[Recorded by Electronic Apparatus]
Monday, April 14, 1997
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[English]
The Chairman (Mr. Jim Peterson (Willowdale, Lib.)): The finance committee of the House of Commons is very pleased to be considering Bill C-92, an act to amend the Income Tax Act, the income tax application rules, and another act related to the Income Tax Act. We're very pleased to have with us our first witness today, a person who's no stranger to us, Marion Dewar.
Welcome, Ms Dewar.
Ms Marion Dewar (Individual Presentation): Thank you very much, Mr. Chairman. I apologize that I don't have a more professional brief ready, but when I saw this was coming to the committee, I appreciated very much the fact that you were going to be hearing witnesses.
I'm appearing today as a child advocate. My work in the past has been with a child advocate organization, which has closed. I have many concerns that there are few voices in Canada speaking for children themselves.
There has been a great deal of hype about child poverty. For a fleeting moment I thought there was going to be hope, that this society and decision-makers like you were genuinely concerned. When I see a bill like Bill C-92, it's difficult to remain optimistic and not become cynical.
I know many families that have experienced divorce. They do not all want to make life difficult for the custodial parent, but they recognize that if their orders come after May 1, 1997, there will be a reduction in the child support the custodial parent receives. Please allow me to give you an example.
An order now for three children could be as high as $3,100. With the new regulations it would be about $1,563. When the deduction is removed from the payer, the custodial parent will receive $2,341. The difference has been referred to as a tax grab by some analysts.
If you calculate what the federal government is proposing for the new child tax credit, there's a direct relationship to the government's increased revenues received from the non-custodial parent and the improved benefit to all the low-income families. Children who have gone through the trauma of divorce should be the beneficiaries of the maximum support possible.
All research shows that women, in the majority, are poorer after divorce. In the majority of cases they are the custodial parent. To take revenues from the families and apply to all families is unethical. Children should not be punished because their parents divorce.
The direction to reward a single parent working outside the home is another attitude that devalues the work related to child care. If the government were serious about eliminating child poverty, they would look at a national quality child care program as well as at improving the child tax credit. They would take the need for adequate paying jobs seriously. They are able to subsidize corporations in the millions of dollars in guaranteed loans and other subsidies. There is not a better guaranteed loan than child development.
Children who are hungry cannot wait a year to have adequate nutrition. The government is making their major contribution to the improved child tax credits one year from now. They are making poor children wait until they receive more income, and it's the children from divorced families who are taking this to give to all of the poor children. It's not an improvement; it's a punishment to the children of divorced families.
If a woman or a man is a custodial parent with a higher income, they should be given the option of who pays. These cases are few in number, but they would benefit. Then we could begin to think that the Canadian government has some real commitment to child-centred policies.
I'm very disturbed that a lot of the press releases and so forth on this bill have said it is child-centred. The children aren't even in this debate. It is a competition between the two spouses about who is going to pay what, and certainly Revenue Canada ends up with the windfall.
Thank you.
The Chairman: Thank you, Ms Dewar.
Mr. Grubel.
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Mr. Herb Grubel (Capilano - Howe Sound, Ref.): Ms Dewar, I must tell you I have great sympathy with the position you have taken. To me it's almost incomprehensible that a government does not leave this as a matter of option, as you said.
One of the worst things about governments is the way they intrude on our freedoms. It would have been so easy to give in to the Thibaudeaus of the world and say if you can work it out with the judge that this is the way you want to do it, we, the Government of Canada, will be happy to enforce it for you. But don't force it on all of the millions of others who suffer as a result.
So I can't really say anything but that I personally very much support the position you have taken. It is incomprehensible to me why, in the light of the clear evidence you have presented on this subject... The government reacted to it because a group of women were asking for the irrational approach that has finally taken place.
In defence of the government, they always claim that fixing scales on how much should be paid when a primary earner has a certain amount of income probably was an improvement for standardizing those payments. That's what they emphasize, but they sweep under the carpet the idea that you have come here to talk about. As far as I'm concerned, you have my full support.
I'm sure that within very few years there will be court cases à la Thibaudeau and there will be organizations springing up all over that will force this government probably into reversing it, even in the next mandate.
The Chairman: Ms Dewar.
Ms Dewar: My only comment to that is that some of the things the government has done, as you say, have been in good intent, but if they allowed people to make a choice, a very small percentage of the custodial parents are making a higher income, and in those cases it would be to their advantage to have the payer claim the deduction, but otherwise it really is a penalty on the children.
My concern is that so much of the debate has been around the male-female, payer-custodial parent thing, and really children of divorce, whether we admit to it or not, are going through certain trauma. Every parent who is divorced is not necessarily in a traumatic situation, and we should be looking at how we can lessen that trauma for the children. This bill is saying you're going to take extra revenues from the children who have been in situations of separated parents and you're going to spread this around to all of the working poor. It's not fair.
Mr. Herb Grubel: Can I ask one more question, please?
The Chairman: Sure.
Mr. Herb Grubel: Ms Dewar, the other thing that was brought up by my constituents is that the reason many fathers are refusing to pay or are reluctant to pay is they don't get to see their children. There ought to be, they claim, some reciprocity. It seems to me fair and I can understand in some ways, even though I never would do this kind of thing. If they don't get to see their children, why should they then take on the responsibility for this?
I don't want to defend this position, but I'm just wondering if you have heard anywhere that this is another omission in the bill - that it does not provide properly for an equitable sharing of visitation rights.
Ms Dewar: I would have great difficulty in supporting the connection of child support and child access, because there are times when some parents shouldn't see their children, for the good of the children.
I am trying to focus on the child-centred health. Because they have abused children and so forth in some cases, that's not to say they should not have to support them. It's a case of societal responsibility that parents support their children, and whether or not they have access to their children should be a judgment separate from whether they pay child support or not, because we have to look at what's best for the child.
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Mr. Herb Grubel: It's a matter of presumption as to whether the courts are asked by law also to make sure this is done in an equitable way.
The Chairman: Thank you, Mr. Grubel. Mr. Benoit.
Mr. Leon E. Benoit (Vegreville, Ref.): I would also like to say that I support your position on this. It's refreshing to hear it.
I'm not quite as charitable as Mr. Grubel, I guess, when it comes to the reasons for the government making this change. It's purely and simply a tax grab. It's a grab from families, because that's what this does.
Ms Dewar: From separated families.
Mr. Leon E. Benoit: It takes money from families, whether they're united or not, and from children.
I was kind of surprised when this was debated and proposed by the government that there wasn't more of a media backlash against this, particularly from groups interested in the welfare of children. I really didn't hear enough, I don't think.
In fact, I would think that what we need is less, rather than more, taxes taken from families. In that regard, we proposed that taxes for families should be lowered. Our plan, by the end of the first mandate, would lower the average family's tax by $2,000, which is a substantial amount.
A major proposal we're putting forth to have that is to allow the tax deduction, the child care expense deduction, for all parents. So whether a family chooses to have one parent stay at home with the children or chooses to hire someone else to look after the kids, they would get the same treatment under the law.
Right now, in fact, there is preferential treatment under tax law for families who choose to hire someone else to look after the kids. That's a change we're proposing, and it will help families in a pretty substantial way, I believe. In some cases, of course, it'll be much beyond $2,000. That's the average for an average family earning an average household income.
Could you comment on that type of a proposal, not particularly the Reform proposal, but proposals that do recognize the family as a high priority in our society?
Ms Dewar: Well, I think the family is a priority, but I think children have to be a higher priority. It's really time that we began to look at what a child-centred policy is.
I feel very strongly. The reason I'm here is that I haven't heard a voice for children. I thought it should come out before this was passed. It's very important for us to look at it.
Some families and couples are better off if they are separated. This is for their own mental health and for that of their children. We acknowledge that. In the process of that, we have to see what's best for the children. It would be serious for this to become a tax grab to give it to all families and not protect the children who particularly have to deal with the trauma of divorce.
The other thing that's important to look at is that a lot of the policies coming out in the child tax benefit concern the fact that if a mother or father is working and is a single parent, then they get a better benefit that the person who's unemployed.
I suggest to you that a family who becomes separated very often needs that one parent at home for a while to deal with all those things. I just resent it because I think it devalues the work of child care with a person at home. You're on 24-hour call and you work seven days a week, but nobody very much ever talks about that. If you're one parent at home with a child and you have a partner, you can get relief sometimes; if you're alone, you don't get that relief.
If this is a child-centred program, you should be looking at a national child care strategy. We and the United States are the only two industrialized countries that don't have a national child care strategy.
We're going to pay for it. We'll pay for it in the long run, because when our children are neglected, our future is neglected. I know it sounds like a lot of trivia, but it's very serious. If we don't take our future seriously, it's because we're not taking our children seriously.
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Mr. Leon E. Benoit: In our proposal, it will take more than a million low-income families, including single parents, off the tax roll entirely.
Ms Dewar: Yes.
Mr. Leon E. Benoit: One of the major beneficiaries will be single parents and those on welfare, because this deduction is also presented in the form of a tax credit. So it is available to those earning no income or those on welfare. It doesn't discriminate against the type of family whatsoever.
Ms Dewar: I think that's good.
Mr. Leon E. Benoit: I invite you to look at our proposals. I certainly do appreciate your comments on this.
Ms Dewar: Thank you.
The Chairman: Thank you, Mr. Benoit. Any further questions? Mr. Duhamel.
Mr. Ronald J. Duhamel (St. Boniface, Lib.): I need a clarification, Mr. Chairman.
I wonder if you could tell us a story briefly. Let's assume for a moment that you had the power, authority, and ability to change this. You don't like what's being proposed, clearly, and you've given some good reasons as to why not. What would you do?
Ms Dewar: Because I know the pressure that's there as far as getting the bill through and what to do and so forth, I would add an amendment that gives people an option after May 1, one way or the other. If they want it -
Mr. Ronald J. Duhamel: You think that would be satisfactory at least?
Ms Dewar: It would be an improvement. Then you would be allowing people who have lower incomes to choose whether they want to pay the tax. It would be very simple. It would go along with the rest of the bill, and I think it would be more fair to the children.
Mr. Ronald J. Duhamel: Thank you.
Ms Dewar: Okay.
The Chairman: Ms Dewar, thank you very much. I know you have a meeting at 3:30 p.m. I want to thank you very much for taking time out of your busy day to be with us.
Ms Dewar: I thank you very much, Mr. Chairman, for hearing me.
The Chairman: Thank you very much.
Our next witness is Elisabeth Beattie, please. Welcome, Ms Beattie.
Ms Elisabeth Beattie (Individual Presentation): Thank you very much.
I have an opening statement that's about fifteen or twenty minutes long. The reason for it will be evident by the time I get to the end. I beg your forgiveness for something that's a little bit longer than perhaps you're used to. After that, I'd be glad to answer questions to the best of my ability.
Mr. Chairman, it's a pleasure to appear before your committee today to discuss Bill C-92, the Income Tax Budget Amendments Act, 1996. I will be commenting on the change to the tax treatment child support.
Given that the proposal is to take effect shortly, my appearance here today is a little like stepping in front of a high-speed train. Though I have no illusions about my capacity to alter the legislation at this late date, I do hope my presentation will give you pause if you are inclined to rubber-stamp this legislation.
In any event, I'm grateful to finally have the opportunity to put my concerns on the record. I've been trying to do that for some time.
I believe I bring a useful perspective to this debate. I have been a single parent since 1980. I have three children, who are aged 19, 22, and 24. The enforcement of support orders has been an ongoing problem. I have academic training in taxation, but my experience on this issue has come from doing my own tax return and learning to manage limited resources in a context of financial uncertainty. I was not well informed about financial matters at the time of my divorce; I became so out of necessity.
In assessing the budget proposals, I have taken a practical approach. Contrary to public perception, the deduction-inclusion tax system put in place 54 years ago makes a great deal of sense. It has stood the test of time, and is remarkably sensitive to the needs of single parents in today's difficult economic and social environment.
Intact families benefit from a variety of income-splitting strategies. The deduction-inclusion system provides a form of income splitting to divorced or separated couples. It recognizes the difficult economic realities they face, namely the unavoidable and inefficient duplication of capital costs involved in raising one set of children in two households.
The child support deduction compensates non-custodial parents for the loss of the children as dependents for tax purposes. It also provides the means to pay the high levels of child support that are necessary to meet the needs of children. For their part, custodial parents include child support as income and are able to claim the children as dependants for tax purposes and all that follows from that, including the various tax credits.
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The treatment of periodic child support as income to the custodial parent has important implications. It recognizes the recipient's household as an independent entity, which is important symbolically and reflects the reality of divorce. In contrast to specific-purpose payments such as medical expenses, recipients are not required to account for monthly payments, either to the payer or to the court. They're important tax benefits to the recipient that flow directly from the treatment of child support as taxable income, which helps to mitigate the unfavourable tax consequences to upper-income custodial parents. Child support is earned income for the purposes of RRSP contribution room, and legal fees paid to enforce child support orders are deductible.
When applied properly, the potential benefits of the deduction-inclusion system are in fact translated, for the majority of recipients, into higher support orders than could be achieved under no deduction, no inclusion. When applied properly, the non-custodial parent is not the recipient of the income-splitting benefit, but rather the conduit.
The tax change was promoted as an answer to judicial inconsistency and complex tax calculations. Those were old issues. They had been addressed in January 1995, when the Federal/Provincial/Territorial Family Law Committee published child support guidelines with the tax implications built in.
The government has confirmed that the elimination of the deduction to support payers will produce a tax windfall to federal and provincial governments. Where does the windfall come from?
Two-thirds of custodial parents benefit, or would benefit, from the income splitting achievable under the current regime. This group includes the poorest custodial parents - those with no or low employment income. This group will suffer if they opt for or fall under the new tax rules that eliminate the income-splitting benefit.
For one-third of custodial parents, the existing tax rules impose a tax penalty rather than a tax advantage, because the custodial parents' tax costs are greater than the paying parents' tax benefits. This group will, at first glance, benefit if they opt for or fall under the new rules.
The government's assumption that more and more custodial parents are moving from group one into group two is not well founded, given the difficulties most single parents have accommodating full-time employment and heavy family responsibilities.
A prominent family law lawyer who supported the tax change has analysed the winners and the losers under the next tax structure. In consultation with litigation accountants, she has come to the conclusion that, except where women earn more than $50,400 a year from sources other than child support, it is their children who will fund the Revenue Canada windfall. The winners are an elite group by any standard.
How much is the windfall? The 1996 budget documents give a figure of $410 million as the estimated total cost of the deduction-inclusion tax rules for federal and provincial governments for the 1996-97 fiscal year. This cost is the income-splitting benefit that is currently passed on to children in child support payments. This cost is also an estimate of what governments stand to gain under the proposed tax change.
Relative to the situation of no tax change, at a minimum $410 million, which would normally be allocated to the poorest children in the form of support payments from the parent, would be diverted to government coffers in the form of increased taxation.
The $410 million figure is understated. It does not include the windfall already accruing to Revenue Canada as a result of unpaid child support and awards that are lower than they should be because the system has not always been applied properly by the courts.
The new tax rules come into effect May 1 and are not retroactive. However, the government is doing everything possible to encourage and facilitate the conversion of existing orders. It is therefore highly likely that the revenue gains will be maximized sooner rather than later.
Some analysts have predicted a windfall as high as $600 million. Indeed, on Sunday in The Toronto Star the figure of $1 billion was mentioned. The range of figures would indicate to me that nobody really knows the extent of the damage that this legislation will do to low-income custodial parents and their children. The government appears to be rolling the dice and hoping for the best.
Moreover, by reporting the windfall as a net overall change, the government has successfully camouflaged the profound negative impact on group one losers, since the $410 million includes a certain number of winners along with the majority of losers. For example, a $410 million net tax windfall could translate as a $610 million revenue gain from group one, offset by a tax reduction of $200 million for group two.
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Where are the revenue gains from group one custodial parents and children going? Some of the revenue gains from group one will be redirected to the relatively better-off group two custodial parents in the form of tax relief. Some of the windfall will fund the government bureaucracies established to implement the child support legislation. Some of the windfall will fund the federal program to enrich the working income supplement to the child tax benefit, a program that targets low-income workers in general.
Many of the poorest custodial parents are not taxable and don't file tax returns. They don't even receive the child tax benefit; they neglect to file returns. Others file tax returns but have no working income. These custodial parents will not benefit from an enriched working income supplement even though it is their children who are helping to pay for it.
Even those custodial parents who receive the maximum annual increment may not be fully compensated for the tax windfall impact on support payments, which could be in the order of $10,000 annually for some families. Moreover, the financial assistance provided by the child tax benefit is available only until children reach 18, whereas the tax windfall impact on child support levels will be felt as long as support is payable, frequently to age 22 in the case of students, and sometimes beyond in the case of disabled children. Any surplus revenue gains will enrich federal and provincial coffers.
The net effect of this legislation is a massive redistribution of funds away from the poorest custodial parents and their children to relatively better-off custodial parents and the working poor in general, to provincial governments, and to the federal government itself in the form of bureaucratic implementation costs and surplus revenue gains. It is a program that takes from the poorest to give to the poor, and it is inconsistent with the view expressed by the Minister of Finance in December 1996, when he said the burden of change shouldn't be borne by those least able to handle it.
Given the overall impact and the significant long-term consequences to both children and single parents, the proposed tax change might therefore be seen at best as a bowing to political winds rather than economic logic, or at worst as a tax grab or deficit-cutting measure on the backs of disadvantaged children.
A second result that will add to the windfall is the elimination of two significant tax benefits for custodial parents whose child support orders fall under the new rules. Under the old rules, child support was classified as earned income. As a result, custodial parents were able to deduct legal fees incurred to enforce child support orders and child support received was counted in the calculation of RRSP contribution room.
These benefits provide single parents with the means to take responsibility for themselves. Enforcement is the single most important issue facing custodial parents. Provincial enforcement agencies are being downsized and enforcement is not covered by legal aid.
Even when a custodial parent has insufficient resources to make RRSP contributions in the present, unused contribution room can be carried forward indefinitely. There is always the possibility of improved financial circumstances in the future, and the benefit of deducting the saved dollars from taxable income would still not be lost.
Given that older women are particularly vulnerable to poverty, together with the fact that most single custodial parents are women, losing these benefits is yet another blow to a group that is already struggling. Notwithstanding their importance, the analyses and position papers underlying the proposed tax change have given no consideration to these deductions and the direct link to the tax status of child support.
Because of these apparently unnoticed tax consequences and a belief expressed to me by some custodial parents that they would be allowed to keep the deductions without declaring the income, I asked the Minister of Finance to issue a public statement of clarification on the status of these two deductions under the new rules. To my knowledge, that statement of clarification has not been forthcoming, and that is one of the reasons I am here today.
Along with the changes in the quantum of net child support, these are significant long-term considerations of which every single parent should have been aware in the policy development period. Even now, as the new rules take effect, neither the tax guide, which usually highlights and red-boxes the impact of any proposed legislation, nor Revenue Canada's information package, T1156, clearly spell out the implications so that custodial parents with existing orders can make an informed assessment of their options.
The importance of these deductions to custodial parents should not be underestimated, nor should the wrath that will descend on policy-makers if the tax change is implemented without first making known all of the relevant facts and without there having been an informed public debate.
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That's the huge problem I have with this legislation, but there are other problems that result from the budget proposals. Families with existing orders will be able to choose between the two tax structures to their advantage. Those who obtain orders after April 30 have no choice even if their children are disadvantaged by the new rules. Families who are satisfied with deduction-inclusion will automatically fall under the new rules if they require a variation after April 30. The structure of the enriched child tax benefit working income supplement distinguishes between deserving and undeserving children based on the employment status of their parents.
The tax change is paternalistic in its attempt to relieve single parents of the burden of administering certain aspects of their financial affairs rather than assisting them to become competent. At the same time, the tax change makes the poorest single parents even more precariously dependent upon government largesse when they could, under the existing regime, be getting more child support directly from the non-custodial parent. Surely, responsibility for children lies with their parents.
The Minister of Justice has stated that every dollar of increased revenue that Ottawa derives from the tax changes, and more, will be plowed directly back into the system for the benefit of children, including those in low-income working families. The provinces have not made the same commitment, and even if one were to accept the proposed redistribution as appropriate, it is unclear how the federal government proposes to fulfil the requirement for public accountability.
Changing the tax structure does not create money; it simply shifts around what is already there. In terms of monthly support, the deduction-inclusion system benefits many, but penalizes some. To go to no deduction, no inclusion across the board, as this legislation proposes, will benefit some, but it will penalize many.
It does not help matters to go from one inflexible regime to another. If it is government policy to implement one tax regime across the board, then it should implement the system that provides the greatest benefit to those in greatest need. The deduction-inclusion system does just that.
It is therefore my recommendation that the existing deduction-inclusion system be retained if one tax structure is to be applied across the board. If it is government policy to assist all custodial parents and their children, the only sensible solution, given all the ramifications, is to build more flexibility into the system by permitting each recipient custodial parent to elect one regime or the other when negotiating a separation agreement or divorce, or upon variation. The government has published guidelines for both tax structures. Such flexibility is the only way to maximize the amount available for child support given all the different constellations of financial circumstances, which can change dramatically at any time.
There is a precedent for flexibility in previous amendments to the Income Tax Act in relation to payments to third parties and specific-purpose payments, such as educational or medical costs.
As an optimum, it is therefore my recommendation that the Income Tax Act be amended such that deduction-inclusion is the rule, unless an order, judgment, or written agreement provides that paragraph 60(b) and paragraph 56(1)(b) are not to apply.
Security, insofar as it exists, lies in our ability to make our own decisions. Whatever the policy is to be, any decision to opt out of the existing deduction-inclusion system should be left in the hands of the recipient custodial parent because she is the one who bears the brunt under no deduction, no inclusion.
Because of the severe consequences, it's imperative that any election also be an informed decision, especially if the decision is irrevocable. It is therefore my recommendation that any decision to opt out of the existing deduction-inclusion system be left in the hands of the recipient custodial parent and that such an election be similar to informed consent.
The Department of Finance and the Department of Justice are very much aware that much of the unhappiness with the current tax structure occurs because of optics: there's a general lack of understanding of the system and what it was designed to achieve for children. Public perception of unfairness has been further influenced by gender considerations.
Many custodial parents who would benefit from deduction-inclusion guidelines do not understand how paying taxes can result in higher child support. They blame the tax system for making them poor, but have demanded a tax change will make at least two-thirds of custodial parents worse off than they might otherwise be.
Many want the change to be retroactive. As one MP acknowledged, people didn't come at it from a rational point of view.
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A small portion of the millions of dollars that the federal government is devoting to guidelines-associated bureaucracy would have gone a long way toward empowering single parents through education in the basics of taxation and financial planning within the context of the old system. By catering to misunderstanding and by going along with, and indeed cultivating, the appearance of a grave injustice in need of correction, the government has abandoned its responsibility to act in the best interests of children.
While there is some onus on the federal government, it is incumbent upon custodial parents to take some responsibility for educating themselves. They could start by taking advantage of materials and services that are available to them from Taxation at Revenue Canada.
It is therefore my recommendation that Revenue Canada review its information for single parents, as well as its advisory services, with a view to making taxation and financial planning a less intimidating subject for custodial parents and women generally.
Since 1990, the federal government has devoted most of its time, energy, and resources to the taxation and guidelines aspects of child support. Unfortunately, tax changes and guidelines do not put money in the hands of children. They are essentially academic considerations that remain so unless and until enforceability is ensured to whatever extent possible. This has not yet been accomplished.
If it is indeed government policy to put children first, there is a solution that falls within the purview of of this committee. The legislation before you uses the tax system to collect the income-splitting benefit and redistribute it. As an ideal, the state would back the orders of its judges. It would issue child support payments itself, and use the tax system to collect the amounts due from the responsible parent.
Other countries have adopted such an approach. In Sweden, child support payments are guaranteed by government when parents divorce. Some American states have implemented child support assurance.
In Canada, the 1997 alternative federal budget proposed an advance maintenance child support system that would be national in scope and administered by a national agency, complementing reforms already under way for a national tax collection agency.
I understand from the individual who drafted this section that the Minister of Finance showed an interest in the idea. I would encourage the minister to give it serious consideration. It represents an ideal solution to many of the problems faced by single-parent families in the area of child support. It is therefore my recommendation that the government implement a national advance maintenance child support system.
In conclusion, it appears that the change in the taxation of child support was decided on perception, not on merit. It is therefore not surprising to find that there are adverse tax consequences that have not been taken into account in the development of the policy.
The proposed policy involves severe consequences for child support recipients. These consequences should persuade the government to reject its present course.
First, it will trigger a massive tax windfall that will not find its way back into the hands of the children from whom it is being diverted.
Second, it will result in the elimination of two significant tax benefits for single parents. The proposed policy will further marginalize a group that is burdened enough.
In a recent appearance during Senate hearings on the harmonized sales tax, the Minister of Finance said that the best politics is to do the right thing. Sometimes that means changing your mind.
I believe this is one of those times. A no-deduction, no-inclusion rule should be optional, and custodial parents should be given all the information they need to make the most appropriate decisions given their circumstances. Single parents need choices and policies that strengthen personal autonomy, not policies that enhance a state of dependency.
There is no dishonour in changing a policy for good and substantial reasons or admitting an oversight; the dishonour comes in proceeding regardless and in not levelling with the persons affected.
Thank you very much for your time.
The Chairman: Thank you very much.
Mr. Grubel, please.
Mr. Herb Grubel: I'm sorry to come in again, but when this bill was being debated in the House, I took the position you outlined, except for the last part with which I wasn't familiar concerning the government having some sort of a guarantee and then taking it upon itself to follow up on the people who were not paying. I think that would be a reasonable proposition.
I remember very well receiving phone calls from lawyers at the time when this was being debated. They said that there is a relatively small number of family lawyers in this country, and they're all busy. He said that the phone has already begun to ring off the hook because tens of thousands of fathers are insisting on a reopening of their divorce contracts on the basis of this. This is going to cause a logjam. We don't have enough lawyers. The courts will be clogged up. That is what he predicted.
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I wonder whether you could comment on this. Have you heard anything about that?
Ms Beattie: Actually, if you read The Toronto Star on Sunday, Phil Epstein in Toronto was saying that he was surprised by the contrary: nobody was trying to open up their case. He was surprised that nobody was trying to open it up and get things finished before May 1.
Mr. Herb Grubel: Maybe this gentleman who called me up was an alarmist, but I would suspect that once the next tax form is being filled in, it may cause a reaction. I would not be surprised. Certainly, if I put myself into this position, as a father, I would certainly want to have a reopening of those contracts.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Grubel. Mr. Benoit.
Mr. Leon E. Benoit: Thank you. I appreciated your presentation as well. I thought you made a lot of good points.
I just want to clarify a couple of the things you said. You're saying that you expect the tax windfall as a result of this change to be between $400 million and $1 billion. These are numbers I've never heard of before. I've heard of a range around $200 million.
Ms Beattie: The budget document actually states $410 million, but $240 million of that is the federal portion. Of course, there's a provincial portion to this windfall that nobody has been talking about.
It's understated for the reason I told you: if it was derived in the way I think it was, unpaid support doesn't figure in. Yet, that's a factor. Also, if support awards now are lower in total than they would be under the old system, then of course it's understated as well.
But again, $1 billion was quoted in The Toronto Star article. I know that at the time of the budget several commentators on television were mentioning $600 million. I think the point is that nobody really knows. I don't know how you could possibly calculate it in such a way that it would be certain.
Mr. Leon E. Benoit: I have just another question for clarification. You referred to one individual who originally supported the tax changes because he - I think it was a he - thought it would actually make things better by putting more money in the pockets of custodial parents, but after having examined the issue further, he changed his mind.
Ms Beattie: I don't think so.
Mr. Leon E. Benoit: It was early in your presentation.
Ms Beattie: You may be referring to the person who said that except when women are earning more than $50,400 a year from sources other than child support, it's their children who will fund the Revenue Canada windfall.
That was actually a lawyer in Toronto, Linda Silver Dranoff, who supported the tax changes, and still supports the tax changes. She simply said we ought to go back to the drawing board and increase the child support amount. So she wanted no taxation, plus higher child support, which is mutually exclusive, I would say. There comes a point at which there's only so much money. You can't keep bumping up when Revenue Canada is taking more.
Mr. Leon E. Benoit: Someone had recommended keeping the current system. Actually, that's what you're recommending, is that right?
Ms Beattie: I've never had any difficulty with the current system. I was absolutely dumbfounded when the budget came out. I was not expecting that to be done, because it didn't make any sense to me, given my experience with it, and so on.
Mr. Leon E. Benoit: Then what would your guess be as to why it was done?
Ms Beattie: I mentioned a few things. What I've heard on the Hill is that there was intense pressure from women who didn't understand the tax system. The pressure gets so that you give people what they want and you tell them what they want to hear.
But the danger with the government doing this is that at some point the women will learn something else. Then you will get a backlash because they will discover that there was a figment of their imagination in here. They were wishing things to be in such a way.
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As I said, I assist people with their tax returns and I've done a lot of work with custodial parents, trying to make them understand how to make this decision for themselves. They have great difficulty understanding why, if they are paying the taxes, they're still getting higher child support. It takes about half an hour to explain to them what income splitting is.
Mr. Leon E. Benoit: So it's a matter of policy being based on perception - what looks good and what would sell - rather than on what is in fact good.
Ms Beattie: I think there was intense political pressure.
Mr. Leon E. Benoit: Yes.
Again, going back to your statement, there's an issue that I don't think I've heard brought up before: the fact that enforcement costs right now are tax deductible. Are you saying you think they might not be?
Ms Beattie: Well, they won't be, for the same reason as the men lost their deduction when the income inclusion disappeared: deductions and income inclusions balance. When you take out the income inclusion, you're no longer paying that expense to earn income, so there's not a hope thatMr. Martin will allow them to keep those two deductions. It's just standard tax rules.
Mr. Leon E. Benoit: That can be a phenomenal expense for custodial parents.
Ms Beattie: I know. I've appeared on the enforcement side of Bill C-41, and my legal costs were $350,000. A lot of people rely on the enforcement agencies, but for a case such as mine, which is international, it's hopeless to think somebody in Toronto is going to deal with it.
These are things that really allow single parents to take charge when they have to. It's extremely important. These two deductions are huge. They're huge. Nobody has mentioned them. They didn't appear in any of the documents. I think it is an oversight. It's what brought me into the fray, because somebody has to talk about it.
The RRSP contribution is also extremely huge for women. For some single parents, child support is the only earned income they have, and even if they only put $25 or $100 a year into an RRSP, eventually it gives you something you can count on that belongs to you, that you did for yourself.
Mr. Leon E. Benoit: That one I had heard talked about before, but not the issue of enforcement costs. I can see where that could be substantial in many cases, because I've heard of some of the bills that have come to ensure enforcement.
This is all interesting, because in Question Period today the parliamentary secretary to the finance minister said his government hadn't increased personal taxes at all. I don't know what you would call this.
Ms Beattie: This amounts to a tax increase for low-income custodial parents. For non-custodial, it really doesn't matter much, because the money you would normally send to the kids you will now send to the government. So it's not going to stay with them.
Mr. Leon E. Benoit: Well, it matters -
Ms Beattie: It matters in the sense that they would rather it go to the kids than to the government, where the government decides what to do with it.
Mr. Leon E. Benoit: Of course. Most non-custodial parents want what's best for the kids. This isn't what's best for the kids.
Thank you.
Mr. Herb Grubel: Could I ask a clarification question? I know everybody here wants to get to Bill C-93, but this is so important. I might want to write about this. It's just an unbelievable slip of this government. I think it's the same Minister of Justice who has given in to those kinds of things, because he is captured by a bureaucracy that is just totally out of touch with the people of Canada and does not want to do what's right. You don't have to respond to that, obviously.
I would like to ask a technical question. I thought the tax cost came from the fact that if you take $1,000 away from someone who has a marginal tax rate of 50% and give it to someone who has a marginal tax rate of only, let us say, 30%, there's a gap of 20%. How does this $50,000 come in? It would be true only if in fact the person making the payment had a lower marginal tax rate than the recipient's. Explain to me why this takes place at $54,000 of their income.
Ms Beattie: I didn't do that study, but I can give you a copy of the article.
Mr. Herb Grubel: It makes no sense to me.
Ms Beattie: She gives the names of the litigation accountants she used. She gives a table and you can see at what point you break even and there's no harm done.
The case where I quoted that $10,000 annually would be lost involved a situation where you had the payer at $100,000 and the custodial at zero.
Mr. Herb Grubel: I really look forward to seeing it.
Ms Beattie: I can give you a copy of that.
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Mr. Herb Grubel: In principle it's such a simple proposition. As long as the marginal tax rate of the payer is higher than the marginal tax rate of the recipient, there is a loss. Eventually, if there were conditions where it would be equal, then there wouldn't be any difference. Then it goes the other way around. Then in fact the government loses and the family unit gains. But that must be a very small exception, if that person who is receiving the money is at the same time staying at home taking care of the children. That's really only a theoretical possibility.
I really have difficulty understanding how a very significant proportion of that $410 million would be offset by gains. I have difficulty seeing that, other than just a trivial amount. Occasionally, maybe a person, after divorcing, wins the lottery or something of the sort.
Thank you, Mr. Chairman.
The Chairman: Thank you, Mr. Grubel. Thank you, Mr. Benoit.
Mr. Fewchuk, you had a question.
Mr. Ron Fewchuk (Selkirk - Red River, Lib.): Yes. In regard to Mr. Grubel's comments, for the record I would like to set something straight. I'm not too concerned about the vote for the Reform, but for the people I'd like to correct something. My understanding is that both sides have to agree, that there wouldn't be all these cases. Am I wrong in thinking that? The spouses both have to agree before the case is opened?
Ms Beattie: No, I think anybody can open it up. To do the election, where you don't go to court, you both sign a piece of paper and it's done.
Mr. Ron Fewchuk: That's what I mean: they both have to sign.
Ms Beattie: But if you don't agree and somebody wants to go to court and get a variation, then... The election is the easiest thing, because there's no cost.
Mr. Ron Fewchuk: If you don't have the answer, be honest and straightforward with me. You're not too sure; you're hesitating. You must know.
Mr. Leon E. Benoit: She answered.
Mr. Ron Fewchuk: I'm not speaking to you.
Ms Beattie: I have here the Revenue Canada documentation that they sent me as a package. It claims the election form and then there's another one.
Mr. Barry Campbell (St. Paul's, Lib.): Mr. Chairman, perhaps I can help out. I'm referring to the papers released with the budget:
- the payer and the recipient both sign and file a form with Revenue Canada stating that the
new...rules will apply to payments made after a specified date
But I think what we are talking about - and as I read this I don't see it, and we should clarify it - is whether one party to an agreement can alone apply to the court for a variation of the order, forcing the other to court for that. I'll look that up in a moment. I'm coming back with some comments later.
Mr. Herb Grubel. But that's not the issue.
Mr. Barry Campbell: Yes, that was his question.
Mr. Ron Fewchuk: Yes, that was my question.
Mr. Herb Grubel: But the issue to me is that -
Mr. Barry Campbell: Well, you may have lots of issues.
Mr. Herb Grubel: No, no, but this one was also surprising in that it wasn't in the newspapers.
I'm going to say father and mother. Forgive me if this is a wrong generalization and I'm politically incorrect. The father now will have to pay the same amount... Say the court said he has to pay $10,000 to his ex-wife. At the moment, with the marginal tax rate of 50%, it costs him only $5,000 after taxes. As of May 1, for that coming year, it will cost him $10,000. The point I made was -
Mr. Ron Fewchuk: That's not the question I asked.
Mr. Herb Grubel: Okay. Let me just restate the point.
Mr. Ron Fewchuk: It was to her.
Mr. Herb Grubel: Yes, but you referred to me.
Mr. Ron Fewchuk: Because both have to agree to sign.
A voice: Anybody can get a variance.
Mr. Ron Fewchuk: Thank you.
Mr. Herb Grubel: My surprise and the surprise of the witness is that the father, who will suddenly pay, after taxes, twice as much as he did in the preceding year, is going to go to the courts and say this is totally unjust and -
Mr. Ron Fewchuk: Anyway, we could argue here all day and all night, but we don't have that time. And it's the same for the mother.
Thank you very much. My question has not been answered.
Mr. Chairman, you can continue.
Mr. Herb Grubel: The problem is that there will be all kinds of non-custodial parents, to be politically correct, who will wake up overnight and find their obligations have doubled. But if they are at a marginal tax rate and the amount stays the same, they have the right -
Mr. Barry Campbell: You can't say that; have a look at the chart.
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Mr. Herb Grubel: They have the right to go to the court and say, when you, Mr. Judge orMrs. Judge, opened up that case and let me pay $10,000 for child support, that is no longer valid. I'm surprised that no more non-custodial parents have gone up and raised that issue. And they will.
Ms Beattie: If I could interject there, I will be very surprised if any of the non-custodials go into court and want the new guidelines put into place. It's the custodial parents who will, because after May 1 you don't get to open up a lot of the issues you used to be able to open up. The judge will simply look at the table and say, you earn $100,000, so you pay that. The only way you can deal with any other aspects of it is to plead undue hardship, and that's going to be very difficult.
So I will be very surprised if the non-custodials start -
Mr. Ron Fewchuk: It's not very difficult, if you have nothing, to plead hardship.
Thank you.
The Chairman: Mr. Campbell.
Mr. Barry Campbell: I have a number of points I want to make and questions I want to ask, but I want to start right where we finished.
Can you say unequivocally, right now - and I know you've done an extraordinary amount of work on this, and we've met several times about it - that Mr. Grubel is correct when he says the non-custodial parent will wake up the next day and find out his payment has been doubled as a result of the charts you have looked at, now that there will not be deduction-inclusion? Can we just deal with that for starters?
Ms Beattie: I think some might have doubled, but only the ones who were paying $50 a month, such a low payment, previously.
Mr. Barry Campbell: Right. So in your experience - and I know you've done an extraordinary amount of work on this - it is not the case that this is going to have this extraordinary doubling effect that Mr. Grubel thinks he's suddenly happened on for non-custodial parents. We have lots of things to talk about this afternoon, but I just want to make sure we don't get off on the wrong foot.
I do want to add, Mr. Grubel, in all fairness, that part of the problem that was identified in the extensive work that was done on this is that orders in this country are all over the map. Some judges are very good at understanding the income tax impact; some are not. Some orders are done fairly, taking into account the tax treatment of those payments; some are not. Parents, both custodial and non-custodial, come back afterwards and say they didn't realize the tax hit or they didn't realize this or that, and orders are varied all the time.
Part of the problem - and we're going to deal with facts here - is that orders have been all over the map and it is simply not the case that you can say as a generalization that non-custodial parents will now take a look at the chart and find their payments have doubled. That's a little extreme.
Mr. Herb Grubel: Could I answer?
The Chairman: Sure.
Mr. Herb Grubel: Isn't it true that anyone who is in the marginal bracket of 50% and has to maintain the same transfer of nominal amount to the custodial parent will suffer a loss of tax reduction of exactly one-half of the amount paid?
Ms Beattie: Actually the new guidelines take into account the fact that you no longer have the deduction. So the amount that the custodial parents are going to be getting will be less than what they would normally get under the old system, because there's more going to the government. So what the custodials don't know really and what is camouflaged in the guidelines is that if they retained the old system, they would have higher net child support, because the income-splitting benefit is being passed through to them.
The guidelines that are part of this legislation in effect give custodial parents less than they would otherwise have if they stayed with the old system. So you're not going to have a situation where somebody is transferring... For example, in my case, where the fellow is making $100,000, under the old system I would be getting over $3,000 a month. With the new tables it's $1,500 or something like that.
So there's a consideration there that more taxes are being paid, so you have less to pay in child support.
Mr. Herb Grubel: I beg your pardon. I just want to say one last thing. I know we have to get on. I am just saying that without going to the guidelines, which would be the consequences of going to the court, they will find that as compared with 1996 tax year, the 1997 tax year will mean, if nothing else changes, that their after-tax income will have decreased by $5,000. I stand by that assertion simply as a matter of logic.
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If you want to open it up, if they become unhappy as a result of that and go to a lawyer, who tells them that for some people there are guidelines that will make them pay even more, that's a different situation. But if you leave everything else the same, that non-custodial parent will have a marginal tax rate of 50% in my example of $10,000 a year, and at the end of next year will have an after-tax income that is $5,000 lower than what he had this year. Everything else remains the same. I stand by that.
Ms Beattie: You're talking about somebody with an existing order?
Mr. Herb Grubel: Yes.
Ms Beattie: The new rules do not apply to people with existing orders unless one of them does something to invoke the new rules.
Mr. Herb Grubel: The taxation?
Ms Beattie: Yes. People with existing orders can stay with the old system for as long as they're content with it. The moment you have a variation, you fall under the new rules. The new rules apply only to orders made after May 1.
Mr. Barry Campbell: Mr. Chairman, we'll let Mr. Grubel absorb that for a moment.
Mr. Herb Grubel: Well, now I'm embarrassed like anything. That's just terrible.
The Chairman: We're all learning a great deal from this. This is a communal quest for the truth.
Mr. Barry Campbell: Mr. Chairman, I had a number of other points. I just want to go back to the previous witness for a moment in order to respond to some things for the record and on behalf of the government.
Ms Dewar appeared before us a few moments ago. She was critical of the government's policies because they were not child-centred. In fairness, I have to say on behalf of the government that this has been the point. Ms Beattie may say we got it wrong, and some may disagree with some aspects of this, but the goal was to put children first and to see that children saw the benefit of support payments unaffected by tax treatment.
My second point is that the previous witness said - and this is a paraphrase - that we should not have a different situation prevailing for people who work and for people who are on welfare. In that connection, I draw her attention to the point and goal of the new Canada child tax benefit, which aims to end the distinction that exists and that has been unfair to working people.
The other point she raised - and this has also come up in Ms Beattie's testimony,Mr. Chairman - was with respect to the so-called tax grab that results from ending the revenue inclusion system and moving to this new system. As the government stated at the time, those revenue gains that result are being reinvested in principally two areas. One is greater enforcement. Picking up on Ms Beattie's point, that should hopefully lead to less enforcement action on behalf of custodial parents against non-custodial parents. And the second area, one in which it is already being reflected, is higher payments under the working income supplement.
Now I would like to come to Ms Beattie, first of all to congratulate her. We have met several times. I dare say there are probably few in this country who have spent as much time looking at this area as Ms Beattie has, and I want to congratulate her on her hard work.
But I do want to take exception with her opening remark to the effect that she's been trying to get heard, trying to get on the record. I'm not aware that she has been trying to speak to this committee about this issue and has been turned down. I stand to be corrected if that's the case. She is here today, at the time when we are studying this bill, which is the appropriate time. Furthermore, I'd like to add for the record that I know she has met with a number of MPs and officials as well. She has also gotten several letters back from this MP, at least, as I endeavoured in my own inept fashion to respond to some of rather provocative questions that she asked.
Ms Beattie: I meant on the record.
Mr. Barry Campbell: Well, that is what today is all about. I do think it's unfair to say -
Ms Beattie: That's what today is all about, but it's very close to the end.
Mr. Barry Campbell: Nonetheless, it is on the record and we are taking time to have this discussion.
Coming back to some of the points that you made, you suggested that the way in which these changes have been put in place is paternalistic and unfair. Obviously there are many in this country who disagree with you, who say the problem has been that the deduction-inclusion system has been complicating the issue of support for children. We're all concerned about the same thing here, but we disagree about the modalities. But the goal of this exercise, of this process, has been to ensure that children receive the support they need.
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In a process that involved a committee of MPs travelling across this country and a tremendous amount of work done by this government, a clear view was expressed in this country that the current system was not working well. First and foremost, that was because judges were inconsistent in the way they awarded support. Some judges were very good at calculating the tax impact, while some disregarded it. Some custodial parents and some non-custodial parents, by your own admission, were confused about the impact of taxation on their rewards. There were surprises all around. The existing system was having an unfortunate impact on the ability of children to have the support they need.
I have just a couple of other disparate points. As for what the dollars are, yes, we can know that. Non-custodial parents do indicate what their payments are in order to have the deduction. Those numbers are known. We can talk about all kinds of wild numbers, but we do know what the numbers are. Those are the numbers indicated in last year's budget.
As for the variation, I just want to clarify for the record that either parent can ask the court for a variation in the order, Mr. Chairman, although they can certainly both agree to go under the new system.
Last, the goal here has been a simpler system. As I said, we may just disagree with the modalities. Better enforcement is part of it. I think some non-custodial parents might even find that because of the way in which their awards were calculated, and because of inadvertent misunderstanding by judges about tax consequences, their payments will not be doubled or will not be the same. In fact, they might even be less. You have to look at the chart.
I have one last point, Mr. Chairman. I beg your indulgence. There has been some criticism - and Ms Beattie might be one who has made it - that it is unfair and wrong to not take into account the income of the custodial parent. That is a view that has been advanced by some. In fact, the income of a custodial parent is taken into account in the way the charts were put together.
In the guidelines, the parents' financial obligations towards children are treated independently. The support-paying parent's contribution is set according to his or her own income, without reference to the income of the custodial parent. The schedule awards reflect the amount that a parent with a particular level of income is expected, on average, to spend on his or her child. The custodial parent is expected to contribute a similar share of his or her income to meet the costs of raising this child. In this way - and I'm quoting from the material put out at the time of the budget - the children will share in increases or decreases in either parent's income, just as they would if two parents had continued to live together.
So, Mr. Chairman, I just wanted to add those clarifying points on behalf of the government. As always, I'm sure Ms Beattie we'll have reaction and comment, but that's why we're here.
The Chairman: Feel free, Ms Beattie.
Ms Beattie: I would stand by my opening remarks for the most part. The system they're going to may be simpler, but kids are going to be left with less. Let me analyse my own case and what would happen to our family. Granted, we're not getting any money, so this is all academic.
We're in a $100,000-zero position. if I went down to the courthouse on May 1 and said I wanted this new system, and if I then went home and analysed the situation, I would have $10,000 a year less at the end of the day because, under the new system, that money is going to the government. I would not get the working income supplement. The government is taking $10,000 from me and is giving it to somebody else. There are lots of families like that, and that's what's wrong here.
What you're telling custodial parents is that you will take money that would normally go to the children from their parent and are going to give it back to them in the form of a tax credit. Surely it's better to have it passing straight from the father to the child. Why take $10,000 from me and give it to somebody else? My kids are entitled to whatever their father can provide for them.
The Chairman: Mr. Grubel.
Mr. Herb Grubel: Would you agree with the proposition that this law would have been an improvement if just the schedule of payments depended on the non-custodial parent's income, if that was put into the legislation, and if the taxation rules changing the taxation treatment of the payment had been omitted?
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Ms Beattie: Actually, I think I mentioned that they actually published guidelines in January 1995, and those were based on the old system but have conveniently been forgotten.
You're getting the issues of guidelines and taxation all mixed up. Guidelines are good things, but the tax aspect of it is difficult. If you compare the tables they published in 1995 with the tables they have published under this legislation, the consequences to custodial parents are quite severe. The money that would normally go to the father of the child because of the income-splitting benefits will now be going to the government, and the government is saying that it is going to spread it out over 1.4 million working poor.
Mr. Herb Grubel: You see, this is the typical reaction that we got all of the time. We would bring up the taxation issue and we would be told, oh, but we provide those guidelines. My answer has always been to ask why they don't just provide the guidelines or make the guidelines into law if they wish, while forgetting about the tax treatment. Do you think that would be best for Canadian children?
Ms Beattie: As I said, I think the new system should be optional. The fact that they've actually published guidelines under both systems doesn't create any more work for anybody. In that way, what people will be deciding is... I've assumed that the goal here is to maximize child support for the children from the parent first, and if there's any weakness in family income, the child tax benefit then comes in and supplements it. But surely the first responsibility is to children.
What this legislation does is basically say the state is almost going to take first responsibility. With the new system, you're rendering low-income custodial parents less well off in terms of child support from a parent. You're actually creating poverty and are saying that you're going to create a program, a national child tax benefit, to alleviate that poverty.
Mr. Leon E. Benoit: Well said.
Mr. Herb Grubel: Yes, well said.
Ms Beattie: This legislation actually penalizes low-income custodial parents.
The Chairman: Mr. Benoit.
Mr. Leon E. Benoit: In his comments, the parliamentary secretary said again that this legislation was aimed at making things better for children. Again, how can taking $410 million a year to $1 billion a year from children make things better for them? The $410 million figure is apparently the budget number, and -
Mr. Barry Campbell: No, it's not. Don't use your numbers, Mr. Benoit. They're out of style.
Mr. Leon E. Benoit: It's not? Well, then, we're hearing conflicting numbers from the witness and from the parliamentary secretary.
Ms Beattie: The 1996 budget document says that $410 million is the cost of the deduction-inclusion rules for 1996-97.
Mr. Barry Campbell: Sorry, the cost of what?
Ms Beattie: The 1996 budget document gave that figure as the estimated total cost - and I'm quoting here:
- ...the estimated total cost of the deduction-inclusion tax rules for federal-provincial
governments for 1996-97. Of that, $240 million was federal and $170 million was provincial.
Mr. Leon E. Benoit: We're talking about the total. There's only one taxpayer, and $410 million to $1 billion is an awful lot of money to take away from children.
Mr. Barry Campbell: Let's leave the inflation out of it, Mr. Benoit.
Mr. Leon E. Benoit: I think it is a matter for debate.
Ms Beattie: If you ask me for my personal opinion on the amount of the windfall, I would say it's going to be upwards of that because of the two factors that aren't there, plus the deductions.
Mr. Ron Fewchuk: Mr. Chair, I don't know what we're arguing about. We'll never solve that here with their figures. We're wasting good, valuable time.
Mr. Leon E. Benoit: The other question I wanted to ask is whether or not the numbers that were in the budget include or take into account the fact that enforcement costs will no longer be tax deductible. I'd like the parliamentary secretary to answer that.
Mr. Barry Campbell: I'm not aware of that. I don't know the answer to that question.
Mr. Leon E. Benoit: You don't know the answer to that. It might kind of bump it up a few million, then.
The Chairman: Mr. Farber, would you like to help us out on that?
Mr. Leonard L. Farber (Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance): In regard to the enforcement costs, Mr. Chairman, there is no specific Income Tax Act provision under which they are deductible. There are rules of general application whereby costs laid out in order to gain the benefit of an income stream would be deductible. So to the extent that the amounts under the new orders coming into effect after April 1997 are not included in income, the presumption I would make - and it would require an interpretation by Revenue Canada, which I don't think to this point in time has been tested - would probably not be deductible under rules of general application.
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The Chairman: So that would be as Ms Beattie said.
Mr. Farber: Yes.
Mr. Barry Campbell: Mr. Chairman, the government takes the view that enforcement will be easier under the new system, and she and others like her will not have some of the expenses they've had -
Ms Beattie: I beg to differ.
The Chairman: I really think these fees should be deductible, even though the income is not taxable.
You're shaking your head, Ms Beattie, as if you disagree with me. I think I'm agreeing with you, that they should be deductible.
Ms Beattie: We would like them to be, but I don't think you can have it both ways. Standard tax rules are that with a deduction, you have to have paid the expense to earn some income that's somewhere on your return, sometime.
The Chairman: The interest I pay on my loan to buy shares, the dividends of which are non-taxable to my corporation, I can deduct.
I would advise that the government at least look at the issue as to whether these legal fees incurred to gain support, even though they're not taxable to the custodial spouse, should perhaps be deductible.
Ms Beattie: I'll read you what the general tax guide says - and this is a letter I wrote to Mrs. Stewart -
The Chairman: No, I understand that it might not be. Mr. Farber agreed with you, Ms Beattie. All I'm saying is that I would think the government should take a look at this particular issue you've raised. The other one is the RRSPs, which you've also raised.
Is it true that Ms Beattie is right, that there would be no possibility of a custodial spouse getting a deduction for an RRSP now, because her income is not taxable?
Mr. Farber: I believe that's right, Mr. Chairman. If it's not taxable, you therefore don't calculate it in your inclusion of income, and you therefore don't have a pension adjustment amount. So there's no room under which to claim an RRSP deduction.
The Chairman: Was this foreseen, do you think, or intended in terms of the legislation? It seems to me it's desirable that every Canadian be encouraged to set aside money for their retirement. There should be a level playing field of deductibility.
I think these are two issues that you've raised in a very intelligent and compelling way,Ms Beattie. We can certainly look at these issues.
Mr. Farber: I think, Mr. Chairman, the issue in general of pensions for homemakers is something the government has been seized with and has been reviewing. This would be a subset of that general issue as to whether it's through a Canada Pension Plan or other means of providing pension income for homemakers generally who are not in the workforce. It's a very general issue that is deserving of further analysis and study.
The Chairman: Thank you. Is there any further discussion?
Ms Beattie, Mr. Campbell complimented you on the amount of effort you have put into this. This is an outstanding brief. We seldom see briefs prepared by professional organizations, with paid experts, that are as cogent. I congratulate you on this work.
Ms Beattie: Thank you.
The Chairman: I know you're going to be disappointed with this bill, but it need not necessarily be the end of the efforts.
Ms Beattie: No. I just felt the issues had to be put on the record. This isn't even my issue; enforcement is my issue. But I felt compelled, because there were certain things that simply didn't seem to get thought about.
The Chairman: Mr. Grubel and Mr. Fewchuk have a few friends who would help you with the enforcement side of it, if you wish.
Again, on behalf of all members, may I thank you very much, Ms Beattie. Good luck in getting that money.
Ms Beattie: Thanks.
.1630
The Chairman: Can we get back to the bill, ladies and gentlemen?
Shall clauses 2 and 3 carry?
Mr. Barry Campbell: Mr. Chair, do I have to get in this chair before the committee when I move from one side of the table to the end?
The Chairman: You're like the Speaker moving to the Committee of the Whole. It doesn't make a damned bit of difference as far as we're concerned.
Mr. Barry Campbell: I want to indicate that officials are here if questions arise. Of course, I do want to make a brief opening statement to indicate to you, Mr. Chairman, that we are bringing forward 13 amendments. All are technical and result from either consultations or improvements in the wording of the relevant provisions.
The Chairman: They're really good ones, too.
Mr. Barry Campbell: Yes. To give you a sense of how good they are, seven of them relate to the coming into force of the other provisions affecting multinational insurers. In effect, the date is extended from commencing after 1996 to after 1997. This is because consultations have taken longer than anticipated and have not as yet been finalized, thereby giving the industry more time to adjust.
Two of the amendments relate to the new child support system and ensure that payments under the agreement made after April 1997 are subject to the new system.
The other amendments deal with labour-sponsored venture capital funds and resource properties. They are highly technical and ensure that the wording of the provisions are in accordance with the policy.
So those are government amendments G-1 through G-13.
The Chairman: That's great, Mr. Campbell. Thanks a lot. You did a good job on those.
Clauses 2 and 3 agreed to on division
Mr. Herb Grubel: Mr. Chairman, all the clauses agreed to are on division.
The Chairman: Fine, Mr. Grubel.
Clause 4 as amended agreed to on division [See Minutes of Proceedings]
Clauses 5 to 7 inclusive agreed to on division.
Clause 8 agreed to on division [See Minutes of Proceedings]
Clause 9 as amended agreed to on division [See Minutes of Proceedings]
Clause 10 agreed to on division
Clause 11 as amended agreed to on division [See Minutes of Proceedings]
Clauses 12 to 16 inclusive agreed to on division
Clause 17 as amended agreed to on division [See Minutes of Proceedings]
Clauses 18 to 22 inclusive agreed to on division
Clause 23 as amended agreed to on division [See Minutes of Proceedings]
Clauses 24 to 38 inclusive agreed to on division
[Translation]
The Chairman: Mr. Guimond, you have worked hard and I congratulate you on that. What did you do all weekend?
Mr. Michel Guimond (Beauport - Montmorency - Orléans, B.Q.): Members of the Bloc Québécois are hale and hearty.
The Chairman: Courageous and assiduous.
Mr. Michel Guimond: Our motto is: You don't have to be constipated to be effective.
[English]
Clause 39 as amended agreed to on division [See Minutes of Proceedings]
Clause 40 as amended agreed to on division [See Minutes of Proceedings]
Clauses 41 to 61 inclusive agreed to on division
Clause 62 as amended agreed to on division [See Minutes of Proceedings]
Clauses 63 and 64 agreed to on division
Clause 65 as amended agreed to on division [See Minutes of Proceedings]
Clauses 66 to 70 inclusive agreed to on division
Clause 71 as amended agreed to on division [See Minutes of Proceedings]
Clauses 72 to 75 inclusive agreed to on division
Clause 1 carried on division
The Chairman: Shall the title carry?
Some hon. members: Agreed.
Mr. Michel Guimond: On division.
The Chairman: Shall the bill carry unanimously?
Some hon. members: Agreed.
Mr. Michel Guimond: On division.
The Chairman: Shall I order a reprint for use at report stage?
Some hon. members: Agreed.
The Chairman: Shall I report the bill to the House?
Some hon. members: Agreed.
The Chairman: Mes amis, officials, colleagues, thank you very much for all your speedy work and good questions on this particular bill.
Mr. Barry Campbell: May I thank the hon. members and our chair on behalf of the government.
The Chairman: Thank you.
.1635
Mr. Herb Grubel: Mr. Chairman, may I ask what the odds are that something will happen with respect to the presentations and the concerns we heard today? Is that completely out of the question now that we have passed it?
[Translation]
The Chairman: Thank you, Mr. Guimond.
[English]
Mr. Barry Campbell: Mr. Chairman, if I might respond on behalf of the government, I certainly intended to take back to the minister those two points and to look into them for the future. I don't know if, as this committee chair, you want to express in writing to the minister your views, on behalf of the committee, that those issues should be looked at. That certainly would be one way to proceed.
Mr. Herb Grubel: They've now ruled out that they are part of this bill.
Mr. Barry Campbell: They would not be at this point. As Mr. Farber said in his response, the first issue, the deductibility of enforcement expenses, is a matter of interpretation that the department would have to consider. The second one is related to a broader question.
So I think at this time we'll have to leave them both there.
Mr. Herb Grubel: The way the legislative process works, we're all through with this now, and any change would have to come in a new bill, next year or whenever.
The Chairman: There could still be amendments made at the report stage in the House,Mr. Grubel. I don't know when it will get reading, but my guess is that it would be within the next two weeks. Therefore, there could be an opportunity - although it's a faint hope, in my estimation - to discuss this with the minister.
Mr. Herb Grubel: I would encourage the chairman to write a letter to the minister reflecting the sense of what we heard today and to use his considerable energy to try to see that something can be done at maybe the amendment stage and before third reading.
The Chairman: Mr. Grubel, I would welcome your writing a letter too, if you want, so that I don't misinterpret or anything. I would not be speaking on behalf of the committee. I think you should feel free to do a letter.
I will certainly make sure the two questions I raised are brought to the minister's attention, but I know you have much broader concerns with the bill.
Mr. Herb Grubel: Those have already been expressed in debate, but we're now talking about new information that I did not have at the time.
The Chairman: Ms Beattie did some good work on that.
Mr. Herb Grubel: Yes, she did.
The Chairman: Thank you very much.
We adjourn at the call of the chair.