Mr. Speaker, it is a pleasure for me to speak to Bill C-10. It is a bill that is wrapped in fairness. There is absolutely no question that when people are treated in an unfair way that the unfairness be corrected.
Quite frankly, when the Canadian government examined what had happened in the tax agreements with the United States—by the way several other countries are involved in this tax agreement—in 1995-96, it realized there was an imbalance in the way Canadians paid taxes.
This is the background history to Bill C-10 and what the benefits will be. I would like to compare Canadians from 1984 onward who worked in the United States. Take for example security guards working in Michigan earning $20,000 and security guards working in the House of Commons. When these people added up their retirement benefits, those who worked in the United States had been given 50% of their benefits tax free, but those people who worked in Canada had to pay tax on 100% of their income.
It is a common thought by every one of us that if there is to be fairness, if each person earns $20,000 and is paid equal benefits, the taxation should be somewhat equal. It is very difficult to justify a 50% reduction for those Canadians who worked in the United States but who claimed their taxes in Canada where every other Canadian had to pay on the full 100% of their income.
Maybe I could explain the reason why that structure existed. The United States had a rule at that time that it would tax only 50% of social security benefits. It was able to say to all those who received benefits such as social security, family benefits or disability benefits it would only charge on 50%.
We have a totally different system in Canada. Our system says “For you folks who need that extra support, we will pay health care. We will pay the benefits that this country gives over and above a tax break in the dollars you receive”. Our structure was designed to make sure that Canadians got the basic services that they wanted. We look at the health care, the drug plans, the benefits that seniors have in this country. That is not the case in the United States.
However, as we go along with this process and as we looked at it we thought that in order to bring fairness we would write a tax treaty with the United States before 1996. In that change to the tax treaty what the finance minister tried to implement was a system where if you drew your benefits from the United States you would pay the normal United States taxation and if you drew your benefits from Canada you would pay the normal Canadian benefits.
The problem that occurred at that point was that the United States, rather than stay with that, charged all Canadians who were receiving social security benefits from the United States 25.5% taxation on those benefits and put a clause in stating that those taxes would be non-refundable. Even if under United States law they were not required to pay that much money, it still taxed them at a rate of 25.5%, which myself, all of the members in the Liberal caucus whom I talked to and the finance minister all agreed that the United States was being very unfair to Canadians.
Here is the scenario that the United States implemented. It was charging its own folks in their own country one rate, but Canadians working in that country were charged a higher rate. That was very unfair. They could not file to get the 25% back. If they were not supposed to be paying more than 10% they could not make a tax filing and get the 15% back. They were just taxed a flat rate of 25.5% which made it that Canadians who worked in the United States and received social security were being treated very badly.
The finance minister then looked at what was transpiring and said he would correct it. This is a result of a lot of negotiations with the United States and a lot of negotiations in Canada to try to come up with a policy which states that all Canadians will be taxed in a fair and just way and Americans who actually earn incomes here in Canada, the U.S. can tax them in a fair and just way. However, we do not want to see Canadians who work in the United States taxed unfairly.
The result was that Bill C-10 was negotiated with the United States over the last many months. We have worked on trying to correct those problems that were there and were being used in a very unfair way for taxation policy.
There are things that we did to try to correct that policy. That hardship of a 25.5% withholding tax in the United States on Canadians is totally eliminated. The unfairness of that system is gone. Canadians who earn social security in the United States will have that social security come back to Canada and here in Canada they will be taxed at the regular Canadian rates. What it really means is that instead of being overtaxed in the United States, all Canadians now will be taxed by the Canadian government and they will be taxed on the basis of fairness to all Canadians.
There is one slight benefit for those people who receive social security benefits in the United States and come back and are taxed in Canada. They will only be taxed on 85% of the income that they receive from the United States. In other words they are still a little bit better off than all other Canadians, but it is certainly a much more fair and just system that has been put in place.
The people who are hurt by this 25.5% rule that the United States put in were mainly those folks who earned less than $30,000. The lower your income in Canada by the time you take your benefits off and look at the portion of your income that you pay in taxes, it reduces. As your income is lower, so is your tax percentage lower. As a result we are trying to get a policy in place by C-10 that gives more fairness to low income Canadians.
The result of that move really makes a big difference with a lot of Canadians. Under the new rules several thousand Canadians will pay less taxes than they did before under the other agreement. In fact there will be several thousand Canadians who will not have to pay any taxes at all on that income. It is a real benefit for low income Canadians, particularly those who have an income of $30,000 or less.
Once this policy is approved by the Canadian Parliament and the U.S. Senate, Canadian authorities will be able to work to ensure that refunds are given to those who were overtaxed in these last two years. In other words Revenue Canada is going to take on the job of checking what they paid to the United States and what they should have paid under Canadian law and make certain that they get refunds. Those refund cheques will go out as soon as this bill becomes law.
The bill will become law when it is passed in Canada and in the United States. The sooner the bill is passed the sooner we will get fair treatment for lower income Canadians. That is why there is an urgency to move the bill ahead quickly now.
There is no question that for most residents of Canada, refunds will be handled by Revenue Canada. As a result they will not have to make application to the United States. We are trying to simplify the process as much as we can. Where those calculations show they receive money back, cheques will be sent to those residents by Revenue Canada as expediently as possible.
I also should point out that in some cases people with very high incomes would probably under the rules which exist have to pay more taxes in the last two years than they actually paid. We have agreed in that convention that no one, no Canadian will pay more than the U.S. government taxed them in the first place. No Canadian will pay more than they have already paid. Many Canadians will get a refund and will be better off. Those will primarily be low income Canadians. Not just seniors as was pointed out earlier, but also the disabled who have benefits coming from the U.S. and spouses who receive benefits from the United States will receive tax refunds as well. There are many avenues by which these benefits will be calculated and paid back.
When we really look at it, we have taken a tax law which in many ways may have been a loophole whereby some people were not paying anywhere near what others were paying in the tax system and with Bill C-10 we are bringing people to a fairness where all Canadians will be paying approximately the same in taxation. All Canadians will be treated fairly rather than unfairly. In the future no Canadians will be allowed to be overtaxed by a government not in this country. That is a really important issue. The Canadian government is taking back control of taxation for Canadians. That is another extremely important point that everyone should realize.
I have received several telephone calls from people about the tax rule. I had friends come to me and say that the tax agreement that has been struck with the United States is unfair. After talking with them about the unfairness of the tax agreement which was put in place in 1996, they all said the reason it was unfair is that it is taxing them in a disproportionate way to everybody else and it had to be corrected. It was mentioned earlier that there are large lobby groups that are very upset that Canadians were being treated unfairly by the U.S. government. Bill C-10 corrects that.
The faster we can get Bill C-10 passed through the House and the Canadian Senate and through the U.S. Senate, the quicker we can get fairness for all Canadians.