Finance Committee on March 20th, 2007

[The Chair, Conservative, Brian Pallister]

Committee members know I prefer that we start on time and not punish those who are here by making them wait, so let's get started. Welcome back to the fold.

Welcome to Mr. Tweed. It's nice to have you at committee, and Madam Davidson. Thank you both for being here.

Pursuant to the order of reference of Wednesday, November 8, 2006,

the committee will now proceed with the clause-by-clause study of BillC-253, An Act to amend the Income Tax Act (deductibility of RESP contributions).

(On clause 1)

Monsieur St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I'd simply like to inquire about the amendment folder. I haven't received it.

[The Chair, Conservative, Brian Pallister]

Mr. St-Cyr, apparently the folder is going around right now. However, there are no amendments for clause 1. Thus far we have three amendments, and those fall in clause 2.

Mr. McKay.

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

The proponent has given me an amendment to clause 1, line 23, with respect to the French. It is to say

“après 2006, au résultat, positif ou négatif, du”.

[The Chair, Conservative, Brian Pallister]

I'm sorry, Mr. McKay. I believe you're speaking about an amendment that falls in clause 2, unless I'm mistaken.

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

It says, “in clause 1, to be amended by line 23”. It's still clause 1, isn't it? Is it clause 2? Okay. I'm sorry.

[The Chair, Conservative, Brian Pallister]

It's page 1, John. Clause 2 starts on page 1.

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

The sentence says clause 1.

[The Chair, Conservative, Brian Pallister]

Yes, there is a drafting error there. It is clause 2. Members, there's a drafting error.

Again, I see no desire to discuss clause 1.

(Clause 1 agreed to)

(On clause 2)

[The Chair, Conservative, Brian Pallister]

Mr. McKay.

Oh, I'm sorry, Mr. McKay, the Bloc amendment actually falls first.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Thank you, Mr. Chairman.

If the amendment is adopted, there will be no need for us to deal with Mr. McKay's amendment, because it involves a partial withdrawal.

In fact, we've already stated that we supported the principle of the bill which calls for making contributions to RESPs tax deductible, as is the case with RRSP contributions. However, we find the $18,000 limit provided for in the bill to be much too high. We also feel that the provision that would allow unused deductions to be accumulated is far too advantageous and that it would apply solely be the most wealthy individuals.

Aside from the amount the government contributes to a RESP—if memory serves me well, it contributes 20%—the only advantage compared to a conventional RRSP is the increase in the contribution limit.

For example, when a person contributes up to $4,000 in a RESP, the government contributes an additional 20% to the plan. That's quite interesting. Aside from that, the only reason to increase contributions would be if one had already contributed the maximum amount to one's RRSP. Therefore, most members of the middle class and lower income earners will not be able to take advantage of this new provision.

The purpose of the amendment is twofold. First, it would set the maximum deduction at $4,000 for 2005, and at $5,000 for 2006. For 2007 and every year thereafter, it would be indexed to the cost of living. The second amendment to the bill as it is now worded would eliminate the possibility for taxpayers to accumulate unused contributions, which seems irrelevant. If a person waits until his child is ready for post-secondary studies, it's already too late to invest in his RESP.

[The Chair, Conservative, Brian Pallister]

I want to ask Mr. McTeague a question about the effect of this amendment on his bill, which essentially tries to follow the RRSP contribution limits, if I understand it correctly. It would reduce the eligible contribution amounts to the amounts Mr. St-Cyr has suggested. The effect of the government's announcement yesterday would make irrelevant the annual contribution issue.

I'm interested in your feelings on both those issues.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Chair, thank you for that. This is the first I've seen it, although I had a chance to talk to Mr. Paquette very briefly beforehand.

The average tuition in my province of Ontario is somewhere near $10,000 a year—not in residence—so those numbers may not be satisfied by this. I don't want to be seen as putting a stick in the mud; however, I do recognize that the government has gone one step ahead. Although the bill has not passed, I don't know if the ways and means have been proposed at this point. But clearly I would want to make this in the context of RESP regime as it currently exists.

The move from $4,000 to $18,000 was to respect and be consistent with the RRSP so you wouldn't have one switching over to the other. I'm most concerned about the number proposed. Although I understand that the proposal by Monsieur St-Cyr is a very sincere one, I also think it may fail to address the ability of people to match, in a four- or five-year period, the contributions necessary for a student to go to school.

I'm not opposed to the suggestion—it's the first I've heard of it—but I also recognize that we're all in a bit of a pickle. The entire clause 2 of my bill has been rendered, if you pardon the expression, rather moot as a result of the announcement by the Minister of Finance. What is important here is to capture a larger number of people who will be able to take advantage of RESPs before taxes, as opposed to the existing regime, which is after tax.

[The Chair, Conservative, Brian Pallister]

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I was going to say virtually the same thing as the mover of the motion. I'm not supporting the amendment. Because of the changes that were proposed last night, assuming they pass, we don't need the amendment in front of us today.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Wallace.

Mr. McKay.

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

While it may be rendered moot by virtue of the budget last night, there is no assurance that the budget will in fact pass. We'll probably have to treat things as they are, rather than as we anticipate they might be, in which case the motion as is presented is not necessarily relevant. I'm inclined to say we should leave the bill as is, notwithstanding the good intentions of the Bloc.

[The Chair, Conservative, Brian Pallister]

Okay. I'll give Mr. St-Cyr an opportunity to wind up, seeing no other speakers.

Mr. St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

When we discussed the bill the first time around, we talked about associated costs. We haven't come up with a dollar amount. If we do not make any changes to the original bill and go with a maximum limit of $18,000, the only people who really stand to benefit fully from the changes and from the increased contribution room will be those who are already able to contribute $18,000 to an RRSP.

I would argue, Mr. Chairman, that very few Canadians are able to save $36,000 a year. As it now stands, this bill will benefit only the wealthiest people.

I would also point out that if the original bill is not amended, we'll not be dealing with a simple matter of deferring tax, as is the case with RRSPs, but, to all intents and purposes, with a tax exemption issue, The person who will be required to pay tax upon withdrawal will be the student, not the contributor. In most instances, students have very little income, if any, and pay little or no tax. Therefore, we could face a situation where a very wealthy person may have accumulated $100,000 in a child's RESP and, over a period of several years, will have transferred that money to a son or daughter who will pay virtually no tax.

As I see it, the bill, as it now stands, will benefit wealthier families much more than middle class ones. Our amendment would provide an additional benefit to middle class families over and above the money they already receive from the government. The government is planning to increase the limit and that is all well and good. When the ways and means are tabled, we'll have an opportunity to discuss this matter once again, but for now, we're debating the bill based on the current status of the law, not on the basis of hypotheses. We're still in the dark as to the content of the ways and means.

Therefore, I believe our amendment makes this bill very interesting for middle class families. It ensures that wealthier families do not receive any undue advantage and that costs will not be exorbitant. We still don't know how much this initiative will ultimately cost us.

[The Chair, Conservative, Brian Pallister]

Merci beaucoup, monsieur.

I would venture at this point, committee members, to again emphasize that this bill proposes to make

a fundamental change to the RRSP program.

It's not after-tax money going in under this proposal. So Mr. St-Cyr's motion quite thoughtfully attempts to address the fact that money contributed under the current program is after-tax money, and money contributed under the new proposal would be before-tax money. The money that would be contributed under Mr. McTeague's proposal, being tax deductible, would create a circumstance where before-tax money could be taken off a parent's income and be transferred to a child's name and subsequently be withdrawn in the child's name. This is a major advantage, an incredible opportunity for income splitting, that makes seniors' income splitting pale by comparison.

Mr. St-Cyr's proposal is to limit the amount that would be eligible for such treatment on an annual basis. If we disregard Mr. St-Cyr's amendment or in any way disregard our responsibility to address the issue of what would be the allowable limit for contribution on an annual basis for deductibility—because that is what Mr. McTeague is proposing—I would suggest we are not discharging our responsibilities to the Canadian taxpayer very well.

The government's proposal yesterday was not to allow one-time deductibility of $50,000, but to allow contributions up to that amount in a lifetime, per child, of after-tax dollars, not before-tax dollars. So what Mr. St-Cyr is trying to address in this amendment is both logical and thoughtful, in my estimation, and I would encourage further discussion on this issue before we move to a vote, because I'm not convinced from the tenor of the discussion that this has been well thought out by our committee members.

Mr. Thibault.

[Robert Thibault, Liberal, West Nova, NS]

The question I have is for Mr. McTeague, Mr. St-Cyr, or the chair. Somebody can explain it to me.

Under the proposal by Mr. McTeague, the contribution would be before taxes, and then I presume the contribution by the federal government to that account would remain.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

May I?

That's not up to me, Chair. The contribution would be rendered redundant, in my view, since you would have people making contributions anyway. They pay income tax. Therefore, there would be the opportunity for them to use that income tax designated toward a student at some point down the road. Bearing in mind, of course, that the average four-year in-college or in-university program is $100,000, I would see that a larger number would obviously catch a lot more individuals.

As proposed by Monsieur St-Cyr, at $4,000, $5,000, $6,000, or whatever number, then at $100,000, which is what we're heading toward in terms of education costs across Canada, it would be a long time before somebody is able to save up that amount in order to be able to help to offset or pay for the costs of tuition.

[Robert Thibault, Liberal, West Nova, NS]

Could Mr. St-Cyr answer my question? The question I have is whether the federal government's contribution into the account would still exist under both these circumstances.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

They could change that, but yes.

[The Chair, Conservative, Brian Pallister]

Go ahead, Mr. Wallace.