1941-05-19

BANKING AND COMMERCE


[Stage Direction]
Right Hon. W. L. MACKENZIE KING
(Prime Minister) moved:
That Mr. George H. Ross (Calgary East) be appointed a member of the standing committee on banking and commerce in the place of the late Mr. F. C. Casselman, Edmonton East.
Motion agreed to.


Hon. J. L. RALSTON (Minister of National Defence):: May I, at this point, reply to a question asked the other day by the hon. member for Yale (Mr. Stirling). He asked with regard to the 120,000 men of the active army who, I stated, were in Canada. I can say that the veterans guard, coast defence and anti-aircraft units and the instructional staffs at training centres are included in the 120,000.
It is not considered advisable in the public interest to break down the 120,000 by giving detailed numbers in each particular unit or formation, but I hope it will be sufficient for the hon. member's purpose if I tell him that the total number in the veterans guard1, coast defence, anti-aircraft and instructional staffs for training centres is about 25,000. It is difficult to say how many are in each category unless one examines each attestation paper. I discussed the matter this morning with the adjutant general's office, and I think I can say that practically one hundred per cent of the coast defence and anti-aircraft units are in category A. That applies particularly to the Pacific coast units, in which replacements have been made recently, and it applies to a large extent to the eastern coast units as well.
As regards the veterans guard, here again one would have to examine the attestation papers, but from information I have received from the adjutant general's office, I should think that fifty per cent of those would be in category A. With regard to the instructional staffs, it is purely an estimate; one cannot

Questions
say definitely without looking at the attestation papers, but probably fifty per cent of them are in category A as well.
I hope the hon. member and the house will bear in mind that the whole 120,000 are enlisted, under their form of enlistment, for sendee anywhere at any time, and the only thing that would prevent any of them from discharging such service would be, not their will to serve, or the form of enrolment or attestation, but the fact that they did not come wdthin the category now accepted for service overseas.



WAR CHARITIES ACT, 1939 AMENDMENTS TO COVER FUNDS RAISED FOR PURCHASE OF WAR SUPPLIES, ETC.

[Stage Direction]
Hon. J. G. GARDINER (Minister of National War Services) moved for leave to introduce Bill No. 64, to amend the War Charities Act, 1939.
He said: This act was passed shortly after Canada entered the war and has not been amended since. It was not foreseen at that time that there would be calls upon the generosity of the public for contributions to war equipment; consequently the provisions of the act were limited to contributions for war charities. As a large number of funds are now operating whose objects are to purchase war equipment, it is felt desirable that these funds should be subject to regulation. The act was originally administered by the Department of the Secretary of State, but after the inception of the Department of National War Services the administration was transferred to the war services department. An amendment has been necessary to provide for this.
Experience gained from administering the act makes it necessary that further control be given the department if the act is to be properly administered. We have found that in some cases funds have been created without registration and without authorization, and we have no authority under the act to prosecute those raising unregistered funds for failing to comply with its provisions. This amendment now includes provision that will give the department the same control over unregistered funds as it has over those which have been authorized under the act.
We have also found that persons have been holding funds and have refused to make a proper accounting of such funds to the department. An amendment has been necessary to enable the department to demand such an accounting and to secure possession of the funds if necessary.
Proceedings for offences against the act cannot at present be instituted except with 14873-1844
the consent of the minister. As the administration of justice is in the provinces, and prosecutions are carried on by the attorneys general of the provinces, it is felt that the present section restricts the right of the attorney general to institute proceedings where he deems fit. The act is now being amended so as to permit the attorneys general of the provinces to act either on their own initiative or at the request of the department.
Motion agreed to and bill read the first time.

[Stage Direction]
(Questions answered orally are indicated by an asterisk.)

Mr. SHAW:: 1.	Have any recruits of the Canadian Active Service Force been transferred from Calgary to the four-month training centres at Camrose and Grande Prairie since March 1, 1941?
2.	If so, how many?
3.	Are these active service recruits training with the four-month trainees?
4.	What is the reason for such arrangement?


Mr. RALSTON:: 1.	Yes.
2.	Camrose, 46; Grande Prairie, 58.
3.	Yes.
4.	Calgary has now been made an advanced training centre and the recruits there, who had not completed their basic training, were transferred to Camrose and Grande Prairie which are basic training centres.


PORT ARTHUR TERMINAL GRAIN ELEVATOR
Mr. CASTLEDEN:: 1.	What was the cost to the Canadian government for the building of the government terminal grain elevator at Port Arthur?
2.	What is the storage capacity of this elevator?
3.	To whom is this elevator leased?
4.	What annual rental is paid to the government for this elevator?
5.	What is the amount of storage fees paid to lessee for grain stored in this elevator during the fiscal years 1939 and 1940 respectively?


Mr. RALSTON:: 1.	81,530,334.09.
2.	3,250,000 bushels.
3.	McCabe Bros. Grain Company Limited.
4.	851,000 minimum, with additional payments if more than 9,000,000 bushels handled during year. Rent, crop year ended 31st of July, 1940-$72,230.98.
5.	Information not available.
Questions

RIDF.AU convalescent hospital


Mr. AYLESWORTH:: 1.	What rental is the government paying for the Rideau convalescent hospital?
2.	From whom is it rented?
3.	Have any alterations, additions, or extensions been made to the building?
4.	If so, what was the total cost of such alterations, additions, or extensions?
5.	What was the total cost of equipping the building as a convalescent hospital?


Mr. RALSTON:: 1.	$20,000 per annum.
2.	Lessors: The Grey Nuns of the Cross, Community General Hospital, Alms House and Seminary of Learning of the Sisters of Charity, Mother House, 9 Water Street, Ottawa, Ont.
3.	Yes.
4.	Additional plumbing and toilet
facilities	$ 7,15755
Miscellaneous	 1,843.73
5. Value of equipment issued from
ordnance stores	 32,796.44
Value of equipment issued from medical stores	 906.85
Total	$33,703.29


NATIONAL WAR SERVICES-DIRECTOR OF HUMAN AND MATERIAL RESOURCES
Mr. STOKES:: 1.	Who is director of human and material resources in the Department of National War Services?
2.	What is his salary?
3.	What amount has been paid to him since his appointment for travelling expenses or living allowance ?
4.	Who is his secretary?
5.	What salary does such secretary receive?
6.	What amount has been paid to such secretary for travelling expenses or living allowance?


Mr. GARDINER:: 1.	Reginald J. Waterous.
2.	$6,000 per annum.
3.	Living allowance, $1,300. Travelling expenses, Department of National War Services, $442.35; Department of External Affairs, *976.67.
4.	Miss Marion Dorothy Brittain.
5.	$1,380 per annum.
6.	Travelling expenses, $92.24.


FOREIGN EXCHANGE-IMPORTS OF VEGETABLE OIL
Mr. SENN:: How many United States dollars were provided by exchange control board to pay for imports into Canada of vegetable oil from: (1) Brazil, (2) China, (3) Dutch East Indies, for the years, (a) 1938, (b) 1939, (c) 1940, (d) January, February and March, 1941?


Mr. ILSLEY:: Without a great deal of work and expense, answers to this question cannot be obtained from the records of the foreign exchange control board, and even then the answers would not be completely accurate. The board has believed it would not be justifiable to maintain and analyse its records in such a way as to provide data of the character asked for as this would involve duplication of the work of the dominion bureau of statistics to an extravagant degree.
Records of the dominion bureau of statistics show that importations from Brazil, China and the Netherlands East Indies of vegetable oils are as follows:
Imports of Vegetable Oils (Canadian dollars)
Cal.	Vegetable Oils Vegetable Oils
Year	Food	Non-Food
Brazil
1938 .. ..		
1939 .. ..		
1940 .. ..	. .$ 218,140	$ 524,278Jan. 1941	.. 23,922	62,673Feb. 1941	.. 532	1,093Mar. 1941	.. 36,502	73,986China	1938 .. ..	.. 9,678	369,4331939 .. ..	.. 84,484	595,1281940 .. ..	.. 3,036	1.301,075Jan. 1941	.. 60	Feb. 1941	5,487Mar. 1941	133,143Netherlands East Indies	1938 .. ..	389,8971939 .. ..	322,7721940 .. ..	1,012,936Jan. 1941	177,578Feb. 1941	97.836Mar. 1941	239,940
Note: The Foreign Exchange Control Board commenced operations on September 16, 1939.


TANCOOK-CHESTER, N.S., STEAMSHIP SUBSIDY
Mr. BLACK (Cumberland):: 1.	Is a subsidy paid to Willis Crooks of Tancook island, Lunenburg county, Nova Scotia, in connection with the operation of the ship Gerald L. C., between Tancook and Chester in the province of Nova Scotia?
2.	If so, what was the amount of such subsidy in the years 1939 and 1940, and to what months of the year did the subsidy apply?
3.	What was the total amount paid to Willis Crooks in each of the years, 1939 and 1940?
4.	What was the total amount paid the said Willis Crooks in connection with such subsidy for each of the following months, December, 1939, January, February, I nd March, 1940?

Questions
5.	Was any amount paid to the said Willis Crooks in connection with said vessel Gerald L. C. for repairs or reconditioning of such vessel?


Mr. MacKINNON (Edmonton West):: 1.	Yes-for a winter service only. Subsidy was first granted under a former administration in 1935, and has been continued.
2.	1938-39-$1,600. December to March inclusive. 1939-40-$1,600. December to March inclusive.
3.1938-39-$1,600. 1939-40-$1,600.
4. December,	1939	
$400January,	1940	
400February,	1940	
400March,	1940	
400
5. No.


EDMONTON EAST CHIEF CENSUS COMMISSIONER
Mr. BENCE:: 1.	Who was originally nominated or appointed as chief census commissioner for the constituency of Edmonton East?
2.	Has he been replaced?
3.	If so, by whom and for what reason?
4.	Is the present chief commissioner the secretary of the man originally nominated?
5.	If so, is she continuing to act as his secretary ?


Mr. MacKINNON (Edmonton West):: 1.	John C. Marshall.
2.	Yes.
3.	By Miss E. M. Smith, owing to physical incapacity.
4.	No information.
5.	No information.


ORDERS IN COUNCIL
Mr. DIEFENBAKER:: How many orders in council have been passed, (a) since the opening of the present session of parliament on November 7, 1940;	(b) while
parliament was in actual session?


Mr. CASGRAIN:: (a) 4,998; (b) 2.898.
2, 3 and 4.
Year	Name
1936	Crystal City	
1937	Wildhorse	
1938	Wildhorse	
1938	Bartman	
1938	Dead Lake	
1938	Long Creek Dam No. 2..
1938	Lafleche	
1939	Lake of the Rivers	
1939	Masefield	
1940	Lake of the Rivers	
1940	R. M. Excelsior	
1941	Weyburn Dam	
1941	Lafleche Community Dam


HAMILTON DISTRICT MEDICAL PENSION EXAMINERS
Mr. CORMAN:: 1.	Who are the medical pension examiners in Hamilton district, by whom were they appointed and for what period of time?
2.	What is their salary per annum?
3.	Are their services satisfactory to the government?


Mr. MACKENZIE (Vancouver Centre):: 1.	Dr. M. J. Gibson, pension medical examiner, was appointed under the provisions of the Civil Service Act and is a permanent civil servant.
2.	$4,080 per annum.
3.	Yes.


DAUPHIN, MAN., AIRPORT-HARVEY C. UPSAL
Mr. DIEFENBAKER:: 1.	Was one Harvey C. Upsal employed as a carpenter on the construction of the airport at Dauphin, Manitoba, between 19th October, 1939, and 27th November, 1940?
2.	If so, what amount was paid to him, (a) for the period of his employment; (b) per hour?


Mr. HOWE:: The government has no information regarding this man. He was obviously employed by the contractor who had the contract for the airport.


PRAIRIE FARM REHABILITATION -DESTRUCTION OF DAMS
Mr. DIEFENBAKER:: 1.	How many dams constructed under the Prairie Farm Rehabilitation Act have^ been washed out or otherwise destroyed in 'whole or in part in each of the years, 1936 to 1941, inclusive?
2.	What was the location of each of the dams in question?
3.	What was the cost of putting in each of said dams?
4.	What was the cost of reconstruction and repair of each of the said dams?


Mr. GARDINER:: 1. 1936, 1; 1937, 1; 1938, 5; 1939, 2; 1940,
2; 1941, 2.		
Location of	Cost of	Cost ofProject	Construction	Repairs24-2-21-1	$ 2,978.91	$ 355.3023-2-3-4	17,990.00	6,379.7823-2-3-4	17,990.00	Not yet repaired3-25-11-4	24,385.00	10,118588-4-11-2	14,615.98	5.985.0015-1-8-2	8,701.46	2,960.0023-7-5-3	930.00	736.724-8-29-2	10.805.14	2,500.0016-2-14-2	3,187.23	1,220.004-8-29-2	10.805.14	Not yet repaired23-17-11-3	1,620.41	736.0020-8-14-2	25,950.25	7,000.00(estimated)2-9-5-3	2,525.48	900.00
Questions

orders in council suspending provisions


OF DOMINION STATUTES
Mr. DIEFENBAKER:: 1.	Have any orders in council purporting to change or suspend the operation of the provisions of any dominion statute either in whole or in part been passed since the outbreak of war?
2.	If so, what are the particulars of such orders in council, the dates and the operative effects of the respective orders in council so passed?


Mr. MACKENZIE KING:: I might reply
orally to this question. To the first part the answer is, yes. As to the second, I am informed by the clerk of the council that there is no separate index of orders in council which amend statutes, and that it would require a great deal of research to discover the different orders which might have that effect and also to reply to the question as to the operative effect of the respective orders so passed.
What I should like to suggest is that the hon. member who has asked the question confer with the clerk of the council, and perhaps he could indicate specifically the particular orders he may wish to see. He would get a general impression of the position as a whole. I think that would be the simplest way of obtaining the information desired.


Mr. HANSON (York-Sunbury):: The hon. member who asked the question is absent this afternoon. I shall call his attention to the remarks of the Prime Minister. It occurs to me, however, that each minister knows of the orders in council promoted from his department which have the effect of changing the statutes of Canada under the provisions of the War Measures Act, and that in that way this information, which is wholly desirable-I think the public should know; certainly we who are in parliament should know how many orders in council, have been passed, and when, and what they are, and the dates of their operative effect -should be made available. It is a very serious thing to alter a statute of parliament by order in council. I ask the Prime Minister if he will be good enough to have the question followed up a little further and perhaps we can get the information. It is not a controversial matter, but it is one of extreme importance from the point of view of liberty.


William Lyon Mackenzie King: I am informed that 13,807 orders in council have been passed since September, 1939, and that to obtain the particulars asked for would involve an examination of each one of those orders. I

shall be glad to draw the attention of my colleagues to the remarks of my hon. friend to see whether further information can be obtained in that way.
french LEGATION IN OTTAWA-PROVISIONAL GOVERNMENT OF GENERAL DE GAULLE


Mr. CHURCH:: 1.	Has the attention of the government been called to the following dispatch in the Toronto Telegram, night edition, page one, on Wednesday, May 14, as follows:-
Vichy approves deal with nazis to halt
United States entry into the war.
The effect of this deal with the hun soon
will be felt and will be an accomplished fact
of European cooperation designed to halt
America's entry into the war.
2.	Will the government give further consideration to the immediate closing of the Vichy embassy here?
3.	On what date did the government of Great Britain recognize the provisional government of General de Gaulle as an ally in this war, and was Canada so notified?


William Lyon Mackenzie King: I think I should answer these questions orally. Replying to No. 1, I can say that the attention of the government has not been called to the dispatch in the Toronto Telegram referred to.
As to No. 2, there is no "Vichy embassy" in Canada. There is a French legation; I suppose that is the institution to which reference is made.
As to No. 3, I am not aware that the British government has recognized any provisional government of General de Gaulle or that there is any such body. That, I think, will answer the question so far as I can do so immediately.


Richard Burpee Hanson: Except as to No. 2.


William Lyon Mackenzie King: But may I
say, in regard to these questions which relate to some of the developments in Europe at the present time and which concern discussions that have been and are taking place between the government at Vichy and Germany, that there are no matters which are causing the government of the United Kingdom, and, I imagine, the governments of all free countries more concern than those very matters. I do not think it would be in the interests of freedom itself that any statement which might be premature should be made, or action which might be precipitate should be taken by any government of the British commonwealth of nations at this time. For that reason I hope hon. members will not expect any statement to be made by myself on this very delicate subject until the Prime Minister of Great Britain himself has spoken in reference to it.

Questions
While I am touching on this subject I would say that I noticed a question asked by my hon. friend the leader of the CoOperative Commonwealth Federation (Mr. Coldwell) in regard to the position of the French islands of St. Pierre and Miquelon.
As my hon. friend is aware, all islands in the northern half of the western hemisphere have been the subject of careful consideration by the permanent joint board of defence, in relation to both military and naval security; and the government of Canada has been watching the situation closely with respect to such of these islands as are off our coasts. I can assure the house that we have every reason to feel that there is no occasion for concern on the part of the people of Canada in reference to either St. Pierre or Miquelon. I would add that the government is being kept informed of conditions in these islands, also that the government is in constant touch with the government of the United Kingdom in respect to the larger question of the relations between the Vichy government and Germany.


CANADIAN RED CROSS TRANSPORT SERVICE
Mr. BRUCE:: 1.	Has the minister refused passports to the members of the Canadian Red Cross transport service, Toronto detachment, who recently applied for them in order to go overseas to do duty as drivers in the British Motor Transport Corps?
2.	If so, will the minister reconsider his decision and authorize the granting of these passports?


Mr. MACKENZIE KING:: 1.	The files of the department do not appear to contain applications for passports from the members of the Toronto detachment, Canadian Red Cross transport service, for permission to go overseas to do duty as drivers in the British transport corps. The names of the applicants and the dates on which applications were made would be necessary in order to make a complete search.
2.	Answered by No. 1.


*BREN GUN INQUIRT
Mr. POULIOT:: 1.	Who were the government or departmental counsels in the Bren gun probe?
2.	Referring to the statement of commissioner Davis, at page 3948 of the evidence: "I do not know yet, from the evidence, who was the solicitor really acting for the government, the Department of National Defence," did the counsels mentioned in No. 1 not inform the commissioner?
3.	If not, why?
4.	Who was such solicitor?


James Layton Ralston: I can give a verbal
answer to this question. Counsel appointed to represent the government and to assist the commission in connection with the Bren gun probe were Mr. L. A. Forsyth, K.C., Mr. Jacques Dumoulin, K.C., and another gentleman named J. L. Ralston, K.C.
With reference to the second question, my hon. friend is evidently under a misapprehension. He quotes the commissioner as having said:
I do not know yet, from the evidence, who was the solicitor really acting for the government, the Department of National Defence.
As I think my hon. friend will see from the context, that statement refers to counsel who were representing the government and the department in connection with the making of the contract, not the counsel who were representing the government at the inquiry.


Mr. POULIOT:: This is what I meant: Orde. There is no answer about Orde.


Mr. SPEAKER:: Answered.


Jean-François Pouliot: No, Mr. Speaker; there is a misunderstanding. I quoted what the commissioner said, and it did not refer to any one of the three counsel but to the departmental judge advocate general, who never knew anything, and it scandalized the commissioner when he saw he was the one who drafted it. It was then that the commissioner changed his mind. The minister knows that; he was the one who defended Orde here in the house.


Some hon. MEMBERS:: Order.


James Layton Ralston: My hon. friend tells me that he was referring to the counsel who represented the government in connection with the contract. The question goes on to say:
Did the counsels mentioned in No. 1 not inform the commissioner?
I may tell my hon. friend that at the inquiry the judge advocate general was called and gave evidence with regard to the preparation of the contract, and also stated that he had consulted the Department of Justice in reference thereto. Therefore I do not think the inference, that there was no information given the commissioner, is entirely correct. As I understand it, the judge advocate general and the officers of the Department of Justice were the ones who represented the government in connection with the preparation of the contract.


Jean-François Pouliot: Very foggy.

Questions as Orders for Returns



QUESTIONS PASSED AS ORDERS FOR RETURNS


Mr. CHURCH:: What are the number of enlistments from September 1, 1940, to March 31, 1941, by provinces, in His Majesty's forces: (a) army; (b) air force; (c) navy?


GREAT WAR TAXES
Mr. BENCE:: 1.	What taxes imposed by the dominion during the great war were subsequently repealed ?
2.	What revenue was produced by each such tax during the last full fiscal year in which it was imposed?


James Lorimer Ilsley: Return tabled.


NATIONAL DEFENCE-AIR-PURCHASE OF LAND AT VICTORIA VILLE, QXJE.
Mr. BENCE:: 1.	Has any property located in or near Victoriaville, Quebec, been purchased by the Department of National Defence for Air?
2.	If so, from whom was such property purchased?
3.	What was the purchase price?
4.	For what purpose will the property be used ?
5.	What wras the assessed value of the property at the time of purchase?
6.	Was any agent employed in connection with this purchase?
7.	If so, what is his name?
8.	What commission or other remuneration was paid to him?


Clarence Decatur Howe: Return tabled.


SUMMER-FALLOW BONUS SYSTEM-EMPLOYEES
Mr. DIEFENBAKER:: 1.	How many persons are employed by the federal Department of Agriculture in explaining the summer-fallow bonus system in the three w'estern provinces?
2.	What are their names?
3.	What remuneration and expenses does each receive?


DOMINION ARSENALS-NATIONAL DEFENCE TAX
Mr. PARENT:: 1.	What is the scale of wages paid to male employees, according to trades, at the dominion arsenals of (a) Quebec city (Palace hill); (b) Quebec city (St. Malo district) ; (c) Val-cartier, Quebec; (d) Lindsay, Ontario?
2.	What is the scale of wages paid to female employees in the dominion arsenals as above?
3.	Has the national defence tax been deducted from dominion arsenal employees earning less than $600 per year?
4.	If so, when will refund be made to such
employees?	_
5.	Will interest be paid on sums so retained from these employees?
6.	If so, what rate of interest will be paid?
[Mr. Pouliot.l


SHIPBUILDING-WAR CONTRACTS
Mr. BOURGET:: 1.	What shipbuilding companies have received war contracts from the government since September, 1939, to May, 1941?
2.	Were tenders called for such contracts or how were they let?
3.	What is the nature of each such contract and their respective amounts?
4.	What wages are paid by each company to the several classes of employees?
5.	Was the scale of wages established by the dominion authorities or by the companies, and upon w-hat were they based?
Canada's war effort-advertising in


UNITED STATES
Mr. CHURCH:: 1.	What sums have been spent to date and what is the estimated amount to be spent this year in the United States, advertising Canada's war effort?
2.	Who prepares the copy for this work?
3.	How much of such copy is prepared by Canadians and how much by Americans, and in what pamphlets, daily, weekly or monthly press or magazines is it carried?
4.	Are any paid lecturers engaged in this work? If so, what are their names?
5.	What amount is spent by the Canadian Broadcasting Corporation and the Canadian National Railways in this connection?


FOOD AND DRUGS REGULATIONS-MANUFACTURE OF GIN
Mr. POULIOT:: 1.	What are the departmental regulations, if any, for the labelling of bottles of each kind of gin and the marking of packages or cases of such liquors?
2.	What are the gins made in Canada in accordance with the Food and Drugs Act and which are "potable spirits sweetened or unsweetened, prepared from grain spirit specially rectified and redistilled with juniper berries and flavouring herbs, etc."? _
3.	Are there any gins ever made in Canada by cold mixing molasses alcohol with malt wine, etc., without being redistilled, or by first using spirits not made from grain mashes and secondly, not redistilling such mixtures with juniper berries, etc.?
4.	If so, what are they?
5.	What are the various designations of gin by departmental regulations and what is the description of each kind?


Mr. POULIOT:: 1.	Was it brought to the attention of the Department of National Revenue that sonie distillers producing gin were not complying with the regulations under the Food and Drugs Act?
2.	If so, on what dates, and what distillers were not complying with said regulations?
3.	Did the above mentioned department issue several circulars to that effect?
4.	If so, when and to w'hom?
5.	Did the department make a distinction as between gin and blend?
6.	If so, what was it?
7.	Were there specific instructions given by the department to collectors of customs and excise?

Business oj the House
8.	If so, when and what were they?
9.	Were there any extensions granted to distillers, manufacturers or companies to comply with departmental regulations?
10.	If so, (a) what were they; (b) for what distillers, manufacturers or companies; (e) through the intervention of whom or' what counsel; (d) for what reason were they granted?
11.	Did the said distillers, manufacturers or companies finally comply with departmental regulations?
12.	If so, when in each case?
NATIONAL DEFENCE-FURNITURE AND FURNISHINGS; BUILDING ALTERATIONS AND REPAIRS


Jean-François Pouliot: What was the expenditure since June 10, 1940, for (a) rugs; (b) other furniture; (c) building alterations and repairs, in each one of the following branches of the Department of National Defence:

Administration, secretary of national defence, judge advocate general, central registry, contracts branch, printing and stationery, translation services, stores audit, inspector general, chief of general staff, deputy chief of general staff, assistant deputy of general staff, directorate of military operations and intelligence, intelligence, departmental library, directorate of military training, directorate of staff duties, signals, inspection and test department, historical section, auditor general's branch, adjutant general, personal services, organization branch, medicals, pay services, records, dental services, press liaison, auxiliary services, quartermaster general, engineer services, supply and transport, movement control, real estate adviser, master-general of the ordnance, deputy master-general of ordnance, director of ordnance services (general and technical stores and services of mechanization), chief ordnance mechanical engineer, director of ordnance services (administration), director of technical research, mechanical transport (maintenance), ordnance depot, ordnance stores, dependents' allowance board. Connaught rifle ranges, Ottawa area command, Canadian provost corps, veterans guard of Canada, Canadian forestry corps and treasury office?


MOTION FOR PAPERS
Mr. CARDIFF:: For a copy of all accounts rendered by the members of the national war services boards in each province.


FARMERS' CREDITORS
[Stage Direction]
On the orders of the day:
Mr. J. A. ROSS (Souris):: Under date of March 5, 1941, the Minister of Finance (Mr. Usley) wrote the premier of Manitoba stating that the introduction of a bill to revive the Farmers' Creditors Arrangement Act in Manitoba would receive the early attention of the government. Will a bill to this effect
be introduced at this session of parliament, in order to remove the present injustice from which the citizens of Manitoba suffer as compared with those of Alberta and Saskatchewan in relation to debt adjustment legislation?


James Lorimer Ilsley: That is a matter of government policy which will be made known in due course. I am not in a position to make an announcement about it now.



BUSINESS OF THE HOUSE


[Stage Direction]
On the orders of the day:
Mr. G. A. CRUICKSHANK (Fraser Valley):: I should like to direct a question to the Prime Minister. I have not given notice, but I do not think it is of great importance, except to some of us, in view of the fact that the housing situation in Ottawa is so serious. Some of us have to give notice now as to whether or not we shall require our living quarters for another month. Would the Prime Minister give us some intimation as to when we may be out of here? I do not want to pay rent for another month if I am going to be here only another week or so.


William Lyon Mackenzie King: I hardly agree with my hon. friend when he says the question is not important. I believe, however, he is in a better position to answer it than I am. I should be very glad if hon. members, through the whips, would confer with respect to the business that remains. I have no doubt if they do that, and take all relevant factors into consideration, they will find some means of arranging for the conclusion of the present stage of this session before too long a time passes.


George Alexander Cruickshank: Then may I take it from the Prime Minister that the session will end this week?


Richard Burpee Hanson: While we are on this point
may I say to the Prime Minister that I should be happy if he would give early consideration to the question of prorogation or adjournment. I am not indicating any view in regard to the point, but I suppose it will have to be one or the other.


William Lyon Mackenzie King: I would say at once that it will be an adjournment, not a prorogation. There is a possibility that the St. Lawrence waterway agreement may come
Income War Tax Act

up for consideration within a month or two. If it should come before the fall, it will be at this session, not at the next.



WAYS AND MEANS

[Stage Direction]
The house in committee of ways and means, Mr. Fournier (Hull) in the chair.

[Stage Direction]
10.	That the tax of five per centum on nonresident persons, other than corporations, in respect of the total amount of the royalties, rentals or similar payments for the use in Canada of patents, real or personal property, or for anything used or sold in Canada, be increased to fifteen per centum.
James Lorimer Ilsley: I would ask that this resolution stand.
Resolution stands.
11.	That the date of filing annual returns of income by taxpayers, other than corporations, be the 31st day of March in each year in lieu of the 30th April as heretofore.


James Lorimer Ilsley: I have an amendment to this resolution:
That resolution No. 11 be amended by adding thereto the following:
Provided that in the case of businesses carried on by proprietors or partnerships the return may be on or before the 30th April of each year in respect of business fiscal periods ending after November 30th each year.
I would ask my colleague to move the amendment.


Clarence Decatur Howe: I move accordingly.


Richard Burpee Hanson: This
means that anyone whose business year ends on October 31 will still have to file by the end of March. I believe that will give ample time and, so far as I know, it will be satisfactory. It was with respect to those whose fiscal year ended with the calendar year that it was felt four months was necessary. I believe the amendment, however, will be satisfactory.	^


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
12.	(a) That the provision granting a deduction not exceeding 50 per centum of the net taxable income of any taxpayer which has been paid to any patriotic organization shall be repealed.
(b) That donations to charitable organizations described in the act, up to 10 per centum of the net income of any taxpayer other than a corporation, be allowed, provided that this 10 per centum may be increased to 40 per centum of the taxpayer's net income in respect of gifts to the Canadian war services fund if subscribed on or before April 7, 1941, and paid on or before December 31, 1941.
Richard Burpee Hanson: On more
than one occasion the minister has referred
tMr. Mackenzie King.]
to this provision in the law. Has there been any disposition to abuse the privilege conferred by last year's legislation with respect to large donations to war charities which would have the effect of largely reducing a taxpayer's income? Is there any disposition to defeat the collection of revenue under the guise of gifts to charities?


James Lorimer Ilsley: I have no information on
the point. It was represented to me by those in charge of the recent drive for war sendees that it is extremely important to allow deductions up to fifty per cent of a taxpayer's income, so that many persons would make contributions beyond ten per cent of their net taxable income. I assume that in some instances there would be charitable donations which would go beyond the ten per cent and which, unless a change were made, would therefore be deductible from a taxpayer's income for taxation purposes. But how extensive that practice is, I have no means of knowing.


Richard Burpee Hanson: Then the
minister cannot answer my question?


James Lorimer Ilsley: No.


Richard Burpee Hanson: It seems
to me that the officials of the department might have some information on the point; apparently, however, they have not. The theory upon which they operate, and upon which they ask for this large percentage, apparently was not borne out by the results. The war services campaign was very successful, I believe. It was a great credit to the people of Canada. I suppose it is too soon to look into the future, but if the war goes on another year undoubtedly further demands will be made by the joint services. Does the minister think the reduction in the percentage allowed would operate against the services? If so, it seems to me he might take a compromise stand. This year the exemption in respect of gifts to war services is 40 per cent. The minister is proposing to reduce it to 10 per cent. If he would place the figure at 20 per cent the provision would probably be ample.


James Lorimer Ilsley: I believe 20 per cent would
be about as good as 40 per cent for the charities, because most people do not give more than 10 per cent of their incomes. Certainly very few people give more than 20 per cent. I suggest we should not get away from the 10 per cent, except in respect of corporations.


Richard Burpee Hanson: I am
content.


[Stage Direction]
Resolution agreed to.

Income War Tax Act
13.	That donations to charitable organizations made in 1942 and during any fiscal period ending therein or any fiscal period thereafter by any corporation be allowed up to five per centum of the net income of such corporation, provided that this five per centum may lbe increased to thirty-five per centum of the corporate net income in respect of gifts to the Canadian war services fund if subscribed on on before April 7, 1941, and paid on or before December 31, 1941.
James Lorimer Ilsley: I shall have to ask that resolution 13 stand. I wish to examine its provisions in relation to those of the previous section.


Richard Burpee Hanson: Is it
clearly defined in the statute that the words "charitable organizations" include educational, religious and eleemosynary organizations to which we are accustomed to make donations? Is the expression wide enough to cover ordinary charities to which the taxpayer in each community is not only disposed to contribute, but to which he must contribute?
I have in mind, for instance, the Victorian Order of Nurses, a very worthy organization. Is the expression "charitable organization" the generic term covering institutions such as those I have indicated?


James Lorimer Ilsley: It has always been considered as covering them, and I am told the Department of Justice has so ruled.


Richard Burpee Hanson: I asked not only as a matter of information but in order to allay anxiety, if it may be so described, which has been indicated to me in correspondence. It may be that some are forgetful of or not familiar with the construction placed upon the expression.
Resolution stands.
14.	That the exemptions provided in paragraphs (c),	(e) and (i) of subsection 1 of
section 5 be allowed only if such dependents are maintained in Canada or within the territory composing the British commonwealth of nations or in a country contiguous to Canada; and similarly that for the purposes of national defence tax a taxpayer's marital status and any credit to which he is entitled for dependents be allowed only in respect of dependents maintained in Canada or within the territory composing the British commonwealth of nations or in a country contiguous to Canada.


Richard Burpee Hanson: Why Is it proposed to narrow the provisions of the present exemption? That of course includes the United States. Why the change?


James Lorimer Ilsley: There have been numerous complaints that workmen and others claiming to be married and having wife and children in certain foreign countries not in the British commonwealth of nations or in the United States were being permitted to deduct from their incomes for taxation purposes as well
as from national defence tax, a certain amount in respect of wife and children. It is generally considered that under the present circumstances this should not be permitted. It is believed such persons should be given these privileges only if their wives or families live in this country, in the United States or within the commonwealth.


Richard Burpee Hanson: Many
foreign nationals living in Canada do not bring out their women folk. I know that is true to a limited degree in my community.
I do know however that they do send support.
I should think most of those men would not be in the category of income tax payers, but all would be paying the national defence tax. The minister no doubt has reasons for the provision, and I do not oppose it.


Mr. JACKMAN:: Would the minister consider inserting a clause which would allow a person whose dependents live outside the designated territory to prove by adequate legal documents that he does qualify? For instance, there are many labourers in Canada from Russia who, I have no doubt, remit funds. There is also a certain number of orientals. The whole of that part of the world from which we have received immigrants has not yet been overrun by the nazis, and undoubtedly there are still some people who could qualify legally for the usual exemption.


James Lorimer Ilsley: If the hon. gentleman thinks that it is sufficiently important, I shall let the resolution stand and consider it. I do not know just how to handle these sudden suggestions which have such far-reaching implications. I do not see any way of checking on the facts in these cases.


Richard Burpee Hanson: There is no way. So far as I am concerned, I should like to see the resolution carry.


[Stage Direction]
Resolution agreed to.
15.	That any taxpayer, other than a corporation, who enters upon a monthly instalment basis of tax payment on or before the 30th September each year, may pay without interest, in respect of the income of that year, provided, at least
one-twelfth of the estimated tax based on the income of the prior year is paid in each of the months September, October, November and December, and
one-eighth of the unpaid balance of the newly estimated tax based on the income of the calendar year in respect of which the tax is payable is paid in each of the months January to August inclusive.
Richard Burpee Hanson: This is the matter which we discussed briefly a few days ago. The minister is providing for a plan of twelve payments. To this I have no great objection; I believe it would be
Income War Tax Act

easier to do it on this basis than on any other. My personal reaction is that I should like to get it over with in eight payments. Would there be any administrative difficulty in providing an alternative? Perhaps a person could be given the right to switch from one to the other, although it might lead to considerable difficulty. If that is not possible from an administrative standpoint, I have nothing further to say.


James Lorimer Ilsley: I do not see any great advantage in the other plan when this one is available.


Richard Burpee Hanson: Except
that the people have become accustomed to it.


James Lorimer Ilsley: This plan is devised to set in, if I may use that phrase, when the other one terminates. If an individual's income tax is raised fifty per cent it will mean that he will continue to pay about the same in September as he paid in August. It might prove a little confusing to have two plans. If a taxpayer wants to pay in eight months, he can speed up his payments; he is not obliged to string them out for the twelve months. He can pay in one instalment if he wishes.


Richard Burpee Hanson: He can wait until March 31 and pay it.


James Lorimer Ilsley: He can wait. I think it would be simpler to have the one instalment plan which can be advertised.


Richard Burpee Hanson: Very well; I shall not press the matter.


Mr. ERASER (Peterborough West):: Could an individual start to pay in January, so long as he paid his complete tax by the following September?


James Lorimer Ilsley: He must start in September.


[Stage Direction]
Resolution agreed to.
16.	That any corporation which enters upon a monthly instalment basis of tax payment before the commencement of the third month before the close of the fiscal period may pay, without interest, in respect of the income of that year, provided that at least
one-twelfth of the estimated tax based on the income of the prior year is paid in each of the four months immediately prior to the close of the said fiscal period, and
one-eighth of the unpaid balance of the newly- estimated tax based on the income of the fiscal year in respect of which the tax is payable is paid in each of the immediately succeeding eight months following the close of the fiscal period.
Richard Burpee Hanson: This
applies to corporations the same principle that is applied to individuals by No. 15?


James Lorimer Ilsley: Yes.


Mr. ISNOR:: After the change is made as
provided by resolution 11, why is it necessary to provide for these two classes of taxpayers in resolutions 15 and 16? As I understand resolution 15, you simply carry on -with this year's return and pay your twelfth for the months of September, October, November and December. You would then make up your statement for 1941 and be prepared to pay one-eighth of the balance in each of the succeeding eight months. If that principle is to apply in the one case, why should it not apply in the other, so that unincorporated and incorporated companies would all be on the same footing?


James Lorimer Ilsley: Perhaps this resolution will have to stand; I would have to give that a little more thought. It may be that the two sections are not reconcilable.


Gordon Benjamin Isnor: I think you must take resolutions 11, 15 and 16 together. In view of the change provided by resolution 11, in fairness to unincorporated and incorporated companies the same ruling should apply.


Richard Burpee Hanson: It is now being made applicable to unincorporated companies, partnerships or proprietorships whose fiscal years end on November 30 or at any other period. I think it could be worked out, but perhaps the minister wants to give the matter more thought. Of course a good deal would depend upon the words used in the bill to be based on the resolution.


James Lorimer Ilsley: Perhaps I can straighten this out, and hon. members who have given more thought to it can correct me if I am wrong. There are two things which we must keep in mind; one, the date for filing the return, and the other, the year in respect of which the tax is paid. Resolution No. 11 has been changed in order to give unincorporated businesses the same time within which to make up their returns as is given to incorporated businesses. That was the point which was raised the other day. I am informed that all taxation years for persons who are not incorporated are calendar years, and if that is correct, these two sections, 15 and 16, are exactly right. The corporate taxpayer may have a fiscal year which does not coincide with the calendar year, but if the unincorporated taxpayer's year is always the calendar year, then it will work out perfectly and harmoniously with the corporation section, to begin with September. But with respect to the incorporated taxpayer we cannot say September. We have to say four months before the end of his fiscal year. The officers tell me that there is no inconsistency

Income War Tax Act
between the two sections. The only reason for saying four months before the end of the fiscal year in the case of a corporation is that the end of the fiscal year may be different from the end of the calendar year. For the unincorporated company the period for which taxes are paid is always the calendar year.


Richard Burpee Hanson: That is an established fact?


James Lorimer Ilsley: So I am informed.


Richard Burpee Hanson: They will not accept from an unincorporated company a return based on anything but the calendar year?


James Lorimer Ilsley: Not for income tax purposes.


Richard Burpee Hanson: I mean for income tax purposes.


James Lorimer Ilsley: It is the individual that pays in the case of an unincorporated company. There is no unincorporated taxpayer.


Richard Burpee Hanson: Then I think the resolution is all right.


[Stage Direction]
Resolution agreed to.
17.	That the resolutions numbered 1, 2, 5, 9, 11, 12, 14 and 15 shall be applicable to the income of the 1941 taxation period and fiscal periods ending therein , and all subsequent periods.
Richard Burpee Hanson: That will have to stand, will it not?


James Lorimer Ilsley: There was an amendment which I said I would move to this section. The hon. member for Rosedale brought up this question previously and the amendment which I read to the committee the other day was as follows:
That resolution No. 17 of the Income War Tax Act be amended by adding thereto the following words:
provided, however, that in the case of resolution No. 9, if any fiscal period ending in 1941 does not coincide with the calendar year, then that proportion of the profits shall be subject to the 22| per centum tax which the number of days of such fiscal period in the calendar year 1941, bears to the total number of days of such fiscal period, and the balance at the previously existing rates.


Richard Burpee Hanson: Some of the resolutions enumerated in 17 have not yet been passed. How can we pass 17 until we have passed the ones to which it refers? Resolution 2, for example, has not been passed, and the same is true of 18.


James Lorimer Ilsley: We will let 17 stand until we pass all the others. I would ask that the committee revert to No. 2, dealing with investment income.


Mr. GREEN:: Before we go back to resolution No. 2, would the minister explain whether any provision is being made to meet the situation
in provinces where, in addition to income tax, there is also an alternative tax? For example, in British Columbia there is a two per cent gross tax on the production of mines which has been used by the province as an alternate to the income tax. Under the new arrangements between the dominion and the provinces, the provinces are to give up their income tax, but are they also giving up these alternate taxes, or will the position be that where there is such an alternate tax the provincial government will carry on with that tax and thus evade at the expense of the taxpayer the arrangement made with the dominion?


James Lorimer Ilsley: That is under consideration. The hon. member for Yale asked me that question the other day, and I told him I was not in a position to answer it. It is not strictly relevant to the amendments to the Income War Tax Act.


Howard Charles Green: It is in relation to the
income war tax.


James Lorimer Ilsley: It is relevant to the arrangements with the provinces. We are proposing an increase in the income tax rates and in the corporation tax rates. What taxes we get out of the way through our agreements with the provinces is a matter for consideration when we make those agreements. Many questions will arise, and if we go into them now we shall take a very long time. There is a multiplicity of taxes on corporations in the provinces and there are many which are just on the border-line, so much so that one can hardly tell whether they are income taxes or not. All that will have to be worked out.


Howard Charles Green: That particular point is under consideration at the present time, is it?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: There is one point I should like to have made clear before we go back to No. 2; it is with respect to resolution No. 12. I should like to have it made clear that hereafter charitable and patriotic organizations are to be exactly on the same basis. Is that true?


James Lorimer Ilsley: Yes, that will be true.


Mr. HOMUTH:: There are several provisions of this act which will not come into force until such time as the agreements with the provinces are made. Some of these difficulties cannot be cleared up until such agreements are arrived at.


James Lorimer Ilsley: No, that is not so. Our
Income War Tax Act amendments come into force whether we make agreements with the provinces or not.
Resolution stands.
Income War Tax Act


James Lorimer Ilsley: I suggest that instead of
now taking up No. 18, we go back to No. 2.
2. That paragraph AA of the first schedule to the act be repealed and in lieu thereof there be imposed a tax of 4 per centum on the investment income defined to include dividends, interest, rents, royalties and other like income and not to include salary, wages, fees or other like income from any office or employment of profit or income derived from the carrying on of a trade, vocation or calling.


Richard Burpee Hanson: Will the
minister make clear the present position with respect to investment income, and what the new position will be? From this resolution one would conclude that there is to be a flat tax on investment income without any exemption; but is it not true that there will still be an exemption of 81,500 on investment income?


James Lorimer Ilsley: Right.


Richard Burpee Hanson: People
with small incomes who have to pay income tax are entitled, I think, to some slight exemption, and I would ask the minister to make that clear.


James Lorimer Ilsley: Yes, I was going to make
that clear. The hon. member for Vancouver South put the case of a widow with $1,750 of investment income and I told him the other day that I was under the impression that some exemption was provided. In the budget speech, at page 2348 of Hansard I said this:
Our present surtax only taxes investment income within the narrow range between $5,000 and $14,000, and at a low rate. The new surtax is to tax all true investment income of more than $1,500, or of more than the sum of one's exemptions and allowances if these are more than $1,500.
So that there will be an exemption of $1,500, which will be provided for in the act.


Howard Charles Green: Does that mean there will
be an exemption of $1,500 of investment income alone?


James Lorimer Ilsley: Yes.


Howard Charles Green: You can have an investment income of $1,500 before you pay any investment income tax?


James Lorimer Ilsley: Correct.


Richard Burpee Hanson: A widow with an income of $1,800 from investments will get an exemption of $1,500, and the man with an income of $100,000 will get the same exemption and pay on the basis of exactly the same rate as the widow pays on the $300 by which her income exceeds the exemption. On the other hand, of course, he pays the increased rates in ordinary income tax. Is it thought that there is no discrimination in doing away with the sliding scale?

I agree that the arbitrary declaration that all earned income over a certain sum shall be considered as investment income means a hardship in some cases, though not in all. I thought it was a hardship in my own case because I had not been earning very much, but under this perhaps I shall benefit personally. I am not rising, of course, to emphasize that, but I wonder if this will be more equitable.


James Lorimer Ilsley: I do not know that I can explain this any better than I did the other day. As I said the other day, the present investment income tax, so-called, is not really an investment income tax except in a very narrow range


Richard Burpee Hanson: And arbitrary.


James Lorimer Ilsley: Yes. The new scale of income tax was designed really to absorb the scale of so-called investment income rates, and then a tax of four per cent true investment income tax was imposed in addition. All I am making clear now is that there is a $1,500 exemption.


Richard Burpee Hanson: Why four per cent rather than two per cent or five per cent? There must be a reason for four per cent.


James Lorimer Ilsley: I do not think there was any particular reason.


Richard Burpee Hanson: It was purely arbitrary.


James Lorimer Ilsley: Yes; there should be a little differential.


Mr. NICHOLSON:: We have at present a sliding scale ranging from two per cent for amounts between $5,000 and $10,000, up to ten per cent. Why was the change made?


James Lorimer Ilsley: So as to tax true investment income more than non-investment income. Apparently the large tax the hon. gentleman refers to as applying to investment income was not an additional tax on investment income because earned income bore that tax-all earned income over $14,000. It was considered reasonable that the income tax rate should be applied on earned income and then all the way up there should be an additional tax on investment income with the exception of the exemption of $1,500.


Alexander Malcolm Nicholson: What difference will this make to the revenue?


James Lorimer Ilsley: I could not possibly tell that.


Howard Charles Green: The minister should give very careful consideration to the amount of this exemption. Practically every widow's

Income War Tax Act
income will be investment income. If she is left insurance, it will be put into investments of such a type that her income therefrom will be considered investment income. On that she will pay regular income tax, and in addition she will pay this investment income tax and national defence tax. I do not think it is fair to keep the exemption so low; I suggest it should be raised to $3,000. At any rate, it should be kept high enough so that the widow who is left a comparatively small amount, whose income is comparatively small and who may have children to support, will not be paying extra taxation. As it stands, many widows will be paying extra taxation, and that is not fair.


James Lorimer Ilsley: I would not want to raise it. The hon. gentleman has in mind the widow who has $100,000 of capital invested. At three per cent that is $3,000. We must be careful what we do in such cases, especially when we have high taxes on low incomes. That is always in my mind. I cannot forget it when I am thinking about the taxes on people with considerable amounts of capital.


Harry Rutherford Jackman: If a widow is left $50,000, it is a substantial amount of money, but when she is receiving three or four per cent on that money she will find it difficult to pay ordinary income tax, national defence tax, and so on. Many widows are elderly ladies who have to have someone to look after them, if they have no children who can take them in. I know of many who have had to employ nurses to look after them, and the inroads into their incomes have already been substantial. A certain limit should be allowed these people, without putting undue hardship on them.
Mr. FRASER (Peterborough West); Would this include income from annuities?


James Lorimer Ilsley: I should say so, yes.


Gordon Knapman Fraser: Income from annuities is partly income and partly capital. It is partly capital which you get back, because you have to pay out so much money to begin with. It is nearly half capital you get back.


Mr. MARTIN:: That would apply to any kind of investment.


Karl Kenneth Homuth: Don't talk such nonsense.


Paul Joseph James Martin: I didn't know the discussion had descended to the hon. gentleman's level.


James Lorimer Ilsley: The hon. member is right. When an investor invests in an annuity the amount that comes back to him is in one sense a return of capital, but the law of the country has always recognized it as taxable, with certain exceptions which have now been eliminated. I have gone over this matter several times in the house and have pointed
out that we had to make a choice as between the British and United States systems of treating annuities. The English courts have consistently held that the purchase of an annuity is the purchase of income. All the yearly payments that come to the investor during his lifetime are in the nature of income, and no separation is made between the original amount of the investment and the interest on it. In the United States a different rule is applied, but the view taken by the English courts and law and parliament and by this country is that the capital has gone irrevocably, that it does not come back but instead an income comes back.


Karl Kenneth Homuth: I do not think we should be bound by English law. After all the whole situation over there is different. I have in mind a man who last year sold all his holdings,' amounting to some $88,000, and with the proceeds bought an annuity. Now he is going to be taxed not only on his income from the annuity but on the capital which comes back to him over a period of years. The thing is unfair. We are continually setting up new laws in this country, new systems of taxation. I am not so sure that the time has not come when we should set up a body of men who, instead of having to adhere to some specific legislation as is done in the case of income tax and many other forms of taxation, would decide whether or not this man or that man should be taxed so much. It may be said that if you had such a board it would be influenced by political associations, and so on. Well, the government of the day is Liberal, and when this government passes out, as it eventually will-


An hon. MEMBER:: What a hope!


Karl Kenneth Homuth: It is not a hope; it is an aspiration of the people of this country; they are looking for it. The government sets up courts that have the power of life and death, the power of freedom or incarceration in prison. The men who adjudicate on those cases are in most instances-and I say this regardless of what government is in power- men who have as lawyers paid fealty to the party in power. It is nonsense to say that only the very best lawyers in the country are chosen to be judges. We know something of the men who are chosen to deal with these very important matters. We say we can pick out some lawyer from Windsor, or Toronto, or some unimportant town, who becomes a judge of the high court, and whose address to the jury may either hang a man or save his life, take away or give him his freedom. We entrust that great power to a man who has been in the past an ardent supporter of the party in
Income War Tax Act

office. Yet in matters concerning dollars and cents we say it is impossible to set up a board that will function fairly and honestly. The very attitude that we adopt in this regard results in building up in this country a feeling that government is dishonest and cannot be trusted, because we are prepared to appoint lawyers-


Richard Burpee Hanson: Oh, leave the lawyers out.


Karl Kenneth Homuth: We have too many of them in this house. We are prepared to appoint lawyers to these important positions, in which they have the power of life and death over a man, but we are not prepared to set up an organization of business men, honest, conscientious Canadians, to deal with these matters in a decent and honest way and say this is as it should be and this is as it should not be. In fact all the resolutions under the income tax act and under the whole budget system are dealt with in such a way that once they are enacted by this house there is no alternative for the officials of the departments concerned but to say, this is the law. On many occasions they will say, "It is unfair, it is not as it should be, but we have no alternative." I do not know a better organization of officials than those in the Department of National Revenue, the commissioner of customs, the commissioner of income tax, and the commissioner of excise; I do not know three officers in any other department of government who are more competent to carry out their work. The minister does as they tell him. But I do say in all kindness that these men are hedged about by the legislation we pass. They have no freedom, no right to say: "This is not according to what we think is right, but the law says this is what we must do."


Richard Burpee Hanson: There is
always the question of interpretation. They do sometimes stretch it.


Karl Kenneth Homuth: They do not stretch it
very far when it is money coming to them, but they stretch it a long way when it is money going from them. We should have some more loosely-organized department; something should be done to give the officers of the department some discretion in the administration of the act. But instead we say, "This is the law; this is what you must live up to." People are penalized one year; at the end of the year we find the whole thing is wrong and we amend the act, but the people are still penalized.


Richard Burpee Hanson: The whole thing is a system of trial and error, anyway.


Karl Kenneth Homuth: I still think that having
regard to the drastic tax laws we are now administering, we should have the privilege of setting up a board that would have the right to deal with matters of this kind.


Paul Joseph James Martin: There is always an appeal.


Karl Kenneth Homuth: To whom?


Paul Joseph James Martin: To the exchequer court.


Karl Kenneth Homuth: That is another plea for
the lawyers to get a fee. I am sick and tired of it. Let the common citizens of this land have a bit of a chance. All you lawyers would not be here but for the fees you can collect as a result of some of the laws you helped to pass. The Minister of Finance ought to give the officers of the Department of National Revenue some leeway in the administration of the act.


[Stage Direction]
Resolution agreed to.
3. That the schedule of taxes payable under section 88 of the act on gifts made after April 29, 1941, be repealed and in lieu thereof there be substituted the following schedule: - On gifts up to and including $5,000-7 per cent.
On gifts exceeding:-
$5,000	but	not	exceeding	$10,000-8	per
cent.
$10,000 but not exceeding $20,000-9 per cent.	^
$20,000	but	not	exceeding	$30,000-10	per
cent.
$30,000	but	not	exceeding	$40,000-11	per
cent.
$40,000	but	not	exceeding	$50,000-12	per
cent.
$50,000	but	not	exceeding	$75,000-13	per
cent.
$75,000 but not exceeding $100,000-14 per cent.
$100,000 but not exceeding $150,000-15 per cent.
$150,000 but not exceeding $200,009-16 per cent.
$200,000 but not exceeding cent.
$250,000 but not exceeding
$250,000-17 per $300,000-18 per
cent.
$300,000 but not exceeding $400,000-19 per cent.
$400,000 but not exceeding $500,000-20 per cent.
$500,000 but not exceeding $600,000-21 per cent.
$600,000 but not exceeding $700,000-22 per cent.
$700,000 but not exceeding $800,000-23 per cent.
$800,000 but not exceeding $1,000,000-24 per cent.
$1,000,000-25 per cent.
and that section 88 (8) (e) of the act be repealed.
Howard Charles Green: The minister was going to
explain why paragraph (e) of section 88(8) is being repealed.

Income War Tax Act


James Lorimer Ilsley: Section 88(8) (e) reads as
follows:
gifts or donations which are not recognized for income tax purposes under the provisions of section 32 of this act, as amended by section 16 of chapter 55 of the statutes of 1934.


Richard Burpee Hanson: What was that?


James Lorimer Ilsley: Those are gifts from a
husband to his wife or has minor children. Subsection (e) appears in the list of gifts or donations to which the gift tax did not apply.


Richard Burpee Hanson: There is an exemption at the moment?


James Lorimer Ilsley: That is right; subsection (e) appears in the list of gifts to which the gift tax does not apply. Now it is proposed to make the gift tax apply to gifts by a husband to his wife or his minor children. That comes as a result of the proposed succession duty legislation. It was considered that the gift tax should not apply before because the income from the gifts was considered for income tax purposes to be the income of the husband; and since up to the present the gift tax has been for the purpose of preventing transfers made in order to minimize the income tax, it was not necessary to make the gift tax apply to those transfers. Now, however, there will be another reason for making gifts; that is, to avoid the payment of the succession duty, and once the succession duty legislation passes it is considered that the gift tax should apply to such transfers.


Richard Burpee Hanson: If the gift tax applies will you tax the income still in the hands of the husband, as at present?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Then you are going to get him in three ways instead of one. To-day under section. 88(8) (e) the position, as I understand it, is that if I have given my wife a gift or donation from which she receives income, I pay the income tax on that?


James Lorimer Ilsley: Right; and she does not.


Richard Burpee Hanson: I agree; she does not. Now are you going to retain that position, or will the repeal of this subsection abolish it?


James Lorimer Ilsley: The husband will continue to pay the income tax, and the wife will not.


Richard Burpee Hanson: Very well; that is clear. He will have to pay in addition a gift tax?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: So that, if you could call it a penalty, he is penalized twice; and in addition you are going to get him under the succession duty act?


James Lorimer Ilsley: No, he does not pay the
succession duty.


Richard Burpee Hanson: Not until he dies.


James Lorimer Ilsley: His estate does not pay any succession duty on that gift unless he dies within three years. If he dies within three years the estate pays the succession duty but receives a credit of the amount of the gift tax.


Richard Burpee Hanson: Then that is some amelioration.


[Stage Direction]
Resolution agreed to.
10. That the tax of five per centum on nonresident persons, other than corporations, in respect of the total amount of the royalties, rentals or similar payments for the use in Canada of patents, real or personal property, or for anything used or sold in Canada, be increased to 15 per centum.
James Lorimer Ilsley: I asked that this resolution stand because I wanted to look into some of the matters we were discussing Friday afternoon, and I have not had time to get definite information as to how these rentals are treated in Great Britain and the United States. I told' the house the United States treats them in exactly the way we propose to treat them, but I have reason to believe that to some extent I should have qualified that statement. I want to have full information on that point before the resolution passes.


Richard Burpee Hanson: Where
a resident of the United States owns real estate in Canada from which rentals accrue, in addition to this tax on the gross rental he will under present circumstances, because of the fact that Canadian dollars are below par, suffer a diminution of his return. That is a circumstance which might be given consideration.


James Lorimer Ilsley: Yes:


Richard Burpee Hanson: On the
whole I suggest to the minister that it is inequitable to tax the gross, that some allowance should be made. Whether he should go so far as to limit it to the net, I cannot say; I do not know enough about it to advise him. Certainly, however, if I were to err I should rather err on the side of generosity than on the side of committing-I was going to say an offence, but that is not the word I want- an injustice. I will leave it at that.


Harry Rutherford Jackman: A good many of these
United States companies, and perhaps British companies as well, collecting royalties in this
Income War Tax Act

country do so from products or devices, if you like, which contain a large element of cost which is incurred in the country of origin. For instance, take a motion picture reel. There you have the whole cost of production incurred either in Great Britain or in the United States. Under this resolution we are going to take 15 per cent of the gross rentals of that motion picture reel, while the profit which would accrue to the company in the country of origin might not be that much, which seems to me manifestly unfair. In order that the house might give intelligent consideration to this whole question of royalties and other payments to non-residents under this section, we should have some understanding as to what sort of things are being taxed and what constitute these royalties and rentals. After all, each of us has a limited experience in these matters. Some visualize house rentals going to the United States; others visualize rentals on patents and matters of that kind. Could we get some understanding as to why there might be difficulty in administration if the tax were imposed on the net rather than on the gross?


James Lorimer Ilsley: I am asking that the section stand, so that perhaps I should deal with these matters when it comes up again.


Harry Rutherford Jackman: Can the minister indicate what the departmental difficulty would be, so that we might consider the matter and perhaps offer suggestions? I have pointed out before that it is very difficult to discuss these matters in committee of the whole. If they could be referred to the banking and commerce committee, or some smaller committee, we could get more factual material on which ;o base a decision.


Richard Burpee Hanson: While
the minister is considering that point will he give consideration also to the sort of royalty that is paid by manufacturers in Canada, we will say, on machines owned by companies of the type of-I mention this only as an illustration-the United Shoe Machinery company, who, as I understand it, refuse to sell their machines outright, but require the payment of a heavy royalty.


Mr. CLAXTON:: I would ask the minister also to consider another and very similar question, namely, the ordinary lease-hire purchase agreement, under which machinery is bought in Canada from a United States concern, but the agreement is in the nature of a lease and the payment is called a rental. Title passes only when the complete purchase price is paid.


Mr. ROSS (St. Paul's):: Has the minister considered the effect of this tax on the value of real estate in a city like Toronto, where real estate values are lower than they used to be? We would rather have United States capital building in Toronto than not have it.


Richard Burpee Hanson: Or have the properties thrown on the market, as might very well happen.


James Lorimer Ilsley: I shall deal with all these points when the section is discussed again.


Harry Rutherford Jackman: The minister will not forget that these. United States collectors of royalties and rentals have to submit to a deduction of eleven per cent by way of exchange, the same as in respect to bond coupons. When the rate is made 25 per cent the condition becomes serious. People may not complain about what they consider to be a bad principle if it does not hit them too hard, but when the rate is substantially raised, then the principle seems to stick out like a sore thumb; they immediately want to know why the change was made, and take serious objection to it.
Resolution stands.
18. That any enactment founded on resolutions numbered 3, 7, 8, 10, and 16 shall come into force on April 30, 1941.


Richard Burpee Hanson: Since resolution 10 stands, why should not resolution 18?


James Lorimer Ilsley: That is correct; 18 should stand, while 10 stands. However, with the amendment I proposed, resolution 17 should pass.


Richard Burpee Hanson: I am
agreeable to that.


The ACTING CHAIRMAN (Mr. Fournier, Hull):: It is passed.


James Lorimer Ilsley: Then if the committee would take up resolution 13, which I asked to have stand, I would ask that the words "thirty-five" be changed to "forty". With this change I would ask that resolution 13 be passed.


Richard Burpee Hanson: That is with respect to corporations?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Why the increase?


James Lorimer Ilsley: The reason is that I gave an undertaking in February or March in respect of the national war services drive. This provision affects my undertaking.


Richard Burpee Hanson: It is to implement that undertaking?

Excess Profits Tax Act


James Lorimer Ilsley: Yes; that is why I asked that the item stand. I did not think that in the form in which it appears it carried out my undertaking. If the amendment I have suggested is adopted, it will carry out my undertaking. The effect of the resolution is to reduce the allowance for charitable donations by corporations from ten per cent to five per cent of the net taxable income.


Richard Burpee Hanson: Why does the date April 7 appear?


James Lorimer Ilsley: April 7 was the close of the drive.


Mr. MULOCK:: I move:
That resolution 13 be amended by striking out the word "thirty-five" and substituting therefor the word "forty".


Richard Burpee Hanson: Did a
large number of corporations ask for this provision? Why was it done? Was it only to carry out the minister's pledge to the promoters of the drive?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Another case where they thought they were not going to get the money.


James Lorimer Ilsley: I do not know whether any corporations contributed.


Richard Burpee Hanson: Of course they did. However, the minister's word will have to be made good.


Harry Rutherford Jackman: It is a worthy cause.


James Lorimer Ilsley: I believe the resolution as amended carries out the undertaking. If I find on reconsideration it does not do so, I shall have to ask the house to permit a further change when we are discussing the bill.


Richard Burpee Hanson: In another year I do not think the minister had better be stampeded by anybody.


James Lorimer Ilsley: I had a heavy responsibility to discharge in that instance. It was represented to me that there was grave danger the Canadian war services might not succeed in a drive unless we made this concession. We made it, and it succeeded.


Richard Burpee Hanson: I am in agreement.


[Stage Direction]
Amendment agreed to.
Resolution 13 as amended agreed to.
Alphonse Fournier: Only resolutions 10 and 18 now stand.



EXCESS PROFITS TAX ACT

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Excess Profits Tax Act, and to provide:
1.	That the definition of profits in the case of a corporation be amended if and to the extent that the corporation is subject to the tax on excess profits set out in the second part of the second schedule so as to exclude from profits for such purpose any dividends deemed to have been received by it as a result of distribution of assets on the winding up or discontinuance of business of any other Canadian corporation, which distribution is by section 19 of the Income War Tax Act deemed to be a dividend, and to be taxable income of the company receiving the said dividend, provided that if the company receiving the said dividend is owned to the extent of fifty per centum or more of all its issued capital stock and bonds and any other type of security by or on behalf of twenty-five individual stockholders or security holders or less or is in fact controlled by such number of individual stockholders, this provision shall not apply.
Richard Burpee Hanson: Would the minister make a public statement with respect to depressed industries, and what progress is being made to settle the position? According to a recent announcement by officials of the Department of National Revenue, through the medium of the Canadian Press, the Canadian newsprint industry has been definitely declared a depressed industry for purposes of the Excess Profits Tax Act. Parliament was in session on May 13, and I do not know why departmental officials should give out an announcement as important as this, and ignore parliament. The principle is wrong.


An hon. MEMBER:: They must have
been taking the views of the hon. member for Waterloo South.


Richard Burpee Hanson: I did not
catch that interruption.


Karl Kenneth Homuth: That would not be a bad idea once in a while.


Richard Burpee Hanson: This
country is run, in an administrative way, by the civil service, for which I have a high opinion. But when parliament is in session an announcement as important as the one I have mentioned should be made on the floor of the house. This government has consistently ignored this procedure since the war began. I can visualize how the Prime Minister would beat his breast and raise Cain generally if a government opposing party in power did that sort of thing while parliament was in session. Why is parliament ignored by the government in announcing matters of this kind? Does parliament no longer stand for anything? Are we to read in the newspapers how the country is to be governed? From
Excess Profits Tax Act

time to time I have been concerned about this matter. Important statements of policy with respect to war activities have been made from time to time by announcements to press conferences, if you please. It is a throw-over from our neighbours to the south. Surely we should get back to the principle of parliamentary supremacy and parliamentary government while the house is in session.
I protest against this practice. The matter is not a very important one, but the principle involved is important. Was it necessary to make this announcement to the newspapers only a few hours in advance of the reassembling of parliament on the following day? I believe it was given out over night and appeared in the morning press. Why was that necessary? Can the minister tell us? What is the policy behind it? Is it the policy of ignoring parliament? Well, if we are to judge by the number of empty benches ordinarily occupied by the government, then parliament is ignored. There are eighteen members of the cabinet and only three of them are in their seats this afternoon. How many of them took part in this discussion? Aside from the war effort, these taxation proposals are the most important matters to come before this session of parliament, yet we have the spectacle of ninety per cent of the cabinet being out of their seats. They are just treating parliament with contempt. I hear the Minister of Justice (Mr. Lapointe) mutter something, but I cannot tell what it is.


Mr. LAPOINTE (Quebec East):: If the
hon. gentleman wants me to say something, I can.


Karl Kenneth Homuth: It would not do a bit of harm if you did.


Ernest Lapointe: I might say something the hon. gentleman would not like.


Richard Burpee Hanson: In all the years I have been in parliament I have never heard the Minister of Justice, either in opposition or as a member of the cabinet, discuss any business proposition before the house. But when it comes to political questions, he is right there with both feet.


An hon. MEMBER:: Ace high.


Richard Burpee Hanson: He may be ace high, as his followers say.
I should like to get back to my original thesis. Parliamentary government is again and again and again being thrown into the discard by this government. It is just not right. What are we here for? In connection with this budget are we here simply as rubber stamps

for the Minister of Finance (Mr. Ilsley) and those who formulate these proposals? If he will calmly review the position, I do not think the minister will say that we are. We are a deliberative assembly or we are nothing at all. Here is an announcement made while parliament is in session that the newsprint industry has been definitely ruled to be a depressed industry. I am in accord with that ruling, but I suggest that the announcement should have been made in parliament and the reasons given therefor. According to the report, the reasons were given by some departmental official who is not named. I quote the article as follows:
"This means that the entire newsprint industry has the right to claim a standard of not less than five per cent, and not more than ten per cent on its capital employed," one official said. "Above this standard we tax at the rate of 75 per cent."


Gordon Benjamin Isnor: To whom did he make that
statement?


Richard Burpee Hanson: Apparently to the Canadian Press; he must have called in the Canadian Press and given it to them.


Karl Kenneth Homuth: The hon. member for
Halifax (Mr. Isnor) ought to know because he is closer to the government than we are.


Richard Burpee Hanson: I am talking about a principle, and the hon. member ought to be backing me up.


Gordon Benjamin Isnor: I should want to know what I was talking about first.


Richard Burpee Hanson: Perhaps
the hon. member does not read the newspapers.


Gordon Benjamin Isnor: Yes, I do read the newspapers.


Richard Burpee Hanson: I do not know to whom the announcement was made. According to the report it was made by a national revenue official on May 13.


Gordon Benjamin Isnor: To whom?


Richard Burpee Hanson: The Canadian Press carried it, and that is all I know about it. I object to that being the avenue through which the public gets its information If the government are going to ignore parliament, well and good, but I want the country to know about it. It is a negation of parliamentary government and parliamentary responsibility; it is not fair to parliament.


James Lorimer Ilsley: This matter does not come under my department, but I have just made inquiries about it and I have found that what happened was that a ruling was made several weeks before any official said anything about

Excess Profits Tax Act
it. The officials of the department thought that this ruling, which had been made by the board of referees, was well known, and when one of the officials was asked by some of the newspapers whether such a ruling had been made, he said, "yes", thinking it was well known.


Richard Burpee Hanson: That must have been authorized by the minister.


James Lorimer Ilsley: I am not the minister, but I do not think so. The question is whether these rulings should be reported to parliament as soon as they are made.


Richard Burpee Hanson: While
parliament is in session.


James Lorimer Ilsley: I should not think so. The board of referees will be making these rulings in a number of cases, and I think they should indicate them to the taxpayer.


Richard Burpee Hanson: I agree with the minister when only an individual case is concerned, but here is a manufacturing business which is the largest in Canada. This ruling will affect not only the industry but possibly hundreds, yes, thousands of investors. I am in agreement with the ruling, but I object to the method adopted by the government to make it known. I am dealing with the principle involved. Why is parliament consistently ignored?


James Lorimer Ilsley: I do not think parliament is consistently ignored, or ignored at all. In this particular instance the announcement was not made by the government; the information was communicated under the circumstances which I have mentioned.


Karl Kenneth Homuth: It was a matter of government policy.


Richard Burpee Hanson: It is not exactly that.


James Lorimer Ilsley: This board of referees is one of the bodies that have considerable discretion. The board made its decision, and the officials were under the impression that that was pretty generally known. When the newspapers asked if a ruling had been made that the newsprint industry was a depressed industry, the official replied, "yes, I thought everybody knew that". I would be very much surprised if the Minister of National Revenue (Mr. Gibson) knew that that conversation was going to take place, or knew that it had taken place.


Richard Burpee Hanson: What the minister is really doing is making what we lawyers call a plea of confession and avoidance. He is confessing the charge but saying that it does not amount to anything. I do
not intend to follow this any further because the particular instance is not important enough, but I want the ministry to heed what I have said. This sort of thing is causing the man on the street to ask what parliament is here for, what the members are being paid for. The government is treating parliament with contempt, or with contumely, which is a better word.


James Lorimer Ilsley: I do not think so.


Richard Burpee Hanson: I do not think this is being done with malice aforethought, at least not always; I think it is done because the custom has grown up. The newspapers are after news, and I cannot blame them at all. Let us get back to orderly government in this country. We have done some terrible things since the war began. We have been legislating by order in council in connection with matters which are not war measures. I just cannot understand how that could be done by a Liberal government.


Karl Kenneth Homuth: Under the present Prime Minister.


Richard Burpee Hanson: More particularly a Liberal government under the present Prime Minister. If aaiy man in this Canada of ours ever railed for years against rojml commissions and government by orders in council it was the right hon. gentleman, and no man has been a greater sinner since. It all depends upon whose ox is being gored, and when and where. I do not think I should follow this matter any further because I have said enough.


[Stage Direction]
Resolution agreed to.
2.	That the definition of standard period, and also of standard profits, be amended to require the taxpayer to apportion to the four calendar years, 1936, 1937, 1938 and 1939 the profits of their corresponding fiscal periods which do not coincide with the calendar year. The apportionment must be on an equal daily basis.
Richard Burpee Hanson: I should like to know how this board of referees is functioning and whether it has accomplished anything except in connection with the newsprint industry. I think the personnel of this board is good and I know they have been studying many matters, but so far as I have been able to learn, they have not done much except study.


Paul Joseph James Martin: Oh, yes.


Richard Burpee Hanson: My hon. friend says, "oh, yes," that they have. That is not my information, but he may be correct. I wish to know from the minister the activities of this board. What rulings have they given? I am not asking for specific rulings with
292S
Excess Profits Tax Act

respect to specific corporations because I do not think I should ask for that, and I believe the minister would be quite justified in refusing the information. I wish to know, however, what general rulings they have laid down, or whether their rulings are reflected in the series of amendments that have been brought down. I say "series" advisedly because we have had three announcements from the minister on three different occasions of proposed amendments to the law. There was one in March, another in the resolutions themselves, and there has been a further announcement, if I remember correctly, since the discussion on the resolutions began. There are twenty odd amendments proposed to the statute. Are they the result of recommendations of the board of referees, or of study by the officials of the department, or what?
This is quite a big field. The whole thing, the setting up of the board, was a departure from established administration. I am in agreement with the theory underlying the setting-up of this board. I have approved the personnel. I hope they will do good work, but I should like to know what they have done. We are paying some of them $50 a day and expenses. I am not suggesting that that is too much, but when we are paying some of them $50 a day, day in and day out-the cost is not important-we are entitled to know what they have accomplished. Is justice being done? Are people being left out of the classes of depressed industries in which they think they ought to be included? Is there unanimity in the working of the board? Generally, what are the functions of this board? What report has the minister to make to us on the board's activities?


James Lorimer Ilsley: I cannot give a full report on the board, which is under the Department of National Revenue.


Richard Burpee Hanson: Then
where is the minister of that department?


James Lorimer Ilsley: I presume the minister of that department can make a report when his estimates are under discussion, or whenever it is necessary.


Richard Burpee Hanson: This is the time right now.


James Lorimer Ilsley: So far as my knowledge goes, the course of events has been something like this. There was a disinclination on the part of taxpayers to apply to the board because they understood the act was going to be amended at this session, and they thought they might find that they had gone to some pains and considerable expense

needlessly. Therefore they held back pretty generally from making applications. There might also have been some inclination on the part of the taxpayers to let someone else apply and get a particular point settled.


Richard Burpee Hanson: That is letting George do it.


James Lorimer Ilsley: I have the impression that some taxpayers felt that way about it, and I do not know that I would blame them very much for that. For these reasons I made a statement before Easter in reference to the Excess Profits Tax Act, and it is the only statement that I remember making with regard to the act. I do not know where the three statements were.


Richard Burpee Hanson: The
second one was contained in the budget speech, and there has been an announcement since the budget.


James Lorimer Ilsley: The whole matter has been handled in an orderly and logical way. I stated before Easter that certain retroactive amendments relating to the year 1940 would be made when the budget was brought down. There were certain amendments which would be applicable to the year 1941 and subsequent periods. That, of course, necessitated two statements of the government's policy in reference to the Excess Profits Tax Act, and I think that is all there have been.
With regard to the board, I conferred with the board on one occasion for some hours and got their views as to ways in which the act could be improved. Some of their suggestions were adopted and some were not.


Richard Burpee Hanson: (York-Sunbury): Which
were adopted?


James Lorimer Ilsley: I cannot remember now.
Their suggestions were not made in any formal way.


Karl Kenneth Homuth: It was done by order
in council, was it?


James Lorimer Ilsley: No. The members of the
board met me in my office and, I think, handed me a slip of paper on which certain suggestions were made. They were not lengthy. We discussed them all pretty carefully, but I cannot remember which ones were adopted. The responsibility for recommending amendments to the Excess Profits Tax Act lies with the Minister of Finance. After careful consideration I finally decided to recommend the amendments which are embodied in these resolutions. A great many other suggestions were considered which, after careful consideration, were discarded. Since these amendments were announced, I have

Excess Profits Tax Act
received a large number of suggestions by telegram, letter, and also orally, from taxpayers respecting further and other amendments. I do not think I have adopted any of these suggestions with the exception of the one which makes the tax begin January 1 1941.


Richard Burpee Hanson: Prorating.


James Lorimer Ilsley: Yes, instead of at the beginning of the fiscal year which falls in 1941. After considering both sides of the question I finally decided that that was the fairest thing to do under all the circumstances. The effect of the pre-Easter announcement was to hasten the payment of taxes.


Karl Kenneth Homuth: It was very helpful?


James Lorimer Ilsley: To a very great degree, and extremely large sums of money came in shortly after that announcement. One of the proposals was that taxpayers who considered themselves depressed could themselves pay what they saw fit; that is, they could themselves fix the rate which they felt should apply to their capital, and pay accordingly.


Richard Burpee Hanson: They could elect temporarily to be in that class?


James Lorimer Ilsley: Yes, they could reckon it
up themselves.


Richard Burpee Hanson: That
was quite a concession.


James Lorimer Ilsley: And they paid accordingly
in large numbers. The Minister of National Revenue in any event, after examination of these returns, may refer them to the board of referees, and it may be that in many instances the taxpayers will be asked and obliged to pay a great deal more than they have already paid. But the immediate effect of the pre-Easter announcement was to bring money into the treasury in very large amounts.
I think, as the hon. member does, that the board is a good board, of extremely high quality, and I am sure that since the position has been clarified by my pre-Easter announcement there will be a large number of applications of taxpayers to the board, although the effect of some of these amendments is to cut down very greatly the number of applications.


Richard Burpee Hanson: The bill was introduced hastily-is that a harsh word to use?


James Lorimer Ilsley: It is correct. The measure was introduced in September, 1939.


Richard Burpee Hanson: In September, 1939. It was hasty legislation; it continued to be hasty and ill-considered legislation through the whole of last session, and now, after nearly two years, we are in the position of trying to plug up the holes, to adjust the inequities and inequalities of the act and to give it some form and substance as a just taxation measure, assuming of course, that the government is preserving the basic principle. That is a fair statement.


James Lorimer Ilsley: That is not a fair statement.


Richard Burpee Hanson: The minister can characterize it in any way he likes, but I know that this tax was regarded by business as another illustration of improvisation on the part of the government, and had not been thought clear through. I can well understand that. It was done in their haste to yield to the clamour of the demagogues and that class of people in this country-


Some hon. MEMBERS:: Oh, oh.


Richard Burpee Hanson: That is
what it was, a yielding to the clamour of the demagogues and that class who do not know anything but "soak the rich." It was as a result of that clamour that this legislation was passed. I am glad to think that after months of consideration and of interchange of views between business and the department, and I believe in a sympathetic way in most cases-in fact, I have not had any case reported to me that was not treated in a courteous and considerate manner- there has been on the part of the administration an effort to make the tax workable. I do not know so much about the minister's attitude, but I would assume, knowing him as I do, that both the Minister of Finance and the Minister of National Revenue would hear representations in a sympathetic way with a view to making the tax workable; and we have now arrived at the point where, to preserve the underlying principles, most of the wrinkles have been smoothed out. That is the information I have had. I have no disposition in the world to retard the passage of these resolutions beyond these observations, if the minister-and this is the only proviso I impose-will tell the committee that, speaking generally, the proposed amendments have been agreed upon between representatives of business and the department immediately concerned.


James Lorimer Ilsley: No; I cannot tell the committee anything of the kind.


Richard Burpee Hanson: I was
told last week by a leading industrialist in
Excess Profits Tax Act

this province that the department and representatives of business were in agreement on these matters, and that lifted a load off my shoulders, because I must say to the minister that I have been labouring under a burden in trying to understand the implications of all these amendments. I thought it was my duty to try to understand them, and I confess to great inability. If the minister tells me that there is no unanimity between the department and business, then we shall have to dissect the resolution; and I should hate to have to do that because it would delay matters. Perhaps the minister can tell us when he comes to it whether there has been an agreement with business on the resolution. If there is not, then the whole question will have to be opened up.


James Lorimer Ilsley: We do not frame legislation by agreement with business.


Richard Burpee Hanson: Then, if
you do not frame it by agreement with business, I can say you frame legislation by pressure sometimes, and we had an instance of that in the income tax resolution. I would rather see legislation framed by agreement with business. Why not? Is there anything wrong about that principle?


James Lorimer Ilsley: Yes.


An hon. MEMBER:: What do you mean by business?


Richard Burpee Hanson: I would say, the representatives of organized business who come here and make a case for equity and equality of sacrifice. Why should there not be agreement? The minister will say, I am sure, that with respect to the income tax resolution many of the amendments he has made have been made in a sense of fairness and justness to business, after business has made the necessary representations. The very amendment with regard to changing the date of filing returns from non-incorporated companies is a case in point. That was done by the minister because of representations that had been made in this house and outside the house. I do not for a moment suggest that the representations made by the hon. member for Halifax (Mr. Isnor) or myself were the first to reach the minister on this point. He must have heard from business outside this house anterior to last week. That is perfectly proper. Is there anything wrong about that? The minister suggests that legislation is not framed as a result of representations made by business.


James Lorimer Ilsley: I did not say that.


Richard Burpee Hanson: Then I misinterpreted the minister. What did he
say?


James Lorimer Ilsley: The word was agreement, and I said that we did not frame our legislation as a result of agreement with any class or group in this country. We are legislating for the Canadian people.'


Richard Burpee Hanson: I should like to analyse all the representations that have been made and all the promises that have been given by ministers to different people. I could find some instances where there was legislation as a result of agreement.


Gordon Benjamin Isnor: Understanding.


Richard Burpee Hanson: If the hon. member for Halifax wishes to use that term, I am content. It means the same thing.
Mr. O'BRIEN: When the amendment was introduced in November, I spoke at that time and said that I was in agreement with the suggestion that there should be some flexibility in the dealings of the government with business, business being subject every day to changes and fluctuations, which called for such flexibility on the part of the government. On that occasion the newsprint industry in particular was mentioned. Since then it has been definitely classed as a so-called depressed industry. The Montreal Star, under date of May 3, makes the statement that the Canadian newsprint industry has been declared a depressed industry for the purposes of the excess profits tax. I have here clippings taken from the same paper over a period of time. I do not think it is fair to mention the names of the various companies, but I shall refer to several phrases used in describing their financial position.
It is said, for instance, that one company "shows a wide expansion in sales, in gross income and in net profits." Another shows broad increases in earnings and enhancement in financial position. Another shows that "the profit is equal to $4.14 a share, preferred stock, against forty-four cents." Another shows that "the 1940 profits set a new high record, about S6 earned on common against fourteen cents." Another company shows "substantially higher earnings."
With these statements I have no quarrel because these companies are entitled to earn profits, but it seems extraordinary that while the companies boast to their shareholders of the wonderful gains they have made in their individual enterprises, the industry should be classed as a depressed industry. However, I can see that the two positions are entirely different. But when this amendment was brought in last November, I asked that some consideration be given to the primary producer, who makes it possible in many instances for these companies to function. I refer to the pulpwood producer, the fellow

Excess Profits Tax Act
back in the woods running the bucksaw, either the man making the wood or the man with his woodlot attempting to earn a livelihood in conjunction with his crop. As a matter of fact, pulpwood to-day is lower in price than it was a year ago. I could understand that except for the boasting of these companies that they are making such enormous profits.
In November last, when the amendment was being discussed, I asked that the government consider this matter carefully so that these men might also be looked upon as being to some extent under depressed circumstances. I endeavoured to find out from the war-time prices and trade board whether the newsprint industry came under their jurisdiction. I was told, no, but since my letter contained some interesting information it had been passed on to the timber controller. The timber controller advised me that he has no control over this industry. It strikes me as rather unfair that these companies, because of their power, their ability to spend money on highly-paid legal talent and to send people to Ottawa to promote their case, should be so classed, while the men in the low brackets making the pulpwood are entirely forgotten. Since butter has been controlled, rents have been controlled, and companies or individuals building apartment houses with their own money on their own land are told to-day how much they may or may not charge for rent-


Karl Kenneth Homuth: So is industry told what it can spend.
Mr. O'BRIEN: It carries all through except for these people at the far end of the line, who are forgotten. In my constituency of Northumberland and in New Brunswick generally we have thousands of such people, and I submit, since a board has seen fit, in view of this boastful statement in the press of the enormous earnings of these companies-


James Lorimer Ilsley: When?
Mr. O'BRIEN: In the past year.


James Lorimer Ilsley: Well, the industry is not
declared depressed in the past year. It is during the standard period 1936-1939.
Mr. O'BRIEN: That does not, however, relieve the government of the responsibility of seeing that these people in the low brackets who are boasting of their earnings in the past year are in a better position than people who have gone through three or four years of depression; yet no consideration has been given to improve their lot, and they are selling their product at a lower price this year than last, which is not true of the pulp and paper companies. If a man cuts a spruce 14873-185
tree and puts it through a sawmill it is controlled by the timber controller, but if it is cut into pieces four feet long as pulp-wood it is not controlled. Since they have seen fit through their board to declare the pulp and paper industry a depressed one, I am only asking that their business be placed under some controller to see that the men at the far end of the line are given proper and necessary consideration; for, unless some change is made in the economic set-up, while this country is fighting to preserve democracy, I am afraid we are going to lose it in Canada.
There is not, so far as I can see, any national policy. We in New Brunswick are practically forgotten. Of all the $300,000,000 odd, collected through this taxation, and contributed by the government as capital to assist private industry-and with such policy I have no quarrel whatever-New Brunswick received only -007 per cent. The new war loan will soon be launched. We in New Brunswick are asked to contribute $10,000,000 of which the constituency of Northumberland is asked to contribute $350,000. I have no doubt these amounts will be reached; but it is most unfair that when our people in that province are contributing as they have been doing to all the loans and the drives for war services-and in the matter of enlistments I believe New Brunswick stands as high as if not higher than other parts of Canada-when we have not these war industries we should be given some consideration to build them up out of the taxation collected from our own people. I ask particularly that the primary producers, who constitute the only industries we have in that section of the country, be given some protection, and that all the protection be not given to these big corporations.


[Stage Direction]
Resolution agreed to.
3.	That the definition of standard period, and also of standard profits, be amended to allow standard profits to be computed from the time of actual commencement of business rather than from the legal date of commencement of business, the date of actual commencement to be determined by the minister in his discretion in the light of the circumstances of the particular taxpayer.
Resolution agreed to.
4.	That the definition of standard period be amended to give the taxpayer the choice of his three best years if the profits of his fourth standard year after adjusting for capital additions or withdrawals were less than fifty per jentum of the average of the profits of the other standard years.
In the case of taxpayers who have been in business only three out of the four standard years and the profits of one of the three years after adjusting for capital additions or withdrawals were below fifty per centum of the
[Stage Direction]
Excess Profits Tax Act
[Stage Direction]
average of the other two years the proposed amendment will allorv them to use the profits of the two best years in computing their standard.
Harry Rutherford Jackman: I should like to ask the minister a question with regard to what might be called the level-or, if you like, the plateau -of corporation profits in Canada. I might make an analogy with the order in council regarding labour, No. 7440, whereby labour is given the right to a wage which is at least as good as the best during the 1926 to 1929 period or any time since then, depending upon which is the higher; and then, if the cost of living goes up, every time it rises five per cent they are, I believe allowed an increase.
In the case of corporations I understand that in Great Britain, where the excess profits tax was first introduced and from which place we copied a good deal of our act, the level of corporate profits, or the plateau, in 1937- I am taking that year because I have the figures for it-was 125 per cent of the 1929 level. This is perhaps surprising, but the reason for it is that the heavy industries in the old country were doing extremely well in the latter years of the decade following 1930, their export business had gone up substantially, so that during the period which forms the base or standard profits period in the old country they had a very favourable base, particularly compared with what we term the boom year 1929.
In the United States, the conditions in which are more comparable with those in Canada, I have figures which I believe would be accepted by any authority which indicate that the plateau or level of corporate profits in 1937 was about 67 per cent of what they were in 1929.
In Canada we have no services which have prepared these figures, and obviously one cannot make a personal tabulation of the profits of all corporations in this country. The department must, however, have done some research along these lines in order to impose an equitable tax on industry. To select a base having at least some measure of justice they must have had some figures which throw light on what the level of corporate profits was in Canada during the so-called standard profit period of 1936-1939, compared with the so-called boom year 1929.


James Lorimer Ilsley: No; I am informed that
there are no such figures, that on the statistical side the board of referees is trying to arrive at figures which would be comparable with these figures in the United Kingdom and the United States, but it has not been able to do so.


Harry Rutherford Jackman: Well, it is difficult to have confidence in a department which levies a tax, borrows it from the old country and does not know whether there is any similarity in conditions here compared with those in the country in which the tax originated. If there is a discrepancy such as the figures I have given indicate, namely, in the old country a level of profits 125 per cent of their most prosperous period prior to the depression, and in Canada perhaps two-thirds-I made a trial of a few companies and I would estimate that the profits during the 1936-1939 period certainly would not be more than two-thirds of what they were in the year 1929, and that would refer to gross profit before taxation; after taxation it would be probably substantially less than that-we should have some idea of what we are doing here. Surely we would not take the wages of labour, without knowing whether or not they were fair, and say, "You must not get any more; you must have your wages fixed at a certain level." In equity and fairness to labour we purposely say, "You shall have the best of the period from 1926 to 1929, or any subsequent period depending upon which is higher," yet we expect industry to accept this tax without question. I am not against it; I merely wish to know what we are doing. The Department of Finance, which is responsible for this measure, must submit itself at least to censure if it is levying taxes without knowing what it is doing.
In my short experience I have found that we are prone to copy the old country, where conditions are not at all comparable with conditions in Canada. We are a progressive country, in the sense that our industries are young and growing, while in Great Britain they have an older and more mature economy. I am sure they would not enact much of our legislation if they were here. On the other hand, whenever it suits our book we borrow from the United States and legislate for a situation in Canada which again is not on all fours with the situation in the republic to the south, although our economy bears a much closer resemblance to that of the United States than to that of the United Kingdom. For instance, just a few moments ago in this committee, with reference to the fifteen per cent ' withholding tax on rentals, royalties and so on, going to foreign countries, we heard the Minister of Finance say that he would look up the British and United States legislation to find out what had been done there. Of course no one has the slightest objection to consulting precedents in these matters and find-

Excess Profits Tax Act
ing out what others have done, but I believe- and I see evidence of it on every hand- that we in Canada lack original thinking on these vital matters.


Mr. MacNICOL:: I should like to ask a question with reference to the words "after adjusting for capital additions". Does that have relation to additions to plant?


James Lorimer Ilsley: Not necessarily additions to plant; it means an increase in the capital of the company, as defined in the act. That would be a capital addition; and a withdrawal would be a withdrawal of capital as defined in the act.


John Ritchie MacNicol: Then, if a large part of the profits were withdrawn to increase the plant by one-third or one-half, would that company escape the payment of this tax on account of that withdrawal?


James Lorimer Ilsley: The question will have to be put more clearly before I can answer it. During what period?


John Ritchie MacNicol: This has reference to the fourth year. Take last year.


James Lorimer Ilsley: The addition or withdrawal of profits does not mean the addition or withdrawal in the fourth year only. If the hon. gentleman will look at the section again, I think he will see that he has misread it. Perhaps if he will put a definite case, I might be able to answer it.


John Ritchie MacNicol: I will give the basis for my question. Yesterday I passed a plant where a large addition had been constructed during the previous year.


James Lorimer Ilsley: This year?


John Ritchie MacNicol: No; 1940. A man who ought to know-he is not associated with the company, and he may have made the statement without accurate knowledge of the set-up-told me that the same company owned the property adjoining that plant, and that it was contemplating another large addition because, by investing its capital or profits in the plant, it would escape this taxation. I do not know, and he may not know, the true facts; I am only asking if there is such a possibility, by which a company making large profits might escape paying the government a tax on those profits by investing them either in property or in additions to the plant.


James Lorimer Ilsley: Oh, no; they could not avoid any taxes in that way. They would be taxed on their profits.


Douglas Gooderham Ross: 
James Lorimer Ilsley: No, it would not.


Mr. McNIVEN:: I have some appreciation of the difficulties which confronted the minister in framing this resolution, but the very difficulties with which he had to contend have left a burden that weighs more heavily on some parts of the country than on others. That is particularly true of Saskatchewan, from which I come. The resolution as amended is much better than the original one, but the standard period is still the years 1936, 1937, 1938 and 1939. While the amendment permits the taxpayer to select three of his best years in that period, it is only fair to draw to the attention of the committee the fact that, so far as Saskatchewan is concerned, only one year in that period could be called good, and even that year would not be comparable with the period mentioned a moment ago, namely, 1926 to 1929.
Saskatchewan, together with the rest of Canada, suffered from the depression. I am speaking more particularly of local business rather than of national concerns which are able to balance losses in one part of the country against profits in other parts. A great deal of business in Saskatchewan is conducted by local men and local companies; and by reason of the conditions that prevailed in that province from 1930 to 1935 their reserves were swept away, their capital was impaired and they accumulated debts. The year 1936 was fair, but not at all comparable with any of the years from 1920 to 1930. In Saskatchewan, 1937 was the worst year we ever experienced; I do not think any other province ever suffered such a business setback as we did at that time, when more than three-quarters of the province suffered a complete crop failure. In 1938 we had a fair year in certain parts of the province, and 1939 was generally good throughout.
This will mean that the standard of profits will have to be based virtually upon 1939 alone, and that standard will be so low that taxation will sweep away any profits which may have been made since then. I should like to point out to the minister that the application of even this amended standard period is going to reduce a large number of business institutions in Saskatchewan to a state of perpetual bankruptcy. Like the hon. member for Northumberland (Mr. O'Brien), I could draw to the attention of hon. members the fact that Saskatchewan has not been favoured with any war industries. Of the $305,000,000 raised through taxation and
Excess Profits Tax Act

loans, to which we have made our contribution, only $90,000 has been appropriated to Saskatchewan. Of the twenty-three units recruited in the province, fourteen are overseas, and most of the remainder are being trained in other parts of Canada.


John Ritchie MacNicol: Your fliers are doing great work, too.


Donald Alexander McNiven: Yes, excellent work. Were it not for the development under the British commonwealth air training scheme Saskatchewan would experience no benefit whatsoever from Canada's war activity. Therefore it will be appreciated that this resolution, even as amended, will place difficulties in the way of Saskatchewan business-a business which is anxious to submit its contribution to war appeals and to national war loans.


James Lorimer Ilsley: There are two answers to what the hon. member has said. First, if business has been unduly depressed in Saskatchewan between 1936 and 1939 it has the right to go to the board of referees and get a capital standards base. That, instead of the actual earnings base, can be used. That was one reason for the setting up of the board of referees.
The second answer is that in connection with small businesses, to which the hon. member referred specifically, another of these resolutions provides that the standard profit shall be deemed to be not less than S5,000. Those two provisions in the resolutions go far toward meeting the situation described by the hon. member.


[Stage Direction]
Resolution agreed to.
5.	That the definition of standard profits be amended by adding thereto a proviso that in no case shall a taxpayer's standard profits be less than five thousand dollars.
Resolution agreed to.
6.	That the adjustment to standard profits by reference to any increase or decrease in depreciation allowances or other charges as provided by paragraph (d) of subsection 1 of section 4 be repealed.
Harry Rutherford Jackman: The question I am about to ask might more properly have been asked under resolution 5, where we find the expression "standard profits be less than five thousand dollars." If the bulk of a company's income falls into a non-taxable bracket, and three or four thousand dollars into a taxable bracket, do I understand this resolution to mean that no excess profits tax is to be levied unless the taxable income or profit amounts to $5,000, even though the aggregate of profits might amount to a substantial sum? In other words, I am asking for the definition of "standard profits." Does the word "profits" define itself

the same as it was defined in last year's measure? If it does, then the excess profits tax base depends entirely upon how much income is in the taxable bracket, irrespective of how much might be in the non-taxable bracket.


James Lorimer Ilsley: The word "profits" has the same meaning in this resolution as it had in
last year's act.


Harry Rutherford Jackman: A company may have a great deal of non-taxable income, but so long as its taxable income does not exceed $5,000 it does not fall within the Excess Profits Tax Act.


James Lorimer Ilsley: That is correct.


[Stage Direction]
Resolution agreed to.
7.	That the adjustment to standard profits by reference to increases or decreases in capital be amended to provide for an adjustment at a fixed rate of seven and one-half per centum on the capital change, with the proviso that if new capital to the extent of thirty-three and one-third per centum has been added since the standard period the taxpayer will have the option of being considered a new business.
Resolution agreed to.
8.	That the procedure for a depressed business applying to have its standard profits determined by the board of referees on a capital-standard basis be altered so that the taxpayer may file his return and pay his tax on the basis of a standard profits computed by the taxpayer himself, at a percentage on capital which he deems fair and reasonable but being not more than ten per centum on "capital employed" as defined in the act, with the right of the minister to refer any ease to the board of referees to have the standard profits finally determined by that body.
Richard Burpee Hanson: Is this one of the recommendations of the board of referees?


James Lorimer Ilsley: I do not think so.


Richard Burpee Hanson: Does the minister know which ones the board recommended?


James Lorimer Ilsley: I cannot really remember.
The whole thing changed so much, from conference to conference, that I cannot remember.


Richard Burpee Hanson: Then this is the result of an understanding, instead of an agreement-in the sense used by the hon. member for Halifax?


James Lorimer Ilsley: Oh, no.


Richard Burpee Hanson: Does the minister repudiate him?


James Lorimer Ilsley: That suggestion is entirely wrong. We had no understanding with anyone about this.

Excess Profits Tax Act


Richard Burpee Hanson: I have my own views about that.


James Lorimer Ilsley: Well, that is the truth. We had no understanding with anyone. I know when this proposal was made, by whom and at what conference, and not a business man in Canada made it, or knew it was going to be made.


An hon. MEMBER:: Who made it then?


Harry Rutherford Jackman: I note the expression:
"With the right of the minister to refer any ease to the board of referees to have the standard profits finally determined by that body." How long will it be before the department is likely to bring about some finality in these matters? After all, we know the Department of National Revenue is becoming more and more burdened in the collection of revenue. It cannot possibly function as well as some of us might like to see. Arrears of taxation grow very substantial. We find the government coming along with its demand two or three, or possibly more years after the deed of omission, if it may be so described, is committed. Could the minister give some idea as to how quickly the Department of National Revenue will act, or would he care to make some provision in the resolution whereby companies using this section may have some finality in the matter, and some peace of mind with regard to their taxation.


James Lorimer Ilsley: I cannot say how soon the
department will act. I would not want to consider putting in a provision whereby, if the department did not act within a certain time, it would be precluded from doing so.


Richard Burpee Hanson: Or vice
versa.


Harry Rutherford Jackman: Would the minister care to make a statement as to how the collection of revenue is progressing, because there is no use in passing rates of taxation if we do not know how the taxes are being collected. It is obvious that the job must have grown by leaps and bounds in the last two years, and a perfect record could hardly be expected. Occasionally, however, one hears of taxpayers who have not come forward with the payment of their taxes. One occasionally hears that they do not expect to come forward. In view of these facts, would the minister give us some indication of the condition respecting the collection of assessed taxes? Or, as it might be put in the trade, are the collections good, or are there many bad debts on the books in respect of income tax and national defence tax? We should have some assurance that these tax measures are being adequately policed; otherwise those of us who
pay our taxes promptly will feel badly if we think somebody else is not being forced to toe the line promptly.


James Lorimer Ilsley: The commissioner tells me
that the income tax branch collects 99-5 per cent or better of the assessed taxes. That has been the experience in the past.


Harry Rutherford Jackman: I am concerned about
the present experience. We know the past experience has been wholly admirable.


James Lorimer Ilsley: That is right up to date. How late does my hon. friend want it? Does he want that information for every tax? I would point out that we are now talking about the excess profits tax. I was not talking about that tax when I gave the 95-5 per cent figure. I shall, however, give him the figures respecting the excess profits tax. The amout collected during the present fiscal year was 850,163,783.80.


Richard Burpee Hanson: Have all the cases been settled?


James Lorimer Ilsley: No.


Richard Burpee Hanson: They are paid in advance of the assessment made by the taxpayer?


James Lorimer Ilsley: The taxpayers have paid 850,163,783.80 since the beginning of the present year, namely since April 1.


Richard Burpee Hanson: That is to save penalties?


James Lorimer Ilsley: Yes. The commissioner tells me that there was. paid about 829,000,000 during the past fiscal year.


Douglas Gooderham Ross: As the hon. member for Rosedale (Mr. Jackman) has pointed out, as time goes on it may be difficult to have some finality so far as these cases are concerned. Will the present appeal board be sufficient to handle the situation? Would it not be better to have several boards sitting in various centres of Canada so as to make appearance before such boards less costly? Perhaps a judge and a couple of business men could act as a board. I am sure that the present board will have plenty of appeals to hear.


James Lorimer Ilsley: I do not think I would be in favour of doing that until we see how many applications there are. The provisions of this resolution will make a considerable difference.


Douglas Gooderham Ross: Will the evidence given in connection with appeals be made public? I suppose precedents will be set as time goes on, and I should like to know if those will be available for future reference.
Excess Profits Tax Act


James Lorimer Ilsley: I should not think that the evidence will be made public.


Richard Burpee Hanson: (York-Sunbury): Is not the basis of this tax as it affects small businesses the cash capital in the business? I refer to those businesses which might be considered as depressed.


Paul Joseph James Martin: The excess.


Richard Burpee Hanson: The basis upon which this tax is imposed in the case of small businesses is the amount of cash capital invested. Effect is not given to the amount of effort expended in the business, a most important but intangible factor. I had some correspondence with a firm of chartered accountants, and they outlined three cases which I think I should bring to the attention of the minister. The first case is that of a man who started up a machine-shop business in 1937. He did little or no business during the first six months, but in 1938 he earned about S2,500 and was able to put $1,000 into his capital account. In 1939 he added another $1,000, and with a little cash contributed by his wife he was able to acquire a total capital of $2,900, with which he started the year 1940. Because of his personal initiative and efforts and due to the increase in business, not necessarily war business, in 1940 he will show a profit of about $8,000. He was able to secure some fairly decent contracts. He will not fall within the category of a new business, even on the basis of the minister's amendment. The criterion set by the minister is additional capital to the extent of one-third. Being non-incorporated he will be able to establish a drawing account of about $3,000, but on the remainder, or $5,000, he will pay a tax of seventy-five per cent as well as an income tax upon the balance. It seems rather severe to take $3,750 of this man's small earnings and then impose an income tax on the balance. According to my correspondent, this man feels that it is not worth while to stay in business when he can get a job which will pay him a larger salary without the responsibility of running a business.


James Lorimer Ilsley: The amendment would give that man $5,000, so the excess profit would be only $3,000.


Richard Burpee Hanson: He has not put in one-third of his capital.


James Lorimer Ilsley: Resolution 5 reads:
That the definition of standard profits be amended by adding thereto a proviso that in no case shall a taxpayer's standard profits be less than five thousand dollars.


Richard Burpee Hanson: But he
will have to pay seventy-five per cent on the difference, plus an income tax. That is an

exceedingly heavy tax for a small business of that kind, and it must be a great detriment to men starting new businesses. I have nothing more to say about that because the minister has pointed out that my correspondent was slightly in error.
The next case is that of a civil engineer who could not find steady employment and who conceived the idea that he might be able to make some money by buying and selling construction equipment. He had $4,000 or $5,000 of his own and was able to get from the bank a credit of $50,000. He started in 1937 and, his firm being incorporated, the most that can be granted is ten per cent on the capital employed before the excess profits tax is applied. During 1937, 1938 and 1939 he made no money, and at the close of the fiscal year ended July 31, 1940, he had just broken even. As a result of his own exertions he has been able to rent a good deal of his equipment for road construction work, airport work and so on, and by July, 1941, he may be able to show a profit of as much as $20,000. In that event he will have to pay a combined income and excess profits tax of about $15,000. The bank and his sponsor have told him that he will have to sell his equipment and fold up, because his profits after paying this excessive taxation will not pay off his credit at the bank in ten years.


James Lorimer Ilsley: As a matter of principle, a war excess profits tax act could not be framed in such a way that persons in business would be permitted to pay back what they owe, thereby increasing their capital to a great extent before the tax applies. In this particular case the taxpayer might be able to get relief under the provisions of resolution 9, which reads:
9.	That power he given to the board of referees in the case of both new businesses and depressed businesses to ascertain a fair and reasonable standard profits on some basis other than the capital-standard basis in those cases where the capital employed in the business is so small when compared with the earning power of the business or where other special circumstances of the taxpayer are such that to utilize the capital-standard basis would result in an unjustifiable hardship or would create extreme discrimination or jeopardize that continued existence of the business of the taxpayer.


Richard Burpee Hanson: There is something in what the minister says. The man might get some relief there. But the point I desire to emphasize is this, that the cash capital alone should not be the sole guide. Something ought to be allowed for private initiative, if we believe in that principle at all, for a man's having ability and energy enough to go out and get business and to seize opportunity when it presents itself.

Excess Profits Tax Act
Could some relief not be given to him in the matter of salary? Is he not confined by the provision regarding the amount of salary he may draw for the management of the business? Consideration might be given to that.
I am glad that the minister drew my attention to resolution 9, because I had overlooked that. It gives the board of referees a discretion somewhat similar to what the hon. member for Waterloo South, if I understood him correctly, was arguing for this afternoon. But there is absolutely no principle laid down to guide the board. What is the guide then? Is it to be merely the question of cash capital, or is a man to be allowed something for the result of his intelligent labours? I suggest that there should be something here, some guide to the board of referees in setting up what may be termed a fair and reasonable standard. The language of the resolution is "on some basis other than the capital-standard basis". Why should this not include, to be specific, on a basis of capital-standard plus labour, plus initiative, plus brains, if you will, plus managerial experience and ability? These are the things which I think ought to guide the board of referees. But what is there in the resolution which authorizes them to consider those factors?


James Lorimer Ilsley: They may take them into account.


Richard Burpee Hanson: It will not be in the legislation, will it?


James Lorimer Ilsley: I was waiting to hear language that I could put into legislation, and I have not heard it.


Richard Burpee Hanson: I am sorry that I have not been able to assist the minister. I will give him a suggestion. I will use the term "managerial ability, initiative and experience".


James Lorimer Ilsley: Then what is there to prevent all the corporations in Canada from coming along and saying that as a result of better management, as a result of smart work, if you will, they are making far more profits than they did before. We would be simply swamped with applications on that ground, and the treasury would be raided.


Harry Rutherford Jackman: The minister said that he was looking for language which could be put into legislation. One taxpayer who comes under resolution 9 says that he considers the department takes this attitude: "We give up. Write your own ticket. Put for heaven's sake pay us something."


Richard Burpee Hanson: I have not concluded all the illustrations I desired to give. Here is the case of a company which has been in operation for ten years under extreme difficulties, and I know there are many of them. In 1937 it made its first profit, amounting to two or three thousand dollars. Its position has steadily improved until in 1939 it made S7,900. The total capital is only
85,000,	but there are directors' loans to the company amounting to 8125,000, and in spite of the profits they are still in the red to the tune of over 850,000. Their average profit for the four year period covered by the act is $2,400, so that if they make 812,000 this year, they will have an excess profit of $9,600 upon which they will be taxed. The department will not consider the directors' loans as capital, and even if these loans were turned into capital stock they could only be for the net amount of approximately $75,000. This is considered an unreasonable attitude. W ith-out these loans, upon which no interest has ever been paid, the business could not have survived, and regardless of the fact that
850.000	of them have been lost, the whole
8125.000	will eventually have to be repaid. The department, however, refuses to consider the whole amount as capital employed even if it were turned into capital stock. At the present rate of taxation they will never be able to pay off these loans.


James Lorimer Ilsley: Certainly not. It comes back to what I say. If the war is to be used as an opportunity for business in Canada to pay off its heavy debts out of war profits before it pays taxes, in a great many instances we shall not get any excess profits tax at all. Not only this party, but the party opposite and the party diagonally opposite and the public at the outbreak of this war believed and still believe that the war should not be used for that purpose.


Richard Burpee Hanson: How can this business survive and provide employment?


James Lorimer Ilsley: It may be that the company can get some relief from the board of referees; I do not know, but I do know this, that if ability in general were counted as capital we would lose huge sums of money under the Excess Profits Tax Act. Although that principle was considered most exhaustively, we considered that we could not incorporate it in the act.


[Stage Direction]
Resolution agreed to.
At six o'clock the committee took recess.
[Stage Direction]
Excess Profits Tax Act
After Recess
The committee resumed at eight o'clock.
That power be given to the board of referees in the ease of both new businesses and depressed businesses to ascertain a fair and reasonable standard profits on some basis other than the capital-standard basis in those cases where the capital employed in the business is so small when compared with the earning power of the business or where other special circumstances of the taxpayer are such that to utilize the capital-standard basis would result in an unjustifiable hardship or would create extreme discrimination or jeopardize the continued existence of the business of the taxpayer.
Howard Charles Green: When the Minister of Finance delivered his budget speech he made some mention of special consideration that was to be given to the lumber industry. It will be found at page 2352 of Hansard where the minister said that there would be an additional allowance for depletion on that portion of their production which is in excess of the level prevailing during the standard period. I cannot find any such provision in the resolutions. Will the minister explain how that is to be covered?


James Lorimer Ilsley: It is covered now. The Minister of National Revenue has full power to allow additional depletion. It will be done as an administrative act of the Minister of National Revenue.


Howard Charles Green: Then there is provision now in the act for special consideration for gold mines and oil wells. Has the government taken into consideration giving any such consideration to base metal mines? I would refer the minister to a statement made by Mr. Blaylock, one of the leading mining men of Canada. He is quoted in the press of April 24 as saying:
When it is in the national interest that increased production should be obtained from depletable physical assets such as ore deposits, it is of the utmost importance that such extra production should not be subjected to proportionately higher rates of taxation. The act recognizes this principle in the case of gold mines and oil wells, but not in the case of producers of other mineral products.
Will the minister say whether consideration has been given to metal mines and what stand the government takes with regard to them?


James Lorimer Ilsley: Much consideration has been given to that question, but it has been decided not to extend the list beyond gold mines and oil wells. A line must be drawn somewhere; if it were extended to base metal mines it might be argued that it should be extended to timber, and there is no reason, from many points of view, why it should be limited to
TMr Tlsley.l
industries exploiting depletable assets. Indeed, proprietors of other types of businesses have argued that they should be taxed on the excess earnings per unit instead of on the excess earnings per dollar. But for the reasons given last year we have decided to hold the line where it is. On the one side of the line will be gold mines and oil wells, and on the other side of the line will be all other industries.


Douglas Gooderham Ross: Why is money borrowed from a bank and used in a business treated as not being capital? It is directly excluded.


James Lorimer Ilsley: Interest on borrowed capital has always been recognized as an expense of the company. The income of a taxpayer has not included the interest on borrowed money. It has been what is left after the interest on borrowed money and other expenses of the business have been deducted from gross profits. This is an endless subject, whether borrowed money should be treated as part of the capital or not; but when a person is talking about the profit he made he is thinking about the profit on the equity capital rather than the profit on the whole capital, including the borrowed capital. If my hon. friend were investing $100 and borrowed another $100 and risked the $200 in a business, he would judge the success of his venture by the return on the $100 of his own money that he put into the business-not on the $100 that he borrowed. That is substantially and simply the basis of the distinction.


Douglas Gooderham Ross: At the present time the government is advancing money to contractors for the purchase of machinery, supplies, and so forth. Is that money treated as capital, or how is it treated?


James Lorimer Ilsley: If the contractor is borrowing money from the government and paying interest to the government on the money, that money is not considered as part of the capital employed, for excess profits tax purposes.


Richard Burpee Hanson: What
about proprietors' capital left in the business on interest? In the old days in partnerships the proprietors frequently left undrawn their share of the profits which they allowed to accumulate and on which they were paid interest. No allowance has been made for that?


James Lorimer Ilsley: I have never given consideration to that, but I think it must be a rare case.

Excess Profits Tax Act


Richard Burpee Hanson: It may be to-day, since the income tax and excess profits tax were introduced, but prior to that time there were many family companies.


James Lorimer Ilsley: It sounds exactly like a
loan to me.


Richard Burpee Hanson: It is a
loan and it is not a loan. I have always felt that it was shareholders' or proprietors' money, and that consideration might be given to it as distinguished from money borrowed from a bank or some other outside source. I understand there is no allowance made for that at the moment.


James Lorimer Ilsley: No.


Richard Burpee Hanson: It has
merit, of course.


Douglas Gooderham Ross: I do not follow
this. There are some cases where the government is advancing money, actually buying materials for the contractor to carry on his work. That is in just the same position, only it does not seem to fit in.


James Lorimer Ilsley: The government own what
is bought in that case, I suppose.


Douglas Gooderham Ross: On the other
hand suppose a man makes $100, that would be subject to the excess profits tax; roughly the government gets back $75. He is enabled to make $25 through the government's aid and has not had to borrow any money, whereas the other man had to borrow the money and pay interest on it and he does not get any credit for it. The first man is enabled to make that $25 because the government did certain things for him. The other man says, "I am not going to take government aid," and he goes to the bank and borrows the money-though, of course, he will not do that if he can get the government to do it. But why does he not get some credit for the money he borrows?


James Lorimer Ilsley: He can deduct from his
profits the interest he pays the bank, which reduces his profits that much, and he has to pay excess profits tax only on the balance; so it is not right to say he does not get credit for the money he borrows.


[Stage Direction]
Resolution agreed to.
10.	That the inventory-reserve provisions in the act be amended:
(a)	to give the taxpayer the right to provide against a decline in inventory values having regard to a normal quantity of stock in trade as indicated by the quantity on hand during the standard period;
(b)	to give the taxpayer the right to provide against a decline in inventory values either to
the prices obtaining at the close of his 1939 period or to the prices obtaining during the month of August, 1939; and
(c)	to provide that a taxpayer who has any unutilized inventory reserve on hand at the end of the year when this act terminates shall have only the year following the said year of termination in which to utilize such reserve against any possible price decline and must add any unutilized portion of such reserve existing at the beginning of the second year following the said year of termination to the profits of the last year of the application to the taxpayer of this act.
Richard Burpee Hanson: I understand a ruling has been given under the provisions of this resolution that if the inventory reserve provision is not claimed in any given year it must go into profit in the succeeding year, or at the end of the period. Is there not a ruling that they cannot carry over any non-utilized inventory reserve?


James Lorimer Ilsley: That is, at the end of the
period?


Richard Burpee Hanson: At the
end of the year or period.


James Lorimer Ilsley: There is some rule of administration, not covered here at all, covering the situation mentioned by the hon. gentleman.


John Ritchie MacNicol: Paragraph (a) reads:
"to give the taxpayer the right to provide against a decline in inventory values." I stop there for a moment to emphasize the words that follow: "having regard to a normal quantity of stock in trade." In reference to a certain large plant that I know of, which manufactured war equipment during the past year, and which perhaps, will continue to manufacture if the war lasts, war equipment during the coming year, how would any board be able to establish what might be called a normal stock in trade in connection with shapers, grinders, lathes, war equipment, that are now being made in very large quantities? I cannot see how any conclusion can be arrived at as to what is a normal stock in trade of such equipment. Then, turning from such plants to those that make the component parts, like motors, gears, lathe beds, shaper beds, et cetera, I was in one plant a few days ago where they have, at the moment, over a million dollars' worth of this large equipment, and I said to the owner, "What will happen to you if the war stops in another six months?" I have forgotten his reply. But I wonder how any board in wartime can arrive at what might be called a normal quantity of such stock in trade.


James Lorimer Ilsley: The normal quantity is
measured by the quantity on hand during a normal period.	.



Excess Erofite Tax Act


John Ritchie MacNicol: But in that case there is no normal period.


James Lorimer Ilsley: This does not apply to new businesses, apparently; it applies to businesses which have been in existence during a normal period.


John Ritchie MacNicol: But it applies to a large number of plants which at present are making great quantities of war equipment.


James Lorimer Ilsley: The commissioner says that a normal inventory would have to be arrived at and ascribed to them.


John Ritchie MacNicol: They would have to
write it all off.


Richard Burpee Hanson: The minister means they would have to examine the history of the whole business over a period of years and ascribe a normal inventory.


James Lorimer Ilsley: There is no difficulty about an ordinary business. The hon. gentleman is putting the case of a new business, and so far as I see, it is not covered by the resolution. The commissioner says they would have to arrive at what they would regard as a normal inventory in that case.


[Stage Direction]
Resolution agreed to.
11.	That the exemption from the provisions of this act given to taxpayers with profits of five thousand dollars or less be amended 'by a proviso to the effect that in the case of taxpayers with profits above five thousand dollars the tax imposed by the act shall not reduce the profits below five thousand dollars.
Richard Burpee Hanson: Why
$5,000? On what basis was that arbitrary sum arrived at?


James Lorimer Ilsley: It is an arbitrary amount, it might have been $4,500 or $5,500 or $3,000 or $6,000. The idea was to get rid of a great host of small businesses all over the country. There are, I believe, ten or twelve thousand of them.


Richard Burpee Hanson: And they all think they are being treated harshly by the limitation of $5,000.


James Lorimer Ilsley: They are being helped.


Richard Burpee Hanson: But why not S10,000?


James Lorimer Ilsley: Too substantial.


[Stage Direction]
Resolution agreed to.
12.	That the profits of diversified investment companies the capital of which is to the extent of 80 per centum or more invested in stocks, bonds or securities, and the gross income of which is to the extent of ninety-five per centum or more derived from dividends or interest on such investments, shall be exempt from taxation under this act provided that not more than
I Mr. Ilsley.3
5 per cent of the capital of such companies is invested in stock, bonds or other securities of any one company or debtor, and provided further that the shares of such diversified investment companies have been offered for public subscription or are listed on any recognized stock exchange in Canada or elsewhere, and provided further that each year the profits of such diversified investment companies have been distributed to the extent of eighty-five per centum or more to its shareholders.
Richard Burpee Hanson: This is a measure of relief to these investment companies. What is the position to-day without this?


James Lorimer Ilsley: It is pretty hard on them.


Richard Burpee Hanson: Very
unjust, I think.


James Lorimer Ilsley: I think it is, but I must tell the committee that I propose to move an amendment to this resolution so as to exclude from the benefits of it investment companies part of whose capital is bond or debenture capital.


Richard Burpee Hanson: To that extent only?


James Lorimer Ilsley: No. I intend to move an amendment which will exclude from the benefits of this resolution companies part of whose capital is bond or debenture capital.


Richard Burpee Hanson: That is to say, will any company of that kind be taken out of the limits of the proposed amendment, or will it be just to the extent that they have bond or debenture capital?


James Lorimer Ilsley: No; the whole thing. When we gave consideration to this, representations were made by a number of these investment companies along these lines: "When a number of us get together, put our money in one pool and take shares for the money we put in; then jointly, through the agency of this corporate body, loan that money here and there, or invest that money, there should not be two taxes on it. There should not be a tax on that money when it comes into the pool; certainly there should not be an excess profits tax, and then another tax when it comes out of the pool into the hands of private persons." But once a company leaves the business of investing the money of its shareholders and starts the business of borrowing money from other people and loaning that money, it is in the business of borrowing and lending money, and in my submission that company should be subject to the excess profits tax.


Richard Burpee Hanson: Would the minister not make a distinction between that which was shareholders' capital pure and

Excess Profits Tax Act
simple, as contemplated by this resolution, and that which was borrowed capital? It seems to me that a half-way measure would be equitable. That is to say, to the extent that it was borrowed capital they should be subject to this taxation; to the extent that it was shareholders' capital and merely a division of the earnings, it should come within the amendment proposed here?


James Lorimer Ilsley: I do not know of any way of dividing the earnings into parts, one part from the borrowed capital and the other part from the shareholders' capital.


Richard Burpee Hanson: I should think it would be quite easy and almost mathematically certain.


James Lorimer Ilsley: Oh, no. If the hon. gentleman will look at it a moment, I think he will see that it would be almost impossible.


Harry Rutherford Jackman: This amendment is something new, and I do not quite understand why it should be considered so necessary. I think most of these companies were started in the late twenties; in fact I know of only one or two that have been started since then. The rates at which they borrowed any senior money that they now have would, I think, exceed or at least equal the earnings they would obtain from that money, which is invested in other securities. Therefore there is little relative advantage to them in having senior capital. I do not think any of the debentures or bonds of these investment trust companies are out at less than four and a half or five per cent or perhaps even more; and the way interest rates are to-day, for one thing largely because of government action through central banking, the senior capital is scarcely able to earn its keep. Therefore that is hardly a business in the sense described by the minister, that is making money on the senior capital for the benefit of the equity holders, and I hardly think he needs to worry very much about excluding investment companies of this kind. On the other hand, however, if other types of companies are likely to creep in under the exemption, it might be another matter; but would he not give consideration to letting in some companies that have senior capital, some of it in very small amounts in relation to their total assets? They will suffer the extreme hardship under which they previously laboured if he excludes them in spite of that.


James Lorimer Ilsley: Nothing has given me more concern than the matter of these investment companies. I thought I was finally taking the right step when I decided to place before the house a proposal to exempt them from the 14873-186J
excess profits tax. The reasons which I gave in my budget speech, and I think, the only reasons for exempting them, were these:
An amendment will be introduced to exempt from excess profits tax companies whose sole purpose is that of holding investments in securities. It is difficult to defend a high additional tax in this case where a group of persons hold their investments in collective form rather than separately, which they might well do, and avoid the tax. ' To eliminate this admittedly harsh treatment it was decided to follow the practice of the United States and exclude investment trusts from the tax entirely.
At that time I thought, perhaps after inadequate investigation, that this described the operations of all the companies, that they were groups of persons who held their investments in collective form rather than separately. After the budget speech had been delivered, however, I found that a number of these companies-not the majority but the minority of them-had various amounts of borrowed capital, some small and some quite considerable. Therefore I do not think I dare introduce the principle of exempting from the excess profits tax companies which are borrowing and lending money, whose business is borrowing and lending money. I dare not do it; if I did, various other people who are borrowing and lending money would come along and ask for a similar exemption.


Richard Burpee Hanson: On principle I think the minister's statement is sound, but what about a position like this? Suppose an investment company has not enough surplus proprietors' capital in reserve at the moment, and it sees a good opportunity to buy, on the theory that with time there will be a capital increment; the company goes to the bank and borrows $250,000 as a temporary loan for the purpose of buying. Are you going to penalize them in the same way that you are going to penalize those who have issued bonds or debentures?


James Lorimer Ilsley: No.


Richard Burpee Hanson: They are dealing with borrowed money, though.


James Lorimer Ilsley: The incidence will be so
slight that we believe it can be overlooked. The amendment is that resolution 12 under the Excess Profits Tax Act be amended by adding thereto the following words:
. . . and provided further that the company has not any obligations in the form of bonds or debentures.


Mr. McLARTY:: I so move.


Mr. ADAMSON:: How would that affect a mining company that was an investment trust and had issued bonds? I am thinking of one
Excess Profits Tax Act

company in particular that issued bonds in order to pay some of its indebtedness and keep the mine going; there are one or two cases in which this has happened. Would that affect those companies? I am thinking of a company such as Anglo-Huronian, which may have bought some mine bonds. Would it be exempt under the new ruling, or would it not?


James Lorimer Ilsley: This applies to diversified
investment companies.


Agar Rodney Adamson: I think Anglo-Huronian is a diversified investment company.


James Lorimer Ilsley: It will have to comply with a lot of conditions to come within the definition; but if it does, it will be subject to the considerations I have expressed.


Harry Rutherford Jackman: There are one or .two
other small changes in the definitions which would be acceptable to those who are in this business, and I do not think would materially alter the situation so far as the department is concerned. I would refer first to the words "to the extent of eighty per centum or more invested in stocks, bonds or securities." Could the word "cash" be inserted there, because from time to time these companies are fairly heavy in cash. For instance, some of them at the present time may be preparing for the new dominion loan, and accumulating cash.


James Lorimer Ilsley: That change will be made in the bill.


Richard Burpee Hanson: By agreement or understanding.


Harry Rutherford Jackman: In the resolution I find this:
. . . shall be exempt from taxation under this act provided that not more than five per cent of the capital of such companies is invested in stock, bonds or other securities of any one company or debtor.
In practice, it is not unusual for what might be called a diversified investment company to have as much as ten per cent invested in the securities of one company. Ordinarily, the limitation is either five per cent or ten per cent, with no restriction so far as government securities or cash is concerned. I do not think it would lead to any difficulty to extend that provision to ten per cent. Certainly that would be so in relation to cost value, because sometimes cost is a mere historic figure, and does not bear much relation to the total market value of the portfolio at the present time. Therefore it is quite easy to have securities standing on a company's books at ten per cent of its capital, which securities may be worth only three or four per cent of the present assets, at market values.


James Lorimer Ilsley: I would be disposed to consider the suggestion favourably. I should, however, not like to go further than to say that it will be considered before the bill is introduced.


Harry Rutherford Jackman: It would also be made in connection with limitations as to cash or government securities. A company may want to put fifty per cent in government bonds, from the point of view not only of patriotism but of security.


James Lorimer Ilsley: That sounds reasonable, too. The hon. member has made three suggestions.


Harry Rutherford Jackman: Yes. The only other one is with regard to the distribution of income to the extent of eighty-five per cent. Sometimes there is a little hiatus, if it may be so described, between the end of the year and the distribution of the income. If it were made so that the distribution up to eighty-five per cent could be made within four months, or before the taxation return was filed, I should think it would be quite satisfactory. It is hard to distribute income the last day it is earned, and still have it within the same calendar year. I should think it would make no difference to the department if three or four months were allowed, after the end of the fiscal year, to have the dividends paid out.


James Lorimer Ilsley: If the hon. member will just keep his eye on the bill when it is introduced, and if he at that time will raise any of the points which have not been taken care of, we shall see what we can do at that time.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
13.	That the allowance for excess profits taxes and income taxes paid to Great Britain, other British dominions or dependencies or to any foreign country allowing reciprocal deduction with respect to Canadian-paid taxes, be enlarged to provide a combined deduction of the British or foreign income and excess profits taxes from the combined liabilities to Canada for income and excess profits taxes.
Richard Burpee Hanson: Did the minister ever give consideration to making an allowance in excess profits for income tax paid to municipalities? That, of course, raises a large question in connection with income tax generally, but ever since I have been paying federal income tax I have been paying municipal income tax. In fact, the municipal tax has been paid over a much longer period. For years I have paid two income taxes on part of the same money. I understand that in Ontario they have recognized the inequity of the situation. So far as I can recall, the dominion never has recognized that inequity. I have always thought it was a very unfair position, and provision

Excess Profits Tax Act
could be made in this resolution to remedy the difficulty in so far as the excess profits tax is concerned.
I know there will be trouble; the minister shakes his head. I had better not pursue the matter any farther.


Mr. CASTLEDEN:: What is the interpretation of the expression: "country allowing reciprocal deduction with respect to Canadian-paid taxes"? Does it mean similar percentages, or similar amounts of taxes paid by Canadians?


James Lorimer Ilsley: It means applying a similar principle.


[Stage Direction]
Resolution agreed to.
14.	That the provision for time and manner of payment of any tax exigible under the act be amended in accordance with the amendment proposed for the Income War Tax Act in this respect, namely to provide an optional instalment basis of payment with respect to taxes on 1940 income and fiscal periods ending December 31, 1940, and also to provide an optional instalment basis of payment for taxes on the profits of 1941 and future years.
Resolution agreed to.
15.	That the definition of capital be amended to require the deduction from the original asset values of the total amount of depreciation which has been taken into account in computing net income or loss for income tax purposes plus any accumulated depreciation reserves as at January, 1917, as recognized by the minister for purposes of the Income War Tax Act, and further that the definition of capital be amended to require the deduction of such amount of depletion as the board of referees deems fair and reasonable.
Richard Burpee Hanson: Would the minister define "capital"?


James Lorimer Ilsley: The definition of capital, as it was passed last year, was roughly this: The cost of the assets employed in the business, less such depreciation as had been used in years of profit-not depreciation in years of loss. There was no particular logic in that, and this proposal is to change that part of the definition so that hereafter it will be the cost of the asset employed in the business, less all the depreciation which has been allowed by the income tax division, or which the income tax division has allowed or obliged the company to take, of which we have a record-whether it be in years of loss or years of profit. This is a disadvantage to some companies, and as a matter of fact there was quite a barrage of telegrams against it.


Richard Burpee Hanson: It was not a matter of agreement, then?


James Lorimer Ilsley: It certainly was not.


[Stage Direction]
Resolution agreed to.
16.	That the definition of capital be amended to enable the lion-interest-bearing advances from parent to subsidiary corporations, which advances are of a permanent nature and in fact represent invested capital actually employed rather than borrowed capital, to rank as equity capital rather than debts of the subsidiary.
Richard Burpee Hanson: I agree with this, entirely. It is a matter of plain justice.


[Stage Direction]
Resolution agreed to.
17.	That the requirement in the first schedule that dividends paid during the taxation year shall consitute a deduction from the capital employed at the commencement of the period to the extent of one-half the dividends, shall be amended to make it clear that this applies only to cash dividends and not to stock dividends.
Resolution agreed to.
18.	That the rate of tax on profits provided by the first part of the second schedule shall be increased from twelve per centum to twenty-two per centum.
Richard Burpee Hanson: When this resolution comes into effect, every corporation will have to pay forty per cent on earnings. I suggest to the minister that to take forty per cent from a corporation by way of income tax and excess profits tax- the intention is really to tax income-is taking one toll from the proprietors and shareholders and then taking another toll from the dividends. When these two taxes are added together, it will be found that the income tax sustained by the proprietors of joint stock companies of this kind is in the very high brackets. It is not fair to say that our income tax is still lower than that paid in Great Britain when we realize that there is no forty per cent paid in Great Britain. The tax on incomes derived from corporations has, I think, reached the pinnacle.


Harry Rutherford Jackman: I should like to add my voice to that of the leader of the opposition in protest against this increase in the corporation tax. I do this not with the idea of lessening the total revenue which the country must get, but merely to emphasize the ideas which the leader of the opposition has brought out. After all, a corporation is nothing more than a tool with which to work or with which to provide work, and I do not think it should be subjected to a forty per cent tax before earnings are distributed among the shareholders. This is what is termed a regressive tax and one which is generally considered unfair because it falls equally upon the well to do and upon the very poor shareholder. There is a current idea that the typical shareholder is a wealthy man, whereas I believe that if an analysis
Excess Profits Tax Act

were made of the shareholder lists it would probably show that the average shareholding in Canadian companies is between $2,000 and $3,000. The average is quite small, and the number of large shareholders is also small. If a widow has, let us say, S10,000 invested in a corporation-


An hon. MEMBER:: She is not so poor.


Harry Rutherford Jackman: She may be living on
the income of that, on anywhere from $300 to $500, and that money is to be subjected to a forty per cent tax before she gets it. When we entered the war, this tax was fifteen per cent, and it was raised to eighteen per cent, but now with the imposition of the excess profits tax it amounts to forty per cent on the ordinary earnings irrespective of whether those earnings show an increase over the 1936-39 or pre-war period. It is quite obvious that if this type of taxation continues, the capital value of securities will be reduced to a mere fraction of what they formerly were. We have seen a state of attrition in this country in connection with equity values, whereas in Great Brittain, even with the hardships of the war and the other difficulties they have had to face, security values have shown some enhancement. The effect of a tax such as this will be to cut down the earnings available for distribution. The capital value of a common stock generally bears a definite relation to the earnings of the stock. For example, stocks which formerly sold at $40, earned $2. Now that the tax on earnings has been raised twenty-five per cent, or fifty cents, the capital value will be reduced $10 or $15 a share.
This is an easy tax to collect because there are not very many corporations, and they must pay their bills promptly; but if this type of taxation continues we shall find the value of securities steadily decreasing, and we will have a deflationary atmosphere which will make it extremely difficult to raise money. If this widow to whom I have referred had invested her money in a western farm, her income would not be subject to any tax. But when her money is invested in a corporation, the earnings are subject to a forty per cent tax. I consider this a most unreasonable tax because of the class of people constituting the shareholders of corporations. It is a discriminatory tax, and when the next budget is brought down I hope it will be shown that a steady process is to be inaugurated whereby corporation taxes will be reduced. I should like to point out that if the tax were abolished altogether, earnings would be distributed among the shareholders by way of dividends and the government would be able, by means of the ordinary income tax brackets, to make

its rightful collections to meet war expenses. If, as some of my hon. friends to my left suspect, most of these corporations are owned by those people who pay an income tax of seventy to eighty per cent, then most of these dividends would be subjected to an eighty per cent tax rather than the present forty per cent tax, which would probably suit my hon. friends. I think, if the truth were known, it would be found that the ordinary corporation shareholder is a relatively small holder, and therefore this type of taxation is most unfair.


Richard Burpee Hanson: Because of the increased corporation taxes there has been a considerable reduction in the capital value of Canadian stocks. The other day I referred to Bell Telephone and its present position as a result of the increased taxation in last year's budget and the increased taxation in this budget. Capital values to the extent of hundreds of thousands, if not millions of dollars, have been wiped out.
Mr. O'BRIEN: There are two problems of immediate consequence at the moment; one is to obtain money to finance the war and the other concerns the future. If, when peace comes, industry is not in a sufficiently flourishing condition to meet the shock, I am afraid that we shall find ourselves less prepared for that condition than we were to go into the war. It will be a serious problem to meet the peace-time situation after the blown-up condition of the war. Most of us in this house have gone through the strain of paying the expenditures incurred in the last war; we have faced a depression such as the world and business had never seen before, and we are now being asked to finance another war to the extent of seventy-five per cent of the income of the country. I seriously doubt if one generation can withstand this huge withdrawal of resources and be in a sufficiently strong position, when peace comes, to provide the necessary employment unless the government has in mind some plan to sustain employment at that time. I have, however, never seen a government which gave back to industry in difficult times at the same rate that it took from industry in times such as we are going through now. While I believe that we should try to pay as we go, I hope the department is looking into the future.


Mr. GERSHAW:: I should like to ask a question or two which may not bear directly upon the resolution before the committee. Very little has been said about the ranching industry. During the standard income tax years, the ranching industry was in a very much depressed condition. Prices were poor and debts were accumulated by the ranchers.

Excess Profits Tax Act
During 1940, conditions were much better and they were able to make a little profit, but it will be impossible for them to pay their debts if this excess profits tax takes away all their profits. What steps will it be necessary to take to have this industry investigated and declared to be a depressed industry? During the standard income tax years, herds were greatly depleted. How would the government arrive at the amount of capital they should have? If they took the opportunity to increase their herds now, would that be regarded as income and be taxable, or would it be regarded as bringing the herds up to normal size?


James Lorimer Ilsley: I do not know that I can answer that question. On the question of taxation of the ranching industry, if the industry were depressed during the period from 1936 to 1939 they could apply to the board of referees for a decision and for a fair base upon which any increase in profits could be founded. It may be that if a particular business were depressed just in one year or two years, the rule by which the three best years can be taken, when the profits of the fourth year are less than half the average of the other three, would give them sufficient relief and would raise their base materially. But if the base is still considered normally depressed, it is open to any rancher or interest in the ranching business to apply to the board of referees for a fair base. Increases in herds and so forth would be ruled income or increase in capital according to the well established principles which govern the income tax division in making a distinction between profit and increase in capital.


George Hugh Castleden: Many hon. members forget that this is a tax on excess profits, and the definition is fairly plain.


An hon. MEMBER:: Corporation tax.


George Hugh Castleden: The hon. member for Rosedale (Mr. Jackman) has made a fine statement for the protection of what he calls "the poor shareholders". He spoke of the bulk of people who were poor shareholders. It has always been difficult for me to understand why it is that they are so careful to guard the names of the shareholders of various companies. One cannot get a list of shareholders of any company. They do not want any one to know who their shareholders are.


Richard Burpee Hanson: That is not correct. Every company publishes a list of shareholders.


George Hugh Castleden: I cannot get the lists.
I am told they are available only to shareholders. I asked the hon. member for Rose-dale for a list of shareholders before.


Harry Rutherford Jackman: I gave him one, a very long one.


George Hugh Castleden: Must I listen to the blithering of coxcombs all night, or am I to be allowed to make a speech?


Richard Burpee Hanson: I object to being called that by this young man or anyone else. I would ask that he withdraw that terminology so far as I am concerned.


The CHAIRMAN:: I .did not catch the expression.


George Hugh Castleden: I asked if I had to listen to this blithering or be allowed to make my speech.


Richard Burpee Hanson: The hon. member said "blithering coxcombs", and I object to that.


Thomas Vien: The hon. member
should withdraw the expression if it gives offence.


George Hugh Castleden: If there is offence I am pleased to withdraw it. If I said anything I am sorry for, I withdraw it.


James Lorimer Ilsley: I do not ordinarily take part in these rulings on points of order, but I do not think the hon. gentleman should be allowed in debate to say things like that: "If I have said anything I am sorry for, I withdraw it". This is the House of Commons. I think every hon. member should have enough respect for the dignity of the house to avoid such expressions.


Thomas Vien: The hon. gentleman
should withdraw the remark without qualification.


George Hugh Castleden: I bow to your ruling, but I hope that in future I shall be permitted to speak, and if anyone wishes to interrupt I hope he will ask permission so to do.


Mr. REID:: I hope that applies to that corner too.


George Hugh Castleden: Our experience in the west as elsewhere with regard to capital, has been that those who have capital invested in this country have always enjoyed plenty of protection. In time of stress the farmer may require capital, and he has to go to the banks to borrow it or to corporations and mortgage companies. If, as a result of the year's operations, he comes out with a loss because his crop has failed, or because of drought or hail or something over which he
Excess Profits Tax Act

has no control, capital never takes any of this loss. Interest has been piled on to the farmer's back in increasing loads until the burden has practically ruined him. The debt situation in the west has been one of constant protection for capital, and if labour got one-half of the protection given capital it might possibly make its way. Someone said something about capital, after this war, not being able to hire labour or to provide for labour. Most of the wealth produced in the country is produced by those who labour on its natural resources, and there are very few instances where capital will ever employ labour to produce three dollars when it can not take two and leave labour with one, or even with half a dollar if it could get away with it. Eighty-seven per cent of the Canadian people do not pay income tax. So far as I am concerned, I hope there will be no reduction below the twenty-two per cent now provided for.


George Alexander Cruickshank: I am sorry I was not present when resolution 7 was passed.


Thomas Vien: We are now on
resolution 18.	[DOT]


George Alexander Cruickshank: Before this goes
through, I should like to get some information from the minister. Under what resolution is provision made to prevent excess profits in these corporations from being diverted into capital expenditures such as marble offices in place of old wooden buildings? In British Columbia one corporation, operated by one of the famous dollar-a-year men, carried on for many years, in an old wooden building, one of the largest lumber concerns. As soon as the new excess profits tax is brought in, he promptly modernizes his premises and puts up a building that looks like the telephone building in Ottawa. What provision is made to prevent these people from diverting excess profits into such capital expenditures?


James Lorimer Ilsley: Section 6, paragraph (b) of the Income War Tax Act reads:
In computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of
(b) any outlay, loss or replacement of capital or any payment on account of capital or any depreciation, depletion or absolescence, except as otherwise provided in this act.


George Alexander Cruickshank: What does "except as otherwise provided" mean?


James Lorimer Ilsley: That applies to depreciation and depletion only.


George Alexander Cruickshank: How does that
cover the case where a million dollar concern has been operating in an old wooden building and now operates one of these modernistic, stream-lined bathroom pavilions?


James Lorimer Ilsley: Depreciation does not apply.


George Alexander Cruickshank: I am serious, Mr. Chairman. This is actually occurring in British Columbia to-day, and I wish to know whether any provision is made to get at these concerns which make what I consider capital expenditures, for enlarging or modernizing their plant. One concern in particular I know, operated by a dollar-a-year man, which has modernized its office since this tax came in. I am not satisfied with the answer of the minister. I have asked for an answer, and I am entitled to an answer.


James Lorimer Ilsley: I have nothing to add.
Capital expenditures are not allowed as deductions from profits.


George Alexander Cruickshank: I am to take it, then, that this concern will not be allowed deductions from excess profits tax for any capital expenditures of that kind?


James Lorimer Ilsley: I have no knowledge of the
case.


George Alexander Cruickshank: No, but I have. I understand, then, that this concern will not be allowed to avoid excess profits tax by modernizing their office or building. Is that
correct?


James Lorimer Ilsley: Capital expenditures are not allowed as a deduction.


George Alexander Cruickshank: All right, I will
see they do not.


Mr. GILLIS:: I wish to make a few remarks on these excess profits tax proposals. Let me say in the first place that I cannot share the anxiety of hon. gentlemen to our right who have been so much disturbed over the excess profits tax as applied to corporations for the reason that in all these resolutions, from No. 1 to No. 18, the minister has taken judicious care to protect the interests of the corporations and other interests who would be obliged to pay excess profits tax; and that is particularly noticeable when compared with his flat-footed decisions with regard to the national defence tax and income tax on the smaller income groups. Do not forget that the heads of these corporations are, for the most part, the people who dictate and write the slogans urging the ordinary people of this country to tighten their belts, and there shall be no profits in war, that this should be an allout war effort.
The hon. member for Rosedale in opening his argument pointed out that the government had been fair to labour in fixing the 1926-29 wage levels as a base and said that

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labour got a very good deni in comparison with the corporations which were called upon to pay these excess profits taxes.
In reply to the hon. member I may say that I am sceptical as to the number of widows who are shareholders of Dominion Iron and Steel, or Dominion Coal, or International Nickel, because these corporations many years ago squeezed out the shareholders with a capital of less than $10,000. I do not think there are any shareholders or heads of these corporations who are asking for as low a return as 310'7 cents an hour, the 1926-29 rate. Montreal, as fixed by Dominion Iron and Steel for their employees. The people who are called upon to pay the national defence tax have no boards of referees and no ambiguous clauses to protect them, but these are provided for the corporations and give them loopholes through which they can crawl later on.
The armchair patriots and the parlour generals map out the war for the ordinary workers to go out and fight it, people earning $660 a year, and it is quite all right to apply the national defence tax to those low incomes. It is not a tax at all; it is taking a percentage of your sweat. There is no board set up to determine whether these people can live on such incomes, which provide practically only the necessities of life. But the corporations are taxed only twenty-five per cent of the excess profits they make over their normal profits of the last three or four years. The minister has not gone far enough; he should have taxed excess profits 100 per cent. These are the people who write the slogans telling us exactly what we should do to fight and win this war and make an all-out effort, and so I say they should be the first to demonstrate that they are prepared to forgo any excess profits in war time. I think the spokesmen of these corporations are ill-advised to rise in their places here and waste the time of the committee to preserve for these corporations twenty-five per cent more profits than they were making prior to the w'ar, because in the final analysis that is what it amounts to. The minister took a step in the right direction when he started to pull the belt tight on the fellow who is not prepared to do so himself.


[Stage Direction]
Resolution agreed to.
19.	That all proposals above mentioned except proposals 12, 14 and 18 shall apply to the profits of the year 1940 and the profits of fiscal periods and portions thereof ending in 1940 and to the profits of all years and fiscal periods thereafter, and that proposals 12 and 18 shall apply to the profits of the yer 1941 and of fiscal periods ending in 1941, and to the profits of all years and fiscal periods thereafter.
Thomas Vien: The Minister of National Revenue has moved to amend Resolution 19 by adding thereto the following words:
provided, however, that if any such fiscal period ending in 1941 does not coincide with the calendar year then that proportion of the profits shall be subject to the twenty-two per centum tax which the number of days of such fiscal period in the calendar year one thousand nine hundred and forty-one bears to the total number of days of such fiscal period and the balance at the previously existing rate.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
20.	That every person liable to tax under the Excess Profits Tax Act in respect of the 1940 taxation period shall have until the 30th April, 1941, to estimate and pay their excess profits tax for 1940 without interest. Thereafter interest will be paid as in the Income War Tax Act provided, as if the fiscal period of all such companies had ended on 31st December, 1941.
Resolution agreed to.

[Stage Direction]
Resolved, that it is expedient to enact a Succession Duties Act to provide inter alia:-
1. That succession duties be levied upon or in respect of the following, that is to say:-
(a)	The succession to property, wherever situated, and beneficial interests therein, except real property situated outside of Canada, where the deceased was at the time of his death domiciled in Canada or in one of the provinces thereof;
(b)	The succession to property situated in Canada, or to beneficial interests therein, where the deceased was at the time of his death domiciled outside of Canada.
Richard Burpee Hanson: Mr. Chairman, I shall not repeat the observations which I made in the budget debate. The ministry in its wisdom has decided to enter this field of taxation which heretofore has been exclusively a field for the provincial governments of Canada. The only possible excuse for doing so is the need for the money. If it were not for that I suggest that the minister would not propose this type of legislation. When making his budget address, the minister based an argument on the theory that the field had not been exclusively exploited by the provinces. I think that really was the basis for his apologia for entering this field. I suggest to the minister that he must justify that statement, because in my view, and I think in the view of a very great number of people in this country, particularly in the two large provinces, if I may be permitted to say so, this field has been exploited and exploited to the limit and then some. If all the stories are true that one hears with respect to succession duty administration-I lay the emphasis on the word "administration",
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as opposed to the theory of the law-there is no manner of doubt about the statement which I propose to make, namely, that so far as Ontario is concerned, the field has been exploited and exploited and exploited-
Mr, MacNICOL: Confiscation.


Richard Burpee Hanson: - and that to-day in Ontario there exists a species of legalized confiscation.
I am not objecting to the principle of succession duties. If anyone cared to investigate the history of this class of legislation, I think they would find revealed an interesting story, that this field was first entered in Great Britain more or less as an accident rather than by design. If I recollect aright, a great chancellor of the exchequer, in seeking to reduce taxation in one field, and being confronted with an apparent deficit, looked round for some other field, and death duties were suggested to him. A very moderate tax was initiated and the budget was balanced by that device. It never was intended to be a perpetual tax on the estates of deceased persons. But the experience of the government in Great Britain was, shall I say, so satisfactory from the point of view of the treasury that from that day to this the field has been covered and re-covered and continues to be covered, and we shall always have this type of taxation. We might as well accept that fact and not discuss the principle of the tax at all.
I do not object to the principle of a succession duty, but I suggest to the minister that we ought not to have two succession duties on the same money. I lay that down as a fundamental principle, just as there should not be two income taxes on the same dollar of income. But before this tax is imposed and levied, an effort ought to be made on the part of this government to reach an accommodation with the provincial governments so that there may be some amelioration for the one taxpayer who is subject to two jurisdictions. Below this measure is proceeded with, or at all events before it comes into operation, I hope the minister will take steps to have a conference with the authorities of all the nine provinces, for I think every one of them has this tax, to arrive, if possible, at some accommodation so that we may not be open to the charge that we tax the same dollar twice and, in some instances, quite severely.
Perhaps I should say a little more on the question of the field. The minister should justify to this committee and to the country his statement in his budget speech that he

is convinced that the field had not been wholly exploited by the provinces. My belief is that the field has been wholly exploited by them, especially by the big provinces, but it has been in no sense overlooked by the small provinces. Those are the two points I desire to make at the moment with respect to this class of legislation.
In my view, before the minister ever introduced this type of legislation he should at all events have made an attempt, even though it might have been abortive, to have a conference with the provinces with a view to reaching some accommodation. In my view there should be but one succession duty in Canada, and that imposed by the central authority. In the first place this would mean uniformity of taxation. In the second place, it would eliminate, to a degree at all events, this terrible system of duplication and, in some instances, triplication, all of which is absolutely unfair, unjust, inequitable and should not be tolerated.
I realize that to deprive the provinces, especially some of the larger ones of a substantial field of taxation upon which they have depended for years and years to carry on their social and other services, would probably make it necessary that some grants in aid should be made to compensate them for the loss of revenue. The minister has incorporated that principle in his income tax proposals, and I have not objected to that. In my view the suggestions made to the provinces to vacate the field of income taxation have been extremely generous. I am glad to think that for the most part the approach to the provinces in that regard has been made in a fairly reasonable manner. They are reviewing the position in an effort to meet the minister's wishes and to see what should be done having regard to the changed conditions that will be brought about in connection with their budgeting for this and future years. That is how this matter should be approached.
Apparently, however, according to what the minister has told us, no attempt has been made to reach any arrangement with the provinces with respect to succession duties.
I beg the minister, even if he thinks he must proceed with this measure, not to bring it into active operation until at least an honest attempt is made to arrive at some kind of arrangement with the provinces. The revenues that will come to the federal treasury from this source will not accrue immediately. It is contemplated by the terms of the resolution, if I apprehend them aright, that no estates shall be taxed unless they fall into the area of this taxation after the passage of the legislation and for a period of six months thereafter. When we come to the appropriate

Succession Duty Act
resolution I desire to say something with respect to that period of six months. Perhaps I might as well say it now.
I cannot lay it down as a universal rule in my experience that six months is too short a time for every estate, but there have been times when six months was altogether too short a period within which estates had to meet this obligation. If anyone has any doubts about that, just let him look back to the period subsequent to 1930, after the crash on the stock market, when the deflation period had set in, when value after value had tumbled from one low level to another. In connection with estates coming within the purview of this kind of legislation, when the time came to pay, they found themselves paying taxation at a valuation more than twice and, in some instances three times as high as the market value of the assets when they came to be liquidated in order to pay the tax. Therefore I think in that respect the period should be longer than six months.
I have no doubt the minister is familiar with the case of the Jost estate in Nova Scotia, which I think was a classic illustration of what I am trying to say. A gentleman having a large fortune invested in speculative securities died just before the collapse of the stock market. The government of the province in which he lived, under the provisions of its law required the liquidation of the estate and payment of the succession duty, and it would not wait. Certain speculative securities, which were the basis of almost the entire fortune, had to be sacrificed; and I am told on good authority that the executor of that estate was called upon to pay in succession duties a sum in excess of what had been realized out of the liquidation, of the entire estate. Consequently the executor, for his own protection, had to apply to the courts for directions. Of course that is an extreme case, probably the worst I have heard of, but it illustrates a situation to which I think we ought to give some attention. Therefore at the moment I am arguing for a longer period than six months.
I have in mind another estate in another province, which fell in at about the time of the depression. The executors were obliged to liquidate immediately; and they were able to pay the succession duty only by sacrificing the entire liquid assets of the estate. That, of course, is an unfortunate situation. In that province the taxing authority refused even to defer the payment of interest; they had the right to take that position, which they did.
Coming back to the original thesis, I ask the minister to take this committee and the country into his confidence and tell us the basis for his belief-if he bona fide holds that
belief-that this field has not been exploited to the full by the provinces; and to give us his reasons, if any there be, why the operation of this law should not be suspended at least until a bona fide effort is made to come to an accommodation with the various provinces either to vacate or at least to share this field.


James Lorimer Ilsley: Mr. Chairman, the need for revenue is very great, as the hon. gentleman knows; and it is the belief of the government that succession duties should be imposed as high as can be reasonably borne in all the circumstances. The succession duty rates that are proposed are not those that would be proposed if we were the only authority imposing succession duties. If we were the only authority, the rates would be considerably higher than those proposed in this legislation. These rates are designed, when the provincial rates are added to them, to be about what the people of the country can reasonably, be expected to bear in succession duties.


Richard Burpee Hanson: Who is the judge of that?


James Lorimer Ilsley: We are in the unhappy position of being obliged to assume that responsibility. The hon. gentleman will note, if he will consult page 2350 of Hansard for April 29, that I said:
The combination of these new dominion rates and the provincial rates should result in a total tax of about the same general magnitude as the British death duties, but with considerable differences in detail due to the different and complex natures of the taxes. The total Canadian rates would be somewhat higher than the British rates on others than close relatives, while they will tend to be lower where ah estate is divided among a number of members of the deceased's own family.
It may be said that this country should not impose death duties as high as the parliament of Great Britain has imposed. It may be said that the death duties in Great Britain are abnormally high, but I am under the impression that, generally speaking, the value attached to the inheritance of property, the maintenance of property in the family, and so on, is greater in Great Britain than it is in Canada. I think the spirit of the people in this country is more to this effect, that as children grow up they are expected to rely upon their own efforts in life. I believe that is true in Canada to a greater extent than in Great Britain, and therefore I think there is considerable reason for saying that these duties are not beyond the capacity of the people to bear, when we find that, generally speaking. they are no higher than the British death duties. That is the basis for the
Succession Duty Act

statement that the field has not been fully occupied by the provinces. The word I used was "occupied", not "exploited." I think I did use the word "exploited" in reference to the provinces, but in reference to ourselves I said that the field had not been fully occupied.


Douglas Gooderham Ross: I agree with the leader of the opposition that one succession duty in the country is enough. I believe that the minister should endeavour to see if it would not be possible to have the federal government collect this tax and reimburse the provinces for the amounts they might lose. The question of duplication comes in here again. We shall have these provincial departments collecting these duties all over the country, and the federal department collecting them as well. I believe the federal income tax branch is the proper authority to collect all these taxes. It has all the information with respect to the income tax, and certainly with very little extra help it could handle this tax as well.
One other suggestion I would offer is that the tax, instead of being computed on the value of the estate at the time of death, should be on the value of the estate at the time the tax is payable. I have always thought that would be far better and far more equitable. We would then get away from the difficulty that has been suggested by the leader of the opposition. I know that in British Columbia, in connection with certain succession duty bonds, estate taxes were paid to a point where the taxes were greater than the value of the estate.
One other point has to do with the question of administration. I am referring, not to departmental administration, but to legal administration of estates. Instead of having all these various categories, I believe it would be far better just to have a certain percentage collected on a graded scale, making it as simple as possible so that a man could take care of it when making his will. Do not let the government try to do it for him. We do not need to worry about all these exemptions; it should be done the other way. I hope first of all that the minister will try to see if he cannot prevent the duplication of this tax.


Mr. GRAYDON:: It seems to me that in dealing with a tax of this kind the question of economy should be one of the watchwords guiding the department when making assessments. I cannot help feeling concerned about the duplication mentioned by the hon. member for St. Paul's. I can envisage a huge department in Ottawa dealing with valuations and assessments. I can picture the many technical men in the department required for 
a nation-wide succession duties programme, and I can visualize at the same time duplicate offices, duplicate sets of regulations, duplicate valuators, duplicate assessors, and the train of technical men which will be found in the dominion as well as in every province, who are working at the same type of work. After all, the same set of people have to pay the same taxes.
It seems to me that the minister might very well give some attention to this matter. I confess that matters connected with succession duties are such that the ordinary person does not feel inclined to pass an offhand opinion. But it does seem to me-and I am sure my view would appeal to men in the legal profession in all parts of Canada-that the basis for assessing the tax in the dominion is altogether different from that used in any of the provinces. Certainly that is true so far as Ontario is concerned.
The average person making his will, who attempts to figure out what he will have to pay in succession duties, is in a position where he must do a good deal of calculating, because the whole basis for the assessment of succession duties in the dominion is entirely different from that in Ontario. For instance, the exemptions are quite different; the rates are entirely different; the whole structural set-up is entirely different from that to which he has been accustomed. That is one point which has occurred to me.
Here is another angle. I suggest that the minister ought to tell the committee what the estimated cost of the new department is going to be; it seems to me there must be some estimate. He should also tell us whether he has given due consideration to the point as to whether additional percentages might have been added to the already existing succession duties schedule structure in the various provinces. Had that been done, we would at least have had some .yardstick to go by in our calculations with respect to succession duties. The minister's answer may be that it would mean in some provinces a differentiation in favour of others. Surely, however, there must be some wa37 of avoiding an expensive duplication of departments.
Before the war broke out, there was a consuming desire on the part of taxpayers across Canada to do away with duplications. There was scarcely a newspaper having any influence which did not say that there was too much duplication of government. It was pointed out that there was duplication of departments. Surely, in a time of war, when everybody is saving to the limit, we should exercise the most extreme caution to see that in the collection of new taxes we are not setting up additional expensive departments.

Succession Duty Act
There must be no overlapping with those departments already operating to collect taxes for the various provinces. I suggest that the minister might give serious consideration to the point I have made. I mention these matters only with the idea of trying to save Canada some money. After all, in these times, when we need every cent we have, there must be some solution. It ought not to be necessary to set up a new department which will do the same kind of work, and which will only duplicate the work already done by the provinces.


James Lorimer Ilsley: I do not know how to adopt the suggestions which have been made. It has been suggested that we should now get in touch with the provinces, or that before this we should have got in touch with them and tried to get them out of the succession duties field. If one thing was made clear at the conference held in January, it was this, that any encroachment on the provincial field by the dominion, which would be agreed to by the provinces, would be agreed to only for the period of the war.
When one is dealing with succession duties he cannot act temporarily, because it would be most unfair to do so. It would mean that the estates of those people who died within a certain period of time would be subjected to a certain rate or level of taxation. On the other hand, other estates would not be subjected to the same tax.


John Ritchie MacNicol: It would be better to live until after the war.


James Lorimer Ilsley: The rules which apply in Tespect of succession duties do not apply to income and corporation taxes, which are annual and recurring.


Gordon Graydon: Did I understand the minister to say that the provinces were agreeable to the dominions taking over the entire collection of succession duties during the period of the war?


James Lorimer Ilsley: No; they never got that far-or within a thousand miles of it. What I said was that anything they might do would be only for the period of the war. That, of course, did not apply to all the provinces, but it applied to enough of them to make it impossible to hope to get the succession duties wholly in the hands of the dominion government. Therefore we just had to adapt ourselves to the situation.
We are imposing succession duties, and wall continue to impose them. We do not intend to stop imposing them at the conclusion of the war. From our point of view this is not a temporary tax.


John Ritchie MacNicol: When you can get it so easily, you will keep it.


James Lorimer Ilsley: I do not know whether or not we will get it easily, but we have no intention of just taking the estates of people who die in the next two or three years, and letting people who die afterward go free.


John Ritchie MacNicol: Will the legislation apply to a person who died about six years ago, but whose will has not yet been probated?


James Lorimer Ilsley: It applies only to deaths after the passage of the legislation.


Richard Burpee Hanson: Perhaps
the minister overlooked it, but he has not yet replied to my suggestion that there should be a conference with the provinces with respect to this tax. Again I remind him that at the conference in January, the premier of Ontario intimated that he had well-equipped machinery, if I may put it in that way, for the collection of succession duties, and that he would be glad to place it at the disposal of the federal authorities. He might have had his tongue in his cheek at the time he made that offer, but it may be that I have misjudged the gentleman. I would point out, however, that there will be a duplication of effort and expense, and that the cost of collecting these two succession duties, and, in some instances, three-I can give the minister instances where there will be three taxes on the same dollar-will be great. If the Dominion of Canada has to set up machinery to collect succession duties, I think it will be found that the cost of collection will be much greater than the cost of collecting the income tax.
This type of taxation opens up the whole field of value which in Ontario has been carried to an absurd extreme. Let me give the minister an example of what has happened in this province. A testator died, and his executors filed an inventory and the ordinary affidavits required by the act. A number of officials swarmed down upon the testator's home and went through the jewellery, the cutlery, the silverware, the chinaware and all the other items. They went to the sideboard, and they said, "here is a sterling silver dish; put down $100," whereas it was a plated piece worth about $5. That actually happened in the city of Ottawa, and it will happen again unless great patience is displayed by the executors or those representing estates. To me such a thing is simply scandalous.
I can give the minister another illustration. Not so long ago there died in this country a great statesman who during his lifetime had been the recipient of various marks of
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respect and appreciation by foreign governments, municipalities and so on. Those tokens of respect took the form of caskets and that sort of thing, having no real commercial value. However, to the family of the deceased they had what we might term a price of affection or a price of sentiment, but arbitrary valuations were placed upon all these articles. To me such a procedure is simply shocking, and if the general public knew what was going on they would never approve it. I do not care what demagogue gets up and says, "soak the rich," which is the theory behind all these activities; it should not be done. I hope there will be nothing of that sort attaching to this new department of taxation and government.
I do not think the minister has met the case which I suggested to him. He has said that the rates here will be no greater than those applying in Great Britain. They should not be. This is a young country, and we have not the accumulated wealth that they have in the motherland. This legislation contemplates taxation of estates down to $5,000 in value under certain circumstances. That is a pretty low limit, so low that I venture to say that in the final result the cost of collecting in the case of these small estates will be greater than the return. Stacks of cordwood will have to be counted in order to decide whether an estate is under or over $5,000. For years, $50,000 was the limit, but because of the increase in social services this was reduced to 825,000, I think in all provinces. I suggest to the minister that no estate under 825,000 should be taxed, unless it be one where there are no blood relations involved. After all, that would be a small estate. When we come to the proper resolution, I hope the minister will tell us that he is giving some consideration to this matter.
This will mean a double expense. If there was just the one succession duty levied, there would be some saving to the people who have to pay. I am appalled at the idea that in all these measures of taxation no one seems to have given any consideration to the taxpayer. This all seems to be based upon the principle of what the traffic will bear, or how much money we can get. No consideration is being given to the individual person whose patrimony is being passed on to the state under the guise of legal taxation which, in many instances, amounts to pure confiscation.
I am not going to argue against the principle, but in my view this field has been fully occupied and exploited in a country as young as Canada. We have no great accumulation of invested wealth which has been passed on from generation to generation. Most of the wealth of this dominion is the result of efficiency and thrift and the application of good

business principles on the part of the testator involved. We ought not to penalize these people too much. There is a trite saying that in Canada and the United States it is shirtsleeves to shirt-sleeves in two generations.


Alexander Malcolm Nicholson: What is wrong with that?


Richard Burpee Hanson: My hon. friend bo my left would not understand the argument I am making, and I am not going to address myself to him. Individuals with socialistic tendencies who have nothing themselves do not seem to want anyone else to have anything. They want to take from those who have; they want to penalize thrift, efficiency and all the other virtues which make up the best type of citizenship that we have in this country.


Clarence Gillis: Restore to the people the resources that belong to them.


Richard Burpee Hanson: That is the kind of claptrap I have been hearing in this house for twenty years. This is not a socialist state, and so long as I have a seat in this house and a voice to make my opinions heard, it will not be. I venture to say that if you took the accumulated wealth in this country, if you took from those who have and distributed it among those who have not, in less than a generation it would get back to its original source. The others simply have not the efficiency and ability to hang on to anything.


An hon. MEMBER:: What does the hon. member mean by wealth?


Richard Burpee Hanson: I am not going to be side-tracked into a discussion of wealth. There is material wealth and there are other types of wealth. I do not wish to labour this question any longer except to say that this type of legislation is going to destroy every incentive for thrift, a thing that should govern the lives of the people of any country. If you do not have thrift; if you do not have people laying up something for their old age-and this legislation will discourage them-then, of course, we might as well prepare to get into the old age pension class as soon as possible.


John Ritchie MacNicol: I plead with the minister to make some effort to see to it that when the measure is in operation, every possible means shall be used to avoid duplication in the cost of administering estates. I remember last winter, or maybe it was a year or two ago, a certain estate in Ottawa was under investigation for some length of time. The Ontario government had a large staff living at the Chateau Laurier in expensive

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rooms and eating daily three expensive meals. They were there a long time, and it must have cost a lot of money. I met these same gentlemen in various places in Ontario investigating estates. As I sat listening to my leader pleading for some means to give fair play to estates, I was wondering what the result would be if three different groups of men, one from the Ontario government, one from the federal government and perhaps a third from some other provincial government, were at the Chateau Laurier for perhaps a month or two, or perhaps longer, investigating the same estates. Whoever might die and leave an estate, if he came back from his grave would use strong language against men investigating estates under those circumstances. As my leader said, it will not be worth while for anyone to try to save a dollar if estates are to be investigated by several governments, all inquiring into the same estate, as I have seen around the Chateau Laurier in the last few years.


Gordon Graydon: I would not be so much concerned about the large numbers congregated at the Chateau Laurier as I would be about another angle that occurs to me. With regard to an estate that has assets in Saskatchewan and in Ontario, paying duties in both provinces, as estates often do, and also paying to the dominion government, what are you going to do should the valuators arrive at different valuations? You will not get a valuator representing the Saskatchewan government, a second one representing the dominion government, and another representing the Ontario government all arriving at the same valuation in one case out of a hundred. When you reach that point, you are going to create a disturbing situation so far as executors and beneficiaries are concerned, because if different valuations are arrived at, I cannot imagine anything that would be more fatal to the general administration of estates and the collection of duties than such a state of affairs. That is one reason why I have argued for some elimination of duplication in connection with assessment and valuation for duty purposes, and the minister might properly answer the question I asked previously as to what will be the estimated cost of this department per annum, or at its inception in any event, because, as we go along, the expense will be greater. We should know what the estimated cost per annum of the succession duty department in Canada will be.


James Lorimer Ilsley: No estimate has been made. We have no experience to go on.


Gordon Graydon: That bears out what we have been saying. Surely the minister does
not seriously come to the committee and say that he will collect 820,000,000 of succession duties a year and that he has not even an estimate of what it will cost to collect this sum.


James Lorimer Ilsley: That is correct.


Gordon Graydon: That is a serious position for the minister to take.


James Lorimer Ilsley: Why?


Gordon Graydon: Is it going to cost twenty, or ten or five millions or one million? The minister must have some kind of estimate. I am not asking for an estimate that is within ten or fifteen hundred dollars. I am asking for some idea of the percentage of money collected that will go into administration and collection charges, and I think the committee is entitled to that.


James Lorimer Ilsley: No estimate has been made.


Richard Burpee Hanson: Has the minister visualized any set-up of an organization? Does he propose to have a superintendent in every province or, in the larger provinces, more than one, something after the system of the income tax? Does he propose to have auditors travelling round the country making reports, or inspectors or whatever they may be called? Or maybe he will have both auditors and inspectors, because an inspector might not be capable of auditing books. My recollection is that most of the disagreements in arriving at valuations of estates are with regard to values placed by succession duty authorities on what might be termed family companies or closed corporations held by the testator and his immediate relatives or his immediate entourage. Those shares may not have any market value at all; they may never have established a market value. Recourse must be had, therefore, to book values, valuation of assets, deductions of liabilities and so forth. What does the minister contemplate in the shape of a set-up? Surely that is a reasonable question.


James Lorimer Ilsley: It is pretty much all there now. The income tax division has a head office at Ottawa; there are a large number of district offices of the income tax division all over Canada, and the matter will be handled largely from these income tax offices.


Richard Burpee Hanson: Is it expected that the inspectors in the various provinces are capable of handling succession duty matters without experience at all? They have not had experience, and some do not know much about income tax. If you go to them now and ask them what this
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means in the budget, they will throw up their hands and say, "We don't know; we shall have to wait until we hear from
Ottawa." That has happened in the last few weeks.


James Lorimer Ilsley: There are some pretty
good men.


Richard Burpee Hanson: On the
whole, there are some good men.


James Lorimer Ilsley: They are intelligent men doing a pretty good job, and I have no doubt they will be able to handle this. The provinces have been able to handle it.


Richard Burpee Hanson: They
had to train men.


James Lorimer Ilsley: They did not wait to train them before they passed their acts, and neither shall we.


Richard Burpee Hanson: When
these acts went into force in 1892, in my province the matter was handled by the attorney general himself and he took a commission for it. If the committee wishes to know who he was, he was the late lamented William Pugsley, and he took for himself a commission on the settlement of these estates over and above his salary as attorney general, or whatever his position was in the government.


Mr. MICHAUD:: That was the law of the country.


Richard Burpee Hanson: He made the law. It is easy enough to answer me that. I never suggested that it was illegal, but, even if he is gone, I say it was a scandalous law set up by a man who profited by it himself.


Joseph Enoil Michaud: And his successors continued it.


Mr. HANSON (York-Sunbuiy):: Not very long, not in my time. I know that away back in 1892 it was a relatively small job to settle succession duties in New Brunswick, because the estates that were taxed were limited to those of $50,000 and over, and there were not many in those days. In fact, there are not so many now. I suggest to the minister that he will have to have some kind of staff which has had experience with succession duty laws. Heretofore it has been a complex field of jurisprudence. Anyone who does not believe that has only to look over the decisions rendered from time to time by the privy council and the high courts in Canada. It is a complex field of jurisprudence and has given rise to a great
[Mr. R. B. Hanson.l
deal of litigation, and very expensive litigation too. I suggest that you cannot just put the ordinary accountant into this field and have him make a success of it. .


Gordon Graydon: The minister was unable to give us any kind of estimate of the cost of administration. Will he be good enough to tell us whether his estimate of $20,000,000 of revenue to be derived from these duties was a gross or net estimate?


James Lorimer Ilsley: Gross.


Gordon Graydon: We have been given no
conception yet of what the net return from these succession duties is going to be, because we have not the slightest guide from the minister as to what the cost of collecting the $20,000,000 will be. Therefore the minister might just as well have never made his estimate of $20,000,000 in the first place. Can he give us some idea of the number of additional employees who will be required in the dominion income tax division to handle the additional amount of work involved in the collection of succession duties?


James Lorimer Ilsley: No; I cannot give the
number. When my hon. friend says that I should be in a position to give an estimate-


Gordon Graydon: I think you should.


James Lorimer Ilsley: -of the cost of collection,
I think I can safely say that it will be less than five per cent, probably three or two per cent or thereabouts, but no attempt was made to ascertain that figure. We know in all reason that it will not be very great, but there is no use in making an estimate like that. We shall do it as cheaply as we can. We know that it is a productive tax in the province, and it is likely to be so here. The main task is the valuing of the property, and the income tax staff has had a great deal of experience in that work. They are continually valuing assets and liabilities. It is not such a terribly difficult thing to do. My hon. friends opposite who are setting up such terrific difficulties-


John Ritchie MacNicol: We know because we
have lived in Ontario for many years.


Gordon Graydon: The minister may find
out about the difficulties when he gets into this.


James Lorimer Ilsley: I have no reason to think
the difficulties are insurmountable or even formidable, and I do not think my hon. friends opposite have any reason for thinking so.


Richard Burpee Hanson: I do not think the minister knows much about it, to tell the truth.

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James Lorimer Ilsley: I agree that I do not know a great deal about it, but I am confident that I know just as much about it as any hon. gentleman opposite who has spoken. This is an explored field in which the provincial governments have been collecting the tax for quite a long time, and apparently with great success, and it stands to reason it is not something we should shrink from with fear, as hon. gentlemen opposite are apparently doing.
I should like to know what they would do in solving some of the problems we have to solve in the war field if they are so afraid of difficulties in putting into force a comparatively simple piece of fiscal legislation such as this.


Richard Burpee Hanson: We are
not afraid. The reaction on the minister is not exactly what I thought it would be. We have not shrunk and nobody will shrink from applying the tax, but we think the minister ought to give us more information. Upon what was the gross estimate of $20,000,000 based? Was it upon the returns to the various provinces? They must have knowledge of the returns, and I cannot imagine any other measure by which the minister could arrive at the gross estimate of $20,000,000.


James Lorimer Ilsley: It was based on the succession duty revenues of the provinces and a comparison of the proposed rates with the provincial rates.


John Ritchie MacNicol: The minister ought to be able to give us some idea of the cost of administration. We have had succession duties in Ontario for many years, and all the minister would need to do would be to telephone Toronto and ask the government how much succession duty revenues they took in during a year and how many employees were required to administer the act in Ontario.


James Lorimer Ilsley: I could not imagine anything more fruitless than tr}'ing to estimate the cost of administration of this measure. We shall know in a year what the cost will be, and I am sure it will not be very great in proportion to the total amount collected.


Alexander Malcolm Nicholson: I hope the minister will not reconsider this important piece of legislation as the result of the protests from hon. gentlemen to my right. Here is one field of taxation which will provide a good deal of revenue, and it will come from people to whom Canada has been extremely kind. I noted what the leader of the opposition said about people who have accumulated considerable fortunes as a result of thrift, and there is a good deal to be said for those who. as a result of
hard work, accumulate a fortune. But is that any reason why they should pass it on to their children and grandchildren? I think Canada has a real claim, particularly at the present time, to an even higher share than is provided here of these large fortunes. I have a clipping here which was on my desk relating to the death of one of the greatest Canadians of our generation, Sir Frederick Banting, who made one of the greatest contributions to the world in the present century, but who left a very small estate. Men in other fields who are making a much smaller contribution to the world's progress are leaving very large estates as a result of their activities.


Gordon Graydon: How can you know how much a man leaves?


Alexander Malcolm Nicholson: The information is available. The estate was $72,300.


John Ritchie MacNicol: I am glad to hear the hon. member say that that is a small estate.


Alexander Malcolm Nicholson: It is very small according to this press clipping dated Toronto, March 31.
The leader of the opposition has referred to people who are very thrifty and suggested that these succession duties may take away the incentive to thrift. I represent a constituency where the people are as thrifty as people anywhere in this dominion; yet hardly one per cent of them are going to pay any income tax, and very few of them will leave estates to be taxed for succession duties. They will not have estates to leave to be whittled away.
I think the leader of the opposition gives a wrong impression when he suggests that members in this corner of the house wish to make a pile of all the wealth of Canada and divide it up into equal portions. The wealth of the world is something which one cannot divide once and for all. It is produced day by day and hour by hour. It is created as a result of people applying human labour to the natural resources which are our common heritage. We should like to see all the people of Canada have the right to apply labour to our raw materials and to have a fair share of the wealth which is created through the cooperative efforts of all the people. This wealth is not consumed once and for all. It is created day by day and consumed day by day, as our factories are working, as our trains are moving goods from one part of the country to another, transporting the new wealth that has been created from one area to another. No, Mr. Chairman, we do not wish to divide the wealth of Canada
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once and for all, but we d.o wish to see the people of Canada get a fair share of the wealth that is distributed.
I hope the minister will increase these succession duties, particularly on the larger estates. Take a fortune like the Astor estate in the United States. An immigrant came to the United States and bought some land in an area that was not then very popular. He was not responsible for the millions of people who afterwards came to make up the city of New York. Had Astor gone to my constituency and bought a tract of land there, he would find himself with a serious liability to-day.


An hon. MEMBER:: He would become a C.C.F.-er.


Alexander Malcolm Nicholson: I think hon. gentlemen will agree with me that it is not fair that the descendants for all time to come of this original settler on some land in New York city should enjoy that huge fortune without making some contribution to the state, and so in Canada it is hardly fair that the children of even those who perform outstanding services should be permitted to go through life with riotous living, enjoying the very cream of our production, without being required to perform some useful service to society. This tax is to be commended, and the rates should be increased, especially for the larger amounts.


Thomas Langton Church: Regarding succession duty and this resolution about imposing certain duties on the same class of property as the provinces are taxing, I am not at all surprised at these phantom resolutions of the minister and the phantom methods of the department to save the dollar. I remember when this class of assessment of property was introduced in Ontario in the days of Sir Oliver Mowat. There was a long discussion between the Department of Justice and others about certain points. One was the public policy of assessing certain property of those domiciled within the jurisdiction, making an effort to cover property of those not within the jurisdiction. Cases went to the privy council on it. There have been some cases dealing with that particular problem.
We have now a war on. If the government are going to adopt this principle and upset sections 91 and 92 of the British North America Act regarding property and civil rights in the provinces and the municipalities-for they get a share of this indirectly-the whole principle is all wrong. Every tax must have a principle. We might just as well abolish the provinces. Is this parliament sitting here going to usurp the rights and powers of the provinces without the consent of the people

and take all classes of property and assess it for succession duty? Hon. gentlemen opposite wanted to give the provinces a sales tax. Resolution 1 is against principles of all public policy. Where did this particular resolution come from and who recommended it? The provinces were not consulted. I doubt whether, notwithstanding the War Measures Act, this parliament has power to impose a system of taxation outside its jurisdiction, extra-territorially. I also object on the grounds of public policy to this conflict of law by this highway robbery principle of taxation without the consent of the people. It upsets the whole basis on which confederation was founded and the taxation powers of the provincial system, and the municipal system. It takes away all the sources of revenue of the municipalities except the tax on real estate. The government now comes to the provinces and makes a raid on almost every item of section 92, property and civil rights in the provinces. The government might just as well abolish the provinces; that is where they are headings, for the totalitarian state and the Marxian system.
This matter was discussed for many years, and it was found that the provinces and municipalities had a right to live. The principle of live and let live has been forgotten in this raid on the revenues, trying to bolster up the dollar. If the government had been as anxious to qualify under the lease-lend bill, they could have got somewhere; we would not have half the present budget, and hundreds of millions of dollars could be supplied to Great Britain and financed by a loan at one-half or two-thirds of one per cent. But the country is not going to stand for the present system that is being inflicted upon the municipalities and the provinces. The court of last resort, the voice of the people, will decide whether this parliament shall upset the whole basis of confederation and impose a system of taxation which is not within its power to impose.


Agar Rodney Adamson: Under the Ontario succession duties act, if a man is killed on active service, his estate is excluded from the tax. Does that apply here?


James Lorimer Ilsley: No. A provision is made
for a lower value than otherwise would be the case, something similar to the provision in the English succession duties act. But it is not exempt altogether.


Richard Burpee Hanson: Is any
provision to be made for amelioration in the case of quick succession?


James Lorimer Ilsley: No.

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Richard Burpee Hanson: I suggest that in all equity and fairness some consideration ought to be given to making allowance for what is known as quick succession. A man dies; he has $50,000; he leaves it to his wife; within six months she dies, and it passes to someone else and is taxed again.
I have seen this happen within a year. New Brunswick has recognized the principle of quick succession and has taken authority to ease the burden by order in council. They have to be satisfied by a specific statement of the facts under oath as to what the position is. I have always thought it a fair provision to have in the law. I ask the minister to give some consideration to that. If he will examine the statutes in certain jurisdictions-
I am not prepared at the moment to say which ones-he will find that consideration has been given to that theory.
I have said all I intend to say on the general principle. The theory of this tax is that it is based on the succession to property, as distinguished from a tax on property itself. The minister wall recall that the old theory of the laws in the various provinces was based on the power to levy direct taxation on property within the province. Various attempts were made from time to time to extend that theory, and in one jurisdiction at least I recall that the government of the day passed a law declaring that property descending from an estate of a testator in one province to recipients in another province was property within the province to which it was being transferred by the effect of the will. That is to say, it wras declaring property to be property within the province which was not property within the province. For many a day I ached to get a chance to expose that fallacy. But I never got a real chance to contest the constitutionality of that position. About 1932 a case went from Alberta to the privy council which gave me great satisfaction. It probably wiped out the opportunity I had to fight a principle which I had been contesting before the provincial authorities for years. It put a new complexion on the whole position.
As a result of that judgment, the provinces all got together and passed new succession duty acts, and they finally united on the theory that the main tax would be levied on the succession. That is what the minister has decided to do in this instance. But that is not necessary in the case of a dominion act. The tax under a dominion act should be levied on the property passing from a testator domiciled in the country, but excluding real estate outside the jurisdiction of the federal
authority. What has the minister to say about those two distinctions, because here it is plainly indicated by the resolution that the tax is to be on the succession, not on property.


James Lorimer Ilsley: I do not know that I understand the point. If the hon. gentleman is suggesting that we should base our legislation on the principle of an estate tax instead of a succession duty, then I understand the point; but I do not think it has anything to do with jurisdiction. The dominion parliament has jurisdiction to do either or both.


Richard Burpee Hanson: Yes, I
should think it had; I agree with that. But the minister has not apprehended my point.


James Lorimer Ilsley: There are many who hold the view that we are making a mistake in framing this legislation on the provincial model. There are many who hold the view that we should be imposing a straight graduated estate tax. That would mean that a $10,000 estate would be taxed, let us say for the sake of example, at one per cent; a $20,000 estate at two per cent; a $30,000 estate at three per cent and so on, until you get up to a million dollar estate, which might be taxed at twenty per cent.


Richard Burpee Hanson: That is
the rate of taxation; I was not referring to that at all. I appreciate what the minister is saying about there being some argument for and some advantage in having a graduated tax, but that goes to the rate of taxation.


James Lorimer Ilsley: This is graduated, too.


Richard Burpee Hanson: I know it is, in a lesser degree. But what I am pointing out is that primarily a succession duty or death duty tax should be based on the value of the property passing, on the principle of a tax on property, as distinct from a tax on persons.


James Lorimer Ilsley: Oh, no.


Richard Burpee Hanson: Well, the minister does not accept that proposal; and I assume, although I have not seen the bill as yet-


James Lorimer Ilsley: What the hon. gentleman
says is not clear.


Richard Burpee Hanson: It is perfectly clear to me. I am sorry I have not been able to make it clear to the minister.


James Lorimer Ilsley: It is not clear to me. The tax imposed by this legislation depends (1) upon the value of the whole estate; (2) upon the value of the property passing to the person taxed, the beneficiary; (3) upon the degree of relationship, whether he is a stranger or otherwise.
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Richard Burpee Hanson: That is the incidence of the tax, about which I am not talking. What I am trying to suggest to the minister is that when this tax was first imposed in Canada it was primarily a tax on property. Those who are in the legal profession will recall that this is true; but because of the limited right of taxation vested in the province, which right was confined as the result of a judgment of the Supreme Court of Canada and by something said by Chief Justice Anglin in one of his judgments- I have forgotten the name of the case- the amount of property they could tax was restricted. We had the attempt of the province of New Brunswick, at all events, to declare property to be property within the province which was not, in fact, property within the province. I tried to illustrate what I meant by referring to that attempt. Then the provinces shifted their ground, not in order to enlarge their jurisdiction, because that was confined by the constitution, but in order to get at property and values, and to produce results, beyond that which they were able to do on the theory that it was a tax on the property. Now, in most instances, they have attached the tax to the succession to property. I have often thought there was some question about their right to do that where the successor was out of the jurisdiction, but I am not going to argue that point now. The question I am bringing to the attention of the minister is this. The matter of jurisdiction does not enter into it, because the dominion can have any form of taxation it likes; but would it not be better, as a matter of principle, to have the tax imposed on property alone, property passing, rather than what is suggested here? I hope I have made my point clear.


James Lorimer Ilsley: This tax is on persons.


Jean-François Pouliot: I regret to have to make the statement to-night that I am strongly opposed to this sort of legislation. You will remember, Mr. Chairman, that in the fall of 1935, after the election, a dominion-provincial conference was held, at which the then Minister of Finance mentioned a succession tax to be imposed by the dominion government. That suggestion was made again in the Sirois report. I have tried to read that report, but found it impossible to do so; it is not readable matter. What I could read, after drinking several cups of strong coffee, was the eight-page summary, which contained in a nutshell all the recommendations of that commission. It is time to mention here, sir, what has been very unfairly said by the leader of the opposition; and if he smiles now, his smile will be of short duration. I hold in my hand an extract from the Ottawa Journal 
of January 17 of this year, containing the report of a speech which was made concerning the work of that commission by the horn gentleman in Fredericton. I have always had respect for the dead; but the language used by the leader of the opposition, if not unworthy of him, was unworthy of the high functions of the leader of the great Conservative party of the past, which does not exist any more.


John Ritchie MacNicol: But it will soon.


Jean-François Pouliot: I remember that my hon. friend presided over two large powwows to select leaders, both of whom are now out of the game although they were great at the time of their selection, one because he was rich and the other because he was cocky. This report states:
The Ottawa conference on dominion-provincial relations ''failed not because of anything the Conservative party had done"-
The Conservative party had done nothing except wrongs.
-"but because of lack of national leadership"-
Hear, hear; national leadership! Think of that!
-"and 'because of a subversive element within the Liberal party"-
What was that subversive element? Can the hon. gentleman name it? Does he dare name it? He remains silent; it is just as well for him.
Speaking to a luncheon meeting of the Albany club, Mr. Hanson told leaders of the Conservative party: "We had an exhibition yesterday within the ranks of the Liberal party that made me blush for my country."
He blushes now because I read his own words. This language, used by the leader of a great party, is an utter shame.
He said that the only man on the original dominion-provincial relations commission who had a working knowledge of Canada's constitution was Hon. N. W. Rowell, who was forced by ill-health to retire from the chairmanship and was succeeded by Dr. J. R. Sirois, of Quebec.
Before Mr. Sirois came to Ottawa I did not know him as a doctor; it is not our practice in Quebec to use that title. He is a man who is very well read in the law; he is familiar with the legislation not only of the province of Quebec but also of Canada. The little I know of law I owe to him. I had great respect for him, more respect than I would have for any Tory, except the hon. member for Broadview.
With regard to the past, remember that the leader of the opposition knows very well what happened when the privy council declared the social legislation he had supported

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in this house was declared ultra vires. Then the chairman. Judge Rowell, came to the point where he could say that he could not understand the judgment of the privy council, just because he had been paid $400 a day to defend such legislation before the supreme court. I know whereof I speak, and the hon. member does not know-and does not need to make faces when I speak. I want him to show the dignity that belongs to the position he holds.


Richard Burpee Hanson: Mr. Chairman-


Jean-François Pouliot: And I do not want interruptions.


Richard Burpee Hanson: I suggest that this speech is entirely out of order.


Jean-François Pouliot: I am speaking.


Thomas Vien: A point of order has been taken. Does any other hon. member wish to speak to it?


Jean-François Pouliot: Yes. In answer to the objection raised by the leader of the opposition, let me say that we are now discussing a resolution concerning succession duties. This measure would take from the provinces part of their power of taxation, in accordance with the suggestions contained in the Rowell-*Sirois commission report, which are familiar to all members in the committee. It is just on that account that I feel I am perfectly in order in mentioning the comment made by the leader of the opposition on precisely the same conclusions of that commission-suggestions which have been made, and which are embodied in these resolutions. When mentioning comments made by the leader of the opposition, I feel I am strictly in order because I express, I repeat, the views he has expressed outside the house, and on the very same matter we are now discussing. That is why I hope the chairman will let me proceed.


Thomas Vien: Does any other hon.
member want to speak to the point of order? The resolutions we are studying have to do with succession duties. Resolution 1 embodies the principle of levying duties on successions in Canada. Section 2 of standing order 58 reads:
Speeches in committee of the whole house must be strictly relevant to the item or clause under consideration.
It is permissible in discussing this matter, which has also been the subject of an investigation by the Sirois commission, to make brief references to the Sirois report. But inasmuch as standing order 58, section 2, restricts the discussion strictly to the resolution now under discussion, it would be out of order to develop a general discussion on the principles
involved, because those principles should have been discussed when the budget speech was under advisement, and was being discussed.
To follow the rules of the house we must now limit discussion strictly to the resolution before the committee. My ruling is that although a brief reference to the principles studied, discussed and reported upon by the Sirois report is permissible in a discussion of this resolution, I am afraid the hon. member went beyond the proper limit of that latitude when he made reference to speeches made outside the house by the leader of the opposition. I would draw the hon. member's attention to the necessity to limiting his remarks strictly to the resolution before the committee.


Jean-François Pouliot: Yes, sir. I will put this clipping in my pocket.


Thomas Vien: I do not believe that
the hon. member, if I heard him aright, with proper respect for the chairman, can say, that he will put that ruling in his pocket. I think the hon. member ought to adhere to the ruling, and observe the rules of the house.


Jean-François Pouliot: I did not intend to use any disrespectful language. I was just abiding by Mr. Chairman's ruling. If he took what I said in a different way, then I am very sorry;
I did not mean it at all in that way. It was just a way of expressing myself, to tell him that I was abiding by his decision.
I find this one of the most serious matters which may be brought to the attention of the committee. Of course we have a system of taxation which dates back to confederation. It was only after lengthy argument that the provinces agreed to depart from a certain number of rights of taxation, in favour of the new organization, which was the Dominion of Canada. You know, sir, because I am sure you have read the confederation debates, how difficult the matter was. When I think of the great political ancestors of the present Minister of Finance, and of those who were so strongly in favour of equal rights for all the provinces-and not only that, but equal rights for the provinces and for the dominion -I find that this piece of legislation is very dangerous. I will say why, in a moment.
There is, of course, a belief among people that the order of precedence in Canada replaces the British North America Act. I must explain myself. If any one of us attends a state funeral, or any state occasion where the precedence list is followed, he will see the representatives of the dominion in the first place, and then will follow in turn the representatives of the provinces. The same thing applies to the seating in this house. At the present time, Mr. Chairman, you occupy
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the chair. Therefore you are superior to the Prime Minister; you are superior to any one of his colleagues in this house; you are superior to the leader of the opposition, or the leader of any other group; you are superior to every hon. member. There are treasury benches because the 244 other members cannot all sit in the same seat. The seats must be distributed in order that there may be some order. Therefore, we have the Prime Minister; we have his colleagues; we have the leader of the opposition and the other members. It is the same thing with regard to the provinces. Everybody cannot walk on the same line; everybody must walk in turn. According to the British North America Act which I hold/ in my hand, the premier of each province who came here, the Premier of Prince Edward Island, the smallest in Canada, and the Premier of Ontario, the largest in Canada, were all on an equal footing with the Prime Minister of Canada. They were here to discuss the British North America Act, the constitution of our country.
The reason why that is so is the fact that the provinces have exclusive jurisdiction in certain matters. The legislatures of the provinces are the sovereign masters regarding legislation within the provinces. The dominion parliament is its own boss in matters in which it has exclusive jurisdiction. This is the system to which the people have been accustomed for scores of years. The dominion parliament, by subsection 3 of section 91 of the British North America Act, is given the power to raise money by any method of taxation. In a sense, I may be answered by the Minister of Finance that this legislation of his is intra vires. That may be so. There is another factor to consider. A practice has been in force since confederation, not only in Ottawa but in the provinces, to levy taxation in certain fields.
The provinces are the bosses of their destinies in their own fields. Another most important matter is the fact that certain things have been done for the people of this country by the dominion parliament, many of which were of interest to several of the provinces. On the other hand, however, the provinces have done other things. They have set up their own staffs and have been doing these things since confederation. The organization exists; the wheels have been greased, and this work has been carried on quite well since confederation. This is being done in connection with colonization, agriculture, and especially unemployment. The provinces have been accustomed to doing certain things necessary for the welfare of the people. This was done

by the little communities, the municipalities, and by the larger communities, the provinces. Sometimes the provinces had to come to Ottawa for support.
Take, for instance, unemployment. We all know the large amounts of money that were collected by the provinces through succession duties. I can understand why the Tories of Ontario are mad because of the succession duties they were forced to pay by Mr. Hepburn. They had to pay large sums of money into the exchequer of the province, and they were quite dissatisfied with the way in which that collection was made in the public interest. But it was necessary for the province of Ontario, and much good resulted. The same applies to the province of Quebec and other provinces.
It is pretty hard to think that the dominion government is taking the power of taxation in connection with succession duties from the provinces and is at the same time refusing to contribute to the support of the unemployed. In my province five per cent of the population is unemployed, and yet the province is deprived of assistance from succession duties. They expect to receive some help from Ottawa, but Ottawa says "no." I protest against it. I cannot be in favour of this legislation. It is impossible for me; my conscience objects to it when I think of the poor people who will suffer because of this legislation. I am not considering these matters from the legal point of view; I am looking at them from the practical point of view. I cannot agree with this legislation when I consider what the results will be. My conscience does not permit me to agree with it. I know that the language I use now will receive the support of the people of any constituency in this country.
I cannot conceive how this government can take this power away from the provinces and then not give some help in caring for the unemployed, especially when the unemployed have been cared for partly by means of money received by the provinces from succession duties. I protest most strongly against this legislation. Who was behind the scheme which was forced upon the Minister of Finance? I do not mean this one; I do not mean the other one; I mean the one before that. What is the mystery about that scheme which was suggested- in 1935? These people come again with these schemes. I warn the minister that it is dangerous and that we live in hard times. While the ministers in Ottawa may be good-hearted, they do not come in contact

Succession Duty Act
with the people in the same way that members of parliament do who go home for the week-end.
When I go home over the week-end, from fifty to eighty people from all walks of life talk to me and tell me their troubles. As I said last year, they honour me by opening up their hearts. They tell me their troubles and I try to help them, but a member of parliament cannot help all the people who need it. There must be some outside help. Unemployment is not cured as yet, and the provinces should be given some help. They cannot pay any more. The financial scissors of Ottawa have passed through their budgets, and the people will have to suffer. There is no reason for this even in war time. People are sick, people are willing to work, but are unable to find it. The reports of the Department of Labour are all wrong if they say that in this total war effort we have total employment. We should have, but we have not. The provinces have to support these poor people and they have not the means to do so.
I hope the minister will reconsider this legislation. This is one of the most serious matters because it affects the health and lives of a large number of our compatriots. They deserve help; they need help, and they should get it, either from Ottawa or from the provinces. If Ottawa takes over the powers which the provinces have in order to sustain them, what will happen? We have this case. I am against centralization. This is a case of centralization. As a Liberal I am against it; it means nothing good to me I am in favour of decentralization, which is one of the main principles of Liberalism, just as much as free speech and so forth. Therefore I appeal to the Minister of Finance and to the government to reconsider this part of their taxation programme. It is not a question of winning. There was a tie here at this table in January, but it is not a question whether the minister shall win. It is not a question of winning or not winning, on the part of the minister, any more than it is on the part of the premiers of the provinces. It is a question of coming to a settlement which will not make people suffer, which will be fair to all and which will enable this government to carry on the pursuit of war without exposing any number of our fellow citizens to death from hunger.


Mr. DUPUIS:: Before the hon. member
resumes his seat, I should like to know whether, when he makes such criticism of the proposals with regard to succession duties, he has in mind that the policy of the present
government is to refund to the provinces the amount actually collected by each province in that field.


Jean-François Pouliot: I thank my hon. friend
for his interruption; it will permit me to explain more fully what I have to say. If the government is to collect these succession taxes and give them back to the provinces, what is the use of this legislation? If this legislation does not take any power of taxation from the provinces, how is it that the provinces have decided to curtail the help they are giving to the unemployed? I cannot understand it, but the minister will have ample opportunity to explain it. In the first place, if the legislation does not take any power from the provinces how is it that the provinces have to curtail their assistance to the unemployed? That is one question. Another is this. If the dominion government is to give back to the provinces the money they will collect through this legislation, what is the use of having this legislation? These are things I cannot understand, and I warn the minister that this is very dangerous.
When there is a certain order that has been established, war is no reason for changing it completely in this way, and the consequence may be quite serious in the aftermath, when we have to settle problems of returned men, the problem of unemployment following the war, and so on. All that will be most difficult, and the dominion government will have to go to the provinces again and ask for help, after having taken some powers from them.
It may be that I am a traditionalist, but I believe in respecting tradition and not changing what is going well. Besides that, I warn the minister against university professors. He is a practical man. He has lived among the people. Let him be very careful in his dealings with those who are book-worms, who are trying to make experimentations on a large scale. He knows very well that Claude Bernard, the great chemist, Lord Lister and Pasteur all experimented on the infinitely small, with a microscope, and then they enlarged their experiments until they were sure they were scientifically correct. Here it is different. Wherever an experiment is made it is dominion-wide. If it is good, so much the better; everyone will prosper. If it is bad, everyone may suffer. It is important to have the popular reaction to every one of these tests. I should like someone to proceed scientifically in these matters, and then we would realize how difficult it is to make any change of this scope in taxation. It is like the wheels of a watch. The watch keeps
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time, provided the wheels are in the right place; but if you change the wheels, the watch may go faster or slower or it may not go at all. It is a serious matter, and since it is eleven o'clock now I may say something to-morrow.


Mr. BENCE:: Has the minister determined when this tax will be payable? If not, may I suggest that he make it payable after letters of administration or probate issue in the particular provinces. In view of the fact that the provinces have complete control over property and civil rights, they can hold up the issue indefinitely, prevent the executors from handling the property and thus prevent payment of the tax.


James Lorimer Ilsley: I will consider that.


Vincent Dupuis: May we have an explanation from the minister as to whether it is a refund or an indemnity.


James Lorimer Ilsley: The terms of the offer to the provinces are that the dominion is prepared to pay to the provinces the amount of income tax and corporation tax collected by the provinces in the fiscal year which ends nearest January 1, 1941, but not the amount of the succession duty. The succession duty is on a different basis. The dominion will collect this succession duty, and the provinces will continue in the succession duty field as well, if they wish, and collect and keep their own succession duties. They are not disturbed in the collection of succession duties by this legislation.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Tuesday, May 20, 1941.