Mr. Speaker, I am pleased to participate today in the debate on Bill C-10 that among other things amends the Canada-U.S. tax convention. In particular the bill deals with the manner in which residents of Canada receive U.S. social security and residents of the United States receive Canada pension plan payments and OAS.
This amendment is to change a flaw in the U.S.-Canada tax treaty which was negotiated by the previous government but implemented by our government. It is a flaw that we did not catch at the time and that due to the hard work of many members on this side of the House was brought to the attention of the finance minister who undertook to renegotiate the bill with the U.S. government. And renegotiation takes time. I will explain how that came about, what the flaw was and what we have done to deal with it.
The Canada-U.S. tax treaty sets rates at which Canada or the United States can tax pension benefits, U.S. social security being received in Canada and CPP and OAS being received in the United States.
Before 1996 the country that paid the benefit to a resident of the other country could not tax that benefit at all. The country where the recipient lived would include 50% of that benefit in their taxable income. The other half of the benefit was tax free. Thus people residing in Canada receiving U.S. social security benefits would claim half of that amount on their Canadian tax return as income and other half would be tax free.
In 1996 the tax treaty was changed. Under the new rules the country that pays the benefit, the country that issues the cheque, can tax all of it. The country where the recipient of the cheque lives cannot tax any of it. Therefore Canada would tax CPP payments going to people who live in the United States and the United States would tax U.S. social security benefits going to people who lived in Canada.
Canada ordinarily taxes Canada pension plan and old age security benefits going to non-residents at a rate of 25%. Canada also applies the OAS recovery tax, the clawback on high income earners to non-residents as well. However, to ensure fairness in our tax system, any non-resident can choose to file a Canadian tax return and pay tax at the ordinary Canadian rate rather than at the flat 25%. The result is many low income U.S. recipients pay little or no Canadian tax on their Canadian CPP or OAS. The United States also taxes outbound social security benefits at a rate of 25.5%.
Here is the flaw that escaped us as legislators. The United States tax system does not allow any non-residents to file tax returns unless they are U.S. citizens or resident aliens. There are some of those living in Canada. Therefore the 25% tax is fixed and final to Canadians. There is no recourse for non-American non-residents to file a U.S. return and to be able to pay U.S. tax at a lower rate.
It was at this point in December 1995 that I first realized there was a problem when the United States began withholding 25.5%. At that point myself and the other Windsor MPs contacted the office of the Minister of Finance to explain the problem and to ask that it be addressed. I attended meetings with CASSE, Canadians Asking for Social Security Equality in Windsor, the local Windsor group organized to deal with the problem.
The minister realized the problem. He actually travelled to Windsor in September 1996 to meet with members of the local CASSE committee established to lobby the government to renegotiate this change with the United States government. The Minister of Finance then met with his counterpart in Washington, Mr. Robert Rubin, to negotiate with the United States to reopen the Canada-U.S. tax convention to address this problem.
The proposed new rule included in the latest protocol to the tax treaty will give the country of residence the exclusive right to tax social security benefits. This means only Canada will be able to tax U.S. benefits paid to residents of Canada and vice versa.
Under this change, all low income Canadians that the Reform MPs have been talking about today will pay no tax. This change will retroactively ensure that these low income Canadians will pay less tax than the 25% withheld by the United States.
Once this protocol is ratified, several thousand low income Canadians will no longer pay any income tax. Thousands more will pay less tax than they currently do.
The Reform Party member for Calgary Southeast who spoke this morning raised the issue of fairness by comparing the U.S. rate of taxation on U.S. social security in this proposal. The purpose of Canadian law is not to reflect U.S. tax laws. The purpose of Canadian tax law is to ensure that people living in Canada are all treated equally. The purpose of our tax code is to treat neighbours coast to coast equally, not to treat people who live in Canada and work in the United States the same as they would be treated if they lived in the United States.
There are many non-tax differences between Canada and the United States. For example, a person living in Canada has access to the Canadian universal health care system. If that person lived in the United States he or she would have to pay for health care in many cases. That may not be a tax but it definitely does affect income.
I can speak to that personally because I have an aunt who lives in the United States. I know for a fact that while she was receiving U.S. social security benefits before she was of senior's age she was paying over $350 U.S. a month to a private health care system to ensure that she had health care. When she became ill that very health care system, that wonderful system which the Reform Party thinks is great, cut her off. It was one thing after another, from long term care, to medication, to a co-pay of 30% to 70% every time she had any type of test. The sicker she got the more she had to pay. That is how the system works in the United States with a private benefit system where one pays and continues to pay into it while receiving the benefits.
We should be aware that when seniors living in Canada receiving social security go to the hospital that distinction is not made. They are not asked where their incomes come from or where their taxes are paid. We have always treated all Canadians and those who live in Canada equally.
I believe that the changes will ensure that neighbours are treated equally and fairly, which is why Canada will require the U.S. social security recipients to include 85% of U.S. social security as income when they file their income taxes.
As I stated before, thousands of low income seniors, disabled Canadians and spouses and children of those who work in the United States will pay no tax at all due to this change and thousands more will pay less.
There seems to be some allegation that this change is only about seniors. It is not just about seniors. I want to make that clear to the members of the Reform Party. There are thousands of those who work in the United States. There are children of those who work in the United States and there are disabled Canadians receiving U.S. social security benefits. I can speak to this from my own personal experience.
I have an aunt whose husband worked in the United States and is receiving U.S. social security. They have a disabled child who receives U.S. social security. The benefits from U.S. social security are higher than those she would receive in Canada. This change will directly affect her because she will pay no tax as a disabled Canadian receiving U.S. social security.
However, my aunt, who receives U.S. social security, will pay some tax. She has told me that she believes she should pay her fair share in Canada. She is not one of those high income seniors the Reform Party is speaking on behalf of today. When this proposal was first made in Windsor, people should be aware, the first people I have talked to on CASSE thought it was a good change and a good benefit because low income seniors, disabled persons, children and spouses would get their tax dollars back. When they realized they were in the upper income and they would be paying their fair share in Canada while they lived in Canada, that is when they became opposed to this proposal.
This proposal was negotiated with CASSE. It was put forward before CASSE. When its members first heard the proposal they were in agreement with it until they found out how some of their individual cases or situations would be affected and that they would still pay less tax than their Canadian neighbour. That is what seems to escape the Reform Party in this whole debate today.
Somebody in a high income bracket living in house A receiving U.S. social security and somebody in a high income bracket living in house B receiving the same income but from Canadian sources will pay more tax than the person in house A. If they live in Canada and they all get the same Canadian benefits, they all should pay for the same Canadian benefits. We are still giving that person in house A, the person receiving U.S. social security, a break, a 15% inclusion in their income. We are recognizing that they did pay tax on their U.S. social security benefit.
For the Reform Party to stand up and say that the amount of taxes that one will pay on their U.S. social security benefit equals the amount of benefits they are receiving today is ludicrous. It is very similar to our Canada pension plan system where people receiving pensions today did not pay into the system what they are getting out. The tax they pay in the United States does not equal anything near the amounts they are getting out. The reason they have that exemption in the United States of $27,000 U.S. is because they do not have a universal health care system and because they do not have the same benefits as we have in Canada for many other things.
I agree with the member for Qu'Appelle when he said that the Reform Party speaks for the high income seniors. Those are the people who are complaining about this change. Those are the people who have problems with this change because they may actually come close to paying what their neighbours in the same income bracket will pay. They are still going to get a break. I am not sure that their neighbours in house B would agree that house A should still get that break because we all have to pay for our Canadian system. We all have to pay for our health care system.
Maybe the hon. member for Calgary Southeast should come and visit Windsor and he would understand what happens in the health care system in Windsor. He would recognize what his colleagues in the province of Ontario are doing to the city of Windsor. In fact, what has happened in Windsor had to do with the lowering of taxes by the province of Ontario. That caused the loss of $4.9 billion in revenues to the province with the first tax cut which was funnelled down to the health care system.
When they talk about lowering taxes and tax relief for all Canadians, I think hon. members on the other side should stop and think about the effects of tax relief and look at what has happened in border communities such as Windsor and Essex county, and try to understand the benefits of today's proposal and recognize that low income seniors, the disabled, children and spouses of those who worked in the United States, the majority of whom will be better off if they are in a low income bracket. Many will pay the same but some will pay more. Those are the ones the Reform Party members are speaking for today. Even those who pay more will pay less than their Canadian neighbours. That is something which should not be lost on the House and not lost to all Canadians.
When the Reform Party says there has been no debate, where has it been? I raised this with the Minister of Finance in December 1995 when the changes first took effect. Where were Reform members when the changes were announced on April 9, 1997? Where were they during the rallies in Windsor in 1996? I was there, but I did not see any Reform members. Where have they been throughout the discussion? When exactly did they decide to jump on to the band wagon and offer their own solutions? We have been talking about this and dealing with people in our communities who have been affected.
The members for Windsor and Essex county, the member for Windsor West and Windsor St. Clair and the members for Kent-Essex and Durham and I have worked on this together along with other members on this side of the House.
I have heard from people in my riding in Essex, which is a border community, from seniors with upper incomes and others. They want to pay their fair share. They want to ensure that the Canadian health care system and other social benefits continue for those who are less privileged. The seniors I talked to recognize and appreciate the benefits they have received throughout the years of working and living in Canada. In order to balance the books all Canadians have to participate.
We hear today that this is a hidden tax increase. That is ludicrous. It is not a hidden tax increase. We are talking about treating Canadians equally and fairly and about tax fairness for all Canadians. I believe it is urgent that we deal with this issue today.
I heard the member for Surrey say that we should not end the debate. I would like him to talk with the woman I spoke with on Saturday in my hometown of Amherstburg who has been waiting for this change. I told her that this would be coming before the House on Monday. I will be happy to go back and tell her that the Reform Party thinks we should debate it a little while longer. This lady is one of the low income seniors that they talk so much about, one of those who because of the provincial government has had her housing costs increase by 10%, while we are still trying to get back the 25%. She would like that money back as quickly as possible, not next year or two years from now. She would like it back as soon as this passes in the House and as soon as it is ratified in the U.S. However, if the Reform Party has its way we will be debating this for months to come. We do not have time.
Those low income seniors they speak so highly about do not have time to wait. They have issues facing them right now in their homes and apartments with regard to what they can and cannot afford. They want to know that the tax relief we have promised on April 9, 1997 is coming to them quickly. I want to be able to go back and tell them that this side of the House will ensure they get that money back into their pockets as quickly as possible. They also want to know that they will still have the benefits to which Canadians have become accustomed.
I know that hon. members across the way cannot disagree that low income seniors need that money. Why would they want to delay the debate and suggest that there has not been adequate debate.
I can send them newspaper articles. I can send them letters I have received. I can send them copies of my correspondence if they want to read about it.
They had members in this House in the last two years. They had the opportunity to raise this issue over and over and over again. They had the opportunity to have ample time for debate when they chose what they would talk about on their days of debate in this very House of Commons. Therefore for them to stand up today and say there has been no time for debate I think is a fallacy.
Canadians want to know that these people who are being affected, these 60,000 people who are receiving U.S. social security benefits are going to have the opportunity to get their money back as quickly as possible and that their tax fairness will be restored. Again, I think it should be known that all Canadians want to be treated equally and fairly and all Canadians want to have access to systems.
The people in my riding who are receiving U.S. social security benefits want this resolved as quickly as possible. They want the proposed new rules to come into effect. They understand that it may not be what they thought was the perfect solution. We are not going back to the old system. They knew that from the very first time I met with them. They were told up front that we cannot go back. This is negotiated between two countries. We went too far and now we are going to negotiate back to what is a level of fairness. We took back the taxation to our own country so that there can be that level of fairness in this country.
They knew from the first day that this problem was raised that we were not going back to the old system, that the old system was not fair to their Canadian neighbours receiving Canadian benefits. The old system was not fair to everyone in Canada as well as to those in the United States.
Finally, I want to emphasize one last time the fairness this change will effect. This change will be retroactive for people living in Canada. If they would not have paid any tax in Canada, they will get a full refund. If they would have paid less tax with the U.S. 25% flat rate, they will get a refund of the difference. If they would have paid more than the 25% flat rate that the U.S. withheld, the Canadian government in fairness will not pursue those taxes for those two years.
I want to conclude by saying that the change was a mistake. Once the mistake was recognized, Windsor and Essex county MPs, those from Windsor West, Windsor—St. Clair, Kent—Essex and myself, as well as many other members on this side of the House, particularly the member for Durham, worked very hard to ensure that the Canadian government renegotiated the Canada-U.S. tax treaty as fast as possible and that it would be retroactive to the day this is implemented. Those in need will get that money back. Those who have had to borrow from their friends and families will be able to pay those dollars back. Those living on a tight income will finally see some relief that they need.