Mr. Speaker, I am honoured to rise and speak in the House today on Bill C-301, an act to amend the Income Tax Act.
I frequently dealt with this issue as a former constituency assistant. So I find it interesting to hear the discussion today, because I think that we sometimes are in here making legislation without actually understanding what is happening on the ground to those people who are coming into our offices as constituents to see how we can assist them.
Many times seniors would visit the office because they were falling short and their RRIF was exhausted. Many of these seniors were quite youthful and had many years of financial worry left. In the office, we would always find a solution to assist them, such as payments through the guaranteed income supplement. However, I can honestly say that as constituency assistants, we thought, what could we be doing better for these people who are falling on desperate times? Many of those who would come in would only have their old age security and their Canada pension plan remaining for their retirement. I can say that some of them probably had 10 years or 15 years ahead of them, so there were many concerns.
I had not thought about how we could help them extend their RRIFs so they would not find themselves in these difficult situations. Therefore, it is wonderful to see the member for Edmonton West put forward such a great bill, with so much foresight, because these are truly the sort of changes the current government needs to make to help our seniors. It would give them the independence and ability to care for their own finances.
It is interesting because the member across just addressed my next issue. When I originally thought of this bill, my first reaction, too, was when would the government get its taxes, because a lot of times when we talk about RRSPs and RRIFs we recognize that it is a tax deferral, and to me that was going to be the challenging obstacle. Once I sat back and thought of the taxation trail of a RRIF, I realized that the solution proposed by the member for Edmonton West was an excellent option for all stakeholders.
Many Canadians save their money by investing in registered retirement savings plans, which are excellent vehicles for saving money for retirement, as taxation of the money invested in RRSPs is deferred until the money is withdrawn. Currently, these retirement savings are rolled into a registered retirement income fund at the age of 71, and regular withdrawals must then be made. However, for a few reasons, seniors are running out of retirement funds with many years left to live.
During and following the recession, the return on investment of retirement savings accounts dropped from 8.5% to 3.1% This has had a huge impact on the amounts in the savings vehicles. Although the previous government had responded to the decreasing yields by adjusting features of RRIFs, we must understand that Canadians are living longer. According to the Canadian Association of Retirement Persons, CARP, in 2014, there was 265,000 Canadians who were over the age of 90. CARP also noted in its document entitled, “A New Vision of Aging for Canada”, that an average 71-year-old can expect to live approximately 16 years more, for an expected lifespan of 85. That is three years longer than in 1992, when many of the rules for RRIFs were set. Because today's seniors are making withdrawals from RRIFs, we have to recognize that these rules from 1992 are definitely not what are needed in 2016.
These are two very important factors we need to consider. We need to recognize how the RRIF is taxed. A lot of times we hear of it being deferred, but we have to realize that when it is deferred it still will be taxed at some point in time. Let us say a spouse passes away and he or she leaves the other spouse as the beneficiary. There is an automatic transfer from the deceased's RRIF account to the surviving spouse's RRIF account and there are no tax implications. From that point on, the person can make those withdrawals and these are taxed at that point. Therefore, the Canadian government is getting its taxes then.
Another thing we have to take into consideration is if both spouses have passed on and the RRIFs are then given to the next generation. Then they are taxed fully at that time. Therefore, when we talk about the tax implications of this and losing tax revenues, we have to understand that regardless of whether we are taxing them yearly, because people are taking out amounts all the time, or at the time of the person's passing, the Canadian government will get its money back and its coffers will be filled.
Those are some of the things that are really important. Whether someone is taxed during the mandatory withdrawals until the fund runs out, or when they have passed on and the inheritance is disbursed among their beneficiaries, the RRIFs are taxed. I heard the member across speak about it as if we are treating people differently. However, at the same time, we have to recognize how taxation works.
I dealt with a file for an older lady who came into our office. Her husband, who had been in phenomenal health, unfortunately fell and passed away. Unfortunately, there were a lot of tax implications going on, because the organization holding the RRIF actually taxed her. There was something like $80,000 she was going to have to pay on the RRIF because it all came to her.
What we ended up doing was we went through all the wills, the beneficiary documents, showing that there should not have been a transition and that since she was the spousal beneficiary, there was no tax. We were able to fix that up, but there was $80,000 she was being taxed because she was the beneficiary.
We have to understand that in case one or in case two, whether it is going to the spouse or to the second generation of beneficiaries, it does get taxed. We are talking about a $80,000 lump sum tax payment. We always have to keep that in mind. The money that is transferred to the spouse after one's death is withdrawn and the tax at that time is also going to be mandated on that. Let us say something, unfortunately, happens to one of my parents, as the spouse, one of them would be paying the taxes when they start taking those withdrawals.
The C.D. Howe Institute has called for these exact changes, according to a 2015 report, as well as CARP. According to the C.D. Howe Institute, removing the mandatory minimum withdrawal helps seniors whose withdrawals trigger clawbacks of the old age security and guaranteed income supplement, who find tax planning and investing outside RRIFs daunting, who cannot easily continue working and maintain their savings, and helps those anticipating late-in-life expenses, such as long-term care.
We must provide better options for Canadians, and provide them a way of planning their spending. In some comments made regarding the bill, Canadians have said, “I know that in a few years my needs for long-term care will change, and this allows me to make my own financial decisions.” We must take into consideration that many Canadians have different retirement plans. Some will be entering long-term care facilities or assisted living residences, others may remain in their home depending on their health, and some may live with their families. Different situations cannot have a one-size-fits-all solution, and Bill C-301 provides greater flexibility.
RRIF rules and withdrawal rates were introduced in 1978, and in 1992, with a cash-strapped government, there was an increase to the mandatory withdrawals with the outcome being that the funds would be exhausted close to the age of death. According to 48% of the CARP membership, their own life expectancy has changed over the past 20 years and they state that they need to have more control over their own retirement funds to ensure that those funds will last longer.
I would like to go back to the point about constituents exhausting their retirement savings and how Bill C-301, introduced by the member for Edmonton West, does assist them with that.
The government talks a lot about the Canada pension plan, and we talk a lot about private pensions, but we have to recognize many people do not have public pension plans, or may not have had a private work plan.
I always like to refer to my parents. They were farmers, so there was not an option for anything other than RRSPs for them. They did not have a business that was matching their contributions. What they were doing was putting money aside in RRSPs, which have now been rolled into RRIFs. When I speak here, I think greatly about my parents. I think about what works best for them. They are excellent Canadians who continue to work and give back to the economy, and they should be allowed to have money that they can spend throughout a longer period of time.
If one were to see my 80-year-old father, one would know that we are probably stuck with him for another 15 to 20 years, because he is so vibrant. When he originally starting looking at this back in the 70s, did his plans for retirement mark the amazing shape he is in today? Probably not. His parents had passed away when they were 80 and 85, so for him, I am sure he thought 85 was going to be a great year, and that he would live until he was 85. I know that Dad will live for many years to come.
We have excellent medical research, and we have lots of things being done in our public systems to help our seniors. We have to recognize that life expectancy has increased dramatically, and the changes the bill is proposing take into consideration life expectancy. It is really important that as a government and as the official opposition, we must allow Canadians to choose for retirement. It is great to hear the NDP is supporting this as well. This is an excellent option, especially for those people who had to, and will always, be planning their own future.
