Mr. Speaker, if adopted, this bill will allow guaranteed income supplement recipients to withdraw up to $2,500 from a registered retirement savings plan to pay for funeral arrangements in advance without having their GIS reduced.
Let me start by saying that, while it is clear that the proposed legislation has some serious shortcomings, I can understand the good intentions of the member for moving the legislation. All members on both sides of the House want to ensure Canadian seniors obtain financial security. However, there are several reasons why we cannot support the bill.
First, it would leave the majority of seniors who do not have RRIFs or RRSPs out in the cold. Second, it would generate additional costs to Canadian taxpayers. Third, and more important, there are better ways for low-income seniors to pre-arrange their funeral expenses. While the hon. member is commended for wanting to help these seniors, we cannot agree with the methods he proposes. Therefore, we cannot vote in favour of this bill.
The OAS program is one of the cornerstones of Canada's retirement income system. It provides seniors with a minimum income so they can maintain a decent standard of living and it helps reduce the incidence of poverty among the retired. The program provides over $38 billion annually in benefits to five million seniors. This includes, $8.6 billion in GIS benefits to 1.7 million low-income pensioners.
Based on 2009 data from the Office of the Chief Actuary, it is estimated that only 10% of all GIS recipients have RRSP or RRIF income in any given year. This means that a very limited number of seniors could benefit from this bill and it would not be fair to other low-income seniors, 90% of whom do not have RRIFs or RRSPs. These seniors would get no assistance whatsoever under this bill.
Strictly from a cost perspective, the Office of the Chief Actuary estimates that the bill would increase the program costs by up to $81 million in the first year. In other words, it would cost up to $81 million for a measure that would benefit only one out of every ten low-income seniors who decided to pre-pay their funeral in this fashion.
There are other ways of paying for funerals and they do not cost as much. For example, the Canada pension plan and the Quebec pension plan already provide a one-time death benefit of up to $2,500 to, or on behalf of, the estate of the deceased contributor. In 2011-12, 54% of all GIS beneficiaries who passed away had a CPP death benefit paid to their estate and the average benefit received was $2,150.
Also, some provinces and territories already offer grants and subsidies to low-income seniors to help them make funeral arrangements. For example, the province of British Columbia offers assistance of up to $3,000 to those who have little or no assets. Similar benefits are also available in Alberta, Nova Scotia and Prince Edward Island and for first nations peoples living on reserve. As well, some municipalities, including Toronto, offer similar assistance to cover funeral expenses. This bill would duplicate public assistance with respect to the same funeral expenses.
Here is the bottom line. If people are concerned about funeral expenses, they are much better off leaving their money in their RRIF or RRSP. This way, the money can accumulate on a tax-deferred basis and they can arrange to have their estate pay the funeral expenses out of any remaining RRSP or RRIF savings upon their death. As an alternative, since withdrawals from tax-free savings accounts are not included as income for the purpose of determining GIS entitlements, GIS recipients may pre-pay their funeral and other expenses out of TFSA savings, with no impact whatsoever on their GIS benefits.
Let me explain. The Old Age Security Act uses income as defined under the Income Tax Act to calculate GIS benefit entitlements. This includes any money that a pensioner receives, other than basic OAS pension, from the Canada pension plan, Quebec pension plan, employer-sponsored pensions, employment insurance benefits, RRSP withdrawals, interest, dividends, capital gains, employment income, annuity payments and RRIF withdrawals. Therefore, withdrawals from RRSPs and RRIFs are considered as income for the purposes of GIS. As long as savings held in RRSPs and RRIFs are not withdrawn, the beneficiary pays no taxes. However, as soon as the monies are withdrawn, the funds are considered as income for the purposes of calculating the GIS.
There are exemptions under the Old Age Security Act, but they generally relate to earnings and receipt of provincial, territorial and social assistance.
The GIS earnings exemption, which allows an exemption of up to $3,500 of annual employment income, allows low-income seniors who choose to work to keep more of their GIS benefits. However, the Old Age Security Act does not provide expense-related exemptions. Bill C-480 would therefore introduce a new type of exemption in the Old Age Security Act by allowing for an expense-related exemption.
The proposal to exempt RRSP and RRIF withdrawals when used for funeral arrangements would open the door to calls for similar exemptions for GIS purposes on other compassionate grounds, such as accidents, illness and medical expenses and other reasons. As we mentioned earlier, the bill would raise equity issues, as it would only benefit those seniors who use RRSPs or RRIFs to cover their funeral expenses and do nothing for those seniors who have no savings or use different types of savings vehicles.
Not only that, but the bill could possible create pressure to exempt a portion of RRSP or RRIF withdrawals as income for the purpose of determining other income-tested benefits and credits such as the Canada child tax benefit and the goods and services tax credit. In addition, those without RRSP or RRIF income could argue that a basic exemption for all sources of income for all income-tested benefits and credits should be introduced. Such exemptions would increase program and tax expenditure costs associated with income-tested benefits and credits.
Since we formed government, we have taken 380,000 seniors off the tax rolls entirely. We have increased the GIS benefits by the largest single top-up in 25 years. The increase in benefits will help more than 700,000 low-income seniors.
I can appreciate the good intentions of the member in moving this legislation. I am sure we all can. However, the cost and inequity of the legislation is not something I can support. Our government has acted to help the poorest of our seniors. Poverty among seniors is at an all-time low, thanks to the investments our government has made. For these reasons, I would encourage all members of the House to vote against this legislation.