Widow’s tax

Senior women suffer economically from widowhood much more than senior men, according to a recent study by Statistics Canada. More precisely, the study reveals adjusted income declines continually among senior women during widowhood.

Five years after the death of their spouse, the adjusted income of senior women declines by more than 15 per cent – from $25,800 one year before widowhood to less than $21,900 afterwards. More widows fall below the low-income threshold at this time. That puts 8.7 per cent of widows on low income, compared with 5.1 per cent of widowers. The loss comes mainly from lower pension income and earnings. For widowers, lower earnings are the main reason for a decrease in adjusted income.

The study does not explain why widows suffer more. One obvious conclusion is that many families have only one pension: the husband’s. In other cases, the widow may have worked outside the home fewer years at a lower rate of pay during which she accumulated fewer pension credits and RRSP savings. This situation was partly due to discrimination against married women in the workplace – lower pay, fewer advancements and automatc dismissal when they married or became pregnant. In this scenario, incomes of many widows drop because the husband’s pension died with him – the ultimate blow from the years of discrimination.

Another cause is the punitive income tax paid by single-pension couples throughout their retirement. Canada’s private pension incomes cannot be shared between spouses unlike income from the Canada Pension Plan.

The impact varies on total income and circumstances. The tax penalty can be as high as 45.8 per cent, according to a 2006 study by Bruce Price, chartered accountant of Owen Sound, Ont. The highest per cent penalty is in the $32,000 income range – the very same range that affects the majority of retired couples.

The “Widow’s Tax” is the compounded erosion inflicted by the tax system on single-pension couples over time. It affects a couple’s ability to save and consequently reduces the value of the estate left to the widow. As women live about 10 years longer than men, they are much more vulnerable. Over the years, the extra tax burden puts many households into a no-win financial bind with little or no money put aside for the likely event of widowhood.

It is ironic and especially cruel that, having suffered discrimination in the workplace throughout their productive years, senior women have to endure further prejudice when they are most vulnerable – after the death of their lifetime mate and breadwinner.

The StatsCan study says all widows at all income levels are affected. Some widows are obliged to liquidate the family home (if they have one) and move into smaller rented quarters, a situation that eats into equity very quickly. Many widows are then forced to apply for subsidies and/or rely on family or charity to help with rising costs.

The new Conservative government is well aware of the problem that the tax system imposes on retirees but, for some reason, seems hesitant to act. On budget night, Federal Minister of Finance Jim Flaherty promised to review pension-splitting in his fall pre-budget. Otherwise, he has been very reluctant to discuss the issue.

Retirees’ organizations are turning up the heat. They are mobilizing as never before. Representatives of two million Canadians have joined the struggle.

Already, 15 organizations have added their voices to that of CARP, Canada’s Association for the 50-Plus, calling for personal income tax reform. They include retirees from the armed forces, the civil service, teachers, the Royal Canadian Legion, retirees from telecommunications, industry and airlines, and seniors from across Canada. Many are submitting formal briefs to the parliamentary committee on finance and plan to appear at hearings across Canada this fall.

Realizing that they, too, will be affected, younger earners appreciate that tax discrimination does not affect just their parents and their grandparents but eventually their own retirement plans.

For more information, go to www.pensionsplitting.ca, georgianbay.carp.ca or www.canada-incometax.net.

Dan Braniff is chair of the CARP Georgian Bay Chapter and liaison for 16 organizations that are collaborating for tax reform on the pension-splitting issue.