Mr. John Herron (Fundy—Royal, PC)
Mr. Speaker, I rise today to speak to Bill C-10, an act to implement tax conventions between Canada and the states of Sweden, Denmark, Iceland, Kazakhstan, Lithuania as well as amending income tax conventions between Canada and the countries of the Netherlands and the United States of America.
My party supports the agreements and the intent of this legislation would ratify in terms of income tax conventions between Lithuania, Sweden, Kazakhstan, Iceland and Denmark to avoid double taxation and the prevention of fiscal evasion.
However, the Progressive Conservative Party raised concerns earlier in the House surrounding the retroactive charges this legislation holds for the 1984 Canada-United States Tax Convention Act that was amended in 1995 by this Liberal government.
The facts in the matter are the following. Part VII of this bill is intended to uphold the promise made by the finance minister on April 9, 1997, a promise made during a host of pledges laid out by his government just days before the federal election was called.
Initially, the reaction by the affected groups to the announcement was extremely positive. However, now that the legislation has come forward, there are still some serious problems that have yet to be dealt with.
First, let us take a look at how the Liberals came to this point. Right off the top, I want to be on the record commending the Liberals for admitting they made a mistake. However, the Liberals, after changing the tax protocol in 1995 and setting the legislation effective January 1996, have now conceded they were wrong and are retroactively setting January 1, 1996 as the date effective for the current legislation, giving credence to the saying “if you do not succeed at first, try, try again”. Although they are trying, unfortunately they have unsatisfactorily succeeded here.
The proposed increase from 50% to 85% inclusion of social security benefits is ambiguous because the government has stated, more often than not, that under American tax protocol Americans are taxed at 85%. However, that 85% is a maximum and in fact the majority of the people who fall under this provision are still taxed at a 50% inclusion rate in the United States. In fact, on page 4 of the U.S. Social Security Publication 915, it states:
The taxable part of your benefits usually cannot be more than 50%. However, up to 85% of your benefits may be taxable, only if the following situation applies to you: the total amount of one-half your benefits and all other income is more than $34,000.
Those are American dollars not Canadian. I would never suggest that we follow the American lead, but just for information it would be interesting to know what the income tax bracket threshold would be for people required to pay over 50%. When asked in committee, the officials could not give an equivocal answer.
Furthermore, this increase does not take into account that in the United States social security premiums are taxed when earned and not taxed deferred as is the CPP in Canada.
Second, the Minister of Finance has stated publicly to those affected that the social security aspect of the third protocol was revenue neutral. If this is the case, why is the new change increasing the inclusion amount by 70%?
Third, I have noticed that the retroactive change would not cause Canadians to pay back taxes to Revenue Canada and those owed money would be paid dually. For this I congratulate the government. However, it is unfortunate that a consistent policy cannot be followed. The reason I mention this is that recently caucus colleagues of mine have had calls from constituents involving a very similar situation.
The situation involved contract buyout packages whereby a mistake by the government—notice in both instances a mistake by the government was the cause of the problem—miscalculating Treasury Board's buyout of the formula caused hardships to thousands of Canadians. However, unlike C-10, in this particular incident the people were required to pay back the money to the government.
The incident I am referring to is the forces reduction plan carried out by the Department of National Defence. Why were people adversely affected by this defence buyout when the Department of Finance is capable of writing off debt? These constituents were given just 30 days to make arrangements for payment on debts ranging anywhere from $100 up to $1,500 before interest started to accumulate.
The former defence minister applied to the Treasury Board to have the debt remitted last January and that request was denied in March. One month later, the Minister of Finance announces the contents of C-10 and is able to find money to retroactively pay these retirees. I realize the two instances are separate and need to be handled on their own merit. However in my opinion the same standards should have been used for military service personnel.
My party believes the avenue the finance minister has used to rectify the third protocol mistake he initiated two years ago is flawed. These retired individuals do not deserve a 70% tax grab by the finance minister who, while wavering on tax cuts, seems to have no problem with tax hikes for retired people, as evidenced by Bill C-2 and Bill C-10.
Some constituents have even commented on the fact that 15% is non-taxable. These constituents have asked for the bill to included a minimum of 15%. I understand it is improper to make any change to new legislation, but that is something the government should revisit in the future.
Topic: Government Orders
Subtopic: Income Tax Conventions Implementation Act, 1997