Sunday, July 30, 2006

Reforming Canada's tax system: Seniors

After a couple of weeks putting my thoughts about the Canadian tax regime on the side burner, I am going to try to finish this up. After talking about personal and corporate taxes and the GST, as well as how we might consider taxing native Canadians, I want to now talk about seniors.

Rich or poor, it's our forefathers and foremothers that have built this country. They paid the taxes that helped start our social safety net, so it is only fair they get special consideration in their "golden years." There are certain aspects of the system, however, that need a rethink.

The first is the seniors' tax credit. Once a universal credit, it is currently clawed back at fifteen cents on the dollar once net income (and that includes tax-free benefits such as workers' compensation and the Guaranteed Income Supplement) reaches $30,270. That's stupid. It means once a senior's income reaches $57,377 the credit is totally phased out. There is simply no rhyme or reason for double taxing a person's income in that manner -- it's discriminatory, plain and simple. What's more, every province and territory has a similar clawback. It may have been necessary as a temporary measure to fight the deficit, but now that we're in surplus (at least federally) it's stupid.

So, quite simply, I'd restore universality.

Second, the Harper Government recently increased the tax-free amount on private pensions, available to seniors from $1000 to $2000. All well and good, except many people only get the government pensions. It's only fair that the Guaranteed Income Supplement, paid to the lowest income seniors, be increased by an equivalent amount. With an average marginal rate of 25%, that would work out to $750 a year, $62.50 per month, on top of the maximum supplement. This would allow more seniors to qualify and give them a little bit more dignity.

Third, while it is entirely appropriate that a senior should reapply each year to continue getting the supplement (if he or she is entitled to it), doing what is currently done and eliminating it entirely if one doesn't file an income tax return before April 30th is punitive. There should be some leniency there, perhaps giving seniors with little or no income until June or even July to file, so they aren't shocked and screaming on the phone at helpless bureaucrats who are only trying to do their job.

As for the Old Age Security clawback: It's currently imposed at net income above $62,144, also at a rate of 15% until it phases out at $102,031. Some seniors wind up paying an effective rate of 100%. It may be true that OAS was meant to protect poorer seniors, but that definition went out the window with the introduction of the supplement. Besides, it's also a deficit fighting tax that is no longer needed. So for this one, I'd phase out the clawback over five years, three percent at a time. Over time, consideration should also be given to making it completely tax free, as the supplement is -- in other words, making OAS a negative income tax; as the Child Tax Benefit used to be until Harper screwed it up earlier this year to make sure parents got less money and not more. (I've discussed that before, but I'll expound on it when I do a later post about taxing families and children.)

Finally, only a limited number of seniors are entitled to use a simplified version of the tax form -- everyone else must use the General. More large print forms should be published. Also, services such as filing by phone should be made available to the maximum number of seniors that are entitled to it. It saves resources, and ensures they get both the supplement and the GST credit they're entitled to.

Once again, just a little imagination is needed to make things smarter. The tax system should be structured so benefits trickle from the bottom up, not the top down. There is no such imagination from any of the major parties at present on this one.

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