Private Members’ Business / Financial Limitation

Business of ways and means: motion not necessary for a tax deferral

November 1, 2006

Debates, p. 4540

On June 21, 2006, Rob Nicholson (Leader of the Government in the House of Commons and Minister for Democratic Reform) rose on a point of order regarding Bill C-253, An Act to amend the Income Tax Act (deductibility of RESP contributions), standing in the name of Dan McTeague (Pickering–Scarborough East). The Government House Leader argued that while the intent of the Bill was to alleviate the tax burden for individuals who contributed to registered education savings plans, Bill C-253 contained specific provisions that would effectively increase the amount of tax payable by the taxpayer. He concluded that, since it had not been preceded by a ways and means motion, Bill C-253 was improperly before the House. The Government House Leader asked that the Bill be stricken from the Order Paper.^[1]

On November 1, 2006, the Speaker delivered his ruling. He declared that, although Bill C-253 could have the effect of increasing the tax payable by given individuals by making certain refunds of RESP contributions taxable, this amounted to a tax deferral and thus did not have to be preceded by a ways and means motion. He concluded that Bill C-253 was therefore properly before the House.

Decision of the Chair

The Speaker: I am now prepared to rule on the point of order raised by the hon. Government House Leader on June 21, 2006, in relation to the procedural issues relating to Bill C-253, An Act to amend the Income Tax Act (deductibility of RESP contributions), standing in the name of the hon. Member for Pickering–Scarborough East.

In his arguments, the hon. Government House Leader explained that clause 2 of the Bill contained provisions which would effectively increase how taxable income was calculated and thus result in potentially more taxes being collected. Specifically, subclause 2(5) would make any refund of payments regarding contributions to RESPs considered as taxable income. Subclause 2(6) necessarily repealed a section of the Income Tax Act, which would have made such refunds excluded as taxable income.

Therefore, the hon. Government House Leader argued that if Bill C-253 was creating a new tax burden, then it should not have been given first reading without the adoption of a ways and means motion, and the Speaker should discharge the Order for second reading and remove the Bill from the Order paper.

House of Commons Procedure and Practice provides some information on the operation of taxation bills on pages 758 and 759:

The House must first adopt a ways and means motion before a bill which imposes a tax or other charge on the taxpayer can be introduced. Charges on the people, in this context, refer to new taxes, the continuation of an expiring tax, an increase in the rate of an existing tax, or an extension of a tax to a new class of taxpayers… Legislative proposals which are not intended to raise money but rather reduce taxation need not to be preceded by a ways and means motion before being introduced in the House.

Furthermore, on page 898 it states:

With respect to the raising of revenue, a private Member cannot introduce bills which impose taxes. The power to initiate taxation rests solely with the government and any legislation which seeks an increase in taxation must be preceded by a ways and means motion.

As I understand it, the current RESP regime requires the person contributing to the plan to make such contributions out of after tax income. If, subsequently, the amount in the plan is not to be used for funding post-secondary education as intended, the contributor may have the contributions refunded. This refund is not taxed as the original contribution was made from income on which tax had already been paid. Similarly, a student withdrawing money from an RESP is not required to report the contribution amount as income, but only the interest earned while the funds were invested in the plan.

Let us now turn to the proposal before the House. The summary of Bill C-253 states that the Bill provides “that contributions to a Registered Education Savings Plan are deductible from a taxpayer’s taxable income”.

The Bill also provides that if, at a later time, contributions are taken out of the plan by the contributor, they are to be included as taxable for that year. Not having been taxed initially, the contributions would cease to enjoy tax-exempt status at the time of withdrawal from the plan.

This proposal amounts to a tax deferral. Rather than making contributions out of after tax income, the contributor would be provided with a tax deduction at the time that the contribution is made. If, subsequently, the money is not used for educational purposes but is withdrawn from the plan, the funds would be reported as taxable income at that time.

I do not regard such a tax deferral as imposing any increased tax burden on the contributor. It is permissible for a private Member’s bill to introduce a tax exemption, or to propose a delay in the reporting of income. Therefore, I find that Bill C-253 is properly before the House.

Accordingly, in my view, debate may continue on the Bill in its current form.