1933-01-31

PENSION ACT ADMINISTRATION


Hon. MURRAY MacLAREN (Minister of Pensions and National Health):: An inquiry was made yesterday by the hon. member for Muskoka-Ontario (Mr. McGibbon) with reference to the report of the committee investigating the administration of the Pension Act. I now take this opportunity of tabling the report.



UNEMPLOYMENT RELIEF

Hon. W. A. GORDON (Minister of Labour) :: Mr. Speaker, I desire to lay on the table of the house a number of orders in council passed in pursuance of the relief legislation, referring to the payment of sums of money.



RAILWAY ACT AMENDMENT

[Stage Direction]
Mr. THOMAS REID (New Westminster) moved for leave to introduce a bill to amend the Railway Act (rates on grain).
Hon. R. J. MANION (Minister of Railways and Canals):: I would ask the hon. gentleman to be good enough to allow this bill to stand for a day or two until I can give a short explanation, possibly tomorrow, which I think will obviate the necessity of introducing the bill.


Mr. REID:: I shall be glad to agree to that
Motion stands.



IMPERIAL ECONOMIC CONFERENCE


[Stage Direction]
On the orders of the day:
Hon. W. D. EULER (North Waterloo):: I should like to ask the Prime Minister or the Minister of Finance if they can give me any information as to the truth of a statement appearing in this morning's paper to the effect that after the first of April next empire goods in order to obtain free entry into Great Britain must have a fifty per cent empire content in labour and materials. Is that correct?


Right Hon. R. B. BENNETT (Prime Minister):: At the sessions of the Imperial economic conference which took place at Ottawa, the discussion as to empire content was carried forward for some time and various suggestions were made. Generally speaking, fifty per cent was regarded as a reasonable empire content, and the British government concluded from their standpoint that they would fix fifty per cent, effective from the first of April next, as sufficient empire content to entitle goods to the benefit of the empire preference. That refers, however, not t,o all goods, but to a limited number, particulars of which I shall in due course lay on the table of the house. The report in the press is a summary of what the intention of Great Britain is. We finally agreed at the time of the conference that each country could probably best decide for itself what would be a reasonable content, and the matter will be further considered at the meeting of the committee on cooperation which will be convened on the fourteenth of February.


William Daum Euler: Is there to be any uniformity in the matter?


Richard Bedford Bennett: That was a question that engaged our attention here, and it was concluded at that time that it was difficult to provide for uniformity. That was the reason why no conclusion was arrived at, as no doubt the hon. gentleman has observed from the record of the proceedings.

Tariff Board



PETER VERIGIN

[Stage Direction]
On the orders of the day:
Mr. J. S. WOODSWORTH (Winnipeg North Centre):: Several weeks before the adjournment of the house an order was passed for the production of papers relating to Peter Veregin, who the newspapers state is about to be deported. I should like to ask the Minister of Immigration when we may expect the papers to be brought down.


Wesley Ashton Gordon: Any papers that bear upon the Veregin referred to as Peter Veregin will be brought down. I regret if there has been any delay in bringing down the return.
I shall immediately look into the matter and have the papers tabled as soon as possible.



TARIFF BOARD

Right Hon. W. L. MACKENZIE KING (Leader of the Opposition):: There have been several intimations to the effect that the personnel of the tariff board would be announced at the time of the opening of the house. Is the Prime Minister in a position to say who the members are, or whether the members have been selected?
Right Hon. R. B. BENNETT	(Prime
Minister): I think practically every hon. member of the house knows something of the difficulties connected with completing the personnel of the tariff board. In pursuance of the promise that was given that we would endeavour to obtain a board that would not be censured or criticized as, to use the language of one hon. gentleman, a board of political hacks, or at all events of not too pronounced a political stripe, we have been endeavouring to meet that view to the best of our ability, and I contemplate .being able to make a statement to the house before the end of the week.


William Lyon Mackenzie King: I suppose the Prime Minister has not felt that a conference with the opposition would be at all helpful in securing members who would be persona grata to both sides of the house.


Richard Bedford Bennett: The only difficulty, Mr. Speaker, that I would experience with that would be to know which opposition was meant -the rising tide, it is so said, opposite and to my right, or the ebb tide directly in front.



SOLDIER LAND SETTLEMENT

[Stage Direction]
On the orders of the day:
Mr. CAMERON R. McINTOSH (North Battleford): I understand that during the
parliamentary recess the Minister of Immigration and Colonization came to some definite conclusions regarding soldier settlement policy. May I ask when he is going to give parliament and the country the information as to what these changes are.
Wesley Ashton Gordon: The same question was asked and answered yesterday, Mr Speaker, but unfortunately the hon. member for North Battleford was not in his seat. There has always been, since we have been here, a definite policy with respect to soldier settlers which has bee.n consistently carried out.
I have set it forth on a number of occasions, and as I stated yesterday I have under review possible remedial legislation which I hope to be able to present to the house before the session is concluded.



WHEAT SHIPMENTS TO GREECE

[Stage Direction]
On the orders of the day:
Mr. J. A. BRADETTE (North Timiska-ming):: I should like to ask the Minister of
Trade and Commerce with respect to a press dispatch dated December 24 last, announcing that Greece was negotiating with Argentine for wheat on account of some disagreement with the Canadian government. May I ask if a new agreement has been concluded with Greece, and has there been a decreased exportation of Canadian wheat to Greece within the past year?
Hon. H. LI. STEVENS (Minister of Trade and Commerce): There is no new agreement with Greece. A very considerable quantity of Canadian wheat has been exported to Greece within the last few months.



GOVERNMENT WHEAT PURCHASES

[Stage Direction]
On the orders of the day:
Mr. THOMAS F. DONNELLY (Willow Bunch): Just before the house adjourned, the Prime Minister promised to give the house and the country a report on the government's activities in the wheat market during the past two or three years. When may we expect that statement?
Richard Bedford Bennett: If the hon. gentleman will look at the record, he will find that that is not a correct statement. The discussion which took place between the hon. member for Battleford and myself finally explained the situation, and that undertaking will be kept.
Trade Relations with Russia



TRADE RELATIONS WITH RUSSIA


Richard Bedford Bennett: Mr. Speaker, some question has
been raised regarding trade relations with Russia, and I thought that at this time it would be well to make a statement as far as possible covering the whole field.
1.	A trade agreement was negotiated in 1921 between the United Kingdom and the Union of Socialist Soviet Republics. On August 22, 1921, and December 26, 1921, through appropriate minutes in council, the government of the United Kingdom were informed that Canada desired to participate in the arrangement, and a formula to be embodied in notes to be exchanged between the British foreign office and the Russian trade delegation with the object of making applicable to Canada the provisions of the trade agreement was approved by the Canadian government. Effect was given to this decision by an exchange of notes, under date of July 3, 1922, and the British trade agreement was applied to Canada from that date. Subsequently a Russian trade delegation was established in Canada.
2.	A general treaty of commerce was negotiated in 1924 between the Union of Socialist Soviet Republics and the British government, but in November, 1924, after the Labour party was defeated in the general election, the new Foreign secretary, Mr. (now Sir) Austen Chamberlain, indicated to the Russian representative that the government found themselves unable to recommend the treaty in question to the consideration of parliament or to submit it to the King for His Majesty's ratification, so. that Anglo-Russian commercial relations continued to be governed bv the trade agreement of 1921.
3.	Following like action by the United Kingdom, Canada formally recognized the Soviet government by letter from Mr. King, the then Prime Minister, dated March, 24, 1924, directed to Mr. A. Yazikoff, the Soviet official agent at Montreal.
4.	In May, 1927, a search was made of the offices of the Anglo-Russian trade organization in London and as a result the trade agreement between Russia and Great Britain was terminated. The Russian representatives were requested to leave the country on the ground that as the result of the search it was conclusively proved that military espionage and subversive activities throughout the British empire were directed and carried on from the offices of the organization. The

Russian Mission denied the statements but complied with the request to leave Great Britain, and the British representative in Moscow was simultaneously withdrawn. Canada took the same position as the United Kingdom. Mr. King, then Prime Minister announced that Canada had taken independent action and declared itself free from the obligations of the agreement, and he further stated that this action was being taken "on our own initiative as a result of the evidence we have before us at the present time" as well as on "the statement of the British Prime Minister in parliament", which "leaves no doubt as to propaganda being conducted by the agents of the Soviet". In the note sent by Mr. King to the Soviet official agent in Canada, he informed him that the Canadian government had concluded that the Soviet authorities had failed to "refrain from hostile action or undertakings and from conducting outside their own borders any official propaganda direct or indirect against the institutions of the British empire, which was an essential condition of the agreement as entered into by Canada as well as by the United Kingdom".
5.	On April 16, 1930, a temporally commercial agreement was entered into between His Majesty's government in the United Kingdom |ad. the government of the Union of Socialist Soviet Republics pending the conclusion of a formal treaty of commerce and navigation. The agreement was to remain in force until a commercial treaty was concluded subject, however,^ to the right of either party at any time to give notice ^ to the other to terminate the agreement, which remained in force until the expiration of six months from the date on which such notice was given. The protocol contained a provision that the contracting parties were animated by the intention to eliminate from their economic relations all forms of discrimination, and that they agreed that, so far as relates to the treatment accorded by each party to the trade with the other, they would be guided in regard to the purchase and sale of goods, in regard to the employment of shipping and in regard to all similar matters by commercial and financial considerations only and, subject to such considerations, would adopt no legislative or administrative action of such a nature as to place the goods, shipping, trading organizations and trade in general of the other party in any respect in a position of inferiority as compared with the goods, shipping and trading 'organizations of any other foreign country.
6.	In 1930 by chapter 3 of the statutes of that year parliament conferred upon the gov-

Trade Relations with Russia
ernor in council power to place an embargo against goods imported from any country which was not a party to the treaty of Versailles.
On February 27 and December 10, 1931, pursuant to the powers thus conferred, orders in council were passed, the effect of which was to prohibit the importation of coal, wood-pulp, pulpwood, lumber and timber of all kinds, asbestos and dressed furs from the Soviet Union.
At the Imperial conference in August, 1932 a trade agreement was entered into between the United Kingdom and Canada. Article 21 of which reads as follows:
This agreement is made on the express condition that, if either government is satisfied that any preferences hereby granted in respect of any particular class of commodities are likely to be frustrated in whole or in part by reason of the creation or maintenanced directly or indirectly of prices for such class of commodities through state action on the part of any foreign country, that government hereby declared that it will exercise the powers which it now has or will hereafter take to prohibit the entry from such foreign country directly or indirectly of such commodities into its country for such time as may be necessary to make effective and to maintain the preferences hereby granted by it.
Having regard to the provisions of the temporary trade agreement entered into by the United Kingdom with the Soviet Republics in 1930, as above mentioned, effect could not be given bo article XXI so long as that trade agreement continued in force. In consequence of this, the British government on October 17, 1932, notified the Soviet government of the termination of the agreement, which would thus be terminated six months from that date, or on the seventeenth day of April, 1933. The British government a.t the same time intimated their willingness to open negotiations with the Russians for a new agreement. It was not suggested at any time during the discussions at the Imperial conference that Great Britain should cease to trade with Russia. On the contrary, the British representatives made it perfectly clear at all times that trading operations on a large scale had been carried on and that credits had been established which, in point of fact-, were renewed shortly after the conclusion of the Ottawa conference. Similarly, except for the articles covered by the embargo there have never been any restrictions on trading between Canada and Russia, except that in 1931 Russia placed an embargo against the importation of any commodities from Canada.
Later in 1932 a private arrangement was made between an aluminum company in Canada and the Soviet government, under which a certain quantity of aluminum was purchased and paid for by petroleum. The government of Canada was not a party to the transaction except in so far as it became necessary to determine the duty payable on the imported petroleum.
It may be of interest to the Manchester Guardian and other British papers which have been so vigorously assailing the government during the last few weeks that, in consequence of the embargo against the importation of Russian coal, employment has been afforded to Welsh and Scotch miners to the extent necessary to produce for importation into Canada during the calendar year 1932, 1,399,086 tons of anthracite coal.
While returning to Canada from Great Britain, in December last, I received press messages by wireless that an agreement had been concluded between Canada and Russia for the exchange of Canadian cattle, hides, and other commodities for Russian petroleum and coal. I replied that there was no foundation for such reports. No communication of any kind has been received from the Soviet government in this regard.
It would appear that one G. G. Serkau, with associates, conceived the idea of doing a barter business with Russia, and Mr. Serkau, having seen Mr. Weir, the Minister of Agriculture, at Ottawa, proceeded to New York and later to Moscow in connection with the business. As a matter of fact he went there apparently as the emissary of a syndicate, the expenses being provided by one well-known member of it. Although he alleges that he had communication with the authorities there, he has produced no evidence that he has any agreement with the Soviet government, and no communication regarding his proposals have been received from them. The mere statement of what the proposals of Mr. Serkau are would be sufficient to indicate that this is an effort to make very substantial profits under circumstances to which I shall presently refer.
On December 21 last, Mr. Serkau wrote Mr. Weir, the Minister of Agriculture, as follows:
Since we aim to obtain for the Canadian cattle producers at least five eente for grade, and a much higher price for registered stock, the total amount payable by the Russian government for 100,000 head of oafetle, including freight, etc., will be in the neighbourhood of $8,000,000. On the other hand, the prices at Black sea ports of the commodities that Russia is to give in return are so low that it will require an enormous tonnage of petroleum products, etc.
Having in mind the time required for marketing and storage facilities in Canada, I

Trade Relations with Russia
am of the opinion that there will be substantia! balances owing to our corporation from time to time, unless, of course, we are to renew negotiations with Russia for a much slower delivery of the cattle, say over a period of two or two and a half years instead of twelve months. This, however, I fear, will militate against our chances of producing the desired effect, i.e., to increase the price of cattle in Canada. Moreover, particularly in the case of western grade stock, you will appreciate that during the months of July to November, we will have to lift enormous numbers of cattle.
I believe that my associates and myself, with what capital we could muster and with expected assistance from banks or other sources, could finance the purchase of a cargo or two of c-attle, including the freight and expenses to Black sea ports. This, I estimate, would be about $1,000,000. Therefore, if we could take Sufficient quantities of kerosene, lubricating oil and anthracite we could probably get along without any financial support from your government. Or, if we spread the deliveries of cattle over a period of two or two and a half years, as I said before, we may be able to market the products received in payment as we deliver the stock.
But I am firmly convinced that it will be necessary for us to ship the live stock within the twelve month period, in fact, perhaps deliveries would almost have to be completed by November of 1933 if we are to serve the interests of the Canadian live stock producers. I expect also that it would be unsafe to estimate that we could handle the enormous tonnage of petroleum, etc., within that period.
Therefore, I think it would be wise to figure on a basis of your government guaranteeing Russian seven per cent bonds payable June 1, 1935, for such balances as may be owing to our corporation from time to time. The total amount involved in such guarantees I would estimate at not more than $4,000,000, at any time and only very little of these bonds will remain unpaid at the end of the term, for the reason that we will be taking deliveries continuously and the value of such deliveries *null be applied on the bonds.
In asking for this support from the government, our corporation would be prepared to employ the government's nominee as comptroller of disbursements and receipts.
1 learned abroad that the German government established a credit to Russia of $75,000,000 and cashed Russian bonds at par as these bonds were received by German exporters and presented to the treasury. The British government guaranteed Russian bonds received by British exporters to the extent of sixty per cent. This partial guarantee satisfied the British exporters owing to the fact that they increased their prices to Russia to such an extent that sixty per cent paid them for their merchandise, pins reasonable profits. Our case is somewhat different inasmuch as the increase in prices of live stock from the present market price of two and one-quarter cents to five cents per pound, will enure to the benefit of the producers and not to our corporation. Therefore, it will be necessary for us to have balances fully guaranteed.
It should be observed that the nature of this transaction is largely in the interests of the live stock industry, the profits to myself and my associates being merely brokerage commission.
IMr. Bennett.]
One other form of support that I imagine we will require is some manner of protection against breach of contract by the Russian government. While we will under no circumstances make any disbursements until the contract has been signed on behalf of tile Russian government and until a representative of that government has arrived in Canada and approved of live stock purchases, still I fear that careful bankers, under present conditions, will demand some manner of assurance that our corporation will incur no loss if the Russian government should fail to accept the cargoes of stock, or tail to deliver the products to be given in payment. This, of course, could, at the most, only involve a cargo or two of live stock, and I do not believe that there is the slightest chance of default by the Russian government, but I do expect to be confronted with that question when applying for assistance from banks even for short term financing.
Accompanying the communication was a memorandum of suggested conditions of trade transactions between the Union of Socialist Soviet Republics and the Canadian syndicate, represented by Mr. Serkau; but there is no evidence that the Soviet government or its representatives ever agreed to these proposed suggestions, and on being pressed Mr. Serkau had to admit that they were merely notes of suggestions that he himself made. The memorandum reads as follows:
Suggested conditions of a trade transaction between the U.S.S.R., hereinafter referred to as the " Union," and
The Canadian syndicate, represented by G. G. Serkau, hereinafter referred to as the " Syndicate."
The union to purchase from the syndicate
100.000 live cattle (to include five per cent pedigreed and registered stock) within a period of one year from the date of the contract. The stock to be purchased by the syndicate from Canadian producers in the presence of inspectors of the union.
The price of live stock to be cost plus cost of purchasing, maintenance, freight, insurance, etc., plus one cent per pound.
That is the brokerage. It only runs between twenty and thirty per cent!
The syndicate to deliver the live stock to Black sea ports and to receive at Black sea ports credits to be given by the union on account of payment for the stock purchase.
To apply on payment for the stock so purchased the union is to deliver to the syndicate f.o.b. Black sea ports the following products in quantities as hereinafter stated:
Petrol:	During the months of April to
October, 1933, both inclusive, 2,000 metric tons per month.
During the months of November 1933, to March i934, both inclusive, 5,000 metric tons per month, and
From April 1931, to the end of the term,
20.000	metric tons per month.
Kerosene: Beginning with April 1933, from
5.000	to 15,000 metric tons per month during the term.
Lubricating Gil: Beginning with April 1933, from 200 to i,000 metric tons per month during the term.

Trade Relations with Russia
Anthracite:	Beginning with the month of
April 1933, from 3,000 metric tons to 20,000 metric tons per month during the term.
In the above, in every ease where the tonnage is in varying quantities per month, such variations shall be at the option of the syndicate.
The syndicate to have the privilege of buying from the union, pulpwood for delivery in the United States of America, and shall apply the value of such pulpwood purchases on account of payment of the live stock sold to the union. The prices of all the products to be delivered by the union in payment of stock purchases herein to be, in the case of petroleum products prevailing	universal or	basis	current Gulfprices, and for anthracite the price to be not in excess	of	the prices	paid	by Canadianimporters	of	anthracite	coal	from Britishexporters. The syndicate in any event to be paid in full for the live stock etc., sold to the union on	or	before June 1.	1935, by the
application of products delivered to the syndicate, and the balance in cash at the end of the term. Balances owing by the union to the syndicate from time to time shall be subject to interest at seven per cent per annum, such interest charges to commence on the dates of advances made by the syndicate with respect to purchase of live stock or expense advances, and the union to be credited with the value of its deliveries of products as above, on the days when such products have been loaded into ships for shipment into Canada.
The reply of the minister to this communication and memorandum was to request that he be given such information as would satisfy him that any agreement existed between Mr. Serkau and his associates and the Soviet union. This information has not yet been supplied. The letter reads as follows:
Ottawa, December 23, 1932.
G. G. Serkau, Esq.,
Chateau Laurier,
Ottawa, Onit.
Dear Mr. Serkau:
I would refer you to the subject matter of our discussions on various occasions since the 15th October, and particularly since your return from Russia, with regard to the purchase in Canada of 100,000 head of cattle for export to Russia, in exchange for petroleum products etc., from that country to Canada.
I would be glad to place before my colleagues the proposed transaction as outlined in the memorandum which you submitted upon receipt of a definite statement from you that the government of the U.S.S.R. is desirous of entering into trade on such a basis as you outlined.
Yours very truly,
R. Weir.
No further communications have been received in that regard.
I think this house will agree that no Canadian government would seriously consider a proposal to provide credit facilities for a syndicate of vendors and at the same time to guarantee -that the alleged purchaser, the Soviet government, would discharge its obligations to the vendors.
Shortly put, the matter stands in this light. Proposals were made on behalf of promoters
desirous of entering into a commercial transaction for profit. The proposals are in writing. They contemplate the payment by the purchasers of commission of from 20 to 30 per cent depending upon the value of the live stock, the commission being one cent per pound. A request was made that a guarantee be given not only for one half of the entire suggested purchase price, namely $4,000,000, but also that the government of Canada should guarantee that the government of Russia would keep its alleged undertakings with those who put them forward. That is the proposal.
The minister, before even submitting it to the government for consideration, asked for evidence of the bona fides of the transactions. It has not yet been received and those who are interested in the propaganda that has been carried on in this country by at least two public newspapers, and the manner in which it has been carried on, will be able to decide for themselves whether or not despatches, sometimes carrying a date line of a community in which they were not written, to arouse, on the strength of statements that were made in the public press or elsewhere, we do not know, anticipations which were incapable of realization, are conducive under present conditions to the national welfare.


Mr. STEWART (Edmonton):: I should like to inquire of the Prime Minister whether he has read all the correspondence that has passed between the minister and the syndicate.


Richard Bedford Bennett: I believe so.


Charles A. Stewart: If not, I
would be glad to be furnished with any further correspondence in connection with the matter.


Richard Bedford Bennett: The hon. member means: Have I read here to-day all the correspondence?


Charles A. Stewart: Yes.


Richard Bedford Bennett: I have read the relevant part of the correspondence. There was a communication from Mr. Serkau to the minister about the health of cattle in Canada, whether they were free from tuberculosis.


Charles A. Stewart: I am not
concerned in that correspondence. The correspondence I am concerned in is with respect to this particular transaction.


Richard Bedford Bennett: I have read all of which I am aware.


William Lyon Mackenzie King: In the early
Trade Relations with Russia

part of his statement the Prime Minister referred to the action of the late Liberal administration in withdrawing certain privileges that had been conceded to the Russian agency in Canada at the time that Canada became a party to the commercial treaty between Great Britain and Russia. I think my right hon. friemd in a subsequent portion of his statement made it clear that the action taken by the then administration was net intended in any way to interfere with trade between Canada and Russia; it was simply that certain diplomatic privileges which had been granted to this agency were cancelled on the score of evidence which we had at the time that the Russian government had not fulfilled the conditions on which the original treaty had been entered into. I think I am correct in saying that a communication was given to the house at the time by myself to the effect that the action of the Canadian government was not intended in any way to interfere with perfect freedom of trade between Russia and Canada so far as individuals were concerned.


Richard Bedford Bennett: There has been no departure from that except in so far as the order in council which I read placed an embargo against certain named commodities.
In view of the fact that members may desire an opportunity to make any observations they please with respeot to the matter, while I have made no formal motion, because I do not know of any motion except one to adjourn, with your permission, sir, I would be quite willing that a discussion should take place and I would endeavour at the conclusion of it to give any explanation that might be thought desirable.


William Lyon Mackenzie King: I appreciate
the offer the Prime Minister has just made. I think it would be preferable to allow us to read the statement which my right hon. friend has given to the house and perhaps at a later stage we shall have an opportunity of discussing it.



INCOME WAR TAX ACT

[Stage Direction]
Hon. E. N. RHODES (Minister of Finance) moved the second reading of Bill No. 11, to amend the Income War Tax Act.
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Geary in the chair.
On section 1-Personal corporation.
William Lyon Mackenzie King: Perhaps the
minister would give us a brief explanation of the bill. It is some time since we have had an opportunity of considering it.


Air. RHODES:: Sections 1, 2, 3 and 4 are
designed to amend the law relating to personal corporations. I shall have the statute here in a moment or two, but it will be remembered that the income tax law creating personal corporations was enacted in 1926. This law was made applicable to personal corporations as then described existing in 1925 and thereafter. Prior to that time the law had been that a company paid a company tax and the individual shareholders paid a tax only as and when dividends were declared. Realizing that the company tax was but 9 per cent-I am speaking now as of that time-and the individual tax by successive brackets of income rose as high as 40 per cent on incomes up to $140,000 and higher in the higher brackets if an individual had an income above that sum, many individuals resident in Canada were incorporating companies which they controlled, the income of which was not a manufacturing or merchandising one, but was income derived from stocks, bonds, debentures, real estate, such as dividends, interest, rent and so forth. This income was taxed at corporation rates of taxation and higher bracket rates were avoided. The personal corporation section, in effect, for taxation purposes ignored the existence of the company and continued to tax the individual on the income of the company as if the individual had received it direct, and thus brought the income by brackets for taxation purposes under the increasing rates of taxation. To this law there was no objection. However, evasions of the law were effected by incorporation of companies outside Canada. Although they were owned entirely within Canada, they were controlled outside Canada and an attempt was made by that method to avoid income taxation in Canada. It is proposed now to make it clear, as it is believed was always the intention, that notwithstanding the fact that an individual company, person or corporation may be incorporated outside Canada, and the assets may be held outside the country, inasmuch as it is owned and controlled in Canada its income should be taxed in the same manner as if it were the income of a company located and managed in Canada.


Charles A. Stewart: How will the minister obtain the information in that event? Take the case of a company incorporated outside Canada but doing business in Canada, just as any foreign company might be doing business here. What method will the minister adopt to establish the fact that it is a Canadian company? How will he succeed in establishing that fact?

Income War Tax Act


Edgar Nelson Rhodes: The best answer I can give to that question is a twofold one. In the first place the mere fact that this proposed legislation has been introduced into this house has had the effect already of bringing substantial sums of money into the treasury from companies of that character. In the second place there must come a point where the individual Canadian, if lie is to derive any advantage from his income, must eventually bring some of it back to the country.


Charles A. Stewart: Then it is
taxable.


Edgar Nelson Rhodes: Yes, and the knowledge
then becomes available.


[Stage Direction]
Section agreed to.
Sections 2 and 3 agreed to.
On section 4-Shareholders to file statement of personal corporation.
Mr. POWER:: Subsection 7 reads:
"(7) The shareholder of a personal corporation who controls such corporation shall file with his income tax return a statement of the assets, liabilities and income of the personal corporation.
Should it so happen that this personal corporation is controlled by a combination of individuals, "his wife or any member of his family", which shareholder shall file the return? I think this provision ought to be amended to make that point quite clear.


Edgar Nelson Rhodes: The Commissioner of Income Taxation will be here in a moment but my impression is that the knowledge as to the ownership of a personal corporation is common. As a rule a personal corporation, although there may be several shareholders, is in effect owned and controlled by one individual.


Charles Gavan Power: The definition of personal
corporation is given in section 1 of this bill: Personal corporation means a corporation or joint stock company . . . controlled, directly or indirectly, by one individual who resides in Canada, or bv one such individual and his wife or any member of his family, or by any combination of them or by any other person or corporation or any combination of them. . . .
I would suggest that perhaps it would be well to enlarge the scope of subsection 7 to cover combinations of shareholders instead of one shareholder.


Edgar Nelson Rhodes: Wre might let that subsection stand for the moment. Later on I will deal with the point my hon. friend raises.


Mr. RYCKMAN:: I believe the hon. member will see that the proposed amendment is 53719-106
perfectly clear if he will read the interpretation. of "personal corporation" which is given in chapter 97, of which this is an amendment. That definition reads:
"Personal corporation" means a corporation or joint stock company (no matter when or where created) controlled directly or indirectly by one person. . . .


Mr. HANSON (York-Sunbury):: Section 1
of this bill sets up a new definition which in effect repeals the other.
Section stands.
On section 5-Non-resident Canadian officials-allowance.


Edgar Nelson Rhodes: I will ask the Minister of National Revenue to move the following amendment to this section:
That section 5 of the bill be amended by inserting after the word Canada ill the second line thereof these words: "or an agent general for any of the provinces of Canada, or ,any officer, servant or employee thereof."


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 6-Persons liable to tax.
Edmond Baird Ryckman: I move that section 6
be amended by inserting after the word Canada, as first appearing in line four thereof, the following words:
or an agent general for any of the provinces of Canada, or an officer, servant or employee thereof.


Charles Gavan Power: Do I understand from this
section that employees or servants of the government of Canada or agents general of any of the provinces who reside, let us say, iu the United Kingdom or in the United States, are subject to Canadian income tax?


Edgar Nelson Rhodes: Yes. This means that the class of officials defined in this bill shall be subject to income taxation in Canada, but in making out their income tax returns they can receive credit for any income tax they pay on their official salaries in the countries in which they are located.


William Daum Euler: Are the employees of other
countries resident in Canada subject to our income tax? My understanding was that there were to be reciprocal exemptions.


Edgar Nelson Rhodes: In all cases, so far as I
know, there are such reciprocal exemptions, but this statute provides that in the event of taxation being imposed, then allowance may be made to the extent of such imposition. Where taxation is not imposed, then we sub ject such incomes to taxation.

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Charles Gavan Power: I would direct attention to a class of persons who have been specially taxed under legislation of last year; I refer to the judges. Perhaps this is not quite relevant to what is under discussion, but I understand that a special income tax of ten per cent has been imposed on judges. There are income taxes other than those imposed by the federal government; in some cases there are provincial and municipal taxes. Certain judges are now being forced to pay their municipal or provincial income taxes upon the basis of their salaries which have been in fact reduced by the special income tax imposed last year upon members of the judiciary, the military forces and the police. The result is that these people who draw salaries from the Dominion government are being discriminated against much more than the ordinary civil servant who has received a straight ten per cent cut. Judges, officers of the army and officers of the police are being made to pay a special income tax of ten per cent to the federal government and are then being taxed by the municipality or the province upon the basis of their nominal salary.


Edgar Nelson Rhodes: The objection just raised oy the hon. member for Quebec South (Mr. Power) is one which is applicable not only to judges but to all those who pay income tax. This objection has been raised times without number with respect to all income tax payers. There is no doubt that in a measure an injustice is done to the individual who receives a stated sum of money and pays income tax upon that amout and when a second taxing authority comes along is forced to pay not only upon the amount which remains to him after the first income tax has been levied but also upon a sum which he does not receive. In some instances there is a third taxing authority which comes along and does the same thing. It seems to me that in equity there should be some distinction made but the difficulty is to ask a taxing authority which is competent and fully within its taxing sphere to forego its rights and permit another taxing authority to be considered as superior and having the first choice, as it were. I do not think it is incumbent upon the dominion treasury to defer to the provinces or municipalities in a matter of this kind, but it does seem to me-this is merely my own view, it is not the considered view of the government- that if there are, we will say three income taxes imposed upon the one income, the residuum remaining after the dominion has imposed its tax should be the sum upon which the province could impose its taxation, and

continuing along the line to the municipality, its tax should be imposed upon the residuum then remaining to the individual. However, I do not think the remedy is one which can be sought in this parliament.


Charles Gavan Power: If the minister desires a remedy il might suggest that had he and his colleagues paid some heed last year to our representations upon this matter he would have imposed a straight ten per cent cut upon the salaries of judges and others and would not have taken a roundabout way by making them pay a special income tax. That is the burden of my complaint. For example, a judge who is receiving $12,000 would receive $10,800 if his salary had been cut ten per cent, and the municipal or provincial income tax would have been imposed upon that amount. Under the legislation which exists at the present time by which these judges have to pay a straight ten per cent income tax, they have still to pay the municipal or provincial tax upon the $12,000 salary.


Edgar Nelson Rhodes: As my friend must realize, this discussion is at the moment largely academic.


Charles Gavan Power: It is not academic.


Edgar Nelson Rhodes: It is so far as any effect
upon judges or others is concerned. For that reason I do not think that any advantage will accrue, at this stage at all events, from pursuing the discussion with my hon. friend.


Charles A. Stewart: I had hoped that this matter would have been one of the subjects for discussion at the recent provincial conference. May I point out that there are others besides the judges who are suffering the same effects. I do not see any possibility of there being a reduction in taxation, on the contrary I think the minister will have to increase taxation, but the fact remains that this matter of duplication of taxation imposed upon not only judges but other individuals is something which should be settled by arrangement between the federal and provincial governments.


Edgar Nelson Rhodes: 
Mr. POULIOT:: Would it be possible for
our distinguished high commissioner in London, the Hon. Mr. Ferguson, to pay his income tax with humbug, the Hon. Mr. Herridge in Washington to pay his with Hooverism, and the Hon. Mr. Marler with ambassadorial dignity? If that were done I am sure the debt of the country would soon be wiped out.


[Stage Direction]
Section agreed to.
On section 7-Information returns.
Edgar Nelson Rhodes: There has been considerable misapprehension in the minds of the public in connection with this section. The idea has got abroad that there has been a change in the time and method of filing income tax returns but of course those who have read the proposed amendment know that there is no difference whatsoever in the system. The income tax returns will be filed at precisely the same time as hitherto has been the case. This section provides that the returns made to the income tax authorities by incorporated companies and giving a list of the shareholders who are in receipt of dividends shall be accelerated in its preparation and in the hands of the income tax authorities a month earlier than has been the case previously. This will enable the income tax office more conveniently to prepare its assessments and speed up the sending out of accounts. As I understand it, no objection has been raised in the great majority of cases. It may be that in the case of the odd individual company which has a large number of shareholders, the amount of labour involved would impose a hardship upon the company if it were called upon to present its return a month earlier, but that class of company would compose only a fraction of those making these returns. If a case is made out by such a company there is a provision in the law which enables the minister to provide for a deferred return. I might further point out that inasmuch as this legislation was introduced some months ago and the section was drafted with a view to its passing probably at an earlier stage in the session, to give effect to it at this later day might impose a hardship on some companies, and therefore it is not the intention of the income tax authorities to have this apply to the income tax returns of this year. If this passes it will remain on the statute books, and it will be known to the companies that their returns need not be accelerated until one year hence.
53719-106J


William Daum Euler: The minister has pretty well anticipated an answer to a question I was going to ask. Apparently he is merely asking for an earlier return by one month. I had in mind, and I think the public had in mind, that this one month's earlier return might merely be in preparation for a demand of one month's earlier payment of income tax, as might be provided when my hon. friend brings down his budget; but I gather from his remarks, that there is no intention of asking for an earlier payment of the tax than has been the case in the past. Perhaps my hon. friend does not desire to give an answer to that question, but it does occur to one that the reason for asking for an earlier return by one month is that it is the intention to ask for an earlier payment by one month.


Edgar Nelson Rhodes: My hon. friend will appreciate that I am estopped from stating what may be the provisions of any budget that I or any successor of mine might bring down. At the same time I can assure my hon. friend that this provision has no bearing, nor can it be construed as having any bearing, upon the case which he raises.


William Daum Euler: It was only an inference-


Edgar Nelson Rhodes: And the inference was not warranted.


[Stage Direction]
Section agreed to.
On section 8-Continuation of liability for tax.
Charles Gavan Power: Have there been cases where it has been successfully contended that the minister cannot re-assess if the first assessment has been found to be insufficient?


Edgar Nelson Rhodes: This is simply to make
clear beyond question that the right of the government to income tax is in no way to be hampered by reason of returns having been filed, nor is the government to be estopped from collecting what may be due by reason of the fact that it has accepted income tax on a given set of figures. In reply to my hon. friend's question, that point has never-been contested in practice, as I understand it..


Charles Gavan Power: The old section was pretty broad. It read:
55. Any person liable to pay the tax shall continue to be liable, and in case any person so liable shall fail to make a return as required by this act, or shall make an incorrect or false return, and does not pay the tax in whole or in part, the minister may at any time assess such person for the tax, or such portion thereof
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as he may be liable to pay, and may prescribe the time within which any appeals may be made under the provisions of this act from the assessment, and may fix the date of payment of the tax.


Edgar Nelson Rhodes: Notwithstanding the apparent clarity of that language, the fact remains that many people still have the view that unless they make a false return, once they have made a return the government is estopped from going back.


Charles A. Stewart: But the
government have gone back.


Edgar Nelson Rhodes: Certainly, and I want to
make that very clear. Furthermore, quite improperly, some people have taken the view from the use of the words "incorrect or false return" that provided they make a bona fide return, notwithstanding the fact that it may subsequently turn out to have been an incorrect return, the government is estopped from going back and correcting the error simply because it was not a false return. The new section is merely intended to clarify the language and to make perfectly clear what the intention is.


Richard Burpee Hanson: Has there been any legal decision that once an assessment has been made the minister is estopped? I would like to remind the minister that the principle of estoppel does not apply against the crown.


Edgar Nelson Rhodes: It applies if there have
oeen appeals from the decision of the minister to the Exchequer court, but the amendment itself is not in dispute. The issue is a question of fact; whether the individual or company paid income tax on the correct amount.


Richard Burpee Hanson: Not a
question of jurisdiction?


Edgar Nelson Rhodes: No.


Mr. HACKETT:: I doubt if this section
can be satisfactorily disposed of without reading section 10. The committee will notice that section 10 provides that different sections of the bill may be applied to periods in the past of varying lengths. It becomes retroactive to 1926, as regards some sections, to 1925 as regards others, and to 1917 as regards section 8. I think that an attempt will undoubtedly be made, and fairly, to interpret section 55 as amended as giving clear authority to the crown to review all assessments made since the act oame into effect in 1917. Now if there is one upsetting influence in business, whether it arises from changing

tariffs or fluctuations in currency, it is uncertainty, and if a company, having settled with the income tax branch sixteen years ago, and having acted upon the assumption that it has paid to the crown all that it owed, is now to be asked to pay substantial sums for past periods, results untoward and pernicious may well follow. There is no finality. Let us imagine a company which made large profits in 1920. The company made its return-


Charles Gavan Power: This applies to individuals
also.


John Thomas Hackett: But it does not go back so far with respect to individuals. The company made its return and paid its tax in good faith, and has gone on through the years on the assumption that it owed nothing more because it received a receipt in full, and now it is asked to pay a very substantial amount. That might result in bankruptcy for some companies. It might result in unemployment. It certainly would result in uncertainty. I submit that whatever merit is to be found in the section, it should not be made retroactive. Taxation is an ill to which we must all submit, but it is well that we should know its exact purport and extent, and that having settled and having shaped our course on the settlement made, we should not be asked to review a situation that has been closed. The great criticism of taxation legislation in the United States is that there is never any finality; the tax-payer is assessed and pays his tax, and years afterwards is re-assessed and subjected to all the penalties that result from dishonesty. I therefore suggest to the minister that this section as drafted, with the implications that are found in section 10, should receive most careful scrutiny if he wishes to avoid the troubles and the worries and the real hardship which will result from making any legislative aot retroactive for sixteen years.


The ACTING CHAIRMAN (Mr. Geary):: It seems to me we are going far afield, and that we ought to confine our discussions to the section now before us.


John Thomas Hackett: It is impossible to discuss section 8 fully without referring to section 10.


George Reginald Geary: We discussed sections 1, 2 and 3 without section 10, and in my view we were doing exactly the same thing at that time.


John Thomas Hackett: With the slight difference, Mr. Chairman, that sections 1. 2 and 3 go back two or three years and that the others go back sixteen years.

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Charles A. Stewart: My hon. friend would not suggest fraud should be covered in the returns.


John Thomas Hackett: No.


George Reginald Geary: Shall we discuss retroactive sections, or take them in order?


Richard Burpee Hanson: To a great extent I agree with the remarks of the last hon. member but I would not go so far as to say that in the case of a dishonest return the crown should not have the right to reopen.


John Thomas Hackett: That is not the point, so far as I am concerned.


Richard Burpee Hanson: I should like to put these facts before hon. gentlemen and have their opinions: What about the case of an estate where there was an incorrect return, distribution has taken place fifteen years ago, and clearance certificates have been issued to the executors and trustees? That may be extreme, 1 am referring to an incorrect return of an estate in which those making the return have acted in a purely representative capacity, in which distribution has been made, and upon which the trustee has acted, and concerning people who may have died or married, or in other ways changed their status. Where will the end be? Surely that case should appeal to the minister.


Edgar Nelson Rhodes: The clause I have presented does deal with such circumstances. I am hoping that no such injustice will arise, because the crown would be estopped from going back over the old ground.


John Thomas Hackett: Estoppel does not apply to the crown.


Richard Burpee Hanson: I could show the minister case after case in which the crown has not been bound by the principle of estoppel. I remember, that in a case against the crown in which I appeared I discovered decision after decision where the crown was not bound by the principle of estoppel.


Edgar Nelson Rhodes: I do not wish to engage in a long legal discussion with the hon. member, but I understand it is a principle of law that the law of estoppel does not apply to the crown. I say however that to all intents and purposes, so far as the administration of the income tax is concerned, it does apply. If my hon. friend would refer to section 55 he would see that if the trustee carries out his duty he will get a certificate of clearance from the income tax department.


Mr. BURY:: I draw attention to the words appearing in the first line of the new section. As it reads now it provides, "Notwithstanding any prior assessment," without qualification whatsoever. I suggest that after the words " any prior assessment " the words " based on an inaccurate return" should be added. Otherwise the provision of the act, even though there may be an accurate return, leaves the income tax payer open to liability. The suggested section reads: "Notwithstanding any prior assessment, or if no assessment has been made, the taxpayer shall continue to be liable for any tax." Surely there is no intention to continue the liability of a taxpayer if his return has been made accurately, and if the assessment and payment have been made on an accurate return.


George Reginald Geary: What liability would remain?


Ambrose Upton Gledstanes Bury: His liability for his assessment, so it says.


George Reginald Geary: There is no liability.


Ambrose Upton Gledstanes Bury: The statute says it shall remain.


George Reginald Geary: But it cannot remain if it does not exist.


Edgar Nelson Rhodes: My hon. friend should
read this section in conjunction with the whole act. If a return is accurate, that is the end of it. The assessment would be accurate also.


Charles Gavan Power: There should be a distinction where a return is accurate, but the assessment inaccurate, and where the department has asked for a further payment.


Ambrose Upton Gledstanes Bury: I merely call attention to the fact that the original act contains the very phrase to which I have referred.
Any person liable to pay the tax shall continue to be liable, and in case any person so liable shall fail to make a return as required by this act, or shall make an incorrect or false return-
And so on. Why not include the same provision in the new section?


Edgar Nelson Rhodes: I pointed out that in
practice those words have been interpreted by the individual making out his income tax return in the sense that there must be an element of falsity in the return. That is not the intention at all. A return may be incorrect or inaccurate and may still have been submitted in all good faith, and with the honest belief that it was correct. I have already explained that is the reason the words

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"incorrect or false" have been eliminated in the proposed new amendment. It has always been the intention in the administration of the act that those persons subject to the tax would remain subject to it only until they had fulfilled their obligations to the crown by virtue of the act.


William Daum Euler: I am in accord with what
has been said, so far as fraud is concerned. In my view there should be no limit upon the liability of the individual who has committed fraud. But in cases where incorrect returns have been made and, as the minister has stated, where they have been made in absolute good faith, I think there ought to be some sort of finality. A concern might very easily make a return in good faith, but in that return" there may be inaccuracies. Where there is a responsibility upon the department to see that correct returns are made, and where it would appear that returns have been made in good faith and no fraud can be proved, I believe the returns should be finally approved. To my mind there should be at least that protection given the taxpayer. If after a lapse of two or three years no fault is found with a return, it may be that an individual may make a distribution of his assets or his profits, and he may find that in a period of eight or ten years he is faced with notice of an inaccuracy of which he did not know. In those circumstances I believe he would not be fairly treated, and it would not be just to ask him to pay with means he no longer possesses. I believe there should be reasonable consideration in those cases.


Edgar Nelson Rhodes: I have no fault to find
with the spirit shown in the remarks by the hon. member for North Waterloo. His remarks are based upon the premise that injury may be done to an individual making a return. But let me point out to my hon. friend that this very provision can be a protection to the individual. Because it has transpired in other countries, where the attempt has been made by statute to reach finality in the matter of returns, that the income tax authorities in many instances, realizing that it was their last chance, made sure that the assessment upon individuals was sufficiently large to be beyond question on the safe side.


William Daum Euler: That is not fair. It is
dishonest.


Edgar Nelson Rhodes: It may be dishonest; I
am speaking of the actual facts of administration. It is not so in this country, but it has been in other countries. It seems to me 
that basically there can be no objection by the individual, he is only called upon to pay his honest tax, he should pay it the same as other individuals, and should not escape because of the fact that errors have arisen. However well-intentioned he may have been, however honestly these errors may have occurred; he should pay his just share. It seems to me cases of injustice under these circumstances would be far fewer than if, once having made a return, that was the end of the matter.


William Daum Euler: Why should not the statute
of limitations apply in this case the same as in others?


Richard Burpee Hanson: I was
about to make some remarks about this question of finality to which my hon. friend on the other side has referred. Notwithstanding all that the minister has said, there are in the provincial jurisdictions local statutes of limitations against the crown. There is no reason in the world why there should not be some limitation in the case of a man who has made an honest return, but has inadvertently made a mistake. I do not think you ought to go back so far. I would ask the minister to give some consideration to the point raised by the hon. member for North Waterloo (Mr. Euler), with a view to doing away with uncertainty. Take the case of a trusteeship; an executor who has got a clearance is amply taken care of by the statute. What about the case where executors have a continuing trust and have not got a clearance, but have made a distribution, and the money is gone; is that taken care of by the statute? I have in mind a case in my own practice, a long continuing trust, a trust company in charge. The trust may last for thirty years. They distribute the money, the people die.
The trouble with legislation of this kind is that all its ramifications are not given consideration when the legislation is adopted. Some situation arises: you attempt to cure that by legislation. You meet the immediate case but may do an injury to someone else. That is what I would like the minister to consider.


Edgar Nelson Rhodes: Mr. Chairman, in reply to
my hon. friend from York-Sunbury (Mr. Hanson), let me say there need be no difficulty in the case put by him. If the trustee is wise he will confer with the income tax authorities and get his clearance, whether the distribution is made in part or whether absolute disbursement of the whole estate takes place at one time. He is absolutely protected

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in the latter ease the same as in the case first raised by my hon. friend. And I am told that there has been no difficulty in the administration along that line.


John Thomas Hackett: Mr. Chairman, it has been pointed out by the minister that this amendment might afford an opportunity for remission to the taxpayer who might have paid too much. There is no suggestion that the administration of this act has not always been fair and considerate, but there is a very definite period mentioned in the statute which precludes the taxpayer from having his returns reviewed. Section 69 of the act makes the return final as regards the taxpayer. It says:
If a notice of appeal is not served or a notice of dissatisfaction is not mailed within the time limited therefor, the right of the person assessed to appeal shall cease and the assessment shall be valid and binding notwdthstanding any error, defect or omission therein or in any proceedings required by this act.
I am not at the moment taking serious exception to the suggested enactment as set forth in section 8. I am objecting to the portion of section 10 which makes it retroactive to 1917. I am going to ask the minister if he does not think this question of sufficient importance to stand this section over for further consideration and possible redrafting. Just as sure as we are here, if it be enacted there will be a constitutional controversy over it, the department will find itself confronted with an attack on the validity of this legislation, and there will result expense, delay and all the harrassing incidents that flow from the enactment of legislation without all possible safeguards. I am therefore going to ask the minister if he will not let this section stand for a few days to ascertain if it is not possible to restate it in a way that will be more acceptable to everyone.


Edgar Nelson Rhodes: There is no disposition on my part, nor on the part of the government, to crowd this measure through the committee with undue haste. It is true it has been oefore the house for some two months or more. I would be quite content to leave the bill in committee. But I may say to my hon. friend that while we must be just to the individual-and we all wish to be just to the individual-we must be just to the crown .and the treasury as well. My hon. friend knows full well that if a contest arises in court as between the individual and the *crown the law is construed against the crown every time. The crown must prove its case to the very limit. I have known a judge of -the Exchequer court to advise counsel on
behalf of the crown that he was against him from the start in all cases. I do not object to that, but I say with all respect, and without the slightest intention of giving offence to anyone, that we must not shed any crocodile tears for the class of persons who may be called upon to pay taxation. I object as much as anybody does to injecting the element of retroactivity into legislation, but at the same time, if substantial justice is to be done, I can see no good reason why those who have substantial incomes should escape scot free the payment of their just dues to the treasury, when their fellows who have been honest and decent and above-board, have done so in large measure. There may be some middle ground,
I do not know, but certainly as the law now stands we do a very grave injustice to the treasury. I may say to my hon. friend that I do not fear the effect of this section as he does. I may be wrong. There were some individuals who were in mind when this section w'as drafted and since it has been brought down they have paid their taxes. Otherwise they probably would not have done so. And they have paid them in very substantial sums, running into hundreds of thousands of dollars.


Mr. JACOBS:: Perhaps it was due to the Oxford Group movement?


Edgar Nelson Rhodes: My hon. friend always sheds light upon the subject under discussion. But I may say to him that if the Oxford Group movement were responsible for the instances to which I refer, then we need not fear any amendment to the statute because all would have come in.


Samuel William Jacobs: Why not withdraw the
measure?


Edgar Nelson Rhodes: The subjects in question, if they are subjected to the appeal of the Oxford movement, would be all embracing because there would be nobody who could possibly be called upon to come in under any amendment we might make.


Samuel William Jacobs: What about people of my race who cannot accept that?


Charles Gavan Power: I notice, in reading section 55 as it is at present, it states:
The minister may at any time assess such person for the tax, or such portion thereof as he may be liable to pay, and may prescribe the time within which any appeals may be made under the provisions of this act from the assessment, and may fix the date of payment of the tax.
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In the new section as proposed by the legislation before us, no mention whatsoever is made of appeal. Does the minister now have power to assess, re-assess, make additional assessments without the right of appeal?


Edgar Nelson Rhodes: I am informed that the method of procedure has been entirely changed since the original clause was drafted.


Charles Gavan Power: Is the right of appeal provided elsewhere in the act?


Edgar Nelson Rhodes: It will be found in part VIII, section 58 of chapter 97 of the Revised Statutes of Canada. We might pass section 9, if that is agreeable, and let section 10 stand.


George Reginald Geary: We are stlil on section 8. Is that carried?


Edmond Baird Ryckman: Before we leave section 8 or allow it to stand, I should like to say a few words. In the first place I am sure no hon. member would object to the taxpayer, irksome as it must be to pay his taxes, paying the exact amount with which he is chargeable under the law. I think we are all agreed upon that. Section 8 works both ways, but the committee has thought of only one. This will be of advantage to the taxpayer himself, because at the instance of the taxpayer, if he has a good case, the minister might make a re-assessment, one that he would be precluded from making under any provision of the act as it exists today. To be sure, it provides for an appeal. It provides that there shall be no claim on the part of the taxpayer, no matter whether he has paid an incorrect amount, let us suppose, if more than a year elapses, but under this section the taxpayer could come to the department and say: It is plain I have paid too much; I want a re-assessment under section 55. In that case I do not see how avoidance could be made of his claim. This is in the interest of the taxpayer himself.
As regards the date 1917, that strikes one as a long time to go back. The reason 1917 is inserted is, as I am sure the hon. member knows, there was provision in the income tax law that profits which were not distributed could be computed prior to the end of 1917 and paid out without tax. After that, these profits were taxable. That is the reason for the insertion of 1917. If someone in juggling with his tax liabalities has done so relying upon the special legislation that appeared in the act with relation to profits to the end of 1917, I say that he as well as anybody else who has not paid the correct amount should
l Mr. Rhodes.)
be called upon to pay. It has been said that there shoidd be a period of limitation. Frankly, I do not believe one man should be allowed to say: Well, time ran against me and I got out of paying what was honestly my fair payment under the law, while another man comes along and says: They picked me up because they got me within two or three years as suggested. I think an honest debt should be paid and the debt the taxpayer owes is an honest one. Exactly what it is can be found. If it takes some time to find this out, that is unfortunate and I agree with the hon. member for North Waterloo that it is not in the interest of good business, if that were the test; but, as I am sure he knows, auditors of the department over which he presided had to go from 1930 back to 1923 or 1924 and when it was found mistakes had been made, as obviously was the case, the findings of the auditors of course being carefully checked, money was requested to liquidate the debt. All that was said was: You have been concerned about this for a long time; but no real objection could be taken to paying what was the honest liability of the taxpayer. I think section 8 could very well pass. It will result in legitimate help to the taxpayer and I think it will help the tax collecting authorities.


Richard Burpee Hanson: In the
section as now drafted there is nothing that gives a taxpayer the right to use it. Further, the draftsman, when he drew this and made the explanation, to be found on the opposite page, had in mind only re-assessment on the part of the crown. I am not against the crown getting its just and legitimate revenue; I think any member who would take any other view would be doing a great wrong not only to the country but to his self respect. But I ask respectfully that there should be some limitation of time. Let me put an extreme case. Under the New Brunswick Succession Duties Act there is a provision that every gift inter vivos by a testator to his children or to anybody has to be accounted for back to the year 1892, the first year in which the New Brunswick Succession Duties Act was passed. It is almost impossible to get a client to take the oath under the New Brunswick Succession Duties Act that there has not been anything like that done, because you cannot have knowledge going back forty-one years. That is the effect of the New Brunswick statute. I mention that as an extreme illustration, and the analogy is applicable here. I suggest to the minister that he give some consideration to a shortening of the time. I will not press the point further.

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Mr. LAWSON:: I regret that I find it
necessary to differ from the views expressed by the Minister of National Revenue as to the interpretation of this section. If it ever was intended that the section should confer any benefit on the taxpayer, then I can only say that it is one of the most loosely-drawn pieces of legislation I have ever seen. Read the section and see what it says:
-the minister may at any time assess, reassess or make additional assessments upon any person for tax, interest and penalties.
How on earth can he be assessing, re-assessing or making additional assessments for tax, interest or penalties if the object is to make some refund to the taxpayer in respect of the application of the tax? I am not shedding any crocodile tears, but I think we might as well keep one thing clearly in mind. If the object of this section is to get at any person who has not made a return or who has made a false return, then I will go as far as any member of this house in making that person pay taxation. But that is not the point. If a man were wise, as I believe the Minister of Finance said, he would get a certificate; but let us assume that he is not so very wise but honest. There are any number of executors and trustees who are not lawyers. I can go through my files and find cases in which I have settled income tax matters with the income tax department and have never yet received a certificate, nor do I expect ever to receive it. The point in which we are interested in this section is this. Where a man honestly but inadvertently, and, if you will, unwisely, makes a return which ultimately proves to be incorrect, should the minister have power after the expiration of sixteen years, by a combination of that section with section 10, to go back and make an assessment particularly in such a case as the one pointed out by the hon. member for York-Sunbury, where the individual has been acting as trustee for an estate and has probably had all the funds disbursed out of his hands? My whole training makes me unalterably opposed to retroactive legislation, and in this case it goes a bit further and I think we may work a great injustice. If the object of the legislation is to get at a wrongdoer who has failed to make a return or who has made a false return, why not say so?


Edmond Baird Ryckman: I do not wish to prolong the argument, but I would direct attention to the wording of the section, which I think the lay mind can interpret:
-the minister may at any time assess, reassess or make additional assessments upon any person for tax, interest and penalties.
That. I submit, does not mean that he can make a re-assessment only in case the amount is larger than what has been returned. If the department were approached in an honest case the minister would be authorized undeT this section to make a re-assessment, and when I say a re-assessment I mean a true reassessment, which might very well be in the interests of the taxpayer.


Richard Burpee Hanson: I would call attention to section 56, which covers the point of refund of overpayment. This section we are discussing cannot mean what the minister suggests.


Edgar Nelson Rhodes: I think the section is a reasonable one. I do not think we should be led astray by interpreting it in connection with section 10. I have already agreed to let section 10 stand. I submit, with all deference, that we are not asking for any further powers than the act has contained; it is only for the purpose of making it clear beyond perad-venture and avoiding any question of dispute such as has arisen heretofore in individual cases.


John Thomas Hackett: If section 8 were redrafted, section 10 which we are allowing to stand might not be necessary at all.


Edgar Nelson Rhodes: This is substantially what has always been contained in the act. Look at section 62:
Upon receipt of the said notice of dissatisfaction and statement of facts, the minister shall reply thereto by registered post admitting or denying the facts alleged and confirming or amending the assessment or any amended, additional or subsequent assessment.
We have always had these provisions. As regards the section which is now before us, it may not be drafted in the best possible manner, and I am open to suggestions on that score; but I can say at all events that its intention is to clarify the law as it has obtained heretofore in this matter. There certainly cannot be any objection to it in principle, and I do not think we should be led astray by interpreting it in connection with the retroactive features contained in section 10, which we are permitting to stand for the moment for further consideration at the request of my hon. friend from Stanstead.


[Stage Direction]
Section agreed to.
On section 9-Redeemable stock taxed on redemption when issued against capitalized surplus.
Richard Burpee Hanson: Why is
this necessary?
Income War Tax Act


Edgar Nelson Rhodes: I can give an explanation, in layman's language, I hope. In the statutes of 1930, chapter 24, we did what I must submit was a very extraordinary thing. Section 19 provides:
On the winding-up, discontinuance or reorganization of the business of any incorporated company, the distribution in any form of the property of the company shall be deemed to be the payment of a dividend to the extent that the company has on hand undistributed income earned in the taxation period 1930 and subsequent periods.
That meant opening the door to a glorious opportunity on the part of a great many companies to go out of business and distribute accumulated profits, calling them assets, thus escaping taxation, so that the treasury lost many hundreds of thousands of dollars in consequence of that amendment. Some companies, in the guise of distributing assets, did this in effect: A company would cause a new company to be incorporated; it would transfer the assets to individuals who in turn handed them over to the new company in exchange for redeemable certificates, and from time to time these redeemable certificates were cashed by the new company; and inasmuch as they were capital they were not taxable. It was certainly a very grave injustice to a large number of companies who were, and had been for years, distributing their income. The position is that companies which went through that process merely for the purpose of escaping taxation, as and when those individuals cash in the stock certificates, shall be taxed four per cent. That is fair to the individual; the tax on the average is lower than it would be if it had been assessed upon the income throughout the year. I will admit that there is an element of retroactivity, but, on the other hand, I believe it is equitable, sound and just.


William Daum Euler: I support entirely the action of the minister in making this amendment to the legislation passed in 1930. Strangely enough, at that time the possible unfortunate consequences of this legislation escaped the jbservation of the lawyers in the house, to say nothing of the laymen, and were not realized until some clever lawyers in the pay of corporations and others discovered this loophole and reincorporations were made with a view to escaping the tax. So far as I am personally concerned it was mortifying and humiliating to find that such a loophole had been left, and I am quite in agreement with what the minister is doing to eliminate it. I may add that if a loophole was left in the first instance it was not by any means intentional.


Mr. MacLEAN:: When a company is insolvent and the assets are distributed, can those assets be taxed?


Edgar Nelson Rhodes: This section would have
no bearing whatsoever upon such a case.


[Stage Direction]
Section agreed to.
On section 10-Application of sections.
Mr. LUCAS:: Earlier in the session
I asked the Minister of Finance if he intended to provide for the taxing of bearer bonds. Rightly or wrongly I understood him then to say that at this session he would bring in an amendment to the Income War Tax Act making such a provision. I cannot find anything to this effect in the bill. Is the minister taking any action to see that the holders of bearer bonds pay their rightful share of income tax?


Edgar Nelson Rhodes: It is not customary to
anticipate what will be contained in the budget, but I feel that in this case an exception is justified, especially in view of the intimation made at an earlier stage of the session. I can assure my hon. friend that legislative provision will be made at this session which will fully protect the treasury in respect of those who have hitherto escaped taxation in the matter of bearer bonds. For many months I have studied the various systems and methods which could be applied, and I think we have devised a scheme which will be simple, effective, and not unduly irksome in the way of unnecessary impedimenta so far as the individual is concerned. This will have the effect of bringing into the treasury every last cent of money which ought to come from those who have bearer bonds.


Mr. COOTE:: I am taking advantage of
the fact that we are in committee to ask the minister a question regarding a case which came to my notice a few days ago. A gentleman moved to Canada from the United States; for three months of the tax year he was in Canada and for nine months he had resided in the United States. He tells me that he was compelled to pay the Canadian authorities income tax upon his full year's income, while he paid tax to the United States upon the income he had earned during the part of the year he was in that country. It seems to me that an injustice has been done. Will the minister inform me whether or not that is the correct procedure under the present act?


Edgar Nelson Rhodes: I am not the minister
responsible for the administration of this act, but. I am advised by the income tax authori-

Incow,e War Tax Act
ties that the tax payable in such cases is determined by the facts as to place of residence at the time a resident is subject to income tax. That being so, there is no method of deviating from' the taxation in question. In the example given by my hon. friend, while the individual would be called upon to pay his income tax in Canada by virtue of his being resident in Canada at a time when residents of Canada were liable to income taxation, since he had been assessed in the United States he would be able to ask for and obtain in Canada an allowance for such portion of income tax as he had paid in the United States. The opposite applies, also, as this is a matter of international comity which has I believe worked out very satisfactorily.


George Gibson Coote: When I asked the minister
the question I had forgotten that the act was not under his administration; perhaps I should have directed my question at another time to the Minister of National Revenue. I understand from this man that the department would not make him an allowance on account of his having had to pay an income tax to the United States.


Edgar Nelson Rhodes: I am assured by the commissioner of income tax that the statement which I made to my hon. friend is correct- that where the source of income has been in the United States the taxpayer can claim and receive a deduction in Canada for that portion of his income tax which he paid to the United States.


Mr. GERSHAW:: In view of the fact that many provinces impose income taxes, has this government considered the advisability of collecting these taxes for such provinces and turning over the proceeds?


Edgar Nelson Rhodes: This question was raised
at the recent interprovincial conference While I am not in position to say that any definite decision was reached, I think there was a near approach to a possible amicable solution which will meet the cases mentioned by my hon. friend.
Section stands.
On section 4-Shareholders to file statement of personal corporation.


Jean-François Pouliot: I do not know whether
or not I am in order, but if I am I should like to make a serious suggestion to the government in connection with our judges. The judges' salaries have been reduced, and in view of this fact I think the government should consider the providing of proper accommodation. At the present time the
supreme court is sitting in what was previously a shed used by the contractors for the construction of the old parliament buildings as a shelter and storehouse. These quarters are very unsuitable for the judges, and if the government has seen fit to reduce their salaries I think it should follow the example set by the United States, which country is now constructing a new supreme court building in Washington. It would give our supreme court decent quarters, and would at the same time provide work for the unemployed. Our supreme court judges have to sit in a room where the temperature is often eighty degrees and then go back to their offices where the temperature may be down to sixty, with a great risk of catching cold. The building is not a fit place for the Supreme Court of Canada. I suggest that the government provide fitting accommodation for the court and at the same time do something in a practical way for the unemployed.


Edgar Nelson Rhodes: My hon. friend from Temis-couata, with his usual versatility and ingenuity, has succeeded in hanging a very large garment upon a very small peg; for under the guise of a discussion of the Income Tax Act, he has discussed the income tax on judges' salaries, ergo the building that houses the judges-


Jean-François Pouliot: Because their salaries are small, their accommodation at least should be decent.


Edgar Nelson Rhodes: I must commend my hon friend upon his ingenuity, groat versatility and resourcefulness, which are always in evidence. While I cannot see what bearing his remarks have upon this bill, I agree with him that the question not only of proper quarters for the accommodation of the members of the supreme court itself, but also of the preservation against fire hazards of a very valuable library, is one which is worthy of very careful consideration by this parliament, and I hope that the day is not far distant when the objection my hon. friend has raised may possibly be met.


Jean-François Pouliot: Thank you very much.


Edgar Nelson Rhodes: Would my hon. friend from Quebec South mind repeating the objection which he raised to section 4?


Charles Gavan Power: I have referred to the definition of a "personal corporation'' as laid down in section 1 of this bill. The definition reads:
"Personal corporation" means a corporation or joint stock company, irrespective of when or where created, whether in Canada or else-
Income War Tax Act

where, and irrespective of where it carries on its business or where its assets are situate, controlled, directly or indirectly, by one individual who resides in Canada, or by one such individual and his wife or any member of his family, or by any combination of them or by any other person or corporation or any combination of them-
Taking that to be the definition of a personal corporation, I now turn to section 4, subsection 7 of this bill, which reads:
The shareholder of a personal corporation who controls such corporation shall file with his income tax return a statement of the assets, liabilities and income of the personal corporation.
I ask the minister what would happen if the shareholders were a combination of several who controlled. My hon. friend from Stanstead shakes his head.


John Thomas Hackett: It is not a personal corporation under the definition and is not entitled to the immunities that go with it.


Edgar Nelson Rhodes: My hon. friend from Quebec South will find that the definition clause includes "shareholders" as well as "shareholder, the plural as well as the singular.


Charles Gavan Power: I have in mind,, for instance, one individual and a corporation who control a personal corporation. Would this individual and the corporation also be bound to file an income tax return of the assets and liabilities and income of the personal corporation? I take it from the wording of subsection 7 that they would not, because that subsection states that it is the shareholder who controls who must file the return. That would be only one shareholder. It might be that a combination is in control.


Edgar Nelson Rhodes: Under the interpretation clause, that would be read in the plural- shareholder or shareholders or any combination of them.


Charles Gavan Power: I do not wish to persist if the minister is satisfied, but the same argument that he applied to section 8 would apply here. The reason why we make section 8 more severe is that some taxpayer was led into error by certain phraseology in section 8. I submit that taxpayers would certainly be led into error by the phraseology of subsection 7 of section 4, and now, while we are making the act clear, we might as well make it clear in all its sections.


Edgar Nelson Rhodes: I do not feel that I am competent to enter into a legal discussion as to the proper construction of this section-


Charles Gavan Power: My hon. friend is now sarcastic.


Edgar Nelson Rhodes: No, I am not in any sense attempting to be sarcastic. I am speaking in all seriousness, because it is about twenty-five years since I have had any contact with the law. I am advised by the income tax authorities that they are satisfied, after a conference with the legal advisers of the crown in the Department of Justice, that there is no danger as far as the interpretation of this section is concerned.


[Stage Direction]
Section agreed to.
Progress reported.


[Stage Direction]
Hon. H. A. STEWART (Minister of Public Works) moved that the house go into committee to consider the following proposed resolution:
That it is expedient to authorize the Minister of Public Works, on behalf of His Majesty, to enter into an agreement with the corporation of the city of Ottawa to extend the period of the existing agreement with the corporation for one year from July 1, 1932.
Resolution reported, read the second time and concurred in. Mr. Stewart (Leeds) thereupon moved for leave to introduce Bill No. 15, to authorize an agreement between His Majesty the King and the Corporation of the City of Ottawa.
Motion agreed to and bill read the first time.
On motion of Mr. Bennett the house adjourned at 5.20 p.m.
Wednesday, February 1, 1933