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.