Bill C-305 (Historical)

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

Income Tax Act

[Jeff Watson, Conservative, Essex, ON]

moved that Bill C-305, 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 very pleased to rise today to speak to Bill C-305, an act that is designed to lower from 85% to 50% the inclusion rate for the amount of income taxable for Canadian seniors who collect the U.S. social security pension.

I spent a lot of this past weekend in reflection, thinking about things that are important. I thought back to about 10 years ago and how very different things were for me, when I was unmarried and worked at a job scrubbing giant inflatable balloons as they came back from parades. Ten years later, some things have changed in my personal life. I am now married with four kids. I am no longer scrubbing inflatable balloons but have the great privilege of being a member of Parliament representing the communities of Essex.

Sadly, 10 years later some things have not changed. Bill C-305 exists because an injustice was committed a little more than 10 years ago and still needs to be righted.

As I said earlier, Bill C-305 is about lowering the inclusion rate from 85% to 50% for retired Canadian seniors who collect a U.S. social security benefit. This follows on the heels of two previous private members' bills, one by the member for Calgary Southeast and my own private member's bill in the last Parliament, Bill C-265, which passed second reading, as members of the House may know, and went to the finance committee, where it died a very slow death.

There are a lot of new members in the House since the last election and there may be Canadians looking in on this debate this morning who may not know exactly where this particular bill fits in history, so I want to take a few moments to go back and look at how we got to where we are today.

A major change occurred on January 1, 1996, for about 85,000 Canadian seniors in Ontario, Manitoba, British Columbia, Quebec and New Brunswick, who lived in Canada but happened to work in the United States and upon retirement collected U.S. social security cheques. What happened on January 1, 1996, is that their entire retirement changed. They were given a pretty substantial tax increase that changed the economic presumptions for their retirement years.

Of course, that all started three weeks before January 1, a week before Christmas in 1995. When most kids were writing letters to Santa Claus about all the good things they would like, these seniors received letters from a government agency informing them that in three weeks the way they were taxed was going to change.

We have a Canada-U.S. tax treaty that exists for some very important reasons. The two countries came together and agreed, for example, on how a Canadian resident in the United States, or an American who collects CPP, the Quebec pension plan or old age security, was going to be taxed and treated. We had to define on this side how we were going to treat Canadians who collect U.S. social security pensions or Americans who happened to be resident here as well.

At one time, these seniors were not taxed at all but in 1984 two protocols to the Canada-U.S. tax treaty changed the way they would be taxed. They were taxed in the country of residence, not in the source country, where the benefit came from. The maximum inclusion rate was set at 50%, so half their income would be included for taxable purposes. That was the situation that existed from 1984 to 1996.

Then came the third protocol, in the dreaded Christmas letter that these seniors got. The change was that their taxation would be done in the source country, where the benefit came from. They would have 25.5% of their income withheld at source.

Let us imagine this change. There was literally no time for these seniors to respond. There was no ability to cushion against the shock of such a change. There was no control over the benefit they received because it was withheld at source, so what they would get is all they would get. It was a tremendous and very drastic change that happened over that Christmas season. Starting January 1, suddenly 25.5% of their income was withheld at source and they got a much smaller pension cheque.

At that time, a citizens' group mobilized in the region. Canadians Asking for Social Security Equality mobilized very quickly and in large numbers, because many seniors were affected. In our region, I think the member for Windsor—Tecumseh will recall some of the meetings at the time. They came out in the thousands and forced the government of the day to go back to the table and renegotiate with the United States.

In Canada at the time, the finance minister, the current member for LaSalle—Émard, was looking to balance his budget. In the United States, President Clinton was looking to balance his budget and saw an opportunity to tax the richest of the seniors in the United States. He saw this as his opportunity to do that.

Therefore, we had a fourth protocol negotiated between the two countries. It changed back to residence taxation instead of these seniors being taxed in the nation where the benefit came from. But something interesting happened. After these seniors were promised that this was going to be a revenue neutral change, many of them were expecting that we were going back to the 50% inclusion rate. They had a really nasty surprise. The inclusion rate was set at 85%. It did not go back to the way it way before January 1, 1996, so instead of the wrong being righted, it was compounded.

It would be nice to point out, of course, that the finance minister of the day left a convenient loophole for family ships not to be taxed. That was in the same piece of legislation, the same treaty whereby these poor seniors were getting a whopping 70% tax increase. What a cruel irony that the rule-maker got to make the rules in his favour while thousands of seniors, who do not have any ability to make or change rules but are affected by them, had a tax increase instead.

As for Canadians Asking for Social Security Equality, what an incredible group. They mobilized in four successive elections, in 1997, forcing the government of the day to go back and renegotiate, and in 2000, 2004 and 2006. I say this with some bittersweet feelings. This group is very successful at mobilizing and at keeping this issue before candidates, prospective members of Parliament and prospective governments. However, I was talking not long ago with some of the folks doing the phone calls. With every election and every phone call, the cold hard reality is that yet another member is deceased, and another and another, or the latest ailment or disease is afflicting the few who survive.

Of course, this news kept coming, election after election. I can tell members that CASSE does not want to mobilize for another election. Quite frankly, its members should not have to. In my opinion, it is time to pass this private member's bill and get on with this measure. Or also, I would be pleased if this wound up being a line item in a budget, something for which I am working hard.

These seniors have been waiting a long time. They are looking for justice. Who are these seniors? Let us go back and look at what that generation achieved. Certainly they worked in the United States, but they lived in our communities. They built our communities across Canada. Talk about great foreign investment: they went to the United States, brought back their wealth and invested it in our communities here.

Let us go back and imagine these seniors in their prime. World War II has ended. They set about growing families and building homes and barns, hospitals and fire halls in their communities, delivering the services that were necessary and starting the businesses that employed others. They built community centres and churches, improving the quality of life in their communities. They went to work in the auto factories, building the cars their generation would drive. They worked the fields, harvesting and sending product to market.

Former NBC news anchor Tom Brokaw called these seniors “the greatest generation”. I do not call them the greatest generation; I call them the selfless generation, a good example to my generation. They were the dreamers. They had a good vision for this country. They were the builders. With their bare hands and their hard work they built this country and made it what it is today.

Those people were selfless because they thought about the generations to come. They did not think about what they wanted or what they could get from everyone else. They thought about what they could save and invest in their children and grandchildren. That is the kind of thinking of this generation. They planned for their own self-sufficiency. They did not ask anybody else to do anything for them. They saved their pennies. They worked hard. They did not just suddenly get to retirement and wonder who would take care of them. They were thinking long before that. This is why this was such a cruel thing. They knew that if they lived to a certain age they would need to save enough to be fine when they retired.

They were the givers. They gave to others and to charities. They started community groups that worked hard to meet the needs of people in their community. They were fundraisers. They went out and raised money for all kinds of noble purposes in their community. They were the generation that never asked for anything in return.

What happened to these seniors? Many have been forced from their modest accommodations into nursing homes or forced to move in with siblings who were also senior citizens. However, this move was symbolic of something, I think, much deeper. They have been forced from independence to a situation of dependence, which is what this tax increase did.

Seniors have been forced into making choices that they never thought would happen. They do not know whether to pay for their prescription drugs this month or to pay the gas bill to keep the gas on in their homes. They do not know whether they should buy groceries or pay the electric bill? The wonder if they can buy a gift for their grandchild's birthday or if they can lend money to their son or daughter who is in a bit of financial difficulty. This is the generation that saved and planned so they could give to other generations but they cannot make those choices any more. That is what this tax increase did to them.

They are bitter. They were misled. They were told that things would go back to the way they were before. It never happened. Their esteem and their future plans for retirement have been shattered through no fault of their own.

There are several roots to bitterness but one of them is the feeling that we are owed something.

While tax relief for any senior is good thing, and I support those measures, for these seniors they are owed something. They are owed a change, a change that will help them heal and help them get to back on top of their lives.

I am calling on members of this House to come together and to find the will to act now so that these seniors get back on top. We owe it to them.

[Larry Bagnell, Liberal, Yukon, YT]

Mr. Speaker, the last time an initiative like this was brought before Parliament, some members of Parliament raised a number of serious concerns. Just to help convince those members, I wonder if the member could just enumerate those concerns and explain why they are not valid and why they should not be used to stop the passage of this act.

[Jeff Watson, Conservative, Essex, ON]

Mr. Speaker, actually, in the last Parliament when this bill was before the House and it went to committee, I was asked by the office of the finance minister of the day to meet with some of his officials and finance department officials. I heard the same thing that I heard many times in the chamber during that debate. One of the things they had raised with some amount of concern was that a Canadian who collects Canada pension plan living next door to a Canadian who collects a U.S. social security cheque, the Canadian who collects the U.S. social security cheque is already getting a 15% benefit and this would create a situation somehow of greater inequality.

I challenged the members at that time or certainly had challenged the thinking under that.

First, no one has ever complained that the senior citizen living next door was receiving a much better benefit than they themselves were getting. There is no great clamour in the streets. Nobody is saying that we need to raise their taxes to create a situation of equality.

Second, this is going back and addressing a wrong that was created. We need to go back and revisit this issue and make the proper change for those seniors.

I take the position that raising taxes on somebody after they have retired is something cruel and it must be reversed.

If we want to create a situation of greater tax equity between two neighbours living next door to each but collecting a different pension benefit, maybe we should be looking at lowering the inclusion rate for taxation for seniors who collect the Canada pension plan. I would say that is a much healthier way of creating a situation of tax equity rather than creating harm on a particular group and raising their taxes to create equality.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Mr. Speaker, I had an aunt who lived with me until she passed away in 1999. She collected social security from the United States and I did not quite understand the mechanism. I knew she received a cheque but I did not realize the procedure.

I do not understand what the difference is now in what he is proposing. If we were to take a social security pension of $300, what would the difference be according to the proposed legislation from what it is now? I want to get this a little clearer in my mind and I would appreciate some clarification on it.

[Jeff Watson, Conservative, Essex, ON]

Mr. Speaker, this measure is designed to do one thing and one thing only, which is to lower the amount of income that is included for the taxation of a benefit. Let us take a number like $15,000. If that were my benefit, instead of having 85% of it eligible to be taxed, we are now only talking about having 50% of it eligible to be taxed.

If we were to apply this to Americans who collect the Canada pension plan, they are taxed as if they were receiving a U.S. social security benefit over there. What this means in their law is that most seniors would not even be paying tax.

The current rate is 85%. In the United States only 6% of seniors would be taxed at the highest level. More than half would not even pay a cent of tax and the rest would be somewhere in between that. If it were 50%, the way it was before, virtually no seniors would be paying tax.

[Paul Szabo, Liberal, Mississauga South, ON]

Mr. Speaker, I am pleased to speak to Bill C-305, which has been before Parliament before. I took the opportunity to look back at some history and noticed that this bill passed at second reading and was sent to committee where it died. Some members of Parliament are fortunate enough to get high enough in the lottery so their bills can be considered, but I have a great deal of sympathy for those members who face the worst possible outcome of not getting them through the entire legislative process before an election is called.

Bill C-305 raises an important question. I think the member has a reasonable argument but he will need to convince members about some of the differences that have occurred since the time we entered into a tax treaty with the U.S. in 1984.

Before I became a member of Parliament, I had a CA practice in which I did tax returns mainly in Canada but had some experience with United States returns. The member will know that the tax systems between the two countries are very different. The Americans charge a capital gains tax on the sale of a home, but they also have mortgage interest deductibility. They have deductions for taxes paid to other jurisdictions. They also have joint filing for couples. However, members should understand that it is not the filing of one tax return for two people using the same tax tables as one person. It is a separate schedule of taxation for joint filers. It is not exactly seamless but at least it is a bit better than what we have here.

I would not even try to do a quantitative analysis about the tax burden between Canada and the U.S. Our health care system is paid by our tax dollars, whereas it is not in the United States. The cost of buying health insurance in the United States is very prohibitive for many people. I just want to point out that there are some differences.

Interesting enough, the tax treaty treatment of U.S. social security payments received by Canadians who worked in the U.S. and are eligible for U.S. social security are outside the ambit of the traditional tax treaty treatment.

Something that is important for members to acknowledge is that this is not a simple issue. It is a complex issue. Members need to understand where we started so that when we look at where we end up to determine whether or not there is an inequity compared to where we started as opposed to whether there is an inequity compared to somebody else? That happens to be the crux of the issue here.

The member's argument has basically been that people receiving U.S. social security were treated in a certain way back in 1984 when in fact they were taxed in the country in which they were resident. Any payments received from the United States were taxed in Canada. It had a 50% exclusion rate which meant that if someone received a U.S. social security benefit of $100, they person only had to include 50% of that in his or her Canadian income tax return.

That changed in 1996 when the third protocol was negotiated. It was decided to change where the taxation would occur. It was changed so that a Canadian receiving a U.S. social security benefit would actually be taxed in the United States which had a withholding tax of 25.5%. I could go into the details of how the differences were worked out but I do not believe that is the fundamental issue.

The member referred to what happened on April 9, 1997 when the fourth protocol was negotiated with the United States. It reverted back to where the tax benefit would be taxed in the country of residence. However, it did not restore the 50% exclusion rate that was in the 1984 tax treaty.

Therefore, we have a situation where in 1984 only half of U.S. social security payments were included in Canadian income taxes. In 1997 it was all included, except for a 15% exclusion. This was basically to mirror the withholdings that generally would happen when a United States corporation would pay, for instance, investment income to a Canadian where there was withholding at source.

If we look at some of the machinations that the finance department had to go through in terms of the tax equity between two countries in dealing with payments to non-residents or to foreign jurisdictions, we can see that it really is not very easy to explain. One of the things I conclude from this is that the inequity the member is referring to is the fact that back in 1984 there was a 50% exclusion rate. He would like to have it back now because in both instances individuals were taxed in the residence of the person who received the money. That is a non sequitur. It does not follow because there were other things that were taken into account.

The inequity is not an inequity between a Canadian receiving U.S. social security payments and an American receiving Canada pension plan payments. Argument has been made that, and if we look at the Debates from the last Parliament, the Americans have a different system. They have to make $59,000 before they have to start including any, and even then there is an exclusion rate.

Why are we comparing, or trying to compare, Canadian tax burden to U.S. tax burden for the same receipt of U.S. social security payments? It is not possible to do that in a clear fashion. In fact, here is the real comparison that we should be looking at. If a Canadian receives a Canada pension plan of $100 and has to include that $100 in his or her income tax return, why is it that a Canadian receiving U.S. social security payments should only include one-half of the amount in the Canadian income tax return?

In fact, two people receiving a $100 benefit, one paid by Canada and one paid by the U.S., would be treated totally differently. In fact, the inequity that is being proposed by this bill would increase, but if we make the argument about a Canadian receiving U.S. social security compared to an American receiving social security, it is suggested that we should have this changed so that it gets us back to what we had in 1984.

Members can see this is very convoluted. Having said that, this issue has gone on for some time and I do know that the member and many members in this place have expressed some concern about the tax burden of Canadians who receive foreign pension payments. It is not possible to actually explain it to members in the two hours of debate.

I suspect that there may be an appetite for this matter to go to the finance committee to get the full details out. The finance department has to explain all of the implications that it took into account in negotiating for separate protocols since 1984 on how to deal with these matters.

Further, I would respectfully suggest to the member that in consultation with finance officials, he may be able to provide members with some analytical samples which could show, in very simple terms, the difference in the tax burden today between a Canadian receiving CPP and a Canadian receiving U.S. social security payments.

He may also want to consider that, in my view and I think many share it, the best outcome of a private member's bill is to get the government to adopt it as its own and to make appropriate other consequential changes, or maybe inconsequential changes, which will make absolutely sure that there is as little inequity between taxpayers as possible.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Mr. Speaker, I am happy to speak about this issue today. I also had the opportunity to talk about Bill C-265.

This is not the first time a bill on taxing social security payments has come before this House. In November 2004, my Conservative colleague was on this side of the House, and we shared his joy when his spouse gave birth to a child. Naturally, we congratulated him.

Today, I congratulate him on again raising this issue by introducing Bill C-305. The purpose of this bill is to reduce the tax rate from 85% to 50% for Canadians and Quebeckers who receive United States social security payments.

At first glance, this bill might not seem very important. But this issue affects thousands of Quebeckers and Canadians. For over 20 years, we have been looking for an equitable way to solve the legislative problem facing Quebeckers and Canadians.

Why could Canadian and Quebec citizens who receive payments from the American government not benefit from the same conditions as American citizens who receive a pension from the Canadian and Quebec governments?

To help members understand where we are at today, I will give some background on this issue. Four protocols have been negotiated between the United States and Canada. I want to talk about the fourth protocol, signed in July 1997 with a number of other countries, including the United States. Under this protocol, only the country of residence is able to tax social security benefits. Since then, Canada has been able to tax American benefits paid to residents of Canada and Quebec.

The problem is that the protocol gave Canada, under the U.S. Social Security Act, the right to increase the tax rate from 50% to 85%. Bill C-305, before us today, would correct this situation.

The Bloc Québécois supports the bill, because it rectifies an error the previous government made in 1997. Several thousands of Quebeckers left their families to go work in the United States, often for years, and have been 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 legislative amendment enabled the federal government to bring in a lot more revenue at the expense of a population that could be considered vulnerable and economically weak. It is important to understand why Bill C-305 is now before the House and how it corrects a past blunder.

As I mentioned, historically, four protocols have modified the Canada-United States tax convention. In 1980, the income tax convention provided that social security benefits are taxable only in the originating country. It was only sometime later that the benefits were initially taxed in the United States.

The portion of benefits deemed taxable rose from 0% to 50%, depending on the taxpayer's net revenue and when the benefits were paid.

Modest income families and individuals were generally exempt from paying taxes on their benefits. In March 1984, a second protocol modified the Canada-U.S. tax convention. This agreement made social security benefits taxable only in the taxpayer's country of residence. From then on, 50% of the benefit amount was exempt from taxation.

For example, an American citizen residing in Canada was taxed on 50% of the benefits received from the United States. Bill C-305 is designed to return to this situation.

A third protocol was signed in March 1995. It gave the country paying benefits under social security legislation the exclusive right to tax those benefits.

This means that the United States taxed social security benefits paid to Quebec and Canadian residents at a rate of 25.5%, while Canada did not tax benefits received by American taxpayers.

Finally, the fourth agreement to amend the tax treaty 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, except that 15% of benefits were made tax exempt in Canada.

Under this agreement, the tax rate became 85% of the payments made to Canadian residents.

However, the last agreement provides that the benefits paid under Canada's social security legislation to a resident of the United States are taxable only in the United States.

Essentially, the purpose of Bill C-305 is to reduce from 85% to 50% the tax rate on United States social security payments received by Canadian taxpayers.

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

Thousands of Quebeckers and Canadians live near the border and have been suffering the never-ending repercussions of these tax reforms over the past 20 years.

Of course, this measure does not come without a price, but it is a small price to pay considering the thousands of people who have sacrificed their lives and their families to work far from home and their loved ones. These people wanted to stay here and keep their identity.

We, the Bloc Québécois, support lowering the tax rate on benefits paid to taxpayers, from 85% to 50%, because it corrects certain injustices. For this reason, I would like to congratulate the hon. member for his bill, which we will support.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Mr. Speaker, this bill deals with an issue which I spoke to in the 2000, the 2004 and now the 2006 parliaments. I raised this issue in 2001, in the very first speech I made in the House.

As we heard from the member for Essex, the author of the bill, this matter has been outstanding for over 10 years. It is a history of injustice, a history of governments changing the rules after the fact. In effect, whether intentional or simply systemic, it is an attack on our seniors, as we heard from the member for Essex, a generation of whom this country has every reason to be supportive and protective, and not to misuse or abuse. That is what happened in 1996. Part of this is a mistake that was made by a number of officials at that time, officials who, to this day, still refuse to admit that mistake, but it left a great number of our seniors vulnerable.

Basically they had lived under a tax system and had taken deductions at 50% instead of the full 100% as we have for RRSPs in Canada. They had planned their retirement based on having a certain level of income. A great number of them, including those who unfortunately have passed away, said that they could live to a certain standard if they had this income and they retired on that basis. Then in the 1996-97 period, the Canadian federal government put into place a new regime which seriously impaired their ability to live that lifestyle.

I am speaking as a lawyer. This is about a deal that was made. The seniors have lived up to it but the federal government has not. The United States federal government has, because there were corresponding responsibilities as we entered into amendments to our tax treaties with the United States. It had certain responsibilities as to how it would treat the recipients of Canada pension. The United States federal government has lived up to that. It did not change the responsibility of Americans receiving Canada pension benefits while living in the United States. We did and we changed them quite dramatically, especially when we consider how vulnerable a large number of those 85,000 were at that time and how dependent they were on that income.

By the standards of the income that members of Parliament receive, we are talking a pittance. The average recipient of social security receives less than $100 a month, which does not sound like a lot of money. It is less than $1,200 a year, but when one is living on a basic fixed income, that is a very significant amount of money.

I am going to tell two stories of our experience in this regard in the Windsor area. I was canvassing one time during an election campaign. At one door I met a man who told me that his brother lived with him. The brother used to live on his own but he could not afford to any more. He was one of those recipients. When the extra tax was taken from him, he no longer could live on his own. He would not even come out of his room, except to use the washroom. The man would take food to his brother in his room. I wanted to talk with the brother and asked if he would meet with me, but he would not. That is typical.

Then there is my friend at church who, to this day, even at church, still curses the former prime minister who originally was from my riding. She is a very saintly woman but she and her husband were both recipients. They came back from the United States, bought a house and had a mortgage to pay. When the tax grab by the federal government came in, they no longer could afford the house and they had to sell it. As saintly and holy a woman as she is, she retains that anger.

[Leon Benoit, Conservative, Vegreville—Wainwright, AB]

That was the last government.

[Joe Comartin, NDP, Windsor—Tecumseh, ON]

Mr. Speaker, I hear from a member of the Conservative Party that was the last government, but it has now been repeated by the present government.

I want to be very critical of the government. The Conservatives stand every single day in the House and talk about being a new government. This change could have been made in the budget. Then it would not have been necessary for the member for Essex to bring forward this private member's bill. The government had the opportunity.

The current Prime Minister was in my city during the election campaign in January. He promised that this change would be in the budget, but the member for Essex has had to bring the issue forward once again. The Prime Minister's parliamentary secretary had private members' bills in the House twice and he could not get the Prime Minister and the finance minister to put this into the budget.

We are not talking about a lot of money. Some $13.5 billion was put toward the debt. This injustice could be corrected by an amount in the range of $25 million a year, or smaller given the number of people who have passed away. The new government has not done that and I am calling on it to do so. There will be another budget in February or March 2007. We do not need this private member's bill for the government to do that.

What is the Parliamentary Secretary to the Prime Minister, the member for Calgary Southeast, going to do if the budget comes down in 2007 and this is not in it. I have to ask the same thing of the member for Essex. What is he going to do? He is in government now and has the opportunity, finally, to do this. The Liberals would never do it. Both of those members are in government and have the opportunity to correct this injustice.

Then maybe that saintly lady from my church will stop cursing in church. Maybe she will have some peace. That incident was compounded by the fact that at the same time that this was happening, her husband contracted a serious illness and passed away within a year. She is a very bitter woman, but she is not the only one in this country.

As the member for Essex mentioned, he and I have been at a number of meetings in the last three years. The meetings are getting smaller because so many of the seniors have passed away. That bitterness and anger is there. We owe them a lot and we have fallen down. This injustice needs to be corrected, not five years from now when most of them will be gone, but immediately.

If the Minister of Finance is not prepared to stand in the House and say it before the budget, he has to guarantee that it will be in the budget. If not, there will be political ramifications in Essex and Calgary Southeast and any number of other ridings that the Conservatives hold in this country.

[Diane Ablonczy, Conservative, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, I welcome this opportunity to comment on Bill C-305. The subject of the bill is the income tax treatment of social security benefits that some residents of Canada receive from the government of the United States.

I applaud my colleague, the hon. member for Essex, for his initiative to provide a higher standard of living for Canadian retirees. Indeed, this government has taken action directly to raise their standard of living. It is, of course, important to approach such issues in a disciplined and focused manner. We have to set priorities and take action where we see the potential for the greatest gains overall, gains in terms of fairness, gains in terms of raising standards of living, and gains also in terms of unleashing Canada's long term economic potential, something that will be essential if we were to guarantee secure support for all tomorrow's seniors and today's seniors as well.

One of this government's key priorities is tax relief. Canadians have been shouldering an unduly heavy tax burden for far too long, but we are working hard to lighten that load. In budget 2006 we delivered on our promise to double the pension income that can be claimed tax free to $2,000. This relief will benefit the nearly 2.7 million taxpayers who receive eligible pension income and it will take 85,000 of them completely off the tax rolls. That is certainly not all. Retired Canadians, like other Canadians, will benefit from many of the tax relief measures in our first budget. This includes dropping the GST rate by one percentage point to 6%, effective last July 1.

The GST cut will make a real difference to Canadians. In fact, it will benefit all Canadians by close to $9 billion over two years, even those who do not earn enough to pay personal income tax. In fact, the National Anti-Poverty Organization, as well as academics and think tanks have undertaken research on the distributional effects of various tax cuts. They have found that lower income families pay about 8% of the money collected from the GST, but only half a per cent of income taxes. Conversely, the richest families, those with incomes over $100,000, pay about 4% of all GST and 10% of income taxes.

In consequence, according to the National Anti-Poverty Organization, the general principle is clear. Families with incomes under about $50,000, which include many, many seniors, will gain more benefit from reductions in the GST than from reductions in income tax.

Also, even though we reduced the GST rate, we have kept the GST credit at current levels to further protect low and modest income Canadians, including seniors. In fact, including the GST cut, budget 2006 delivered almost $20 billion in tax relief for individual Canadians over two years. That is more tax relief in one budget than in the last four budgets of the previous government.

All Canadian taxpayers, including seniors, will benefit from permanent increases in the basic personal amount, the amount of income Canadians can earn without paying federal income taxes. By 2009, this amount is legislated to reach $10,000.

All taxpayers will also benefit from the permanent reduction to 15.5% in the lowest personal income tax rate. This is the rate that applies on the first $36,400 of income.

Providing a secure retirement for seniors will also mean investing to ensure a strong, productive and growing economy in the future. It is vitally important that Canada's economy is poised to meet the challenges of an aging population in an increasingly competitive economy. Again, this government is taking action, focusing our investments on the highest priorities.

Budget 2006 proposed measures to help federally regulated, defined benefit pension plans make an orderly return to full funding while protecting the security of pension benefits. Budget 2006 also took important steps toward building a competitive tax system. This is a key priority if Canada is to continue on the path to more and better jobs and stronger economic growth.

For a start, we delivered on tax relief that was only promised by others, but never delivered. In particular, we eliminated the federal capital tax as of January 2006. We will eliminate the corporate surtax, starting in 2008. We will reduce the general corporate tax rate. These proposed reductions will allow Canada to regain the solid statutory tax advantage that we had prior to the 2004 tax changes in the United States. This is important since 85% of Canada's trade, and we are a trading nation, is primarily with the U.S.

In terms of health, budget 2006 provides $1 billion over the next five years to improve Canada's ability to respond to a pandemic or other health emergencies to which seniors may be particularly vulnerable. We have set aside an additional $52 million per year for the next five years to implement a Canadian strategy for cancer control.

Finally, seniors deserve to feel safe in their homes and communities. The 2006 budget provides over $200 million in funding to vigorously combat crime. This includes funding to hire an additional 1,000 RCMP officers and federal prosecutors. It includes enhanced training for the RCMP and also provides funding for crime prevention in communities.

Early in my remarks I flagged the importance of identifying priorities and acting on them. All the things I have mentioned, reducing the tax burden, increasing spending on health and on ensuring safety in our communities, including ensuring that our economy continues to flourish, and supporting the benefits we provide to seniors and to other Canadians, are very important. We must ensure that we not only identify priorities but have the importance to act on them as well.

This brings us back to the private member's bill before us today. My hon. colleague from Essex has raised an important issue. We believe this issue deserves to be considered, along with many other potential budget priorities that are on the minds of each and every member of the House. The goal must always be to proceed in a fair and balanced way for all seniors and for all Canadians.

[The Acting Speaker, Royal Galipeau]

The time provided for the consideration of private members' business has now expired, and the order is dropped to the bottom of the order of precedence on the order paper.

The House resumed from October 30 consideration of the motion that Bill C-305, 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.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Speaker, this is a worthy initiative on the part of the hon. member opposite. I commend him for his diligence. As I recollect, he raised this issue in the last Parliament as well. Having moved private members' bills through this House, I appreciate that sometimes it is very difficult and can be frustrating as well.

Members opposite talk frequently about tax fairness. It is a little bit a concept in the eye of the beholder, but at least in terms of the abstract, the members opposite embrace that concept. Indeed, I do not know of any member in the House who does not embrace the concept of tax fairness.

Having said that, I have yet to see from the government any concept of actual enshrinement in legislation of tax fairness, and as we talk about this bill in this chamber, we might keep that concept in mind, because this is a bill that gives preference to a particular category of taxpayer over another very similar category of taxpayer. It is very difficult to see where the tax fairness is for those who are not receiving the particular tax break that the bill contemplates.

Before I continue my remarks on the bill, I want to recount a complicated history with respect to tax treaties between Canada and the U.S. In 1984, in a tax treaty with the United States, Canadians who received social security payments were only required to pay 50% of their social security payments as taxable income in Canada. If they received $100 in the United States, they only had to declare $50 of it for tax purposes. In 1996 the treaty changed, allowing the country of payment, in this case the United States, rather than the country of residence, to tax social security payments that were sent north of the border. A 25.5% withholding tax was instituted at the time.

This was good news for pensioners with high incomes, as the 25.5% withholding tax by the United States was higher than their marginal tax rate in Canada. They therefore saved money. For low income Canadians, however, the rate would have been higher than their marginal tax rate. They would have been worse off.

The treaty changed again in 1997 when the U.S. stopped the 25.5% withholding tax from social security recipients and taxation power once again returned to the country of residence, namely, in this case, Canada. The Government of Canada agreed at the time to make taxable only 85% of the social security income in the hands of pensioners living here. In other words, there is an arrangement between Canada and the U.S. that the $100 I spoke of would come north, but only $85 of it would be taxed. This bill contemplates that the already preferential $85 in fact be reduced to $50, or in other words, it contemplates a return to the original arrangement of 1984.

That is a quick summary of the legislative toing and froing with with respect to this bill and how pensioners are treated with respect to receipt of $100 from U.S. social security.

I would like to return to the idea of tax fairness by using the example of two neighbours who live side by side. The hon. member is from the Windsor area, where a number of these folks live who already receive the $85 benefit and are now wishing to restore it to the $50 benefit, so there we can see neighbours living side by side. One neighbour would receive a Canadian pension, CPP or QPP as the case may be, and that entire $100 would be included in his or her income. As the present situation exists, the neighbour who is a recipient of U.S. moneys and who is beside the Canadian neighbour would declare only $85 on a similar amount of money.

As it exists, the entire $100 Canadian pension is taxable, but only $85 is taxable for the neighbour receiving the U.S. pension. This bill does not contemplate moving it up to $100, which would be taxable, but rather moving it down to $50, taxable. We can see that this is a huge advantage for the person who is receiving U.S. social security versus the person who is receiving a Canadian pension.

Let us look at neighbour A who receives social security payments. In the 2006 return taxable by country of residence, the Government of Canada allows that person to exempt 15% of those moneys. In other words, neighbour A in effect receives only $85, which would then be taxable. Let us consider the neighbour who receives the Canadian pension. In that case, it is $100 that is entirely taxable. If we are talking about tax fairness, it is pretty difficult to see how those two neighbours with a similar amount of pensionable income should be in any position other than that of paying a similar amount of tax on their government pension plans.

What this bill proposes, however, is to lower that from $85 to $50. In other words, not only would it recognize the current inequity that exists, but it would exaggerate the inequity. That individual would be paying tax on $50 rather than paying tax on $85, unlike like the person receiving entirely Canadian pension money who would be paying tax entirely on the $100.

Where exactly does this 50% exclusion rate come from? Was this just pulled out of the air? Or is it only an attempt to return to the 1980s, when only 50% of the social security payment was counted as taxable income? It would appear that this bill is striving to ensure tax parity between Americans who receive the Canada pension plan and Canadians who receive U.S. social security. It does not seem to have tax fairness between Canadian taxpayers at its heart. What the bill should strive to do is ensure that Canadians in similar circumstances pay similar amounts of tax on their pensions, whether they are on social security or the Canadian pension plan.

That being said, I do not have the figures in front of me and would be interested to know if in fact social security recipients are worse off than their CPP counterparts. As a result, I will be voting for this bill and in fact urging our colleagues to do that, not that we are particularly embracing the principle that the bill enunciates, and having given our concerns about the issue of tax fairness, but with a view to getting these numbers during the committee's examination of the bill.

The Department of Finance should be able to provide the committee and, through it, this House with an accurate picture of the difference in tax burdens borne by social security recipients and CPP recipients. If there is an unfairness here and social security recipients are indeed being taxed more, then I would agree that it should be rectified, but it should be rectified by a number that has not been arbitrarily pulled out of the air, such as a 50% exclusion rate. The United States does not even use the system any more, so I am at a loss to understand why it is this particular figure, which appears to have some relevance to the 1984 figure.

I would like to again congratulate the hon. member on his persistence in bringing this bill forward. It does have a measure of an attempt to redress an inequity, but as I said earlier, it is very hard to see how there is tax fairness built into this bill. As members of Parliament, we must strive to deliver tax fairness to all Canadians.

In conclusion, I believe that this bill is in fact worth looking at. I look forward to the hon. member's presentation at the finance committee.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Speaker, I am very happy to speak today about this bill, which seeks to recognize the work done by thousands, if not millions, of Quebeckers and Canadians who have worked in the United States. They have crossed the border to earn a living in another country.

I was first elected in my riding in 1993. In 1994-95, we had to wage a tremendous battle to correct a mistake made by the Liberal government. Those were the years when the government was trying to raise as much money as possible to fight the deficit. The government could find no better solution than to tighten the employment insurance criteria and turn the system into the federal government's cash cow. In addition, in a trade with the Americans, the government introduced a system that made no sense.

Early in its first mandate, the Chrétien government decided that, instead of receiving their pensions from the Americans and having them taxed at 50% here in Canada, Canadian citizens would be taxed directly by the Americans. The absurd result was that people never saw their money again. We had to wage an ongoing battle to rectify this situation.

I was able to see just how many people in the riding I represented at the time, especially people in Témiscouata, needed that income to make ends meet. I remember meetings of 350 to 400 people in Notre-Dame-du-Lac, Cabano and other towns. People wanted the situation to be corrected. I made representations at the time, as did François Langlois, who was the Bloc member for the neighbouring riding of Bellechasse—Etchemins— Montmagny—L'Islet. We succeeded in making a change, not alone, but in collaboration with many members of this House, who represented ridings where people were also living along the border and dealing with the sad new reality approved by the Chrétien government.

I remember that Herb Gray, a member of the government at the time, took action and said, “Listen, our decision makes no sense. We have to change things”. When the situation was rectified, part of the reality was forgotten. As I mentioned, the government at the time wanted to raise as much money as possible to fight the deficit, so it agreed to tax at 85% the money received by Canadian citizens who had worked in the United States.

As of that time, people receiving American pensions were taxed on 85% of the amount they received, despite being Canadian citizens who paid into those pensions while working in the United States. Those people did not have the option of putting some of that money in a tax shelter, such as an RRSP. The Canadian government collects tax on 85% of every cheque those people get. The bill before us today aims to correct that situation.

It was a Liberal mistake. The member for Essex has introduced the bill before us now. At least it will restore the system we had before the Liberal blunder. It will restore a 50% tax rate, thus creating greater equality between American workers who make contributions to pension plans and Canadian and Quebec workers who work in the United States and make contributions to the same thing. The bill will ensure greater equality in that respect and greater equality for the problem that remains to be corrected. Currently, when people receive their American pension cheques, they are taxed on 85% of the amount, but a fair system would reduce that to 50%, as was the case before the Liberals' big mistake.

These sound like very theoretical arguments, but they are not that at all. There are a lot of elderly people who receive the American old age pension, and that is what enables them to make ends meet and to support several regional economies along the border. This is the result of people's very hard work, work that, in my riding, was mainly in the forest industry.

There are still a lot of people in my riding today, especially in the Montmagny—L'Islet part, but also in Kamouraska—Rivière-du-Loup, who are in this situation. I am thinking of the people in Saint-Pamphile, the people in all of the towns along the border and the people of Saint-Just-de-Bretenières.

Some towns are located along the U.S. border. Often the people in those towns earn their living in the United States and they are currently victims of the unfairness we still find in this legislation, which should be corrected. We hope this will happen as soon as possible.

That is why the Bloc Québécois hopes this bill will pass and be referred to a committee to be considered in greater detail. This is a private member's bill. It should perhaps be tidied up to bring its rules in line with Canada's Income Tax Act.

Nonetheless, as far as the principle of the bill is concerned, we feel it is important, justified and more equitable to pass this measure. In my opinion, this is the type of gesture that deserves to be supported since our constituents have dedicated their lives to supporting their family by being willing to leave for the United States to work in logging camps and in the tourism industry.

One of the places my constituents often go to work is Maine because they are considered to be good workers and are received with open arms by the Americans, who hope these people can continue to work there. However, current inequity in the legislation discourages them from doing so.

People do not realize the contribution rates they are paying when they are 25, 30 or 35. They just think there are always a lot of deductions on their paycheque. They really begin to notice when they start getting their pension because the pension cheque is important to people whose sole family income is often only a basic pension. It is this cheque that allows them to stay at home longer. Rather than leaving their home at age 70, 72 or 75, this cheque gives them the means to stay at home and hire someone to help with the housekeeping. This cheque at the end of the month allows them to continue to have a decent life, because it provides the necessary amount of money to cover such expenses.

In this context, the Bloc Québécois believes that the gender equality initiative is worthy of our support so that we can correct the mistakes made by the Liberals at the time of the 1995 convention. At that time, it was decided that the Americans would withhold taxes at source. Thus, Quebeckers and Canadians had their taxes withheld by the Americans, with no means of recovering that money. That mistake was partially corrected as a result of the efforts of some of the members of this House, especially some Bloc Québécois members at that time. However, a second part of the reform was not implemented and it is essential that it be addressed by the bill before us here today.

We are seeking recognition for our seniors, for the work they did, and we hope to see them get everything they deserve. As we must all be aware, in the last 25 years, the income of Canadian seniors has improved. However, certain groups in our society—some people living in Canada—are not receiving fair treatment, especially women who become widowed and are living alone. These women must go through a drastic change in their life, in how they manage their budget. Furthermore, a correction would also lead to greater tax equity and give our seniors an income that would allow them to make ends meet.

This Parliament has an opportunity to give recognition where recognition is due, by ensuring that these Canadians are entitled to tax rates that are as equitable as possible, given that they dedicated their lives to supporting their families and even agreed to work outside Canada. For this reason, the Bloc Québécois will support this motion.