I am now prepared to rule on the point of order raised by the government House leader and minister for democratic reform on April 8, 2008 concerning the requirement for a royal recommendation for Bill C-445, An Act to amend the Income Tax Act (tax credit for loss of retirement income) standing in the name of the member for Richmond-Arthabaska.
In his intervention, the hon. government House leader stated that refundable tax credits are direct benefits paid to individuals regardless of whether tax is owed or not and are paid out of the consolidated revenue fund. He argued that a legislative proposal creating such a tax credit therefore needed to be accompanied by a royal recommendation.
In support of his argument, he pointed to a Speaker's ruling of June 4, 2007, which did not select a report stage amendment to Bill C-52, the Budget Implementation Act, 2007, that sought to create a refundable tax credit because it required a royal recommendation. He also referred to a ruling of May 11, 2006 from the Speaker of the Senate that ruled out of order Bill S-212, an Act to amend the Income Tax Act (tax relief) on the basis that it increased a refundable tax credit.
In response, the hon. member for Richmond--Arthabaska argued that legislation proposing a reduction in taxes has always been permitted under our parliamentary rules, even if this leads to reimbursements being made to taxpayers.
To support his arguments, he pointed to a ruling by Mr. Speaker Parent of October 16, 1995 regarding Bill S-9, An Act to amend the Canada-United States Tax Convention Act, 1984.
The Chair has carefully reviewed Bill C-445, the previous rulings that were cited as well as the comments from the hon. members and believes that the central issue in the present case is whether the creation of the tax credit found in Bill C-445 is strictly an alleviation of taxation or an authorization to spend for a new and distinct purpose. If it is the latter, the bill would need to be accompanied by a royal recommendation before the third reading motion can be proposed to the House.
The bill standing in the name of the hon. member of Richmond--Arthabaska seeks to amend the Income Tax Act by providing for a tax credit to a taxpayer in respect of whom an employer and the employees failed to make required registered pension plan contributions. Whether or not the tax credit is refundable or non-refundable is the key issue in determining the need for a royal recommendation.
Non-refundable credits are deducted from a person's tax payable rather than being calculated separately: they simply reduce the amount of tax payable by an individual. The amount of the credit is limited to the amount of the tax payable.
This is not the case for refundable tax credits, which are unique in the Income Tax Act: they provide for a taxpayer to receive an amount from the government due to a low amount of taxable income and tax payable. Such credits are calculated separately on an income tax return because they are not simply alleviations of taxes otherwise payable.
Bill C-445 is proposing a refundable tax credit. The Chair is of the opinion that the bill would not only alleviate taxation but also potentially allow monies to be disbursed from the consolidated revenue fund, in the event the taxpayer had taxable income for the year that yielded taxes less than the amount of the credit.
The circumstances of Bill C-445 are quite different from those referred by the hon. member for Richmond--Arthabaska in the ruling concerning Bill S-9. There, reimbursements were limited to tax payable. By making a tax credit refundable, Bill C-445 could lead to refunds that are greater than taxes paid. Such spending, for a new and distinct purpose, would need to be accompanied by a royal recommendation.
Accordingly, the Chair will decline to put the question on third reading of this bill in its present form unless a royal recommendation is received.
The debate, later today or on Monday, is currently on the motion for second reading and, as usual, this motion will be put to a vote at the close of the second reading debate.