Mr. Speaker, I am pleased today to debate 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).
Tax fairness is what we should consider when contemplating this bill. The question is whether Bill C-305 would deliver fairness tax fairness between Canadian residents who receive Canada pension plan payments and Canadians who live in Canada but, due to their previous employment, receive social security payments from the United States.
I will begin with a bit of the complicated history that surrounds this bill. Under a 1984 tax treaty with the United States, Canadians who receive U.S. social security payments were only required to claim 50% of their social security payments as taxable income in Canada.
In 1996, the treaty changed allowing the country, in this case the United States, to tax social security payments that were sent north of the border, rather than these payments being taxed in the country of residence. It instituted a 25.5% withholding tax at the time. This was good news for pensioners with high incomes as the 25.5% withholding tax by the United States was lower than their marginal tax rate in Canada and they saved money. However, for lower income Canadians the rate would have been higher than their marginal tax rate and, therefore, they were left worse off.
Partly as a result of this unfairness for lower income pensioners, the treaty changed again in 1997 when the U.S. stopped the 25.5% withholding from social security recipients and taxation power once again returned to the country of residence, which was Canada. The Government of Canada agreed at the time to make only 85% of the social security income taxable in the hands of pensioners living here.
What BillC-305 proposes to do is to turn back the clock by returning to the 1984 formula whereby only 50% of social security payments would be considered taxable income by the Canada Revenue Agency.
This is a very quick summary but with our limited time it does some justice to this very complicated issue. During the second reading of the bill, the Liberal members of Parliament agreed that the bill should go to committee so that it could be determined if there were a tax unfairness here and if the bill would appropriately rectify the problem.
During consideration of Bill C-305, the members of the Standing Committee on Finance determined that the bill would not lead to equitable tax treatment between Canadian CPP recipients and Canadian social security recipients. As a result, the committee recommended to the House that the bill not proceed.
I was pleased to see that the Conservative members of the committee were very sensible and pragmatic in their approach to this bill, although this recent amendment might suggest some reversal.
Yes, all members of the committee and all members of the House want to help Canadian seniors to make ends meet. On the surface, it seemed as though this bill might have been a way to do just that. Unfortunately, upon closer inspection of the bill, it became evident that it would create an unfairness in terms of how one group of seniors was taxed compared to another group of seniors. What it would have accomplished is to level the playing field between social security recipients in 1984 and social security recipients in 2008. Suddenly one group of pensioners receiving social security would have been taxed much less than those who receive Canada pension plan, even if they had similar levels of incomes.
What it would have accomplished is to level the playing field between social security recipients in 1984 and social security recipients in 2008. That is not tax fairness and it is not an appropriate tax policy for Canada.
I understand that there is often an almost irresistible urge to simply vote yes on a bill such as this. It seems so easy: lower the tax burden for some of Canada's seniors who happened to spend most of their working lives in the U.S. instead of Canada. However, when we lower the tax burden for one group of people, it means that other Canadians, including other seniors, will need to fill that void in order to provide the services on which so many Canadians rely.
Once again, I congratulate the members of the Standing Committee on Finance, particularly the Conservative members who, in this circumstance, were able to look beyond the surface of the bill and see that in the larger scheme of things the bill would have created a tax unfairness.
Therefore, I will be supporting the committee's recommendation that Bill C-305 not proceed further. With the committee having debated this matter at some length and reflected upon it, I really do not see the need to return the bill to committee.