benefits paid to Canadian residents. How did this come about? In the late nineties, the inclusion rate for Canadian citizens who were in receipt of United States social security meant that 85% of it was exempt. If a person earned social security or received a social security pension, 15% was included that person's income.

We could ask why is that fair? Why would it be the case or why would it be treated that way? If we go back to the reason why Canadians are getting United States social security, we would know that they did not get any deductions as we do on the Canada pension plan. All Canadians who are required to pay the Canada pension premium have weekly deductions on their pay for that pension. At the end of the year when filing their income taxes, they are able to deduct it.

Therefore, it is only reasonable that the amount of money they get from Canada pension would be included as part of their income, and that is only fair. However, that is not the case with respect to United States social security. We are talking about Canadians who worked in the United States. They paid into the United States social security, but when they paid their income tax, they did not get a deduction for it. I should add a little known fact. Those Canadians who worked in the United States were always taxed at the highest rate.

The United States, unlike Canada, has basically one rate as one moves through the system. There are several rates depending on, among other things, one's family or marital status or whether one has children. What the American taxation system did for individuals working there was to assume they would have no deductions whatsoever and they would tax them at the very highest possible rate.

There could be an individual who worked in the United States and might have supported three, four, five or six children in Canada and a spouse, but they were taxed at the highest rate. There was some rationale to this. I suppose from the point of view of the Americans, they can say that they do not know how many dependants a person has. A person could tell them that he or she had six or ten dependants, but how would they police that? Therefore, they taxed everybody at the highest rate.

Canadians who were paying into the United States social security system paid at the very highest rate in the United States and then were given a credit when they filed Canadian income tax. At the same time they did not get a deduction.

Is it reasonable at this point, when they finally get a pension from the United States, to have favourable tax treatment? Of course it is. It is only fair. That is the way it was in this country for a long time.

I mentioned the member for Calgary Southeast and his work on it. He saw the injustice as soon as it took place and tried to convince the government to do something about it because it was only fair. We could say we are only talking about a few people, but that is not the case.

About 80,000 residents in Canada are recipients of the United States social security. For those individuals, all of them seniors, this is a big deal for them. In my riding of Niagara Falls, I have hundreds of people who are in receipt of United States social security. It was a rude awakening for them when they found out that instead of getting an 85% deduction on their inclusion rates, it became only 50%. This is a huge increase.

If people are dependent on United States social security, it is highly unlikely they will get a pension from Canada. They can only work in one place at one time. They are dependent upon that and all of a sudden they are getting a 70% tax increase. This is a huge burden that was placed on those individuals who found themselves now the victims of this new treaty.

How did it come about? This was negotiated between this government and the government of the United States through a series of protocols and acts. They went in with their eyes wide open. Why sell out these 80,000 Canadians? I have no idea why they would want to do that.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 2 p.m.
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Dick Harris Conservative Cariboo—Prince George, BC

Mr. Speaker, as the member for Windsor West just said in his presentation, we are going to continue the fight for the passage of Bill C-265. We are going to continue to press the Liberals to live up to their thus far broken promises of two elections ago.

We are going to continue that fight led by my colleague from Essex, a brand new MP who has a fire burning in his belly for the seniors who are a particular part of this bill. We are going to be joined by the NDP and the hon. member for Windsor West, who is leading the charge on behalf of that party, and by the Bloc Québécois. We are going to continue this fight because what we are dealing with is an attempt to rectify one of the cruelest tax grabs in the history of this country, a tax grab put onto over 80,000 seniors in this country by the Liberal government when the current Prime Minister was the minister of finance.

Mr. Speaker, I am going to tell you a little Christmas story if I may. I know you like Christmas. I just want to explain how the Liberal government, when the current Prime Minister was the minister of finance, spoiled Christmas and devastated Christmas dreams in 1995 for over 80,000 Canadians. I will be quoting as I tell this story.

During the Christmas season of 1995, most Canadians were enjoying Christmas, preparing for that special day when the family would get together and they would talk about how blessed they were to be living in such a great country, although yes, it is difficult to get by for some Canadians, including our seniors who are existing on pensions.

In this case they were seniors who had spent some time living in America, had qualified for social security benefits, and had moved back to Canada for whatever reason, but they were getting pension benefits. And particularly for those seniors, over 80,000 of them, here is what happened to them. They received a Christmas letter that shattered their lives.

It is important to point out that these were Canadian seniors who had already retired. They had already spent many years looking down the road to see how their retirements from their working days were going to be. They had made plans. They had set aside funding to supplement whatever pensions they were going to get, and for all intents and purposes, they had their plans all set.

They were on fixed incomes and they were going to receive pensions: first, a social security pension from the U.S., and second, a pension from the Canadian pension plan. They were quite satisfied to live with the fact that 50% of what they were receiving from the United States was going to be taxed in Canada. They were quite satisfied with that. They were getting by because they had made plans.

Suddenly they got a letter in December 1995 from the U.S. social security administration stating that beginning on January 1, 1996--and we must remember that this was December 1995--there would be a 25.5% non-refundable withholding tax applied to their benefits. This came out of the blue. Why? Because the Canada-U.S. tax treaty had been amended to allow the country that issues the benefits to collect the tax. We are talking about maybe three weeks' notice about this after they had spent years planning how their retirement incomes were going to go. We are talking about three weeks' notice that a tax increase was coming to these seniors who were living on their pensions and whatever other personal savings they had been able to put away. This was a life-changing thing.

The current Prime Minister, who was the finance minister back in those days, is the same minister who promised tax fairness to every Canadian in the 1993 red book. However, as the current Prime Minister says, he used some expletives in describing the red book, which I will not do in the chamber because it is not allowed, but he admitted that he wrote the red book and that fair taxation was in the red book. This is another example of a broken promise. He wanted to beat the crap out of seniors with punishing taxation measures and have them only three weeks' notice.

It was in December 1995 when they would have received it and it was to go into force on January 1, 1996. It did go into force and it caused severe hardship to this particular group of 80,000 and some seniors.

In 1997 or thereabouts the protocol changed again. Most seniors listening to the election promises of the Liberals prior to the 1997 election believed that they would revert back to the original 50% inclusion.

What happened was that the new protocol now said that Canada would collect all the taxes but that instead of the 50% threshold, it would be increased to 70%, up to 85% of what they were getting in social security payments. This represented a huge tax grab and would further destroy the financial plans of these 85,000 or so seniors.

I think it is important to point out that all the time that this was going on, the current Prime Minister, who was the minister of finance at that time, was also talking about closing some offshore tax havens, which he did. However, while he was beating up on this group of seniors with this punishing amendment to how the taxes between the two countries would be collected, he was closing some of the offshore tax havens for shipping but managed to leave open the Barbados connection to which most of his ships were registered. This multi-millionaire created a tax haven to unfairly collect tax refunds and tax exemptions that most Canadians could never in their wildest dreams imagine would happen to them, unless of course they were the finance minister making the rules.

I am very proud of the member for Essex who has made a commitment to the seniors in his riding. There was so much pressure on these seniors that they had to band together and form an organization in order to add a little more clout to what they were saying. The group is called seniors asking for social security fairness. I guess fairness is the word.

The member for Essex has spent a lot of time discussing this discriminatory tax protocol with them. He understands their plight and he understands how the sudden imposition of a new tax level has caused them a lot of distress, which is something they do not need in their golden years.

I congratulate the member for Essex who, given the demonstration since he came to this Parliament, will be around for many years and for many Parliaments to come. He is a dedicated young man and one who has just added a new member to his family but here he is today fighting on behalf of about 85,000 seniors who have been victims of this very discriminatory, unfair and cruel tax grab perpetrated by the Prime Minister of Canada, who was the finance minister back when this all took place.

I thank the NDP, the Bloc Québécois and all our caucus members. I hope all those over there who know this is right will have the courage to support the bill brought forward by the member for Essex.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 1:50 p.m.
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Brian Masse NDP Windsor West, ON

Mr. Speaker, I am pleased to rise this afternoon to debate Bill C-265. I am pleased to say the New Democratic Party will be supporting the bill. I would like to commend the member for Essex for his diligent work on this file.

I would also like to extend my congratulations to him and his wife Sarah and the rest of his family on the birth of their son David. It is difficult to commute between Ottawa and Windsor. It is stressful on a young family. However, there is better representation in the House when there are members here are at different life stages. I am glad he is doing that with his family here.

I want to tackle another important element of this file. There have been some eloquent presentations about the history of the treaty and how it has changed over time. The bottom line is that after all is said and done, this is about justice for a group of citizens who at a time when they are most vulnerable have found that the rules have changed.

I cannot understand why the government cannot say it made a mistake. I cannot understand why it cannot admit it had a negotiation problem and failed Canadians. I cannot understand why it cannot change this. The government did that today with respect to the Canadian flag lapel pin being made in China. When the Liberals were answering questions the other day, they knew that was not the actual fact and they came back today and changed it. I give them credit for that.

We should judge our society by the way we treat our most vulnerable individuals and it is those individuals we are talking about today. We are talking about people who have saved for their retirement, have planned for their golden years, and have now had the rules changed out by a deal in Washington and by a government in Ottawa. It affects their ability to live and prosper and to be effective members of our community. This is unacceptable.

It has been pointed out that Canadians across the country are affected by this, which is true. I have heard from people in Winnipeg, Nova Scotia, British Columbia and Quebec. I have heard the same story every time. These people were expecting something to be delivered in terms of their income but suddenly the rules changed and their lives changed dramatically. Some of these people lost their homes. Some of them lost their self-esteem. They lost their ability to contribute to such things as their grandchildren's education or to other family initiatives. They can no longer do this because their income has been lowered. This has affected them in many ways. It is insulting.

The government has said it had to do this because one individual was paying more than another. I have not had a single complaint from anyone anywhere suggesting that seniors are ripping off the tax system. I do not know where that notion came from. I do not know who thought it up. I do not know if members of the Liberal Party are just listening to the bureaucrats.

Where are the throngs of Canadians who are saying our seniors are ripping off the Canadian tax system and that those seniors had better be brought into line? Through all the discourse on this issue, from all the correspondence I have received, and all the new stories about this, I have never heard that. It makes absolutely no sense and it is insulting.

There is a history in the House of Commons of waffling on this issue. This has not come just from the Conservatives, the Bloc, the NDP, or the Liberals. Some of the Liberals have flirted with the idea of fixing this, but for whatever reason they have not found the political courage to tell the civil servants to fix this, that they laid the boots to these people. The Liberals should tell them to stop doing this and fix it.

The member for Windsor--St. Clair, who was speaking in the House of Commons on February 23, 2001, said:

Mr. Speaker, both the finance minister and the Deputy Prime Minister acknowledge the problem yet have chosen to do nothing about it. When will the government take action to address the gross injustice faced by the Canadians asking for social security fairness?

The secretary of state responded:

Mr. Speaker, I assure members this is an issue we have under consideration and we are pressing for changes.

The Liberals were pressing for changes back in 2001. What happened to that political courage? What dissipated at that moment in time that we did not see something fixed by 2005?

The government could do that now. It could fix it now. The Liberals have control over that. They would only be congratulated by members of the opposition who are unified in this. We will drag the government there kicking and screaming. One way or another we are going to fight for this. We are going to make it really painful if the government does not restore the fairness and justice for our seniors.

Back in history it was some of the Liberals' own members who said, “We are pressing for changes”. Where are those members now?

The hon. member for Windsor--St. Clair followed it up with another question in the House of Commons:

Mr. Speaker, when this session of parliament began I called upon the Deputy Prime Minister to explain his government's inaction in addressing the concerns of thousands of Canadians faced with crippling taxes on their U.S. social security benefits. The Deputy Prime Minister, the Minister of Finance and the Secretary of State for International Financial Institutions have all promised that they would take some action. Yet five months later nothing has been done. When will they move on this issue? When can we expect a response from them?

Answering this question was my predecessor, the member for Windsor West, the right hon. Herb Gray:

Mr. Speaker, as I pointed out in a letter to my hon. friend, I believe in February--

That is correct. He had the date correct:

--I have raised this matter with the Minister of Finance. He assures me that he and his officials are looking into it.

They were looking into it. They could have changed it then. It got lost again. I do not know why. It does not make any sense, especially when his colleague at the time said, “We are pressing for changes”.

Where was the direction to the department to say that changes were necessary? We saw that today when the Minister of Public Works went back and said, “Those lapel pins should be made in Canada”. We shut down a Canadian business. It was wrong. He went back and told them because he had the courage to do so. He came to the House of Commons and said, “We were wrong”. Why can that not be done for our seniors as well?

Once again the side by side analysis is insulting because I do not know of any seniors in Canada who are clamouring for support to make sure unfair taxation happens to their neighbours.

I would like to refer to another question, again by the member for Windsor--St. Clair. He said:

Mr. Speaker, the former Deputy Prime Minister and the former Secretary of State for International Financial Institutions assured the House on a number of occasions that action would be taken....There is still no action. When will it be addressed?

The hon. Prime Minister, who was the minister of finance at the time, said:

The fact is that this is part of a treaty with the United States and we are bound by the provisions of that treaty. Canada negotiated that treaty under this government and improved it substantially.

That is wrong. We knew that answer was wrong. There I think we saw the drift of things. We know that there was testimony at the Senate committee. This is a quote from the Senate committee:

It would be possible to provide further exemptions...if that were thought to be appropriate. It would not be necessary to seek agreement with the United States on that.

We know that the testimony contradicts that.

In summary, I would like to once again say to the member for Essex that I am glad he has brought forward Bill C-265. I think the government has a lot of accounting to do for itself with regard to its treatment of seniors, but this is an opportunity for it to correct things.

Once again, how is the government going to be able to validate its argument? Others believe this is unfair to them. What we do know is that it affected a lot of people and everybody wants this corrected. The people who are affected, their neighbours, their friends, their families, none of them object to that, and none of them will object to this bill.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 1:40 p.m.
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Robert Bouchard Bloc Chicoutimi—Le Fjord, QC

Mr. Speaker, I must inform you immediately that the Bloc Québécois supports Bill C-265. I want to congratulate the member for Essex for his initiative in introducing this bill. I also want to congratulate him for something else: his wife, Sarah, has given birth to a son weighing 9 pounds, 15 ounces. Congratulations to the member for Essex and his wife, Sarah.

As my party's Canada Revenue Agency critic, I am pleased to speak in support of this bill. I hope that the House will support it, since it aims to restore equity and justice for those concerned.

In short, this bill rolls back the tax rate from 85% to 50% for Canadians and Quebeckers receiving social security from the United States. People might think, at first, that this bill is not very important. However, it affects approximately 85,000 Canadians and about 10,000 Quebeckers.

In the past, a number of bills have amended various measures on benefits paid to Canadian and Quebec taxpayers. A number of agreements between Canada and the U.S. have been negotiated and become law.

First, I want to talk about the most recent, and fourth, agreement on this, which was signed in July 1997 with a number of other countries, including the United States. Under this protocol, only the countries of residence were able to tax social security benefits. Since then, Canada has been able to tax American benefits paid to residents of this country, and vice versa.

The problem is that it gave Canada, under the U.S. Social Act, the right to increase the tax rate from 50% to 85%. Bill C-265, before us today, seeks to correct this injustice. The Bloc Québécois supports it, because it rectifies an error the Liberal government made in 1997.

As I mentioned earlier, several thousands of Quebeckers left their families to go work in the United States, often for years, and were punished by the provisions of this legislation. These are people who, in many cases, were close to their roots and did not want to leave their country for the United States.

The 1997 amendment to the act made it possible for the federal government to generate substantially higher revenues on the backs of seniors and the vulnerable. However, it is important to understand why Bill C-265 has been introduced in the House today and how it corrects a past error.

Historically, there have been four protocols which modified the income tax convention, providing that social security benefits would only be taxable in their country of origin. At the time, social security benefits in the United States were exempt from income tax. It was only in 1984 that they were taxed in the United States for the first time. Thus, the total taxable amount of benefits rose from 0% to 50%, depending on the taxpayer's net income.

Families and individuals on low incomes usually paid no tax on their benefits.

After that came the second protocol amending the Canada-U.S. Tax Convention Act in March 1984. This made social security benefits taxable in the country of the taxpayer's residence. It was at that time that 50% of benefits were made tax exempt. For example, an American citizen residing in Canada was taxed on 50% of the benefits received from the U.S.

Later, a third protocol was signed in March 1995 giving the source country the exclusive right to tax social security benefits. That meant that the United States taxed social security benefits leaving its territory and being paid to a resident of Canada at a rate of 25.5%, while that taxpayer was not taxed in Canada on benefits received from the U.S.

To return to this fourth protocol which amended the tax agreement; as I said before, it was signed in July 1997. It provided that benefits paid under U.S. social security legislation to a resident of Canada would be taxable only in Canada, as if they were benefits under the Canada Pension Plan or Quebec Pension Plan.

Under this agreement, the tax rate is 85% of the payments made to Canadian residents. Note that in the United States, the tax rate depends on the net income of the taxpayer. For example, for a single taxpayer living alone, the tax rate varies from 0% to 25% for a net income of $0.00 to $25,000. Furthermore, if this same taxpayer receives social security, he will be taxed at a gradual rate for any amount exceeding $18,000.

The protocol states that payments made pursuant to social security legislation in Canada to a resident of the United States are taxable only in the United States. Essentially, the purpose of Bill C-265 is to reduce from 85% to 50% the tax rate on United States social security payments received by Canadian taxpayers.

It is now 2005. For 20 years now we have been trying to find a fair and equitable solution for all Quebeckers and Canadians dealing with this problem.

I want to remind the House that there are thousands of Quebeckers and Canadians living, for the most part, near the border and who are subject to the impact of Canado-American tax reforms. This is a costly measure, but it is insignificant compared to the thousands who have sacrificed their lives and their families to work far from home. These people wanted to stay here and keep their identity.

I also want to remind the House that, between the two governments, there are different tax measures. That is why we support this bill to close the gap between Canada and the United States.

We support lowering the tax rate on benefits paid to Quebec and Canadian taxpayers, from 85% to 50%, because it corrects a certain injustice. That is why I once again congratulate the member from the riding of Essex for having introduced Bill C-265, which we will support.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 1:35 p.m.
See context


Michael John Savage Liberal Dartmouth—Cole Harbour, NS

Mr. Speaker, I am pleased to take part in the debate on Bill C-265.

I would like to first congratulate my colleague from Essex and his wife on the birth of their son. I had the chance to meet them early in our respective careers as parliamentarians at an orientation session, and I wish them both the very best.

Bill C-265 proposes to extend the exemption from tax granted to U.S. social security benefits from 15% to 50%. The government does not support this bill. The 15% exemption that already exists is a concession negotiated in a treaty that already represents some departure from basic tax policy principles. Extending the exemption to 50% would exacerbate the situation.

I believe that it would be helpful for members of the House to have the benefit of some history regarding the taxation of social security benefits as set out in the Canada-U.S. tax treaty and why it is that we have agreed to the 15% exemption.

The history has been complex and the current state of affairs represents the delicate balance between competing interests, a balance which the Conservative member's bill ignores. The Canada-U.S. tax treaty included rules for the taxation of social security benefits paid by one country to residents of the other since 1984. The evolution of these rules has progressed in three distinct phases.

Between 1984 and 1996, the treaty contained a residence-based taxation rule. Only the country of residence was allowed to tax social security benefits. During this time a resident of Canada receiving U.S. social security benefits would only pay tax to Canada. There was however a 50% deduction in computing taxable income in respect of those benefits because at that time the U.S. only taxed a maximum of 50% of U.S. social security payments. This represented a tax advantage over Canadian benefits, which were fully subject to tax.

In addition, U.S. residents receiving Canadian benefits were not subject to Canadian tax and so benefited from the 50% maximum inclusion rate in the United States. One consequence of this was that high income U.S. taxpayers did not pay the tax on old age security benefits, which applies to incomes above a certain level.

This residence-based rule was seen to be unfair. There were calls to change the rules so that all recipients of Canadian benefits were taxed in the same way regardless of residence, and so the rules were changed.

In 1995 Canada and the United States agreed to replace the residence-based rule with a source-based rule. In other words, the new rule would allow only the country from which the payment arose to tax that benefit. The result was that a Canadian resident receiving U.S. social security benefits was taxed only by the United States.

In addition, the maximum inclusion rate under U.S. law had risen over time from 50% to 85%, so a U.S. citizen in receipt of U.S. benefits would be subject to ordinary U.S. rates on a maximum of 85% of that income. If the recipients were Canadian residents, they would either pay U.S. rates or, if they were U.S. citizens, they would be subject to a final withholding tax. This rate was computed as 85% of the standard U.S. withholding rate of 30%. This was a final tax and was non-refundable.

For high income Canadians this tax was usually acceptable since, if they had to pay tax in Canada on this income, their marginal rate of taxation would likely have been higher than 25.5%. However, for low income taxpayers who otherwise rely on the progressive nature of the Canadian tax system to fairly distribute the tax burden, the 25.5% withholding tax constituted excessive taxation and caused, in many cases, severe hardship.

These taxpayers, had they been subject to tax in Canada on this income, would have paid little or no tax. Because they were subject to U.S. taxation, a quarter of their income was lost.

Conversely, U.S. residents receiving Canadian benefits under this rule could choose between the 25% withholding tax or, if they filed a tax return in Canada, graduated income tax at ordinary rates. For low income U.S. taxpayers, this meant they paid little or no tax.

At that time there was a great discrepancy in the taxation of these benefits to the detriment of many low income Canadian seniors. Canada and the U.S. recognized this unfair treatment and we came together again to change the rules.

To relieve hardship on low income Canadians, we agreed to restore residents only taxation. The current rule provides that social security payments are taxed as if they were payments from the home country's benefit plan. A Canadian recipient of U.S. social security is treated as if the payment were from CPP, QPP or OAS.

United States recipients of QPP, CPP or OAS are treated as if they were receiving U.S. social security benefits. This meant that Canadians receiving U.S. benefits could avail themselves of the graduated rates of our tax system and were no longer subject to a flat 25.5% withholding tax. As mentioned, the maximum inclusion rate in the United States had changed from 50% to 85%.

As a concession to the United States, we agreed to the 15% exemption for these benefits to match the maximum inclusion rate in the U.S. However, any rationale for returning to a 50% exemption based on an analogy to the U.S. rules disappeared once these rules were changed. That is the history of the taxation of social security benefits between Canada and the United States. That is pretty exciting too.

As the history reveals, it is a complicated issue. It also shows that any rule will advantage some over others. What is important is to find a rule that makes sense, that is fair, and that avoids imposing hardships on taxpayers who are least able to adapt to such hardships.

We have such a rule. While some higher income taxpayers may complain that they were better off under the previous regime with a U.S. withholding tax, the concerns regarding low income taxpayers were more urgent. Many of these taxpayers were simply not in a position to absorb a high withholding tax.

While a 15% exemption is a departure from the basic principle that individuals in similar circumstances should pay a similar amount of tax, it represents an agreement stemming from a process of careful negotiation. Extending this exemption to 50% would be completely out of line with tax policy and would fail to take into account the history of how the current exemption was reached. I therefore ask hon. members to join me in not supporting this bill.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 1:25 p.m.
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Jeff Watson Conservative Essex, ON

I apologize, Mr. Speaker.

My colleagues on the government side of the House pledged in the throne speech to lower tax for low and middle income Canadians. These seniors will not believe it until they see the government support a measure like Bill C-265. It will have modest impact to the treasury, but maximum impact to vulnerable seniors, and it will end a disgraceful chapter in Canada's tax industry.

It is my sincere hope at the end of this process that no fewer than 154 of my colleagues from all sides of the House, Conservatives, députés du Bloc, New Democrats and Liberals, will join me to help seniors like Olive Smith, Bill and Bette Sands, Roy McMillan and June regain their dignity.

Income Tax ActPrivate Members' Business

February 4th, 2005 / 1:10 p.m.
See context


Jeff Watson Conservative Essex, ON

moved that Bill C-265, an act to amend the Income Tax Act (exemption from taxation of 50% of United States social security payments to Canadian residents), be read the second time and referred to a committee.

Mr. Speaker, I am proud to announce that yesterday morning my wife, Sarah, delivered a beautiful son, Thaddaeus David, into the gentle hands of our midwife, at home with my children gathered around.

For much of my day I had the pleasure of spending time appreciating things of value, the nurturing help of my two daughters, Sophie and Emma, to their labouring mother, to my new son's big hands and long toes, and the quiet whisper of “Hi” from his 22 month old brother, Elijah, welcoming him to the family.

It is not only the start of life that is worth reflecting upon. Today my thoughts turn to men and women in their golden years. I am pleased to rise and speak to Bill C-265, an act to amend the Income Tax Act to grant an exemption from taxation of 50% to Canadian residents who collect U.S. social security as a basis of their retirement incomes.

The bill represents a near eight year promise kept to seniors in the riding of Essex to restore tax fairness. It also gives hope to tens of thousands of seniors across Canada from British Columbia to Ontario, from la belle province to the Atlantic, who have experienced the same plundering or their retirement income.

The bill is a reincarnation of two bills that were previously before the House which were sponsored by my distinguished colleague from Calgary Southeast who fought tenaciously, though unsuccessfully, to prevent a 70% tax hike on vulnerable Canadian seniors in 1997.

The bill would also gives form to the aspirations of my New Democrat colleagues from Windsor West and Windsor—Tecumseh who joined the House after the tax increase passed into law and who desire and have worked to see tax fairness restored to these seniors. I understand the member for Windsor West will be speaking shortly and I thank him for his support.

Together we have demonstrated an ability to work cooperatively across party lines. It is this cooperation in a minority Parliament that gives us and the seniors who we represent the most realistic opportunity to see the tax relief they deserve.

For government members opposite, it is my hope that they will support this measure.

My own quest to see tax fairness began with the stories of real people. They moved me to act for justice. I believe their stories will move all members of the House to endorse Bill C-265.

At issue here is the 70% tax increase in 1997 to Canadian seniors collecting U.S. social security. Bill C-265 seeks to reverse this tax hike by lowering the amount included for taxable income from 85% to 50%.

I am new to this chamber. In fact more than one-third of my colleagues are new to this chamber, so to understand how we arrived here I must take a couple of minutes to relive some painful history.

Canada and the United States signed the Canada-U.S. Tax Convention Act in 1984. Among other things, the act addressed the flow of social security benefits across the Canada-U.S. border, that is, t it dealt with the taxation of CPP or QPP and our OAS benefits received by persons resident in the U.S. and U.S. social security benefits received by persons resident in Canada. The tax treaty gave the power to tax benefits to the country of residence rather than the country paying the benefit.

Further, the rule was that only one-half of the benefit went into a taxpayer's income. For example, a Canadian collecting $15,000 benefit from the U.S. was taxable on only $7,500. This situation existed under the first and second protocols of the Canada-U.S. tax treaty up to December 31, 1995.

However something horrible happened to Canadian seniors. The Liberal government of the day entered into negotiations with the U.S. to change the tax treaty producing a third protocol. Taxing benefits moved from the resident country to the source country. Canadian seniors collecting U.S. social security were told shortly before Christmas 1995 that effective January 1, 1996, the U.S. would be withholding 25.5% of their benefits. This changed seniors' retirement assumptions entirely. Many low and modest income seniors were forced from their homes because they could no longer afford them. Moreover, they could not file a U.S. tax return to be taxed on a net basis. There was no way to avoid being taxed at 25.5%.

It was not the Grinch who stole Christmas 1995 from 85,000 Canadian seniors. It was their Liberal government in Ottawa.

However, rather than roll over, these seniors banded together to fight. A grassroots group was born in Essex called CASSE, Citizens Asking for Social Security Equality. It was an idea that soon drew thousands of seniors to rallies. It was not a glamorous army of idle rich seniors either. They came in wheelchairs and they came in walkers. One senior did not even have return bus fare because her fixed income was slashed. They gave the Liberal government every reason to go back to the U.S. to renegotiate the tax treaty.

After pressure on the then finance minister, on April 9, 1997 a fourth protocol was reached with the U.S. that restored taxation of benefits to the resident country as it had existed prior to December 31, 1995 under the second protocol.

The Liberals faced this issue and CASSE during the federal election in 1997. Seniors were told the new protocol would be revenue-neutral and should be supported. The issue was supposed to finally be over.

What the fourth protocol did not restore however was the 50% inclusion rate for taxable income that existed under the second protocol. Instead, it set the rate at 85%, a whopping 70% more than the pre-1996 rate. It was a crushing blow to seniors hoping to see their retirement income restored.

The fourth protocol was ratified by our members in the Bloc, not because it was fair but because it held the promise of retroactive tax rebates to affected seniors. The rebates proved to be few however because the 85% inclusion rate was also retroactive. Today, without those same urgencies but with the same need for justice to be swift, the bill gives Bloc members of Parliament the opportunity to fully restore tax fairness to Quebec seniors. I urge them to seize the moment.

During debates to ratify the fourth protocol, seniors were told many things by the government. The deputy prime minister of the day said that the move to the 85% inclusion rate would be revenue-neutral. Finance officials testified that that would not actually be the case. Of the hundreds of seniors affected in my region, I still have yet to meet even one who has received a rebate.

During these debates in 1997, seniors were told by the then finance minister, now Prime Minister, that the U.S. was moving quickly to ratify, so he and his government had no control over the inclusion rate. Federal finance officials testified before a Senate committee that Canada could have set the Canadian inclusion rate at zero if it wished.

During these debates seniors were told, believe it or not, to be grateful, that after all, Canadians collecting CPP in Canada have 100% of their benefits taxable. What the government failed to admit to seniors was that residents in the U.S. collecting CPP or QPP were treated far better than they were. In fact, a senior collecting Canada pension plan or Quebec pension plan in the U.S. has to earn about $59,000 Canadian before they have any income included at the 85% rate. The social security benefits worksheet provided to me by one of my constituents is absolute proof of that.

What seniors in Canada were not told by the Liberal government was that seniors in the United States pay no tax unless they are the richest of the rich. Eighty per cent of those collecting CPP or QPP in the U.S. pay no tax at all. A paltry six per cent pay at the 85% rate. By comparison, every senior in Canada collecting U.S. social security has 85% of his or her income taxable above the basic and perhaps the age exemption. Seniors at modest and the lowest income levels pay tax in Canada. If the inclusion rate had been restored to 50%, most seniors in Canada would have paid little or no tax.

Worst of all, during the debates of the fourth protocol, seniors in Canada were told to be grateful for their 70% tax increase because they had a public health system they never paid for. My predecessor in the riding of Essex not only argued this in this House, but she argued that the inclusion rate should have been 100%. It is right in Hansard . I could not believe what I read.

I would like to remind the House who these seniors are. These seniors are the women who waited six years alone or with small children while their husbands went to war to fight for Canada. These seniors are the men who sacrificed six of their productive years to the cause of freedom. After the war, these men and women married, built homes, paid for and raised money for hospitals, ambulances and schools. They built churches and helped build their neighbours' homes and barns. They spent every dollar they earned in neighbourhood grocery stores. They clothed their children with clothes from the local department store. They bought the cars their neighbours built. They volunteered in rural fire halls.

In my area these men and women helped start Windsor Medical, the first public health system in the province of Ontario. Liberals think these seniors should be happy for their inclusion rate not being 100% because they get a public health system? No, the government should be grateful these seniors built this country.

Canadian seniors who received U.S. social security more than paid their fair share. The government was wrong in 1997 to raise their taxes 70%. It is still wrong today, and it still needs to end this injustice.

That was yesterday for today's seniors. Let me talk about seniors today. We will find many of them in mobile homes dotting communities in British Columbia, Ontario, Quebec and the Atlantic. We will find others in tiny apartments or nursing homes living alone. Many have been forced to decide between paying for prescriptions or paying for utilities.

One woman in my riding has since survived cancer of the colon and of the right eye. Many are in wheelchairs because they can no longer walk. June, in the town of Harrow in my riding, told how her husband died recently of a heart attack. He died still under the stress of being unable to pay their bills. Now June is left to struggle with only her meagre social security and under the 70% tax increase from the government.

I can also talk about letters of great hardship, but valiant determination to fight by seniors in Quebec. I can talk about letters with horrifying stories. Joan and Ivan in Amherstburg in my riding told me that the 70% tax increase by the Liberals has “turned the golden years to sickness, sadness and bitterness”.

I urge ministers and even the Prime Minister to come with me on Monday to visit seniors in Viscount Estates in my riding of Essex. These are not sprawling mansions on hundreds of rolling acres in the countryside. Viscount Estates are not million dollar homes fronting on Lake St. Clair. Viscount Estates is mostly a mobile home community.

In the recent election, I knocked on every door there. I heard every terrible story. Not all seniors started their lives in Viscount Estates, but many ended up there because of the third protocol. They were promised by the Liberal government that the fourth and current protocol would make life better. Not one of the seniors still alive has moved out of Viscount Estates.

There are a couple of sad realities. The same seniors who had to leave their modest homes for mobile homes did not have the means to hire fancy lawyers to fight for them. They still do not. Nor can they launch full colour, glossy ad campaigns on billboards, in print or on TV. Instead, they have spent eight long years in suffering silence.

The other sad reality is that many are no longer alive to fight. The more than 85,000 affected seniors have been whittled away by disease and age. Eight years without reversing the 70% tax increase is not a strategy for justice and fairness. It is a wait and die attitude by the Liberal government.

My colleagues do not take my word for this. I urge my colleagues to pass Bill C-265 at second reading so that seniors from the west and the east, from Ontario and Quebec, those who can still make the trip to Ottawa, may come and tell their stories themselves.

My colleagues on the government side of the House pledged to lower taxes for low and middle income Canadians. These seniors will not believe it until you support a measure like Bill C-265. It will have a modest impact--

Income Tax ActRoutine Proceedings

November 4th, 2004 / 10:20 a.m.
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Jeff Watson Conservative Essex, ON

moved for leave to introduce Bill C-265, an act to amend the Income Tax Act (exemption from taxation of 50% of United States social security payments to Canadian residents).

Mr. Speaker, I am pleased to introduce my first measure designed to restore tax fairness to those seniors living in Canada who collect U.S. social security as the basis of their retirement income.

These seniors, living not only in my riding of Essex and in the immediate region of Windsor, Ontario, but also living in communities from British Columbia to Quebec, and to New Brunswick, have waited nine years to see legislation introduced to roll back a 70% tax increase imposed upon them after they had already retired.

Sadly, thousands of these proud Canadians of modest and low income have passed away before ever seeing this measure introduced. Many years ago I pledged to these seniors that I would never forget their struggle to survive when I finally reached elected office in our Parliament. I have kept my word to them.

This is for Olive Smith, Bill Thrasher, Joan Eikre and others who have waited patiently. In the spirit of successful amendments to the throne speech, I urge my colleagues from all parties in the House to enthusiastically support restoring tax fairness to our retired seniors.

(Motions deemed adopted, bill read the first time and printed)