Thank you, Mr. Chairman.
We request the income tax option to allow senior couples to split pension benefits in general, not only CPP benefits, as is currently the case. By “splitting” we mean attributing the collective income of a couple in equal parts to the spouses for income tax purposes and “pension” in a general sense of retirement income. We consider CPP and spousal RRSPs precedence for this, though we do not necessarily consider the CPP as a model for splitting. Also, the CPP and spousal RRSPs themselves create a tax inequity between those unequal-income couples who are able to use them to lower their income tax in retirement and those who are not able to do so. This is a fairness issue.
Also respecting fairness, the current generation of seniors qualifies for special consideration in this regard. Many of them formed their marriage style and their career plans when single-income families were the norm. The work world discriminated against married women. Moreover, in 1988, changes to the income tax formula caused the now well-known tax penalty against unequal-income couples to increase significantly for many and caught many of them out with too little time to adapt their employment and investment patterns to minimize their tax penalty in retirement. For many current seniors, the splitting instruments, CPP and spousal RRSPs, came too late to make much difference in their post-retirement tax situation.
The former government, at least, by their own admission, justified allowing the tax penalty to remain to avoid discouraging married women from joining higher-paid husbands in the workforce. This policy is certainly not applicable to retirees, so they should not have to continue paying the tax penalty on that account.
As for cost, it is much cheaper and should certainly be feasible for the revenue department to allow splitting for seniors than for the general taxpaying population. This would not be exclusionary because every income earner can expect to eventually be a retiree. We know organizations who have been lobbying for general income splitting for decades, and they actively support us in the quest for pension splitting. A recent study by the Library of Parliament shows the cost of pension splitting to be $300 million per annum, one-tenth of the cost of general income splitting.
This tax reform is urgent because those who are already in their senior years are missing out if they are subject to this unfair tax situation, and they have limited time to wait for the reform.
In our full written brief we have answered as best we can all the questions posed by the committee in connection with the theme, Canada's place in a competitive world. Given the nature of our request--fairness in personal taxation--and the target segment of the population--retired persons rather than workers--the following is a summary of our answers.
The prospect of much greater fairness in the taxation of seniors, which pension splitting would create, would help the morale of workers who foresee their retirement years. Pension splitting would leave many seniors with more disposable income to remain independent and thus not be a burden on the economy.
Development and utilization of marketable skill can sometimes be maximized by married individuals if they can concentrate on that while their partner takes on household and child-raising duties. However, those people are all the less inclined to do that if they know the tax system is going to penalize them, even through all their senior years.
By their increasing numbers, seniors will become increasingly important as consumers to provide an economy of scale necessary for production, including new technology and perhaps especially medical technology. Their consumption of goods will foster business growth within Canada. But this consumption depends on disposable income not being significantly reduced by unfair taxation in retirement.
Saving by workers would be encouraged in the knowledge that they will be able to split pension income with their spouse, if necessary, to avoid high taxes due to unequal pension incomes.
We need to keep skilled Canadians from emigrating, as well as attract others to Canada. This would be aided by a personal tax system that does not punish them to their dying day for a family lifestyle. It is significant that there is no tax penalty in the U.S. for having unequal spousal incomes.
We refer the committee to our full written brief for more detail and more points of argument.