House of Commons Hansard #90 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was environment.
The House resumed from October 30 consideration of the motion that Bill C-305, An Act to amend the Income Tax Act (exemption from taxation of 50% of United States social security payments to Canadian residents), be read the second time and referred to a committee.
John McKay Liberal Scarborough—Guildwood, ON
Mr. Speaker, this is a worthy initiative on the part of the hon. member opposite. I commend him for his diligence. As I recollect, he raised this issue in the last Parliament as well. Having moved private members' bills through this House, I appreciate that sometimes it is very difficult and can be frustrating as well.
Members opposite talk frequently about tax fairness. It is a little bit a concept in the eye of the beholder, but at least in terms of the abstract, the members opposite embrace that concept. Indeed, I do not know of any member in the House who does not embrace the concept of tax fairness.
Having said that, I have yet to see from the government any concept of actual enshrinement in legislation of tax fairness, and as we talk about this bill in this chamber, we might keep that concept in mind, because this is a bill that gives preference to a particular category of taxpayer over another very similar category of taxpayer. It is very difficult to see where the tax fairness is for those who are not receiving the particular tax break that the bill contemplates.
Before I continue my remarks on the bill, I want to recount a complicated history with respect to tax treaties between Canada and the U.S. In 1984, in a tax treaty with the United States, Canadians who received social security payments were only required to pay 50% of their social security payments as taxable income in Canada. If they received $100 in the United States, they only had to declare $50 of it for tax purposes. In 1996 the treaty changed, allowing the country of payment, in this case the United States, rather than the country of residence, to tax social security payments that were sent north of the border. A 25.5% withholding tax was instituted at the time.
This was good news for pensioners with high incomes, as the 25.5% withholding tax by the United States was higher than their marginal tax rate in Canada. They therefore saved money. For low income Canadians, however, the rate would have been higher than their marginal tax rate. They would have been worse off.
The treaty changed again in 1997 when the U.S. stopped the 25.5% withholding tax from social security recipients and taxation power once again returned to the country of residence, namely, in this case, Canada. The Government of Canada agreed at the time to make taxable only 85% of the social security income in the hands of pensioners living here. In other words, there is an arrangement between Canada and the U.S. that the $100 I spoke of would come north, but only $85 of it would be taxed. This bill contemplates that the already preferential $85 in fact be reduced to $50, or in other words, it contemplates a return to the original arrangement of 1984.
That is a quick summary of the legislative toing and froing with with respect to this bill and how pensioners are treated with respect to receipt of $100 from U.S. social security.
I would like to return to the idea of tax fairness by using the example of two neighbours who live side by side. The hon. member is from the Windsor area, where a number of these folks live who already receive the $85 benefit and are now wishing to restore it to the $50 benefit, so there we can see neighbours living side by side. One neighbour would receive a Canadian pension, CPP or QPP as the case may be, and that entire $100 would be included in his or her income. As the present situation exists, the neighbour who is a recipient of U.S. moneys and who is beside the Canadian neighbour would declare only $85 on a similar amount of money.
As it exists, the entire $100 Canadian pension is taxable, but only $85 is taxable for the neighbour receiving the U.S. pension. This bill does not contemplate moving it up to $100, which would be taxable, but rather moving it down to $50, taxable. We can see that this is a huge advantage for the person who is receiving U.S. social security versus the person who is receiving a Canadian pension.
Let us look at neighbour A who receives social security payments. In the 2006 return taxable by country of residence, the Government of Canada allows that person to exempt 15% of those moneys. In other words, neighbour A in effect receives only $85, which would then be taxable. Let us consider the neighbour who receives the Canadian pension. In that case, it is $100 that is entirely taxable. If we are talking about tax fairness, it is pretty difficult to see how those two neighbours with a similar amount of pensionable income should be in any position other than that of paying a similar amount of tax on their government pension plans.
What this bill proposes, however, is to lower that from $85 to $50. In other words, not only would it recognize the current inequity that exists, but it would exaggerate the inequity. That individual would be paying tax on $50 rather than paying tax on $85, unlike like the person receiving entirely Canadian pension money who would be paying tax entirely on the $100.
Where exactly does this 50% exclusion rate come from? Was this just pulled out of the air? Or is it only an attempt to return to the 1980s, when only 50% of the social security payment was counted as taxable income? It would appear that this bill is striving to ensure tax parity between Americans who receive the Canada pension plan and Canadians who receive U.S. social security. It does not seem to have tax fairness between Canadian taxpayers at its heart. What the bill should strive to do is ensure that Canadians in similar circumstances pay similar amounts of tax on their pensions, whether they are on social security or the Canadian pension plan.
That being said, I do not have the figures in front of me and would be interested to know if in fact social security recipients are worse off than their CPP counterparts. As a result, I will be voting for this bill and in fact urging our colleagues to do that, not that we are particularly embracing the principle that the bill enunciates, and having given our concerns about the issue of tax fairness, but with a view to getting these numbers during the committee's examination of the bill.
The Department of Finance should be able to provide the committee and, through it, this House with an accurate picture of the difference in tax burdens borne by social security recipients and CPP recipients. If there is an unfairness here and social security recipients are indeed being taxed more, then I would agree that it should be rectified, but it should be rectified by a number that has not been arbitrarily pulled out of the air, such as a 50% exclusion rate. The United States does not even use the system any more, so I am at a loss to understand why it is this particular figure, which appears to have some relevance to the 1984 figure.
I would like to again congratulate the hon. member on his persistence in bringing this bill forward. It does have a measure of an attempt to redress an inequity, but as I said earlier, it is very hard to see how there is tax fairness built into this bill. As members of Parliament, we must strive to deliver tax fairness to all Canadians.
In conclusion, I believe that this bill is in fact worth looking at. I look forward to the hon. member's presentation at the finance committee.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Speaker, I am very happy to speak today about this bill, which seeks to recognize the work done by thousands, if not millions, of Quebeckers and Canadians who have worked in the United States. They have crossed the border to earn a living in another country.
I was first elected in my riding in 1993. In 1994-95, we had to wage a tremendous battle to correct a mistake made by the Liberal government. Those were the years when the government was trying to raise as much money as possible to fight the deficit. The government could find no better solution than to tighten the employment insurance criteria and turn the system into the federal government's cash cow. In addition, in a trade with the Americans, the government introduced a system that made no sense.
Early in its first mandate, the Chrétien government decided that, instead of receiving their pensions from the Americans and having them taxed at 50% here in Canada, Canadian citizens would be taxed directly by the Americans. The absurd result was that people never saw their money again. We had to wage an ongoing battle to rectify this situation.
I was able to see just how many people in the riding I represented at the time, especially people in Témiscouata, needed that income to make ends meet. I remember meetings of 350 to 400 people in Notre-Dame-du-Lac, Cabano and other towns. People wanted the situation to be corrected. I made representations at the time, as did François Langlois, who was the Bloc member for the neighbouring riding of Bellechasse—Etchemins— Montmagny—L'Islet. We succeeded in making a change, not alone, but in collaboration with many members of this House, who represented ridings where people were also living along the border and dealing with the sad new reality approved by the Chrétien government.
I remember that Herb Gray, a member of the government at the time, took action and said, “Listen, our decision makes no sense. We have to change things”. When the situation was rectified, part of the reality was forgotten. As I mentioned, the government at the time wanted to raise as much money as possible to fight the deficit, so it agreed to tax at 85% the money received by Canadian citizens who had worked in the United States.
As of that time, people receiving American pensions were taxed on 85% of the amount they received, despite being Canadian citizens who paid into those pensions while working in the United States. Those people did not have the option of putting some of that money in a tax shelter, such as an RRSP. The Canadian government collects tax on 85% of every cheque those people get. The bill before us today aims to correct that situation.
It was a Liberal mistake. The member for Essex has introduced the bill before us now. At least it will restore the system we had before the Liberal blunder. It will restore a 50% tax rate, thus creating greater equality between American workers who make contributions to pension plans and Canadian and Quebec workers who work in the United States and make contributions to the same thing. The bill will ensure greater equality in that respect and greater equality for the problem that remains to be corrected. Currently, when people receive their American pension cheques, they are taxed on 85% of the amount, but a fair system would reduce that to 50%, as was the case before the Liberals' big mistake.
These sound like very theoretical arguments, but they are not that at all. There are a lot of elderly people who receive the American old age pension, and that is what enables them to make ends meet and to support several regional economies along the border. This is the result of people's very hard work, work that, in my riding, was mainly in the forest industry.
There are still a lot of people in my riding today, especially in the Montmagny—L'Islet part, but also in Kamouraska—Rivière-du-Loup, who are in this situation. I am thinking of the people in Saint-Pamphile, the people in all of the towns along the border and the people of Saint-Just-de-Bretenières.
Some towns are located along the U.S. border. Often the people in those towns earn their living in the United States and they are currently victims of the unfairness we still find in this legislation, which should be corrected. We hope this will happen as soon as possible.
That is why the Bloc Québécois hopes this bill will pass and be referred to a committee to be considered in greater detail. This is a private member's bill. It should perhaps be tidied up to bring its rules in line with Canada's Income Tax Act.
Nonetheless, as far as the principle of the bill is concerned, we feel it is important, justified and more equitable to pass this measure. In my opinion, this is the type of gesture that deserves to be supported since our constituents have dedicated their lives to supporting their family by being willing to leave for the United States to work in logging camps and in the tourism industry.
One of the places my constituents often go to work is Maine because they are considered to be good workers and are received with open arms by the Americans, who hope these people can continue to work there. However, current inequity in the legislation discourages them from doing so.
People do not realize the contribution rates they are paying when they are 25, 30 or 35. They just think there are always a lot of deductions on their paycheque. They really begin to notice when they start getting their pension because the pension cheque is important to people whose sole family income is often only a basic pension. It is this cheque that allows them to stay at home longer. Rather than leaving their home at age 70, 72 or 75, this cheque gives them the means to stay at home and hire someone to help with the housekeeping. This cheque at the end of the month allows them to continue to have a decent life, because it provides the necessary amount of money to cover such expenses.
In this context, the Bloc Québécois believes that the gender equality initiative is worthy of our support so that we can correct the mistakes made by the Liberals at the time of the 1995 convention. At that time, it was decided that the Americans would withhold taxes at source. Thus, Quebeckers and Canadians had their taxes withheld by the Americans, with no means of recovering that money. That mistake was partially corrected as a result of the efforts of some of the members of this House, especially some Bloc Québécois members at that time. However, a second part of the reform was not implemented and it is essential that it be addressed by the bill before us here today.
We are seeking recognition for our seniors, for the work they did, and we hope to see them get everything they deserve. As we must all be aware, in the last 25 years, the income of Canadian seniors has improved. However, certain groups in our society—some people living in Canada—are not receiving fair treatment, especially women who become widowed and are living alone. These women must go through a drastic change in their life, in how they manage their budget. Furthermore, a correction would also lead to greater tax equity and give our seniors an income that would allow them to make ends meet.
This Parliament has an opportunity to give recognition where recognition is due, by ensuring that these Canadians are entitled to tax rates that are as equitable as possible, given that they dedicated their lives to supporting their families and even agreed to work outside Canada. For this reason, the Bloc Québécois will support this motion.
Mike Wallace Conservative Burlington, ON
Mr. Speaker, I welcome the opportunity to speak to this private member's bill, Bill C-305, a proposal relating to the tax treatment of a very particular kind of income, the social security benefits that some residents in Canada receive from the government of the United States.
I understand that the principles, which have motivated the hon. member to craft this bill, are ones that my constituents and I support. Those principles include tax fairness for all Canadians and special consideration for our seniors who have given this country so much and deserve our full support.
Canadians who want to know what Canada's seniors have contributed only need to look around them. The entire fabric of Canadian life was built on foundations that were laid for us by those who are now in their retirement years. An obvious example is the freedom we enjoy, freedom that people in many other parts of the world would dearly love to have. We are free to speak our minds, free to worship as we choose or not at all and free to hold and enjoy property and to participate in institutions that govern us, all because of sacrifices of a generation of Canadians who are now in retirement.
We owe a debt to the senior members of our communities. Indeed, the government does a great deal for seniors right now. Old age security benefits and the guaranteed income supplement ensure that seniors are able to enjoy a basic minimum standard of living. In this fiscal year, these programs will provide over $31.5 billion to over 4.2 million, many of them low income seniors.
Seniors also benefit from a number of tax expenditures and programs that are targeted to their needs and particular circumstances. These range from a newly increased pension income tax credit, which reduces income tax paid by seniors, to the new horizons seniors program which provides financial support to community based projects for seniors. These targeted programs are in addition to the strong retirement income support that is in place: the OAS, the GIS and the financially secure Canada pension plan.
The results speak for themselves. The number of low income seniors currently is at an all time low. Bill C-305 proposes to extend the exemption from the tax credit to U.S. social security benefits from 15% to 50%. I know this measure would help many seniors in this country who worked in the United States or whose spouses worked in the United States and now qualify for these benefits. However, I also know that the taxation of these benefits has a long and complex history involving lengthy negotiations between the Department of Finance and the U.S. treasury department.
Let me explain by providing some background on the taxation of social security benefits as set out in the Canada-U.S. Tax Treaty and why it is that Canada agreed to the 15% exemption. As I have mentioned, this history has been complex and the current state of affairs represents a delicate balance between competing interests.
The Canada-U.S. Tax Treaty has included rules for the taxation of social security benefits paid by one country to residents of the other country since 1984. The evolution of these rules has progressed in three distinct phases.
First, between 1984 and 1996 the treaty contained a residence based taxation rule; that is, only the country of residence was allowed to tax social security benefits. During this time, a resident of Canada receiving U.S. social security benefits would only pay tax to Canada. There was, however, a 50% deduction in computing taxable income in respect of these benefits because at that time the U.S. only taxed a maximum of 50% of the U.S. social security payments. This represented a tax advantage over Canadian benefits which were fully subject to tax. In addition, U.S. residents receiving Canadian benefits were not subject to Canadian tax and benefited from the 50% maximum inclusion rate in the United States.
One consequence of this was that high income U.S. taxpayers were not subject to the clawback of old age security benefits which applies to Canadian taxpayers with incomes above a certain amount. This residence based rule was seen to be unfair.
At the time, the public called for the rules to be changed so that all participants of Canadian benefits were taxed in the same way, regardless of residence, and the rules were changed. In 1995, Canada and the United States agreed to replace the residence based rule with a source based rule. In other words, the new rule would allow only the country from which the payment arose to tax that payment. The result was that a Canadian resident receiving U.S. social security benefits was taxed only by the United States.
In addition, the maximum inclusion rate under U.S. law had risen over time from 50% to 85%. A U.S. citizen in receipt of a U.S. benefit would be subject to ordinary U.S. rates only on a maximum of 85% of that income. If the recipients were Canadian residents, they would either pay U.S. rates if they were a U.S. citizen or they would be subject to a final withholding tax of 25.5%. This rate was computed at 85% of the standard U.S. withholding rate of 30%. This was a final tax and was non-refundable.
For high income Canadians, this tax was usually acceptable since, if they had to pay tax in Canada on this income, their marginal rate of taxation would likely have been higher than 25.5%. However, for low income taxpayers who otherwise rely on the progressive nature of the Canadian tax system to fairly distribute the tax burden, the 25.5% withholding tax constituted excessive taxation and caused, in many cases, severe hardship.
These taxpayers, had they been subject to tax in Canada on this income, would have paid little or no tax. Because they were subject to U.S. taxation, a quarter of their income was lost. Conversely, a U.S. resident receiving Canadian benefits under this rule could choose between a 25% withholding tax or, if they filed a tax return in Canada, a graduated income tax at ordinary rates. For low income U.S. taxpayers, this meant they paid little or no tax. At that time there was a great discrepancy in the taxation of these benefits to the detriment of many low income Canadian seniors.
Canada and the United States recognized this unfair treatment and we came together again to change the rules. To relieve hardship on low income Canadians, we agreed to restore residence only taxation. The current rule provides that social security payments are taxed as if they were payments from the home country's benefit plan.
A Canadian recipient of U.S. social security is treated as if the payment were from CPP, QPP or OAS. U.S. recipients of CPP, QPP or OAS are treated as if they were receiving U.S. society security benefits. This meant that Canadians receiving U.S. benefits could avail themselves of the graduated rate of our taxation system and were no longer subject to the flat 25.5% withholding tax.
As I mentioned, the maximum inclusion rate in the United States had changed from 50% to 85%. That is the history of the taxation of social security benefits between Canada and the United States. As this history reveals, it is a complicated issue that is related to the negotiations of our most important tax treaty.
I thank the hon. member for tackling such a complex issue and for working hard to represent the seniors and retired people, not only in his constituency but also in mine, as I have many residents who live in the riding of Burlington who receive both a Canadian pension and a U.S. pension.
I appreciate all the support I have heard so far this morning on this item. I look forward to having it go to committee so we can debate this further and get the proper representation from those who are truly affected on a daily basis by this measure.
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Speaker, I rise on a point of order. There have been consultations among all parties in the House and I believe you will find there is unanimous consent for the following motion. I move:
That Bill C-305 be sent to the Standing Committee on Finance after the second hour of second reading, on division.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Speaker, I would like my colleague to repeat the name of the bill because I did not have the same information as he did. I am sorry, but could he just repeat the name of the bill so that we will know whether or not we agree to the motion?
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Speaker, I apologize if the member did not hear me correctly. It is Bill C-305.
The Acting Speaker Conservative Royal Galipeau
I appreciate the point of order. I wonder if it is timely since the debate on this bill is not yet complete.
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Speaker, we are putting forward this proposal now after consultation with all parties in the House. We recognize that it might be in order now due to the general concurrence of all parties in the House.
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Speaker, am I to understand that the motion will be voted on at the end of the time allowed for debate so that anyone who wishes to speak may do so within the time provided?
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Speaker, it would apply after the second hour of debate.
The Acting Speaker Conservative Royal Galipeau
Does the hon. member have unanimous consent to move his motion?
The Acting Speaker Conservative Royal Galipeau
The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?
John McCallum Liberal Markham—Unionville, ON
Mr. Speaker, I am very pleased to congratulate the hon. member on his private member's bill. As my colleague from Scarborough—Guildwood pointed out, we in the Liberal Party are certainly very happy that this bill go to committee, as I think we have already agreed. We think that tax fairness is a matter of primary importance. We think that this bill may be appropriate in terms of enhancing tax fairness, but we are not quite sure. We need to have further information which we think the finance department will be able to provide when this bill goes to committee.
Just to reiterate the general point about tax fairness that was made by my colleague, I will not repeat the summary of the bill because that has already been done by a number of speakers, but let me spend a few minutes focusing on the fairness issue.
We take the example where there are two neighbours. Neighbour A receives social security payments in 2006 which are taxable by his country of residence, which is Canada. The Government of Canada allows him to exempt 15% of those payments from his taxable income. If neighbour A were to receive a $100 U.S. social security cheque, he would only have to pay tax on $85 of that money. That is fairly clear. Now we can consider his neighbour who is a Canada pension plan recipient with a similar total income. When neighbour B receives his $100 CPP cheque, he has to pay tax on the entire $100.
If we are talking about tax fairness, it would seem that the two neighbours with a similar amount of income should pay a similar amount of tax on their government pension plans. It is a matter of very simple fairness that two neighbours with like incomes should be treated in a like manner by the tax system. What this bill proposes to do is to lower the amount that neighbour A would count as taxable income from $85 to $50 for every $100 of social security that he receives.
Where does this 50% exclusion rate come from? This is the nub of the matter and the essence of the bill. Was it just pulled out of the air or is there some analytical foundation to it? Is it an attempt to return to the 1980s when only 50% of social security payments were counted as taxable income?
It would seem that this bill is striving to ensure tax parity between Americans who receive a CPP pension and Canadians who receive social security. It does not seem to have tax fairness between Canadian taxpayers at its heart. It would seem to me at least on the surface that what the bill should try to do is ensure that Canadians in like circumstances pay similar amounts of tax on their pensions whether they be social security or the Canada pension plan.
That being said, that is a simple example and a general point of principle, but I do not have the figures in front of me to give a proper answer to the question. I would certainly be interested to know if in fact social security recipients are worse off than their CPP counterparts.
For this reason, I will be voting for this bill at second reading, with the view of getting these numbers during the committee's examination of the bill. The Department of Finance has a lot of expertise and should be able to provide the committee and through it this House with an accurate picture of the difference in the tax burden borne by the social security recipients versus the Canada pension plan recipients.
If there is an unfairness here and social security recipients are indeed being taxed more, then I agree and I am sure my colleagues would agree, that it should be rectified, but it should be rectified by a real number and not a number that appears to be arbitrary. Since it is a round number, 50%, it somewhat raises the suspicion that perhaps this number has been pulled out of the air. Perhaps it does not, but that is why we want to send it to committee, to try to get facts from the Department of Finance. The U.S. does not use that system based on 50% any more. That raises another question about why the number of 50% has been used.
Once again I would like to congratulate the hon. member for Essex on his bill. Tax fairness is something we must always strive to deliver for Canadians. It was on the basis of tax fairness that we preferred our income tax cut rather than the government's GST cut. That is another example of tax fairness because the Liberals' income tax cut was only at the lowest income level. The maximum benefit that any Canadian, no matter how rich, could get was in the order of $300, whereas the GST cut, if a person is very rich and buys a yacht or an expensive car, they would receive more than a $300 benefit with that single purchase.
That is another example of tax fairness. We on this side of the House argued very strenuously, and ultimately we did not have the votes, but we certainly argued strenuously on the grounds of tax fairness for an income tax cut to the lowest level rate rather than a GST cut.
We are all in favour of tax fairness. I am sure the hon. member is in favour of tax fairness in principle too. It is difficult to oppose it in principle.
When Bill C-305 goes to committee and we find that the member's bill does indeed move in the direction of greater fairness in the tax system, then we on this side of the House would most likely support the bill, but we do not have those facts yet. That is why we are voting to send the bill to committee where it will have greater scrutiny and we will have greater access to the facts of the matter.
Brian Masse NDP Windsor West, ON
Mr. Speaker, I would like to begin my remarks by congratulating the member for Essex for his hard work on this file. It has been one that he has pursued in opposition and now in government, and we have yet to have the results that we want.
The bill has had a number of different opportunities to move forward and has not made it yet. However, the member for Essex has always been pursuing this very important issue not only in terms of fairer taxation as described in Bill C-305 but also as a social justice issue. We have citizens across the country who are being unfairly taxed because laws have changed and have had an impact on their daily income and livelihood. It has created a considerable amount of grief, angst and a number of their plans have changed which has been rather unfortunate.
It is important to recognize that in the Windsor-Essex County we have many seniors who had previously been paying social security taxes to the United States and work over there on a regular basis even to this day. We have thousands of nurses for example going to the United States from Canada every day.
Ten years ago when this change was enacted in the tax treaty law, it basically usurped the traditional taxation that they had expected to receive when they got their social security upon retirement. It is not just Windsor-Essex County. This affected individuals in British Columbia, the Atlantic provinces and individuals who have worked in the United States from across Canada. It is not just our area, although we do have a significant number there but it is important to all Canadians.
It is important to note that it seems that this bill will go forward with the unanimous consent of the House to the finance committee where any questions about the bill will be resolved. I hope it will be passed quickly by the finance committee and sent back to this Chamber, and finally to the Senate to be ratified.
When Canadians are looking at Parliament, they look for opportunities for all parties to work together on issues. We have demonstrated that there is common support for this legislation. The previous administration had problems acting on this which led to some of the current delays that we have today. However, if we can put that behind us and move the bill forward and pass it quickly, Canadians will be rather pleased to see something come from this Chamber that is supported by all and is going to benefit all Canadians.
This is a bill that will cost Canadians some money, but we need to put the bill in perspective. It may cost perhaps $25 million, but it will go back to seniors who should not have lost that money to begin with and this is a government that had over $13.5 billion to put on the debt unilaterally. There is the financial capability to rectify this injustice.
The Chamber passed a seniors charter of rights, which was an NDP motion. It called for fairness, equity and respect for seniors when bills come through the Chamber that relate to them. This bill fits that mould. Therefore, I think there is a greater onus on the Chamber to move the bill quickly through the system.
I have had a number of opportunities to talk to constituents and it is important to put a face to the effects of what has happened. They have watched their savings and earnings disappear because of this change and what has been sad is that some of these people have passed away. The original tax treaty that was changed when this problem emerged goes back to 1996 and it has been 10 long painful years for individuals who had expectations eroded and eliminated as the amount of income they would have coming back to them has been affected.
We have heard from different constituents who have had to change their lifestyles. Some have had to sell their homes or go to a different lifestyle option that they did not want to do or have not been able to support their grandchildren the way that they wanted to because they are literally losing hundreds of dollars per month. This was part of their calculated income which they expected to receive.
These are law-abiding citizens who crossed the border for years and worked in the United States and brought those earnings back to Canada. They were very good citizens to the country, have retired here, and are contributing in many different ways. To have this happen has been very frustrating to watch. They have heard a lot of rhetoric over time about this being fixed and their expectations of Parliament are warranted to have this bill move quickly through the process.
I am going to read a letter which encapsulates the debate we have had here today and it is important that Craig Ridsdale does get noted. He has been an outspoken voice on this issue and he wrote a letter called “unfair tax laws burden seniors”:
Many Canadian seniors across Canada have been sitting on their hands since 1997 waiting for the Liberal government to move forward on a pledge made to them to rectify a system of taxation that threatens to leave many of them, particularly low income seniors, in a very difficult financial situation.
In 1984, the Canada-U.S. Tax Convention Act was implemented, primarily to protect the citizens of both countries from being taxed twice on their pensions, be they social security in the States or the Canada (and Quebec) Pension Plan here in Canada. However, differences in our taxation systems (Canadians pay taxes when collecting benefits while Americans pay the taxes on their contributions) has meant that Canadians receiving social security benefits were being taxed twice.
A series of protocols to amend this bill have made matters even worse for many retirees. Specifically, the third protocol, implemented in 1995 and applicable for the 1996 fiscal year allowed the United States government to charge what amounted to a more than 25% withholding tax on Canadians' pensions. Previously, the second protocol to this treaty allowed only the country of residence to tax social security benefits. For many retired Canadians who paid into the American system over the span of their working lives what this meant was that over one quarter of their income essentially disappeared overnight.
The fourth protocol, implemented after the disastrous third protocol, allows the Canadian government to tax 85 % of social security, and increase from the 50% agreed upon in the 1984 act. It also provided the government with the latitude to reduce the 85% limit which it has refused to do.
Since 2001, Canadians Asking for Social Security Equity (CASSE) have been lobbying the federal government to either restore the second protocol or at the least grandfather its provisions to include all seniors who were negatively affected by the third protocol. To this date nothing has been done.
Nothing has been done, aside from a number of bills that have made it to the finance committee in different machinations.
In conclusion, I want to note that this is very important. The expectation of Canadians is that when we do have bills which are generally supported in this chamber by all parties, they should move forward rather quickly. It is important that this work is done. It is about fairness and justice for senior citizens who had expectations and the country changed those things. That unfair inequity must be rectified. The New Democratic Party is committed to seeing this bill move forward, not only through the finance committee but as quickly as possible to final ratification, so our seniors are treated with the equity and fairness that they so justly deserve.
Rick Dykstra Conservative St. Catharines, ON
Mr. Speaker, I would also like to thank the member for Essex for moving this private member's bill. It certainly speaks to the heart of what we need to do for seniors in his community and my community. The member for Burlington spoke so eloquently about the relationship we have with the United States, in terms of tax treaties, and what we need to do to help our seniors here in our country. So, it is much appreciated.
I welcome the opportunity to speak to the bill put forward by the member for Essex, in that the bill would exempt from taxation 50% of the U.S. social security benefits received by taxpayers here in Canada. Currently, the exemption is only 15%.
Bill C-305 would amend subsection 81(1) of the Income Tax Act. This part of the act provides that certain items shall not be included in calculating the income of a senior or a taxpayer for a taxation year. The amendment would add to this category a couple of items and, thus, exempt from income tax 35% of the aggregate of all benefits paid by the United States government as a benefit under U.S. social security legislation. The amendment also makes clear that this 35% exemption would be in addition to the 15% exemption provided by paragraph 5(a) of article XVIII of the treaty.
It is estimated that approximately 90,000 Canadians receive U.S. social security benefits, of whom approximately 53,000 earn sufficient income to be liable for tax. The bill would affect the taxation of certain pension payments and would grant an additional 35% exemption in the case of U.S. social security benefits.
The bill is really about the taxation of retirees in Canada and this is an important subject. This is such an important subject because we owe it to Canadian seniors to provide a coherent and comprehensive approach to how their income is treated. I commend the hon. member for Essex for bringing this bill forward. I know that the member shares the same strong commitment to Canadian seniors as I do. This commitment to seniors in his riding and throughout our country is certainly to be commended. We owe our seniors a great deal and when we have the opportunity to extend something as simple as tax relief, we have to do that.
We are fortunate to have a new government that is committed to tax relief. We are committed to tax relief for all Canadians, but especially for seniors and retired Canadians who currently receive a pension.
The relief would benefit nearly 2.7 million taxpayers who receive eligible pension income, providing up to $155 per pensioner. I am speaking about Canada's new government's promise to double the pension income amount to $2,000. We would also take about 85,000 of those same pensioners off the tax rolls.
Many of our seniors who would benefit from Bill C-305 live near our borders, so they, and Canadians, want safer streets. We want to protect Canadian families and communities, to secure our borders, and to increase our preparedness to address public health threats.
It is as important for seniors to feel safe and secure in their homes and their communities as much as it is for them to feel tax relief. Canada's new government has introduced a number of measures in this House to tackle crime, including mandatory sentencing and house arrest to name a few.
One very important feature of making our streets safer is the commitment made in budget 2006. The budget earmarks funds giving the RCMP the tools and people it needs to strengthen its federal policing role. Budget 2006 includes $26 million to give victims a more effective voice in the federal corrections and justice system, and to give victims greater access to services. In every riding in our country, seniors have been victims in criminal acts. This funding would help ensure that they have a voice in our justice system.
There is an organization called Grand-PARENTING AGAIN Canada which was formed for grandparents across the country who, for one reason or another, become caregivers to their grandchildren. It happens across the country, not always for great reasons but it happens.
The proposed bill, along with the universal child care supplement, will help grandparents who face the tough issue of bringing up their grandchildren. With over 23,500 seniors in my riding, any time I have the opportunity to stand and promote a bill that has their interests at heart, I will not hesitate to do so.
The issue dealt with in the bill is an important one, as are all issues that relate to the taxation of retirees. Once again, I commend the hon. member for his commitment to seniors and retired Canadians and certainly wish him every success with the bill.
I want to add one final note. If everyone recalls the movie that starred Tom Cruise called Jerry McGuire, at one point actress Renée Zellweger, responded to a long speech by Tom Cruise, said, “You had me at hello”. The member for Markham—Unionville had me at hello, except that he went on to speak against all the tax advantages that were given to seniors with respect to GST and tax credits in the budget, which disappointed me. I am glad he is supporting it, but he only needed to speak about half as long as he did. I think we all would have been happier on this side of the House.
Jeff Watson Conservative Essex, ON
Mr. Speaker, it is a very good day for seniors today. I want to start by thanking hon. members in the chamber for their unanimous support in getting the bill to committee.
I want to point out a few honourable mentions. Of course my colleague, the hon. member for Chatham-Kent—Essex, is the seconder of the bill. I want to commend the hard work especially by the New Democrat members for Windsor—Tecumseh and Windsor West. Before I came to the House, they took up this battle from the member for Calgary Southeast, who was one of the original sponsors of the bill in a couple of forms before that. The official opposition today has seen fit to ensure that this at least gets to committee for some study.
In light of that, I want to move this debate away from the issue of tax fairness, of which we have heard an awful lot, to what this issue really is about, and that is tax justice. In committee we have an opportunity to finally move the debate to this issue. It needs to be started by first acknowledging that an injustice was committed January 1, 1996, when the tax rules changed for a number of Canadian seniors who collected the U.S. social security pension after retirement. That changed their entire retirement assumptions, the money they had available for living out their years.
Many wound up extremely bitter. To this day, those who survive, fewer in number and many stricken with ailments, are still very bitter about this. They long for the day when all parties acknowledge in the House that an injustice was committed with respect to taxation. Those who retired after the rule changed have not experienced the same injustice.
I know the bill asks for an across the board lowering of the inclusion rate. I hope the committee will come up with a real solution which would achieve a grandfathering for seniors who were originally affected after retirement. The bill hopes to address that. Perhaps the committee could hear testimony and attain the desired wording for the change to achieve that. This will send a clear signal if we can achieve a result like this in committee and beyond, and that being the fact that the House is concerned with tax justice for seniors.
I will conclude with a very humble thanks to all hon. members in the House for their support for the bill. This is indeed, as I stated in my opening comments, a great day for Canadian seniors. It will be a better day when the change is finally passed, whether as a budget item, or by this bill or by whatever means, to address the tax injustice. That will indeed be the greatest day for seniors in Canada.
The Acting Speaker Conservative Royal Galipeau
Pursuant to order made earlier today, the motion is deemed carried on division.
Accordingly the bill stands referred to the Standing Committee on Finance.
(Motion agreed to, bill read the second time and referred to a committee)
Daryl Kramp Conservative Prince Edward—Hastings, ON
Mr. Speaker, after consultation with the other parties in the House, I present the following motion. I move:
That, notwithstanding any Standing Order or usual practices of this House, after no more than one speaker per party and provided that the members may be permitted to split their time by so indicating to the Chair, for the second reading stage of Bill S-5, An Act to implement conventions and protocols concluded between Canada and Finland, Mexico and Korea for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes and income, Bill S-5 shall be deemed to have been read a second time and referred to a committee of the whole, deemed considered in committee of the whole, deemed reported without amendment, deemed concurred in at report stage and deemed read a third time and passed; and
after no more than one speaker per party and provided that the members may be permitted to split their time by so indicating to the Chair, for the second reading stage of Bill C-34, An Act to provide for jurisdiction over education on first nations lands in British Columbia, Bill C-34 shall be deemed to have been read a second time and referred to committee of the whole, deemed considered in committee of the whole, deemed reported without amendment, deemed concurred in at report stage and deemed read a third time and passed.
The Acting Speaker Conservative Royal Galipeau
Does the hon. member have the consent of the House to move the motion?