Bill C-301 (Historical)

An Act to amend the Income Tax Act and to make a related amendment to another Act (registered retirement income fund)

This enactment amends the Income Tax Act to remove the requirement to withdraw minimum amounts from a registered retirement income fund. It also makes a related amendment to another Act.

Income Tax Act

[David Graham, Liberal, Laurentides—Labelle, QC]

Mr. Speaker, Bill C-301 is incompatible with the government's strategy to revitalize the economy, breathe life into the middle class, and help all Canadians save for retirement.

I am sympathetic to the intention of the bill, which my NDP colleague just explained. However, I would like to take a little time to go over some tax rules and the reality here.

Canadians who have a registered retirement savings plan, an RRSP, have to convert it into a registered retirement income fund, a RRIF, by the end of the year they turn 71. Beginning the following year, they must withdraw a minimum amount from their RRIF every year. By requiring individuals to withdraw increasing percentages of the funds in their RRIFs, the government ensures that tax deferral on amounts accumulated in RRSPs and RRIFs is in line with the purpose of these accounts, which is to supply retirement income, and prevents the undue hoarding of retirement savings for their estate.

Retirees are not forced to spend the money, but the idea is to defer tax, not eliminate it entirely. If this bill were to pass, there would be no mandatory minimum withdrawal. That would benefit mainly the wealthy, who would be able to save the money for their children without paying tax.

Bill C-301 is not consistent with the basic objectives of RRSPs and RRIFs since it allows seniors to postpone paying tax on the full amount of those savings until they are much older, well beyond retirement and well beyond age 71. An investor could even postpone it until death. The implementation of this legislation would also result in considerable fiscal costs.

It is estimated that eliminating the RRIF minimum withdrawal requirements would reduce federal tax revenue by at least $500 million a year in the short term. The bill would also reduce provincial tax revenues.

Furthermore, the bill will create significant inequities between different segments of the population when it comes to tax deferral opportunities. Indeed, it will increase tax deferral opportunities for those who have savings in RRSPs compared to those who contribute to RPPs. It would also create a major intergenerational disparity because younger seniors would not be obligated to withdraw a portion of the savings in their RRIFs every year while older seniors were forced to begin doing so at age 71.

I would add that this bill would favour seniors who do not need the savings accumulated in their RRIFs, in other words high-income seniors, instead of supporting those who could use a bit of help.

We know that there are better ways to enhance retirement income security for Canadians. Let us look at young people. At times they feel like they are worse off than their parents. Far fewer of them will have workplace pension plans than the previous generation did. It is worrisome. They wonder whether they will have saved enough for a decent retirement.

Those are legitimate questions and concerns since one in four families approaching retirement age, or 1.1 million families, will likely not save enough for retirement. Together with the provinces and territories, we have come up with concrete solutions for all those families.

The answer is to enhance the Canada pension plan, the CPP, which will benefit Canadians in a variety of ways. For example, the maximum benefit will be increased by almost half once the enhanced CPP is fully operational. Also, CPP provides secure and predictable benefits. In other words, Canadians will know how much money they will get and will not have to worry about their savings dwindling or being affected by the markets. CPP benefits will be fully indexed to prices, so inflation will not reduce the purchase power of their retirement savings.

An enhanced CPP is the perfect response to a changing labour market. It fills in part the void left by the steady reduction in employer pension plans. It also follows workers from province to province, which facilitates professional mobility. The CPP has several million contributors. That is vitally important because it allows the Canada Pension Plan Investment Board to benefit from economies of scale and returns on significant investments.

I would like to summarize the main concerns about the bill introduced by my opposition colleague. The implementation of this bill would reduce the federal and provincial governments' tax revenues. It would not be consistent with the basic objective of tax-deferred retirement income provided by RRSPs or RRIFs.

Contributors to RRSPs and RPPs, and also older and younger seniors would be treated differently under the bill.

On the one hand, we have all the disadvantages of Bill C-301, which we just listed. On the other, we have all the advantages of the enhanced Canada Pension Plan, especially higher benefits.

We could also discuss the government's middle class tax cut. However, I think we have identified enough flaws to realize that we must vote against this bill.

[Karen Vecchio, Conservative, Elgin—Middlesex—London, ON]

Mr. Speaker, I am honoured to rise and speak in the House today on Bill C-301, an act to amend the Income Tax Act.

I frequently dealt with this issue as a former constituency assistant. So I find it interesting to hear the discussion today, because I think that we sometimes are in here making legislation without actually understanding what is happening on the ground to those people who are coming into our offices as constituents to see how we can assist them.

Many times seniors would visit the office because they were falling short and their RRIF was exhausted. Many of these seniors were quite youthful and had many years of financial worry left. In the office, we would always find a solution to assist them, such as payments through the guaranteed income supplement. However, I can honestly say that as constituency assistants, we thought, what could we be doing better for these people who are falling on desperate times? Many of those who would come in would only have their old age security and their Canada pension plan remaining for their retirement. I can say that some of them probably had 10 years or 15 years ahead of them, so there were many concerns.

I had not thought about how we could help them extend their RRIFs so they would not find themselves in these difficult situations. Therefore, it is wonderful to see the member for Edmonton West put forward such a great bill, with so much foresight, because these are truly the sort of changes the current government needs to make to help our seniors. It would give them the independence and ability to care for their own finances.

It is interesting because the member across just addressed my next issue. When I originally thought of this bill, my first reaction, too, was when would the government get its taxes, because a lot of times when we talk about RRSPs and RRIFs we recognize that it is a tax deferral, and to me that was going to be the challenging obstacle. Once I sat back and thought of the taxation trail of a RRIF, I realized that the solution proposed by the member for Edmonton West was an excellent option for all stakeholders.

Many Canadians save their money by investing in registered retirement savings plans, which are excellent vehicles for saving money for retirement, as taxation of the money invested in RRSPs is deferred until the money is withdrawn. Currently, these retirement savings are rolled into a registered retirement income fund at the age of 71, and regular withdrawals must then be made. However, for a few reasons, seniors are running out of retirement funds with many years left to live.

During and following the recession, the return on investment of retirement savings accounts dropped from 8.5% to 3.1% This has had a huge impact on the amounts in the savings vehicles. Although the previous government had responded to the decreasing yields by adjusting features of RRIFs, we must understand that Canadians are living longer. According to the Canadian Association of Retirement Persons, CARP, in 2014, there was 265,000 Canadians who were over the age of 90. CARP also noted in its document entitled, “A New Vision of Aging for Canada”, that an average 71-year-old can expect to live approximately 16 years more, for an expected lifespan of 85. That is three years longer than in 1992, when many of the rules for RRIFs were set. Because today's seniors are making withdrawals from RRIFs, we have to recognize that these rules from 1992 are definitely not what are needed in 2016.

These are two very important factors we need to consider. We need to recognize how the RRIF is taxed. A lot of times we hear of it being deferred, but we have to realize that when it is deferred it still will be taxed at some point in time. Let us say a spouse passes away and he or she leaves the other spouse as the beneficiary. There is an automatic transfer from the deceased's RRIF account to the surviving spouse's RRIF account and there are no tax implications. From that point on, the person can make those withdrawals and these are taxed at that point. Therefore, the Canadian government is getting its taxes then.

Another thing we have to take into consideration is if both spouses have passed on and the RRIFs are then given to the next generation. Then they are taxed fully at that time. Therefore, when we talk about the tax implications of this and losing tax revenues, we have to understand that regardless of whether we are taxing them yearly, because people are taking out amounts all the time, or at the time of the person's passing, the Canadian government will get its money back and its coffers will be filled.

Those are some of the things that are really important. Whether someone is taxed during the mandatory withdrawals until the fund runs out, or when they have passed on and the inheritance is disbursed among their beneficiaries, the RRIFs are taxed. I heard the member across speak about it as if we are treating people differently. However, at the same time, we have to recognize how taxation works.

I dealt with a file for an older lady who came into our office. Her husband, who had been in phenomenal health, unfortunately fell and passed away. Unfortunately, there were a lot of tax implications going on, because the organization holding the RRIF actually taxed her. There was something like $80,000 she was going to have to pay on the RRIF because it all came to her.

What we ended up doing was we went through all the wills, the beneficiary documents, showing that there should not have been a transition and that since she was the spousal beneficiary, there was no tax. We were able to fix that up, but there was $80,000 she was being taxed because she was the beneficiary.

We have to understand that in case one or in case two, whether it is going to the spouse or to the second generation of beneficiaries, it does get taxed. We are talking about a $80,000 lump sum tax payment. We always have to keep that in mind. The money that is transferred to the spouse after one's death is withdrawn and the tax at that time is also going to be mandated on that. Let us say something, unfortunately, happens to one of my parents, as the spouse, one of them would be paying the taxes when they start taking those withdrawals.

The C.D. Howe Institute has called for these exact changes, according to a 2015 report, as well as CARP. According to the C.D. Howe Institute, removing the mandatory minimum withdrawal helps seniors whose withdrawals trigger clawbacks of the old age security and guaranteed income supplement, who find tax planning and investing outside RRIFs daunting, who cannot easily continue working and maintain their savings, and helps those anticipating late-in-life expenses, such as long-term care.

We must provide better options for Canadians, and provide them a way of planning their spending. In some comments made regarding the bill, Canadians have said, “I know that in a few years my needs for long-term care will change, and this allows me to make my own financial decisions.” We must take into consideration that many Canadians have different retirement plans. Some will be entering long-term care facilities or assisted living residences, others may remain in their home depending on their health, and some may live with their families. Different situations cannot have a one-size-fits-all solution, and Bill C-301 provides greater flexibility.

RRIF rules and withdrawal rates were introduced in 1978, and in 1992, with a cash-strapped government, there was an increase to the mandatory withdrawals with the outcome being that the funds would be exhausted close to the age of death. According to 48% of the CARP membership, their own life expectancy has changed over the past 20 years and they state that they need to have more control over their own retirement funds to ensure that those funds will last longer.

I would like to go back to the point about constituents exhausting their retirement savings and how Bill C-301, introduced by the member for Edmonton West, does assist them with that.

The government talks a lot about the Canada pension plan, and we talk a lot about private pensions, but we have to recognize many people do not have public pension plans, or may not have had a private work plan.

I always like to refer to my parents. They were farmers, so there was not an option for anything other than RRSPs for them. They did not have a business that was matching their contributions. What they were doing was putting money aside in RRSPs, which have now been rolled into RRIFs. When I speak here, I think greatly about my parents. I think about what works best for them. They are excellent Canadians who continue to work and give back to the economy, and they should be allowed to have money that they can spend throughout a longer period of time.

If one were to see my 80-year-old father, one would know that we are probably stuck with him for another 15 to 20 years, because he is so vibrant. When he originally starting looking at this back in the 70s, did his plans for retirement mark the amazing shape he is in today? Probably not. His parents had passed away when they were 80 and 85, so for him, I am sure he thought 85 was going to be a great year, and that he would live until he was 85. I know that Dad will live for many years to come.

We have excellent medical research, and we have lots of things being done in our public systems to help our seniors. We have to recognize that life expectancy has increased dramatically, and the changes the bill is proposing take into consideration life expectancy. It is really important that as a government and as the official opposition, we must allow Canadians to choose for retirement. It is great to hear the NDP is supporting this as well. This is an excellent option, especially for those people who had to, and will always, be planning their own future.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. Speaker, I am pleased to join the debate in support of the private member's bill put forward by my colleague from Edmonton West. This legislation would amend for tax purposes how retirement savings plans and RRIFs are treated.

I should mention my colleague's great work as the former president of Vancouver Island's largest hospital foundation. This foundation is responsible for six hospitals. My colleague speaks from great experience with respect to what seniors need and their care and the type of retirement savings they should have.

RRSPs and the RRIF program presently mandate that a mandatory percentage be withdrawn when one reaches the age of 71. Over time that percentage will keep going up to something close to 20%. It is easy to see how people who have done the right thing for a good part of their lives, which is put money aside, are then put into a situation where they might be forced by government edict to take more out of their retirement savings than they would like to take out and wind up depending on the government for financing through OAS and GIS, or are fully dependent on the government to provide home care or seniors care' and they themselves have no means of providing for all of the extra expenses that arise in old age.

There is a Yiddish proverb that you can't have more in the bowl than you have in the pot. The pot is the savings that a person puts aside for their future. How one decides to fill that pot and what it is filled with is entirely up to the individual. Right now the government has a mandate to control that bowl and to control how individuals reach into that bowl and what those savings are used for. That is wrong. The government should not be able to force people to take more money out of their pot than they would like to take out. That is simply wrong and it should not be happening, especially now considering longevity and lifespan are far in excess of what was expected when RRSP programs were first introduced.

The mandatory withdrawals were developed in a different time, a time when people had shorter lifespan and a time when public finances were not as bad as they are today. We see that with the Liberal government's $30-billion deficit and almost $113 to $120 billion of spending over the next four or five years. The government has absolutely no plan to return to a balanced budget in the future. It is simply not in the government's DNA to do that. The government is going to keep these rules in place in order to tax away people's savings. People aged 80 or 90 will be expected to pay for the Liberal government's failure to control its budget.

Mandatory withdrawals add to a person's taxable income after things like GIS and OAS are taken into account. Everybody knows that when we go into a bank or talk to a financial adviser, OAS and GIS are taken into account when plans are being made for our future. These are decisions people in their 20s, 30s, and 40s are making for 30 to 50 years down the line. All government programs are taken into account.

Seniors are concerned about the prospect of draining their financial resources before their death. Most people do not enjoy thinking about that prospect. People want to have the financial resources they need in order to have a comfortable life in the future, especially if they are saving for themselves. People choose to save for themselves and their spouse and kids. Many want to have enough financial resources to be able to pass some on to the next generation, a lifetime's worth of work, a lifetime's worth of accomplishments. This intergenerational transfer of wealth is very much family related. Families plan for themselves and for their future. I am planning for the future for all three of my kids, Maximillian, Jolie, and Enoch. I plan for their future by planning for myself, so I will not end up being a burden on them.

Today it is far better for Canadians to manage their own finances and savings in retirement in order to be able to reach into that pot of savings and decide how much they want to withdraw from it.

The current rules would empty out a RRIF by the time an individual reaches the age of 92. This would place many Canadians in a precarious position in their golden years.

CARP supports this legislation. It is calling for an end to all mandatory minimum RRIF withdrawals, and that is the right thing to do. With longer lifespan we should be enabling and empowering people to be able to withdraw from their RRSPs and their RRIFs in a way that is best suited for their financial situation. We should not be mandating through government edict when they can and how much they can withdraw from their accounts.

Most people aged 70, 80, and 90 have a much better sense of how they want to plan for their lifespan. People's health starts to really go down in their golden years and that is when things like home care and assisted living facilities need to be thought about.

Some people are fortunate enough to be able to assist their kids or their grandkids with some minor expenses.

However, that is also when they are thinking about potentially selling off real estate, about downsizing, about moving into different areas, perhaps taking that one final vacation with their spouse while their health is still solid enough to be able to travel. What we have with mandatory RRIF withdrawals is the uncertainty it builds into a person's planning for those last 20 to 30 years of life.

Because of low interest rates and increased longevity, RRIF mandatory withdrawals have an immense impact as shown by a CARP analysis that showed the vast gap between those who were saving in 1992 and withdrawing and those who were saving in 2014 and withdrawing.

We know that financial security is key in this proposal in Bill C-301 and that is what the member for Edmonton West is trying to achieve. It is to empower seniors in their golden years to have financial security and control over their own finances so they can plan better for their future.

In 2015, the previous Conservative government reduced the mandatory withdrawal rates for seniors holding a RRIF and while this was a step in the right direction, organizations like CARP and the C.D. Howe Institute have recommended removing the requirement entirely.

I would like to mention one thing from the CARP report on this called “A New Vision of Aging for Canada”, where it said, “The vast majority of CARP members (78%) say that offering retirees complete control over their RRIFs is a more important goal than government recouping deferred taxes through mandatory withdrawals.”

The government backbenchers say we should think of the public treasury and the taxes we will be losing. Well, think about the seniors. The seniors should be placed first. They do not live in order for government to make a living. Members of Parliament live to ensure that Canadians have a living and that they are placed first before the government. We have it the wrong way. The government has to think about the public treasury and the taxes deferred are potentially never recouped, but I am thinking about seniors first. We are here for them and not the other way around.

Some might say that this deferred income so taxes should apply. Taxes in fact do apply. If people have money left over in a RRIF upon death, it will be taxed in their estate. It does get recouped. The money does get clawed back, so to speak, by the government at some point.

The real impact is on low-income seniors who could have saved a little in an RRSP that converts into a RRIF. Those are the people who could really use this extra funding for long-term care, home care, and other unforeseen expenses in their golden years.

We heard the member for Laurentides—Labelle talk about how seniors could pass on their RRSPs and RRIFs tax-free to the next generation and the government would not be able to recoup its finances, but the government is already taxing the estate upon their death. The government is there all the time recouping its money at some point.

The point is that we should not be placing the public treasury first, we should be placing seniors first. In the end, who saves for whom? Why do we not allow Canadians to have every single tool available to save for themselves? Given that consistency, given that certainty that in their golden years past 65 or whenever they choose to retire, they will be able to save and withdraw from that Yiddish pot with their bowl as much as they think is necessary to plan for their retirement.

Canadians should be the ones placed first to manage their retirement and how they save and where they spend. It is absolutely essential to start saving as soon as possible. That is where we should be starting. People should be thinking about the future, but if they know that government is going to tax it away, then they will not take advantage of RRIFs as much as they should.

We heard that 87% of CARP members are RRIF holders and 61% hold half or more of their retirement savings in a RRIF account. Some 54% are worried about having enough retirement savings, 25% do not expect their savings to last their whole lifetime, and 17% say they have enough savings to last a lifetime. That is an infinitesimally small number.

The right thing to do is to approve the bill, send it to committee, to the next stage and ensure that Canadian seniors have that certainty so they can save and plan for their future the way they want to. They should be able to withdraw from that Yiddish pot at the rate that they want to. They should be in control of the bowl, not the government.

[The Assistant Deputy Speaker, Anthony Rota]

Resuming debate.

Seeing none, we will allow the member for Edmonton West five minutes for his right to reply.

[Kelly McCauley, Conservative, Edmonton West, AB]

Mr. Speaker, I want to thank my colleagues who support the bill and who have spoken so well to the merits of it.

This legislation would help all seniors today by removing a punishing withdrawal structure that would harm the retirement savings of Canadians. Before I reiterate the specific benefits of the bill, I want to thank the member for Cowichan—Malahat—Langford, who spoke in favour of the bill during the first hour of debate. He said that he strongly encouraged support of the bill at second reading so we could at least bring it to committee, further study it, and hear from expert witnesses.

I also want to address comments made by the Parliamentary Secretary to the Minister of Finance and the Parliamentary Secretary to the Leader of the Government in the House of Commons, who both spoke in opposition to the bill in the first hour. Neither of them pointed out specific potential harms of this bill, but rather launched into lengthy platitudes about how great the government was for forcing the CPP expansion. Their argument is meaningless because supporting Bill C-26 and supporting Bill C-301 are not not mutually exclusive. The government members can support both bills without one impacting the other. I look at the member for Cowichan—Malahat—Langford for this example. He doing both, and he has not exactly burst into flames because of it.

The Parliamentary Secretary to the Minister of Finance elaborated on the benefits of the previous Conservative government's sensible lowering of the RRIF withdrawal rates in 2015. I congratulate him on this non-partisan behaviour and encourage him to continue to do this by supporting Bill C-301, which is the logical extension of the 2015 reduction.

In supporting the 2015 reduction, the member acknowledges that RRIF rates are out of touch with the changing realities of life expectancy and savings investments. Because government will never react enough to minimize the harms to seniors caught in the middle, the logical next step is to eliminate these rules entirely and stop punishing seniors for daring to have savings. I hope the member realizes his inconsistent logic in supporting the 2015 reduction but opposing this extension, and reconsiders his position.

He next made misleading arguments on tax deferral by implying that this legislation would allow Canadians to avoid taxes entirely. This is false and he is wrong. The government would get what it is owed. The only difference is that with Bill C-301, seniors would decide when it was best to withdraw their savings and be taxed. Government is not going anywhere and neither, by extension, is the tax man. Government can wait, especially if it means our seniors are better off.

The member then doubled down on his flawed tax-exemption argument, but it was also an irrelevant point. He said that the bill could motivate seniors to press for tax exemptions, which would be contrary to the basic principles of our fiscal policy. I am not certain what the member was trying to get at. I wonder if he is seriously basing his opposition around the idea that just maybe in the future some people might push for better tax treatment. I wonder what is next? Maybe the government needs to take money from seniors because some might spend it on beer and popcorn.

His last argument is just as nonsensical. He said that this bill would create major intergenerational disparity, and we heard that earlier today as well, because older seniors had been forced to withdraw their savings already. I am very much unclear on what the member is thinking. I think he may misunderstand the parliamentary system entirely. I just want to clarify for him that every law that we change affects Canadians unevenly.

The Liberals' own prized CPP tax hike would not benefit anyone for about 40 years, yet would raise taxes on several generations that would see zero benefit. Adding over $100 billion in debt for later generations to pay would do the same. His government is going to create the largest intergenerational disparity in Canadian history, but the Liberals argue against Bill C-301. I wish I could peek into the member's mind for a brief moment so I could witness the logic backflips he does to reconcile the support for the CPP tax hike and off-loading debt for future generations, but then opposes this sensible legislation because of intergenerational concerns.

Last, the parliamentary secretary to the government House leader said that he could not recall anyone from his constituency contacting him regarding RRIF withdrawals, that it was not a substantive point. It is probably because the member never asked. However, I asked, and CARP asked. We heard overwhelmingly that the bill was needed and wanted.

The bill would address real harms. Canadians are living longer, their investments are earning less, and the RRIF withdrawal structure is depleting the savings of our seniors at an unsustainable rate. These forced withdrawals negatively affect seniors in many ways, and disproportionately hurt low-income seniors. Forced withdrawals count as income, which needlessly triggers clawbacks of OAS, GIS, and needed provincial benefits. This matters for low-income seniors who rely on OAS and GIS for their daily expenses, but need to continue saving their RRIF for expected later-in-life expenses such as long-term care or care for their disabled children.

This bill is broadly supported. The Canadian Association of Retired Persons supports the bill because it would return financial control over savings back to seniors. It would not cost taxpayers a dime. According to the C.D. Howe Institute, it would probably benefit the treasury, not cost the half a billion dollars as made up by the other side.

This bill is badly needed. There is only one solution, and that is to eliminate the mandatory withdrawal and stop punishing seniors for saving. Let us allow Canadians to manage their retirement as they see fit. Enact this broadly supported and sound legislation. Let us send it to committee so Canadians can have their say.

[The Assistant Deputy Speaker, Anthony Rota]

The question is on the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

No.

[The Assistant Deputy Speaker, Anthony Rota]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Assistant Deputy Speaker, Anthony Rota]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Assistant Deputy Speaker, Anthony Rota]

In my opinion the nays have it.

And five or more members having risen:

Pursuant to an order made on Thursday, December 1 the recorded division stands deferred until Tuesday, December 13, immediately before the time provided for private members' business.

Suspension of Sitting

[The Assistant Deputy Speaker, Anthony Rota]

Seeing the clock, we seem to have gone through everything fairly quickly this morning. We will suspend sitting.

(The sitting of the House was suspended at 11:55 a.m.)

The House resumed from December 12, 2016, the motion that Bill C-301, an act to amend the Income Tax Act and to make a related amendment to another Act (registered retirement income fund), be read the second time and referred to a committee.

Income Tax Act

[The Speaker, Geoff Regan]

Pursuant to an order made on Thursday, December 1, 2016, the House will now proceed to the taking of the deferred recorded division on the motion at second reading stage of Bill C-301 under private members' business.