1942-07-21

[Stage Direction]
On the orders of the day:
Hon. R. B. HANSON (Leader of the Opposition):: In the Ottawa Citizen of last
evening appears an item entitled "Cabinet now studying scope of authority to be given new control." The article goes on to state:
Steps are being taken for a more rigorous control of government expenditures and particularly the elimination of needless extravagance or waste.
I should like to ask the Minister of Finance if the report appearing in last evening's press, to the effect that it is proposed to establish a new supervisory authority in order to exercise greater control of governmental expenditures, and particularly to eliminate needless extravagance, is correct? If so, when may formal announcement of this proposal be expected? It may be recalled that on more than one occasion I have made reference to the setting aside of the provisions of the Consolidated Revenue and Audit Act and to the terms of the order in council under which that was done. Apparently this has not been sufficient and it has not worked out properly. There has been great waste and extravagance. Is the government alarmed over this situation? If so, it is a very helpful sign.


Mr. CRERAR:: Where has there been
great waste and extravagance?


Richard Burpee Hanson: It is
evident, everywhere.


Thomas Alexander Crerar: My hon. friend should not
make a statement of that kind without giving an instance of it.


Richard Burpee Hanson: All you
have to do is to read the debates of this house.


Mr. MACKENZIE (Vancouver Centre):: Mr. Speaker, on a point of order-


Thomas Alexander Crerar: Mr. Speaker-


Richard Burpee Hanson: I have
the floor.


Thomas Alexander Crerar: My hon. friend is as good as anyone at interrupting in the house. When the hon. gentleman makes a statement that there has been great waste and extravagance, he should be able to give at least one specific instance.


Richard Burpee Hanson: I am not
going to do that now, but I shall give the minister references to Hansard where this has been pointed out. What I want to know from the Minister of Finance is when we may expect a formal announcement of this new proposal, how far it will go, and whether it will be retroactive?


Hon. J. L. ILSLEY (Minister of Finance):: The report is completely unauthorized so far as the government is concerned. A specific proposal for the watching of a certain class of expenditure was discussed informally in the government some time ago, and it may be that one of my colleagues, not myself, will be in a position to make a statement before the session ends. I would point out that that proposal will have nothing to do with expenditures dealt with under the amendment to the Consolidated Revenue and Audit Act to which my hon. friend has referred; it will be of a different character altogether. I assume that that is what the article refers to, but as I have not seen or read the article I do not know.



MILITARY SERVICE


[Stage Direction]
On the orders of the day:
Mr. J. G. DIEFENBAKER (Lake Centre):: I should like to ask a question of the Minister of National War Services with reference to the programme of calling up men for service under the National Resources Mobilization Act. Is it the intention of the government that the selection of men who are to serve as a result of these calls shall be determined by lot?


Hon. J. T. THORSON (Minister of National War Services):: The system of selection by lot will not be effective in time for the calls in August. Whether the system will be effective
Labour Conditions

for later calls, I am not yet certain. The whole question of calling men by lot is under reconsideration.



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Mr. CLARENCE GILLIS (Cape Breton South):: I should like to address a question to the Minister of Labour based upon a telegram which I received this morning from the secretary of the mine workers' union at Inverness, Nova Scotia, pointing out that 150 men are idle at that mine as a result of changed conditions brought about by the provincial government, which are the operators of the mine. The wire is lengthy, and I sent a copy of it to the minister. Has his department any knowledge of the situation, and if so, what steps are proposed to be taken to remedy it?


Hon. HUMPHREY MITCHELL (Minister of Labour):: I appreciate my hon. friend's
sending me a copy of the telegram, but as I have been under pressure this morning I have not been able to read it. So far as the department is concerned we have no knowledge of the situation except from the telegram. I shall be glad to look into the matter.


Richard Burpee Hanson: I also received a telegram in
connection with this matter. It would appear that these miners had a contract with the provincial government, which contract has been altered entirely without any notification to or consultation with the miners. One hundred and fifty men have been thrown out on the street because of the non-operation of one ship It does seem to me that at a time when coal is needed so urgently, it should be demonstrated that there is some justification for this action. Will the Minister look into the whole situation and make a statement?


Humphrey Mitchell: I shall be glad to do that. CANADIAN ARMY



INQUIRY AS TO PROVISION OF SULPHA DRUGS IN ARMY KITS

[Stage Direction]
On the orders of the day:
Mr. D. G. ROSS (St. Paul's):: Mr. Speaker,
I should like to ask the Minister of National Defence, in view of a report I saw in the press that sulpha drugs are being included in every man's kit in the United States army, whether we are doing the same thing in this country?


Hon. J. L. RALSTON (Minister of National Defence):: I shall be glad to make inquiries.



TAR SANDS-SYNTHETIC RUBBER REQUEST FOR COMMITTEE OF THE HOUSE TO INVESTIGATE AND REPORT

[Stage Direction]
On the orders of the day:
Mr. C. E. JOHNSTON (Bow River):: Will the government consider appointing, when the house reassembles, a committee of the house to investigate the progress that is being made in the development of the Athabaska tar sands and in the manufacture of synthetic rubber in Canada? They are most important' questions.


Right Hon. W. L. MACKENZIE KING (Prime Minister):: Mr. Speaker, that is a matter of government policy which will be announced in due course.



WAYS AND MEANS

[Stage Direction]
The house in committee of ways and means, Mr. Yien in the chair.

[Stage Direction]
7.	(1) That the total taxes payable by any taxpayer under the normal rate of tax and the graduated rates of tax shall be reduced by the amount paid by the taxpayer in respect of
(a)	payments into any approved superannuation, retirement or pension fund or plan, paid as a term of employment and not repayable during the continuance of such employment;
(b)	premiums on life insurance policies in force prior to the twenty-third day of June, 1942;
(c)	principal payments on a mortgage on one residential property*, provided such mortgage was registered and in effect prior to the twenty-third day of June, 1942;
Provided, however, that such reductions shall not exceed the amount of the refundable portion of the tax as provided for in resolution 6 above; and the said refundable portion shall be reduced accordingly;
(2) That in the case of a taxpayer over sixty-five years of age with income less than three thousand dollars, the total taxes payable under the normal rate of tax and the graduated rates of tax shall be reduced by the refundable portion of the tax as provided for in resolution 6 above, and the said refundable portion shall be eliminated accordingly.
James Lorimer Ilsley: Mr. Chairman, I have certain amendments to propose to this resolution and I shall submit them to the committee in a moment. Before I do so, however, there is a statement that I would like to make in reference to "income tax flying", so-called, to which I referred on Friday night. Exception has been taken to that statement by the officers in the Department of National Defence for Air, who have asked me to bring to the attention of the committee certain information.
There seems to have been some impression created that I was making a general charge

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against the administrative officers, but if you will look at page 43(33 of Hansard, you will see that I used this language:
I did not learn until recently, a few weeks ago, of the practice which apparently has arisen -I do not know how extensive it is-
Mr. Ross (Souris): Fairly extensive.
Mr. Ilsley: -on the part of administrative officers of the air force of "flying in" their income tax-
And so forth. I thought I made it clear that I did not know how extensive it was, and I did not say or intend to say in the remainder of my remarks anything at variance with that statement.
The Department of National Defence for Air have asked me to bring to the attention of the committee the number of administrative officers who had more than 100 hours of flying in the year 1941. Before I do that I want to review briefly the arrangements that were made.
The provision that certain incomes shall not be liable to taxation, including incomes of commissioned officers of the said forces while on active service beyond Canada or on active service in Canada whose duties are of such a character as are required normally to be performed afloat or in aircraft, was contained in the budget of June 24, 1940, and the first official determination of the principle that was to be applied is contained in a memorandum to inspectors of income tax, memorandum No. 67, issued by the commissioner of income tax on December 24, 1940. That lays down the principle that one-half of the average flying hours will be taken as a basis, and that if an officer flies one-half or more than one-half he will be treated as coming within the exemption. That was the rule laid down in December, 1940.
I learn that in September, 1941, the air force notified their officers that the half of the average had been determined for the year 1940 to be 115 hours. The sentence in the routine orders of September 12, 1941, which is relevant, reads:
The service pay and allowances of all officers who flew in service aircraft at the rate of 115 hours or more during the calendar year 1940 were exempt from 1940 dominion income tax. Officers are cautioned that no agreement has been reached respecting similar exemption for 1941.
The rule applicable to 1941 and subsequent years was determined in March, 1942. The memorandum issued by the commissioner of income tax determining 100 hours as the correct figure for 1941 and subsequent years was issued on March 7, 1942, and a few days later the members of the air force were
notified by the Department of National Defence for Air that those who flew 100 hours or more in 1941 or in subsequent years would be exempt from income tax, and that is the rule in existence at the present time. The general and routine orders of the Royal Canadian Air Force referring to that bear date March 13, 1942.
The number of officers at Royal Canadian Air Force headquarters and command headquarters on the strength on December 31,' 1941, was 1,011, and of those, 48 officers flew more than 100 hours for the year 1941. Of those 48 officers, 13 were on the non-flying list and 35 were on the general list.
It has been thought desirable by the Department of National Defence for Air that this statement be brought to the attention of the committee.


Mr. ROSS (Souris):: What is meant by
"command headquarters"? Would there not be other administrative officers throughout Canada who came under that ruling?


James Lorimer Ilsley: I am not sure about that.
I tried to get just that information, as to whether there would be any officers other than those at command headquarters and at Royal Canadian Air Force headquarters who would be considered as administrative officers. I am sorry that I am not in a position to give a definite answer to that question.


James Arthur Ross: If that is followed
up I think it will be found that there are administrative officers at the various fields or centres throughout Canada who come under this exemption, and not only do they come under the exemption but they receive flying pay as well. They get it both ways. I do not think that this gives a true picture. I should like the minister to check up and see if there are not more administrative officers included throughout Canada.


James Lorimer Ilsley: I am sorry I am not in a position to argue the matter or to assist my hon. friend. The information which was handed to me was this, and I am passing it on to the committee exactly as it was given to me.


Richard Burpee Hanson: I had
never heard of this system of "flying in" income tax, and I was inclined to agree with the minister when he characterized it as scandalous. Now it would appear from the limited information which the committee has received from the minister that the practice is not very widespread. That is all to the good, but
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I think we should have the additional information which the hon. member for Souris has requested.
I thought, when the provision was put in the legislation a year or so ago with respebt to those in the air force whose duties required them normally to fly, that it was a fair provision and was not open to very much abuse, if, indeed, to any. I do not see now that the regulation was framed on a true interpretation of the provision of the statute. If a man's duties are not normally to fly, if he is an administrative headquarters officer, he is not called upon to fly every time he goes upon an inspection trip; he can travel by ordinary means of transport as the rest of us. If he flies for the purpose of "flying in" his income tax, as has been stated, of course that is reprehensible. I assumed and the public assumed that the men who went up in the air in the course of their normal duties would be exempt, but no one else. I think the interpretation which has been given to the section by the department goes too far, and it should be corrected.


Mr. DONNELLY:: When the average of 115 hours was arrived at, who were put in that class? Were a lot of men put in who do not do any flying at all, or was it only fliers?


James Lorimer Ilsley: Just those who flew.


James J. Donnelly: Well, it does look to me as though 115 hours is a very low average, because that means only about an hour every three days.


James Lorimer Ilsley: It was half the average.


James J. Donnelly: The flying officers whom I see think this is away too low, that it should be 500 hours, and that if we put it at about 500 hours we would get only the real fliers. When it comes down to 115 hours almost anybody can qualify. The figure is away too low.


Mr. GLADSTONE:: Where an officer in the air force has a substantial personal income outside his remuneration as such, does the exemption apply to the total income?


James Lorimer Ilsley: No, simply to service income.


Mr. BENCE:: How many of the forty-eight were permanent air force men, and how many have enlisted since the beginning of the war?


James Lorimer Ilsley: Does the hon. gentleman mean pre-war?


Alfred Henry Bence: As I understand it, there is a category of officers in the air force known as permanent air force men. A return was
[Mr R. B. Hanson.]
brought down in this house in connection with the increase in rates of pay since the beginning of the war, and I was asking how many of the forty-eight came in the category of what are known as permanent Royal Canadian Air Force.


James Lorimer Ilsley: I am sorry I have not the information. With regard to the amendments, resolution 7 is an important one, and I have received a great many representations for extension of the list of offsets. The term "offset" may not be the best, but probably it conveys the idea. The original intention was to permit payments on the principal of mortgages on the residence of the taxpayer.


Richard Burpee Hanson: Is that intended to include a farm?


James Lorimer Ilsley: If the residence is on a farm, yes.


James J. Donnelly: Does it apply to the whole farm, or only to the piece of land the farmer is living on?


James Lorimer Ilsley: It would apply to the whole farm to which the mortgage applied.


James J. Donnelly: A man may be farming a section and a quarter of land, but living on one quarter and having four quarters elsewhere. Does it apply to the four quarters, or only to the one he is living on?


James Lorimer Ilsley: If the mortgage were on all the land, the principal payment on the mortgage would be included in the offsets. In those circumstances there would be no way of making a separation.


Mr. PERLEY:: But with two sets of
buildings and two different mortgages?


James Lorimer Ilsley: It would apply to the mortgage on the residence,


Mr. MacNICOL:: On the farm on which the residence is built?


James Lorimer Ilsley: Yes. As I started to say, it was originally designed that the offsets would be three in number only: payments of principal on mortgages on the residence; payments of premiums on life insurance policies which were in force on June 23, the date of the budget-


Richard Burpee Hanson: Prior to June 23?


James Lorimer Ilsley: Prior to June 23, the date of the budget; and third, payments into certain pension and superannuation funds. A very l-arge number of representations have been made in favour of the extension of this list. I have decided that some of these representations are well founded and some are not.

Income War Tax Act
Perhaps the most expeditious way of getting what is now proposed before the committee is to read the resolution as redrafted. The amendment will be:
That resolution 7 be deleted and the following substituted therefor:
1. That the total taxes payable by any taxpayer under the normal rate of tax and the graduated rates of tax shall be reduced by the amount paid by the taxpayer in respect of-
(a)	payments into any approved superannuation, retirement or pension fund or plan established prior to the 23rd day of June, 1942 (or if established subsequent to the said date, approved by the Minister of National Revenue), and paid by the employee as a term of employment or in connection with membership in a trade union.
(b)	premiums on life insurance policies or annuities or other instalment savings contracts of a^ type which in the opinion of the Minister of National Revenue are such that fhe premiums cannot be postponed without substantial loss or forfeiture to the taxpayer, provided such policies, annuities or contracts were in force prior to the 23rd day of June, 1942, and one-half of the first year's premium, and the whole of subsequent years' premiums, on life insurance policies of a type not more expensive than insurance on the whole life plan, taken out by the taxpayer subsequent to the 23rd day of June, 1942, provided that the deduction by the taxpayer in any year with respect to the premiums on such policies taken out since the said date shall imt exceed $100.
(c)	principal payments on a mortgage or agreement for sale on or with respect to one residential property, provided that such mortgage or agreement for sale was registered and in effect prior to the 23rd day of June, 1942, or, if not so registered, was to the satisfaction of the Minister of National Revenue in effect as an enforceable obligation of the taxpayer prior to the said date.
(2) That in the case of a taxpayer over sixty-five years of age with income less than $5,000, the total taxes payable under the normal rate of tax and the graduated rates of tax shall be reduced by the refundable portion of the tax as provided for in resolution 6 above, and the said refundable portion shall be eliminated accordingly.
As regards clause 2, the income figure previously was 83,000.
The reasons for this amendment have already occurred to hon. members who have listened to it as it has been read.
With regard to the pension plan payments, it was considered unfair to limit the offsets to those already established, and it was considered desirable to bring in pension plans of trade unions. With regard to life insurance policies, it was deemed advisable to add annuities or other instalment saving contracts, provided that the premiums could not be postponed without substantial loss or forfeiture to the taxpayer.	-


Richard Burpee Hanson: That
depends on the contract.


James Lorimer Ilsley: Yes. They will not all qualify by any means. If the payments can be dropped and resumed again without substantial loss or forfeiture to the taxpayer, they will not qualify.


Richard Burpee Hanson: Does the minister regard that as a workable proposal?


James Lorimer Ilsley: Yes, completely.


Douglas Gooderham Ross: Why limit it to the whole life plan?


James Lorimer Ilsley: It is not limited to the whole life plan with regard to existing contracts.


Richard Burpee Hanson: But new contracts.


James Lorimer Ilsley: With regard to new policies, I do not think we should go the whole way urged by the life insurance companies and agents and by certain members of this house, because by legislation we would be giving a very great impetus to the sale of life insurance, which would be in a sense class legislation.


Richard Burpee Hanson: Would
that be true if the amounts were limited?


James Lorimer Ilsley: That is what we have done.


Alfred Henry Bence: Would you consider the face value of the policy instead of the premiums?


James Lorimer Ilsley: I wish hon. gentleman would not be so much interested in this, but just moderately interested. On the other hand, there is much weight in the argument used in this house that young persons getting married should be permitted to insure their lives to a moderate extent and have their payments qualify as offsets. Therefore this provision, which is a restricted and limited provision, permits new policies to qualify, provided that they are not more expensive than the ordinary life plan, provided that the offset in a particular year shall not exceed 8100, and provided also that only half of the first year's premium may be used as offset.


Richard Burpee Hanson: That is, the agent's commission is out.
. Mr. ILSLEY: Otherwise, what happens is this. Ordinarily the agent gets fifty per cent, and in the first year instead of getting an alternative form of saving we would be getting a payment about half of which would be saving, inasmuch as it would go to the insurance company, while the other half would be simply a transfer to another taxpayer who might be just as much a spender as the person who paid it. Therefore we felt we should limit the offset in the first year to one-half the first year's premium.

Income War Tax Act


Mr. HARRIS (Danforth):: Should not that be "premiums"-plural?	There might be
several policies.


James Lorimer Ilsley: The limit is $100. With regard to mortgages and agreements of sale, the registration date has not been insisted upon as the only proof that the agreement of sale or mortgage was actually entered into. The Minister of National Revenue is given power to permit those mortgages and agreements of sale, not registered prior to the 23rd day of June 1942, if he is satisfied that they were in effect as enforceable obligations of the taxpayer prior to that date.


Mr. HANSON (York-Sunbuiy):: Mortgages are usually registered, but many agreements of sale are not.


James Lorimer Ilsley: Yes, although there is sometimes a delay in registration. But whether the mortgage is registered or not is determined by the mortgagee and not the mortgagor, and to that extent the resolution as drawn put the mortgagor in the hands of the mortgagee- not for the future, because it does not apply to the future, but with respect to the past.
The second part of the resolution I read raises the limit for elderly taxpayers from $3,000 to $5,000. It was found that quite a number of persons over sixty-five years of age are rendering war service and doing war work and in receipt of incomes in excess of $3,000. Assuming that the compulsory savings of such persons are not available, or will not be available to them because of death or something of that sort, it was found that it would pay them to give up their job.


Richard Burpee Hanson: That is not a very high ground to put it on.


James Lorimer Ilsley: That is the second time we ' have done that, and I cannot remake human nature.


Douglas Gooderham Ross: With reference to the question of future life insurance policies, the minister says he does not want to have any discrimination, but to my mind there is discrimination when you limit the amount of premiums which might be paid by the policyholder on future policies taken out. Many young people, and older people as a matter of fact have a regular budget in regard to life insurance policies, and I do not see why they should be stopped from completing their budget. In fact, they are continuing the budgets which they have. After all, it is far better for them to have life insurance policies which will protect their dependents after their death than just a few dollars in the way of savings under the budget plan. Not only that, but the money which they pay to the life 
insurance companies is available to the government for borrowing. All life insurance policies issued to-day contain a war clause. That is an important factor that should not be lost sight of. That war clause provides that if the policyholder is killed on active service or in the performance of duty on service in this country even, the beneficiary is disqualified from collecting. The $100 does not do anything for him, because if he goes on active service on the coast, where he is still subject to income tax and still has to pay extra premiums, he has to pay for the war risk, so that the $100 will not cover it. I see no reason why there should be discrimination between those -who have not completed their budget for life insurance and those who want to finish their budgets for that purpose. It is discriminatory all the way through.
There are many ideas abroad about how much agents get. I suggest first of all that on ordinary life insurance policies with the regular companies the largest commission paid is fifty per cent. I suggest to the minister that before this amendment is agreed to, because of the impetus which it will probabjy give to the sale of life insurance, some consideration ought to be given to the commission which is paid to the agents. Instead of fifty per cent a smaller rate of commission might be paid. It is far better for a man to have life insurance than to have a few dollars saved which will be returned to him later. If the members of his family are not protected by life insurance the government will have to take care of them. The legislation we have now is discriminatory; it hits at the whole question of saving-not compulsory saving, but saving.
As I have to go to another committee I should like to be permitted to say something which may be a little out of order at this point. It is in connection with the question of deductions on account of illness. As the minister probably knows, there is an organization known as Associated Medical Services, which to my mind has done a very fine job. It is a contributory scheme. There is a monthly payment starting with $2 for the head of the family, $1.50 for the wife, $1.25 for the first child and $1 each for the rest of the children. Some arrangement should be made for an allowance in respect of payments made under that scheme. What actually happens is that if illness strikes some member of the family, and he is sent to the hospital under this scheme, he gets what is called semi-private attention. There are no bills for the patient to pay. As a matter of fact under this scheme a baby can be brought into the world for about $30. That is something I know, because I have a grandchild. This is a splendid scheme for people of the middle

Income War Tax Act
classes. But under the budget provision they will not be able to deduct anything from their tax in that regard. The matter should. have careful attention with a view to giving exemption to people who subscribe to this plan. In the old days a family might go along for many years and all of a sudden be struck with a catastrophe and have a tremendous amount of doctors' bills to pay. Under this plan, that can never happen; a man pays for his medical services each month, and that is all he has to pay. I suggest that the taxpayer be allowed as an exemption the amount he pays month by month, or if that is not possible, the Associated Medical Services should be allowed to render him a bill on which he could get a reduction in his income tax.


Joseph Henry Harris: Resolution 7 to my mind is a very necessary provision. It takes care of some of the complaints which naturally arise in regard to taxation proposals. All across the country those who have objections to urge make them known, but rarely do those who are .prone to do a little research try to find some way by which the tax can be increased so that the minister may get a little more revenue. That perhaps is a failing of our present civilization. I am strongly of the opinion that at -this very serious time taxation should be on a basis similar to the old-fashioned freight rates. All that the traffic will bear should be put on our Canadian people-all of us, at this time. In the case of freight rates there is competition and waterborne traffic, and they have to soften the rates, but the Minister of Finance has not much competition in the field of his administration.
With that basis for my remarks I get on the band wagon with everyone else and inquire with regard to certain deductions. But I ask the minister to realize, along with that, that I am thinking of where else he can get revenue, and I bring to his attention a matter which to my mind is very serious. I should like to see this resolution stand until we reach resolution 26. I ask this because I want the minister to give consideration to a few observations that I am going to make with regard to two other matters which should be studied if of necessity we must have certain deductions made. The first is a matter that has already been more or less discussed; whether or not another provision is added to resolution 7 is something that can be -taken under advisement.
Much has been said about the married woman without children or dependents who during war time finds herself out earning money as well as her husband. Alongside of
that I should like to put the position of the married man with anywhere from two to half a dozen children who is doing his duty to posterity and the country. You do not find him asking for any particular exemption because his wife is not able to go out and earn money. If a married woman has no children, is not doing much for the country, and goes out and earns money, perhaps she should bear some of the cost of the country, and if you are going to make any deduction on her behalf consider the housewife who is raising several children, and the man who is providing the bread and butter for that household. That is the first matter which I would ask the minister to consider, if he feels disposed to amend this clause.
The second point also I consider important. The citizen who, perhaps through his own diligence and application to business and hard work and initiative in a country such as Canada, where opportunities are open to one and all, when he gets to the years fifty to sixty finds himself with a substantial estate, thinks of those he is going to leave behind. The average man wears out faster than the average woman. There are more widows in Canada than widowers. A man likes to think he has left his family with some security. For example he might feel disposed to leave his wife as executor and administrator of the estate and provide her with an annuity of 810,000 a year. Say the wife is about sixty years of age. What condition obtains if there is an annuity of $10,000 a year, and the man passes on, leaving his wife to administer the estate? I will send these figures over to the minister. I thought he might give some consideration to the point I am about to raise, before we reach resolution 26, to see if there is any way of meeting the case I am going to cite. In his will a man provides for an annuity of
810,000	a year. The first charge or assessment against that annuity, of course, is the income tax. I have had my figures checked by the department, though the chief has been so busily engaged in the house that I have not had an opportunity to submit them to him. Subject to this reservation I submit these figures for the minister's consideration. As I read the act, the tax would amount to $4,575. For succession duty purposes the value of the wife's life interest would be $109,750, on which the dominion succession duty would amount to $7,808. In the case of the provincial succession duty, in Ontario at least, the value of the wife's life interest would be $136,500, on which the provincial succession duty would amount to $14,300, a total in succession duties of $22,108. Under the statute as it now stands, these succession duties are payable over a four

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year period; so that the widow, in administering the estate, divides this amount of $22,108 by four, which means that she will have to pay $5,527 annually in succession duties. This is a case of the type which is very common throughout the country, where the capital is maintained intact and on the decease of the wife the children become the beneficiaries. So that the widow finds that she must make an annual payment for the first four years after her husband's death of $5,527 in succession duties, plus $4,575 in income tax, a grand total of $10,102, from an income of only $10,000. In other words she has to go out and rustle to find another S102 in addition to her income, in order to meet her requirements each year during that four year period.
Let us look at a case where the estate is larger; for example, where a life income, not an annuity, of $16,000 is provided for, and the estate totals $400,000. We may figure that the interest on the investments made by the husband would average 4 per cent, so that the income would total $16,000. In this case the income tax would amount to $8,025; the succession duties, payable over a four year period, would amount to $25,668 to the Ontario government and $18,749 to the federal government, making a total of $44,417. Dividing this amount by four would give an annual payment of approximately $11,000. When you add the income tax of $8,025 it will be seen that the annual payment during the first four years would amount to S19yl29, while the widow would have onfy $16,000 at her disposal, so she would be short $3,129. I realize that the principal remains, but if the principal is dissipated of course the value of the estate is reduced, and to that extent the children, the ultimate beneficiaries, suffer.
I bring up these matters at this time because these deductions are made under resolution 7.
I am not asking for any additional, deductions in these cases; I am not asking that estates made up of assets amounting to a quarter or a half million dollars should be relieved of the necessity of making a proper contribution to the dominion treasury. Just in passing I might say that I am of the opinion that it might be bad business to leave an estate of $400,000 to four children, but there must be hundreds of wills which were drawn up in days gone by all over Canada, disposing of estates running over $100,000, and I am drawing particular attention to the present provisions of the income tax laws because they are going to place the widows of these people in a very serious position. Through the requirements of the succession duty acts, plus income tax, these widows are going to find themselves owing the government money each year during 
the four year period following the decease of the testator. Through this sounding board I * want to say to the people of Canada: Check very carefully the wills you have made in days gone by. Check them in the light of the present succession duties, not only those obtaining in your own province but those being collected by the dominion government; and check them particularly in the light of the income tax regulations now prevailing. Make up your minds that you must distribute a good part of your capital in order that your estate may be able to pay to the treasury the moneys which will be demanded, and also in order that your dependents, and particularly your widow, may be provided for. As it stands now a person with an estate of $100,000, who made a will perhaps ten years ago on the basis of the taxation prevailing at that time, may find to-day that his widow will be left destitute and entirely without income, if she is to carry out the law as it stands at present.
I am bringing this information to the attention of the minister in order that he may check it. I should like to see in resolution 7 some provision which would permit of the distribution of capital under wills and similar documents drawn up prior to the imposition of the present income tax regulation. If that is not done, the minister will be faced with a large number of cases of distress; and as I read the income tax act amendments he will not have any discretionary power either to help these families or to help himself. He will find the widow, the administrator of the estate, in a bankrupt condition, and he may not be able to collect the full measure of the succession duties and income tax, because the money just will not be there.
I do not know whether the minister is prepared to answer this point at the moment. If he is, well and good, otherwise he might feel disposed to let resolution 7 stand until a later stage of this discussion; for I am satisfied that it would be in order to discuss this matter under resolution 26, which is a review of all the income tax regulations.


Alfred Henry Bence: I should like to support the
request which has been made that this section should be allowed to stand, until at least after the noon recess, so that we may have an opportunity of considering the important amendments that have been presented by the minister. I believe most of the points I had noted down are covered by these amendments, but I am not certain, and I should like to have an opportunity of reading them before discussing the resolution.
Resolution 7 stands.

Income War Tax Act
8.	That the refundable portion of any tax exigible under any enactment founded on these resolutions shall be repaid to the taxpayer or to his legal representatives, after the cessation of hostilities between Canada and Germany, Italy and Japan, and in the following manner: The refundable portion of the tax in respect of income of 1942 shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the second fiscal period of the government commencing after the said cessation of hostilities; the refundable portion of the tax in respect of the income of 1943 shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the third fiscal year of the government commencing after the said cessation of hostilities and so on in respect of the refundable portion of the tax on income of successive years.
The date of the cessation of hostilities shall be deemed to be the date of a proclamation issued under the authority of the governor in council declaring that, for the purposes of the said refund the war no longer exists.
Mr. HANSON (York-Sunbury); The rate of interest to be paid on the refundable portion of the tax is 2 per cent. I believe the minister has partly anticipated the question I intended to ask when he says that the usual going rate on short-term obligations is 2 per cent.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: I am not
going to quarrel with that; I think perhaps the minister is right. The trouble is the indeterminable time of repayment. It seems to me that the time should be made a little more specific. Has the minister given consideration to that? The resolution reads;
That the refundable portion of any tax exigible under any enactment founded on these resolutions shall be repaid to the taxpayer or to his legal representatives, after the cessation of hostilities between Canada and Germany, Italy and Japan, and in the following manner:-
I assume that that means after the cessation of all hostilities, not just after the war with the German reich or with Japan.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: The resolution continues:
The refundable portion of the tax in respect of income of 1942 shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the second fiscal period of the government commencing after the said cessation of hostilities;-
That leaves a large discretion with the government, but I suppose they have to have it. The resolution continues;
-the refundable portion of the tax in respect of the income of 1943 shall be repaid at such times and in such instalments as the governor in council may determine but not later than
44561-281 i
the end of the third fiscal year of the government commencing after the said cessation of hostilities and so on in respect of the refundable portion of the tax on income of successive years.
Is it necessary to retain this money so long? If a man who has a refundable credit dies, his estate would be held up for at least two years after the cessation of hostilities. Provision should be made to cover such cases. This money might be necessary: to pay the succession duties on an estate. This money would be taxable for succession duties by both the province and the dominion. Could there not be a little more generosity with respect to the return of the 'money in cases of need? I realize that the amount to the credit of any individual taxpayer will not be very large, the highest amount in any one year being $1,000. If it goes on for, say three years, the amount would not exceed $3,000. Why should it not be possible to have a refund made sooner in cases of hardship or necessity?


James Lorimer Ilsley: There might be no objection to a provision that it shall be refunded in the case of death. Whether that should be discretionary with the governor in council or provided for absolutely can be considered.


Richard Burpee Hanson: I do not care how it is done. It is only the principle I am concerned with.


John George Diefenbaker: On page 45 of
the plan of Lord Keynes it is stated that provision should be made for the release of part of the amount of the compulsory savings for payment of death duties, and also for the purchase of new life insurance or endowment policies, but particularly for the release of such amount as may be necessary in the case of temporary emergencies to meet illness, unemployment or special family expenses. Taxpayers, particularly those in the lower income brackets, might very well find themselves unable to meet certain emergencies. The leader of the opposition has mentioned the difficulty that might arise from th.e fact that repayment is not to be made until after the war, and he mentioned that estates could not be wound up before this money had been received. I suggest that provision be made that in the case of the death of a single person there be a return to the estate of sufficient money to cover funeral expenses. Many people invest in war savings certificates because they know that should they find themselves in difficulty they will be able to cash them. I do not think many of these certificates have been cashed, but the fact that they can be adds to their attractiveness. I suggest that there be some amendment to
Income War Tax Act

provide that the individual may withdraw part or all of these forced savings in order to meet certain emergencies. I realize that there might be some difficulty in carrying this out, but possibly the power could be placed in the hands of the minister and the emergencies could be designated by statute. If that were done I think it would go a long way toward meeting objection to this legislation. The government based this system upon the Keynes plan, and, according to the author of that plan, in order that it may be workable there should be a provision for payment to meet unforeseen occurrences.


James Lorimer Ilsley: My understanding of the
Keynes plan is that it recommended larger payments to the treasury than we are providing for under this budget. Of course the larger the compulsory savings are, the more important it is to provide against hardship in emergencies. The amounts here are so small that a large part' of the reason for making provision for emergency disappears. When the British government adopted the principle of the recommendations they did not make provision for the return of money in this, that and 'the other emergency. I doubt whether we should do it here. We could go so far in trying to meet every possible emergency in the lives of individuals that we would forget the state. At the moment the state is the important unit, and the aim of the government is to take this money away from the people and keep it until such time as it would be better for the nation for them to spend it than it is at present. I do not think we should be too meticulous, when the amounts are comparatively small, in attempting to meet every emergency that may arise.


John George Diefenbaker: It is not a question of being too meticulous. The government is asking the people of Canada to make financial sacrifices never before equalled in the history of this countiy. The people are willing to do so, and all I am asking is that in case of emergency, consideration be given to the welfare of the individual to the end that no greater harm shall be done to the individual than is absolutely necessary to carry out the desires and wishes of the Canadian people.
With a view to having the whole picture I am going to ask the minister what proportion of the war savings certificates which have been voluntarily purchased by the Canadian people, have in fact been cashed. This would indicate whether any advantage is being taken by the people of the opportunity that is available to them. I am sure that no one in Canada, realizing, what the conditions are,

would endeavour to take advantage of the government were it to make such provision as I have indicated for emergencies that may arise.


James Lorimer Ilsley: I shall have to get that information.	.


John Ritchie MacNicol: The last sentence of resolution 8 reads:
The refundable portion of the tax in respect of the income of 1943 shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the third fiscal year of the government commencing after the said cessation of hostilities-
The fiscal year of the government ends on March 31. Suppose a proclamation bringing hostilities to a close is issued on April 15,
1945.	Would the three-year term then begin after March 31, 1945, or March 31, 1946?


James Lorimer Ilsley: The first fiscal year after the cessation would be April 1, 1946.


John Ritchie MacNicol: It would be after April 1,
1946,	that the three-year term would begin?


Richard Burpee Hanson: With respect to the date of cessation of hostilities, this provision would appear to be different from that contemplated under the War Measures Act. Should not that be criterion? The date of the cessation of hostilities is pretty well established in the War Measures Act and in the minds of the Canadian people, and I would have thought that that would be the proper date to use in this legislation. There would be certainty then. What is the objection to that?


James Lorimer Ilsley: The objection is that the date fixed under the War Measures Act does not necessarily coincide with the cessation of hostilities. The order in council passed under the War Measures Act sets the date of the cessation of hostilities for the purposes of the War Measures Act, which may be considerably later than the actual cessation of hostilities, as it was in 1918. The armistice took place on November 11, 1918, but the War Measures Act continued to operate until 1920, I think.


Richard Burpee Hanson: Until after the peace treaty.


James Lorimer Ilsley: It was not necessarily related to the signing of the peace treaty, if my recollection is correct, although I may be wrong. I have had occasion to give consideration to this problem twice before, one of the occasions being the introduction of the War Exchange Conservation Act. In that act is to be found a section something like this, giving the governor in council power to fix by proclamation the date of the cessation of

Income War Tax Act
hostilities for the purposes of the War Exchange Conservation Act. That date may be different from the date set under the War Measures Act. The other occasion was in drawing up the agreements with the provinces. There was considerable discussion between the provincial premiers and treasurers and myself as to what should be done. Suggestions were received, and finally a provision for fixing the date of the cessation of hostilities was drafted.


Richard Burpee Hanson: That is another date, apart from this one and the one fixed under the War Measures Act?


James Lorimer Ilsley: Yes. The provinces all have an interest in the date, and provision is made for calling a conference with the provinces to fix the date if there is any difference of opinion regarding it.


Richard Burpee Hanson: There
could not have been much unanimity about it.


James Lorimer Ilsley: It was important. No one can tell what the conditions in the world will be, and opinions will possibly differ as to the date of the cessation of hostilities. We did not think the provinces should be put in the position of being in the hands of the dominion. The dominion might wish to continue the agreements, or to terminate them, and therefore might arbitrarily fix the date too early or too late. Provision was therefore made for the settlement by conference of any differences of opinion between the dominion and the provinces.


Richard Burpee Hanson: Who is going to settle it if you cannot agree?


James Lorimer Ilsley: The final decision is left to the dominion.


Richard Burpee Hanson: It must be.


Mr. MAYBANK:: Is it the clear intention of the government, in connection with the refundable portion of the tax, to deny to the individual the ordinary right of assignability? Will the refundable portion be assignable or, on the other hand, will it be similar to war savings certificates, which may not be assigned? I do not know whether these refundables, if they were assignable, would be a very good purchase, but it does seem probable that as time goes on there will grow up a traffic in them. I know that in no case would the government be bound by such an assignment. If John Smith wants to pay off a $240 debt and assigns to me refundables to that amount, the government cannot be bound by that contract. I cannot come in and file the assignment and ask the government to pay the money. But as between
John Smith and me a binding agreement can be made, unless such a contract be clearly against public policy. I can make a contract with John Smith under which he will undertake, for the payment of the debt, to get this money when the proper time comes, and if he does not fulfil the contract, I can sue him for damages. I would have an enforceable contract. I might not have something on which I could realize-that is not the point -but the contract between John Smith and me would be enforceable so far as the judgment was concerned. Again, I could take some sort of pledge, or perhaps a bond, from him to ensure fulfilment of his contract of assignment. It would seem to me that the only thing to prevent that will be some clear declaration, if we can make it, that the assignment of these refundables is definitely against public policy; then the courts will not enforce any such agreement as I have been referring to. This will run on now for several years, and it ought to be clear whether it is non-assignable because of its being in the interests of the country to have it so.


James Lorimer Ilsley: These are not to be assignable. These certificates will be like war savings certificates, not transferable.


Ralph Maybank: How is that to be
prevented?


James Lorimer Ilsley: Well, if trafficking in these certificates develops in such a way that the holders of them are being taken advantage of, it might be necessary to take some steps or make some statement. I should not like to anticipate that so far in advance.


Mr. JACKMAN:: Are you going to issue them in bearer form?


James Lorimer Ilsley: No, they will not be bearer certificates. They will be receipts which will be redeemable by the government, but the government will owe the person himself and no one else.


Richard Burpee Hanson: They will be some form of evidence of indebtedness?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: The minister has not yet determined what form they will take.


James Lorimer Ilsley: No.


Richard Burpee Hanson: Will they not be as between two parties assignable in law unless it is prevented, but be a nonenforceable assignment against the crown? I think that would be a correct statement of the position.
Income War Tax Act


Ralph Maybank: They are unenforceable against the crown in any event.


Richard Burpee Hanson: I do not see how you can prevent their being assigned.


James Lorimer Ilsley: A chose in action is not assignable if it is unenforceable against the debtor.


Richard Burpee Hanson: Oh, yes; a chose in action is always assignable. Whether it is enforceable is another question altogether. But a chose in action is assignable as a general principle unless there is some statutory provision which prevents it.


Ralph Maybank: I think the minister will agree with this. We are speaking of this being a chose in action-this particular certificate or receipt or whatever it is. There is nothing to prevent John Doe from entering into a contract with me under which at the appropriate time he will ask for this money as evidenced by this chose in action.


James Lorimer Ilsley: Right.


Ralph Maybank: Unless it is definitely against public policy for him to make that contract with me, I can, by appropriate action in the court, enforce that contract. I do not know whether I can get a decree of specific performance; it would seem more likely that what I would get would be a judgment for damages if he did not keep the agreement.


James Lorimer Ilsley: In other words, you have no security.


Ralph Maybank: In other words, then, as far as we have gone, it is enforceable. I mean, as soon as you can get a judgment of the court you have enforced your contract. Now, getting away from the law and looking at the facts, you may not be able to enforce it because the fellow may not have anything, but that does not alter the fact that you have enforced your contract. Many a man enforces a contract to the point of getting a judgment; he has the very best thing that it is possible to have wherewith to get money, so it would appear. The only thing which would prevent that sort of proceeding would be some binding declaration, by this government-even though property and civil rights are involved I am inclined to think it can be made by this government-that it is definitely against public policy to make assignments of these or traffic in them in any way. Again, a contract of this sort can certainly be made: with the same man I can make an agreement such as I have mentioned and I can take a mortgage upon his home. That mortgage will contain a provision that unless he carries out that contract his mortgage will

be null and void. Likewise I can get other kinds of bonds from him. There is a great variety of ways in which I can deal with this man, and unless it is definitely against public policy I can have my contract enforced in court. All I want to do is to get the point settled.


Richard Burpee Hanson: Well, the
minister made it quite clear that as far as the government is concerned they are to be on the same footing as war savings certificates. I do not know that we can go much further than that. They will not be any good as collateral security. I think you have to deal with the matter in a practical way. The minister has made that statement, and so far as I am concerned I am not going to pursue it any further. But I want to ask him whether the refundable portion of the income tax, and also of the excess profits tax will be shown on the books of the nation as part of the net debt of the nation. As these credits are established, the obligation to repay increases, and the amounts should be shown as part of the general debt structure. That will be done, I assume?


James Lorimer Ilsley: Yes.


John George Diefenbaker: One question
arises out of what the hon. member for Winnipeg South Centre said. What would be the position of a person who went into bankruptcy and had a considerable amount of refundable moneys in the hand of the minister? Is any provision being made for a situation such as that? If not, there will be considerable difficulty should an assignment be made.
I should like to have a statement from the minister in reference to a suggestion I made a while ago, that in certain emergencies a person should be permitted to withdraw from the department a certain amount of the enforced savings.


James Lorimer Ilsley: The administrative difficulties would be very great. See the position the government would be in: it would have to set up some kind of welfare bureau to determine when a person ought to have his money back, and when he should not. That, in my judgment, is going too far. But I should not like to say that no consideration will be given to it.


John George Diefenbaker: What about the
question regarding provision being made in cases of bankruptcy?


James Lorimer Ilsley: I do not know. I shall have to think about that. These are not assignable. Somebody will have to wait until the

Income War Tax Act
time comes for the money to be returned. Whether that goes to the assignor or to the official assignee I do not know.


Richard Burpee Hanson: They would have to prove title. I do not think that the minister can undertake to legislate for every conceivable contingency, although bankruptcy is one of the probables. I should think that in the legislation the ministry might take discretionary authority to deal with a necessitous case on its merits. If that is done, the minister will be open to numerous applications, but perhaps it will be justified by the circumstances of the applicant.
The hon. member for Queens-Lunenburg has just drawn my attention to another aspect of this matter. Suppose a company under the Excess Profits Tax has $100,000 to its credit. If I understood the discussion which took place between the minister and one of the hon. members from the west, in which the latter read from a statement of an association of English chartered accountants, they do not in Britain list that in the company's balance sheet, as an asset of the company. I would have thought it was a correct item of asset in the company's balance sheet, but it may be that there is some limitation over there which we have not in our statute here. Is it not the intention of the government that this should be not only a credit of that company in the books of the nation, but an asset of the company which should be revealed in its balance sheet? On the assumption that it is $50,000 or $100,000, what is the effect of that credit, standing in the books of the nation and in the balance sheet of the company, with respect to earnings? Will it be taken into acount in respect of earnings under the income tax act as capital in reserve? What is the position there? Perhaps the hon. member would elaborate his position. It is an important point that ought to be cleared up.


Mr. KINLEY:: I have only one thought in mind, and that is that it be established as an asset of the company beyond peradventure. A company might have paid $100,000 or $50,000 in refundable taxes and it is important to know whether that is a real asset. There is this feature about it. The income tax payer gets 2 per cent on his money; the industrial company gets no interest on its money. It is important to know what your assets are in order to establish the stability of the company.


Harry Rutherford Jackman: The suggestions of the member for Lake Centre (Mr. Diefenbaker) are worthy of consideration. I agree with the minister that we do not want another welfare bureau set up, but there are certain points that might be considered in order to
stimulate savings, which the minister is so anxious to get. The minimum savings requirement is really an alternative for those who will not voluntarily subscribe to war savings certificates, and so in a measure the two are on all fours. The remarks I have to make refer particularly to war savings certificates, but by the same token they have reference to the minimum savings requirement. Industrial insurance is a very big factor in Great Britain and the United States, and to some extent in Canada. Very large companies sell insurance policies for a few hundred dollars, sending their agents around every week to collect a few shillings or so, and that is similar to the method we have of subscribing to war savings certificates by means of factory payroll deductions. I read in the Economist six or seven years ago that in the past the cost of operating these industrial insurance policies has been, even in the most highly regarded companies, as high as 50 per cent of the gross premium. It seemed an absurd situation for the protection afforded, but the appeal which was made to the workers, and to which they responded, was that they would have, enough money to ensure themselves decent burial. Hon. members may not realize, because of their own situation, just what is the fear of a person in humble circumstances of not being properly taken care of on his passing from this earth, but it is a very real fear on the part of a great many people, and that was the most compelling reason for the subscription to this industrial insurance, which amounts in the aggregate to hundreds of millions of dollars.
I believe a forcible appeal could be made through the war savings certificates and carried into the minimum savings plan, if they were made cashable on a person's death to pay for funeral expenses. There are perhaps other emergencies which might entitle them to be cashable. This may mean setting up a certain amount of welfare machinery in relation to the war savings certificate campaign which would also deal with the minimum savings requirement item, but it might be worth while to stimulate selling. It would result in raising money for the crown. We realize that war savings certificates are of definite short-term maturity, yielding 3 per cent, tax free. The minister, as a gesture towards having these made available for a person's death costs, might have a renewal clause inserted at the same rate or at a rate to be fixed at the time of maturity of the present. term, extending it a further ten or fifteen years, or for whatever period might best suit the case. If there is anything to be learned from the selling of industrial insurance
Income War Tax Act

policies, the same principle could be used in the selling of war savings certificates, carried through to the minimum savings requirement plan.


James Lorimer Ilsley: The suggestion will be considered. The war savings certificates are redeemable after six months now. If the holder dies his estate gets them.


Harry Rutherford Jackman: I believe that in the dominion there is provision for civil servants to take advantage of some fund to which they subscribe whereby they get a stated sum, $500, payable within twenty-four hours after the death of the contributor. Death is one of the great emergencies requiring immediate funds. Funeral expenses must be taken care of. The necessity arises in far more cases than those of us who enjoy middle-class circumstances realize unless we get into a humble riding, such as a part of mine is.


James Lorimer Ilsley: It would be impossible to set up an organization that would be prepared to cash war savings certificates within twenty-four hours after the death, of a person. It would involve the establishment of a large number of local offices.


Richard Burpee Hanson: It could be done through the banks.


James Lorimer Ilsley: I did not answer the leader of the opposition and the member for Queens-Lunenburg, who asked whether the returnable part of the excess profits tax will undoubtedly be an asset of the company. Subject to the one qualification that it is not to be negotiable, not to be assignable, or transferable, it is in every respect an asset. I have tried to make that abundantly clear. What the chartered accountants would say about it I do not know. I do not know why they do not consider the refundable part in Great Britain an asset.


Harry Rutherford Jackman: Certain conditions have to be specified in Great Britain and therefore it is a contingent asset.


James Lorimer Ilsley: That is what I surmised. The member for Redi Deer, speaking the other night, referred to an editorial in a chartered accountant's magazine in England which said that chartered accountants had decided not to regard the refundable portion there as an asset, and I felt that there must be conditions there not in existence here. This matter was carefully considered and I dealt with it fully the other night. Our first intention was to attach conditions, but of course the more conditions one attaches the less incentive there is, and I felt that we would have to stand on one principle or another. Either

this was the company's money or it was not. I have tried repeatedly to make it clear that this 20 per cent is the company's money.


Richard Burpee Hanson: There is one other condition, and that is that there shall be no indebtedness to the crown. That does not interfere with the question whether or not it is an asset. That goes to the question of refundability.


Mr. SHAW:: As I pointed out the other evening, I believe the explanation given in the editorial in the chartered accountants' magazine was to the effect that when the war is over the increased debts would necessitate parallel taxes which would increase the liability of a corporation to such an extent that this returnable part of the excess profits tax would be offset by that increased taxation. That is the only explanation they gave. Apparently the accountants of this country are going to regard the refundable part of the excess profits tax in the same light.


James Lorimer Ilsley: I listened as carefully as
I could to the passage which the hon. member read, and I did not take the meaning from it which he ascribes to it. I do not think that is what it means.


Mr. NICHOLSON:: I was disappointed to hear the minister say that consideration is to be given to the suggestions made by the leader of the opposition and the hon. member for Lake Centre to the effect that under some circumstances it might be possible for war savings certificates and compulsory savings to be made available at death or in the event of other emergencies. The minister should make it clear that this money will not be available to the individual until the war is over. I am disturbed by the large number of complaints made by hon. members when the minister proposes to change our normal way of living. It would1 be very easy if we could carry on as in peace time and still fight the kind of war that has to be fought. We must remember that ten years ago Hitler started to make drastic changes in the way of life of the people of Germany, and they have now become hardened. We have to make the changes very suddenly. This is one of the methods the minister is using to prevent inflation. It is unfair to ask the state to take the responsibility of looking after funerals, which would amount to making provision for the cashing of war savings certificates in the event of death; because everyone who had war savings certificates would naturally think that death in his family was an emergency. The minister should make it definite now that these amounts that the Canadian people are

Income War Tax Act
not going to be allowed to spend at the present time will not be available to them
until the war is over. I hope that consideration will be given to introducing changes so that the proceeds of war savings certificates will not be made available for the purchase of consumer goods while the war is on.


James Lorimer Ilsley: I am disposed to agree with the hon. gentleman who has just spoken. He has the same approach that I have. The only reason I said consideration would be given is that I hate to take the responsibility, when serious suggestions are made, of abruptly dismissing them and saying I will not give them consideration.


Richard Burpee Hanson: These proposals are not made for the purpose of confusing the issue. They are real cases.


James Lorimer Ilsley: Some questions were asked about war savings certificates and redemptions. Sales to December 31, 1941, amounted to 3110,890,104. Sales to June 30, 1942, amounted to $154,242,804. Six months has elapsed since the sale of the war savings certificates making up the former figure. Therefore they are subject to redemption after June, 1942. Redemptions up to June 30, 1942, have been $8,701,488. The percentage relation of that figure to $110,890,104 is 7-85. The sales during 1942 were not subject to redemption until after June, 1942.


[Stage Direction]
Resolution agreed to.
9.	That the refundable portion of any tax paid by the taxpayer in the twelve months preceding the first day of September in any year shall bear interest at the rate of 2 per centum from that date and shall be payable when the refundable portion is repaid.
Richard Burpee Hanson: The rate of interest is 2 per cent. The minister previously stated that the rate was based on the going value of short term money. The rate on war savings certificates is substantially better, and they are refundable and not taxable.


James Lorimer Ilsley: They run for seven and a half years.


Richard Burpee Hanson: But after a certain period they bear some interest.


James Lorimer Ilsley: At a lower rate.


Richard Burpee Hanson: That may be the answer.
While I am on my feet I should like to ask a question that is not related to this resolution but which I should like the minister to take into consideration and answer some time before these resolutions are reported. What
progress has been made in fixing standard profits for depressed industries? I have been told that the board of review has not adjudicated upon even one-third of the cases before it. If that be so, should not some additional agency be created to speed up the work? Predicated on that statement the situation is very disturbing to those concerned. If there are several hundred such cases and they do not know what to do until their standard profits are determined, it is unfair to them. The question may be based on an entirely erroneous impression, but I should like to have some statement as to the position at a later stage.


[Stage Direction]
Resolution agreed to.
10.	That where, under any existing or future contract or arrangement, a capital or principal sum is payable by instalments or otherwise, without providing for interest, or with interest at a nominal rate only, the minister in his sole discretion may by regulation or otherwise determine what part of the capital payment represents interest, which shall be deemed to be income for the purposes of this act;
Richard Burpee Hanson: This provision seems to me to vest an arbitrary authority in the minister. In the case of a mortgage it would depend, I should think, on the terms of the contract. In the old-fashioned mortgage that we country lawyers used to draw there was no amortization scheme or anything. One contracted to hire say $10,000 at 5 or 6 per cent, payable half yearly for a specific period of time. There no difficulty would arise. But under the very elaborate system of mortgages that the loan companies use, the repayment of principal is spread over a period of years. The same is true, I think, under the housing plan sponsored by the dominion government a few years ago. What is contemplated here? Is it to be based on some arbitrary arrangement, or will the contract itself be taken into consideration? Under these instalment mortgages an accountant or actuary should be able to spell out exactly what is meant and arrive at it with mathematical certainty. Here it is left to the minister, and I do not think he ought to be given full authority. There would be no appeal, in any event.


Mr. GIBSON:: The object of this section is to close the door to tax avoidance, which is possible when arrangements are entered into whereby payments of capital are made without interest being paid at all. Cases of the kind have come to light, and it is to provide that a fair rate of interest will be deemed to be included in those payments, so that a man may not buy a property and

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over a period of ten, fifteen or twenty years pay so much in the way of capital payments, without interest.


Richard Burpee Hanson: We will say in the case of a family arrangement, or a business?


Colin William George Gibson: Well, when a purchaser is buying property and possibly paying a slightly lower price, paying it all in capital payments, because the vendor will not have to pay income tax on the mortgage interest. In that case he might be willing to accept a slightly lower sum, in order to avoid the payment of income tax.


Richard Burpee Hanson: That
would be a system of tax evasion?


Colin William George Gibson: Yes, and the resolution is to provide for that.


Alfred Henry Bence: Does the minister mean to say that he will arbitrarily fix a certain proportion of the capital payments, which will be taken to be interest, even though there is no actual calculation of interest at all?


Colin William George Gibson: Yes.


Alfred Henry Bence: As I understood the case the minister mentioned a few moments ago, when the vendor of a piece of property receives only capital payments, of course he does not have to pay any income tax thereon, nor does the man making those payments. May I suggest in connection with real estate that the tax calculated should be on the income from the property, presuming the property is in use? A building may be purchased under an agreement of sale and no interest charged, it being merely a capital expenditure payable over a number of years; nevertheless that property is itself earning income on which income tax can be charged. It does seem to me wrong in principle to say that merely because a man decides he shall not have interest on his capital investment, the minister may arbitrarily charge interest or say interest is chargeable on it.
May I ask the minister another question. Would this section be applicable to dominion government annuities, for instance, where a capital sum is repayable over a number of years, either for life or for a term certain? Would that be separated in the same way, so that we might tax these annuities?


Colin William George Gibson: They are taxable.


Alfred Henry Bence: Yes, but by way of both principal and interest, because, as I understand the reason, prior to this it was difficult to determine the amount that should be put
in for interest and the amount that should be (Mr. Gibson.]
put in as return of capital. If the minister is given this authority, will he be able to say in connection with these annuities that a certain portion is the repayment of capital and a certain portion is deemed to be interest? Will he be able to segregate these items in such a way that income tax may be charged only on the interest, as I think it always should have been charged?


James Lorimer Ilsley: These are such interesting
matters in theory that the discussion just goes on and onr but I cannot help discussing this matter a little. Let us suppose there is the sale of some real estate for $10,000, the amount being payable in ten annual instalments. That, I think, would be held to be not an annuity; it would be held not to be the exchange of capital for income. If property of a different kind is bought, such as a dominion government annuity contract, I think that would be held by the courts to be an exchange of capital for income. To draw the line between the two classes of transaction is very difficult. There are a great many English and American cases, and probably Canadian cases as well, drawing a distinction between the exchange of capital for capital, and the exchange of capital for income. If the transaction in its true nature is an exchange of capital for income, the income is taxable in England and is taxable here. But if it is merely an exchange of capital for capital, as I think would be held to be the case if I sold my house to the hon. .member for $10,000 payable at the rate of $1,000 a year, then that $1,000 a year is not taxable. That would be the way for me to sell the house when income tax rates are very high, because then I would be avoiding the payment of income tax, though essentially neither of us ever intended that I should go without interest on the money that is unpaid. It is absurd to think that I would. I have charged the hon. gentleman $10,000, payable in ten annual instalments, instead of perhaps $7,000 with interest on the unpaid balance. But had I charged him $7,000 and interest I would have to pay income tax on the interest as it came in year by year. This provision is designed to prevent a practice of tax avoidance which is beginning and which undoubtedly will spread if we do not assume that in a certain class of transaction there is an element of income in the money received by the vendor.


Mr. GREEN:: The Minister of National
Revenue said that an example would be that of a man selling his land at a lower

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price than it was really worth. But the Minister of Finance says it would be the opposite.


James Lorimer Ilsley: He could afford to make a
discount because of his avoidance of the income tax. The hon. gentleman is talking about one thing; I was talking about another.


Joseph Henry Harris: Where the
mortgagor might voluntarily forgo interest payments, for the purpose of keeping the tenant or mortgagee in possession of the premises in order to secure the maintenance of those premises, and where the payments would be sufficient only to look after depreciation and the lowering, in value of the property, as I view it there is nothing in this provision to force the mortgagor to write into his assets interest which he never expects to collect. There is nothing in this provision to force the mortgagor to write up the interest which would ordinarily be payable, if the concern were a going organization? There is nothing to force him to write up interest which he never expects to collect?


James Lorimer Ilsley: No.


Joseph Henry Harris: He cannot be
forced to write up interest which he never expects to collect and which really is not in the property? That is clear?


James Lorimer Ilsley: Yes, that is clear.
At one o'clock the committee took recess.
The committee resumed at three o'clock.


Harry Rutherford Jackman: This resolution gives the Department of National Revenue wide powers to look into existing or future contracts where part of the money that the taxpayer receives is in the form of income. It is merely for the purpose of assuring the taxpayer what his position is that I speak. I have in mind particularly the soldier insurance contracts issued during the last war. The quickest time in which a beneficiary can get the money is over a period of five years. Part of those payments are in the nature of interest. I suppose there are many forms of fraternal benefit contracts as well as contractural rights under insurance policies where you have a similar clause. There is no lack of bona tides or attempt to evade taxation, yet strictly speaking a small amount of interest is contained in the amount which a person may receive. I think there should be certainty in this regard and perhaps some consideration will be given to naming more specific types of contracts.


Mr. McNIVEN:: As I understand it, since June 15, 1940, annuity contracts issued by the dominion government have been subject to taxation. Recently I was consulted by a client who had a dominion government annuity issued prior to June 15, 1940, another government annuity contract issued subsequent to June 15, 1940, and also an annuity contract issued by an insurance company. The first contract issued prior to June 15, 1940, was not subject to taxation, but the second one issued subsequent to that date was. The insurance company annuity was subject to taxation only in so far as interest was concerned. It seems to me that a dominion government annuity contract should not be placed in a less favourable position than an annuity contract issued by an insurance company. Would the minister have power under this section to remove that anomaly?


James Lorimer Ilsley: I shall look into it. I did not know that any distinction was made at the present time, and I am surprised to hear that there is.


[Stage Direction]
Resolution agreed to.
On resolution 7 as amended:
Richard Burpee Hanson: The
amendment extends the items which were intended to be included in subsections (a), (b) and (c) of section 7, subsection 1, and it enlarges the scope somewhat. I am glad to see that the minister has included as deductible the premiums on life insurance policies which may be put into effect after June 23, 1942, but I suggest that the extension is very limited. It limits the amount to $100 a year. Does not the minister think that that is a cheese paring concession? I have had a flood of letters from young people, especially young officers who want to provide some protection for their families. They will be hit pretty hard if this exemption is limited to $100. I suggest that the minister enlarge the scope to include other types of insurance and to increase the amount. I do not blame him for not allowing more than 50 per cent of the first premium. The other 50 per cent is said to be the agent's commission. I doubt whether the commission to a life insurance agent on a policy issued under the whole life plan runs to 50 per cent, but I am not sure. Subsection (a) of the new resolution reads:
(a) payments into any approved superannuation, retirement or pension fund or plan established prior to the 23rd day of June, 1942 (or, if established subsequent to the said date, approved by the Minister of National Revenue), and paid by the employee as a term of employment or in connection with membership in a trade union.
44561-282 J
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The phrase "as a term of employment" has a limiting effect. I suggest that the minister could have let this apply to payments into any approved superannuation, retirement or pension fund or plan, and omit that limitation.


Mr. COTE:: As I understand this resolution, only the taxpayer living in a property which he owns is entitled to deduct principal payments on his mortgage from his compulsory savings. Will the owner of a duplex who is living in one of the two sections be treated the same for compulsory savings purposes as he is for income tax purposes? I understand that the owner of a duplex who occupies one half is allowed only half the charges on the property for income tax purposes. Will he be allowed to offset the principal payments he makes on his mortgage against his compulsory savings tax to the full amount or only half?


James Lorimer Ilsley: The full amount.


Louis Côté: That is, the owner of an
apartment building containing twenty-five or more apartments will be allowed the full amount of his principal payments?


James Lorimer Ilsley: Yes, up to the limit provided in the tax. He cannot deduct an unlimited amount.


Louis Côté: He can deduct up to the
amount of the compulsory savings? I point this out because it seems to me that justice is not being done to the small property owner. In my riding most of the small property owners are wage earners who have invested their savings in small properties. If they have two properties and do not inhabit either of them, they are not entitled to deduct anything from their compulsory savings because they do not reside in either of the properties.


James Lorimer Ilsley: That is not correct. I may have misled the committee this morning. An offset is allowed of the payments on one residential property whether the taxpayer lives in it or not.


Richard Burpee Hanson: I thought residence was a condition precedent.


James Lorimer Ilsley: I thought so myself.


James J. Donnelly: Does that apply to a
farm in the same way?


Louis Côté: The owner of a very large
apartment house would be deemed, then, to have a residential property for the purposes of this section.
I should like to make a few remarks for the benefit of the class of taxpayers whom I would call small property owners, and who I think are the soundest part of our middle-class society. Consideration should be ex-

tended to them in the case of a second or third small property which they may own. During the last depression this class was decimated; many small properties under mortgage were foreclosed because principal and interest payments were not met and those who survived the depression did so only by increasing their mortgage in order to get sufficient capital to meet the carrying charges on their property. Consequently they have had no chance to improve their position. They find their incomes frozen to-day by the price ceiling which the war time prices and trade board has imposed on rentals, which have been based on the level of last October, but there is no such ceiling on the charges on the property, and municipalities and school boards have all the necessary power to increase property taxes. Nor has the interest rate on mortgages been frozen.
In passing, may I suggest to the minister that something should be done along that line. I know a great many small property owners in Verdun and Montreal who have to pay up to 7 per cent interest on mortgages. It is within the jurisdiction of the government to fix a level for interest rates, and I plead especially that the interest rate on. mortgages should not be higher than 5 per cent. A ceiling should be put on mortgage interest.
As I have said, the situation of the small property owner is not very good. His rental income has been frozen at a certain level, while the charges on the property keep on increasing. Some consideration should be shown to this class of society. I do not know what would be the best way of meeting the situation, but I feel that some alternative should be provided in this section. One would be to provide that principal payments made on a mortgage on one or two or three small properties up to a certain limit of municipal valuation may be deducted from the compulsory savings tax. The small property owner with a certain equity in two or three properties, say of a total value of $25,000, would then have the same treatment as the owner of a big apartment house the value of which may be as high as $100,000. For these reasons I ask the minister to keep this class of taxpayers, the small property owners, in mind when considering paragraph (c) of this resolution,.


Douglas Gooderham Ross: I should like to add a word to what I said this morning, because I think the minister has overlooked one consideration, in connection with life insurance, and to me this seems the most important of all classes of savings. I quite appreciate what the minister says, that to extend paragraph (b) to include premiums on new life insurance policies would give an

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impetus to the selling of life insurance. But I know of nothing that has more merit than the taking out of life insurance. The money paid in life insurance premiums is the soundest sort of savings. Once a man gets a life insurance policy he hangs on to it as long as possible; it is the last thing he will let go. After all, the government will get the money it requires from life insurance companies through the purchase of bonds and through borrowing. It is only a matter of one per cent difference in the interest rate. I do not think it is right to discriminate between people who have already taken out life insurance and those who have not yet had the opportunity of filling their budget so far as life insurance is concerned, especially when they are people who are extending themselves as far as they can in this war. If they happen to die the government is going to take their money from them in some form or another, and if they have no life insurance they will have no cash left. I cannot emphasize that too strongly. Many people seem to think that life insurance companies are a kind of great big octopus, but as a matter of fact the life insurance companies are performing a public service par excellence, and the life insurance agents deserve a great deal of credit as well. I cannot refrain from condemning this discrimination which is made by this legislation.


Mr. FRASER (Peterborough West):: Paragraph (b) says:
(b) premiums on life insurance policies or annuities or other instalment saving contracts of a type which in the opinion of the Minister of National Revenue

And so forth. Would that include contracts for victory loans which have been made with different firms that a man works for? A number of workers have taken out contracts with their firms that they will buy so much in victory loans during the year; they are paying $5 a week or $10 a month. If those are not included, these people are going to feel the pinch.


James Lorimer Ilsley: They are not included.


Gordon Knapman Fraser: Well, do you not think they should be, just for this year?


James Lorimer Ilsley: No, I do not think so.


Gordon Knapman Fraser: "Annuities"; that will include government annuities?


James Lorimer Ilsley: I am doubtful if government annuities will qualify.


Gordon Knapman Fraser: Well, what annuities will qualify?


James Lorimer Ilsley: Those that cannot be postponed without substantial loss or forfeiture to the taxpayer.


Gordon Knapman Fraser: No matter what annuity you have, when you stop payments you are going to lose money on it.


James Lorimer Ilsley: No, not government annuities. You can pick them up any time.


Gordon Knapman Fraser: Yes, people may pick them up any time, but does the minister think they will?


James Lorimer Ilsley: Well, I don't know about that. A lot of people do.


Gordon Knapman Fraser: This tax will have to continue for some years. There are also investors' syndicate contracts.


James Lorimer Ilsley: The test is laid down here: it will be whether the premiums can be * postponed without substantial loss or forfeiture to the taxpayer.


Gordon Knapman Fraser: Well, would it cover them?


James Lorimer Ilsley: That is a matter for ruling by the Minister of National Revenue.


Gordon Knapman Fraser: Does he know?


James Lorimer Ilsley: He will when he reads the contract. He will know better after reading the contract than I would know without reading it.


Alfred Henry Bence: The amendments which have been proposed by the minister meet the greater number of the objections which I have held with respect to this section. I am not at all satisfied, however, with the language which is expressed in paragraph (c) with respect to the matter of residential property, or with respect to the statement which was made this morning by the minister, as I understood him, that if the mortgage covered residential property it would extend to any other property which that mortgage happened to cover. I know of many cases where residential property is covered by a mortgage which also covers a number of sections of land. Under this provision, as interpreted by the minister, the taxpayer will be allowed to make the entire deduction within the limits.


James Lorimer Ilsley: That is right.


Alfred Henry Bence: I have no particular quarrel with that. But a man may own a farm, having no other occupation, and having no residence on the particular farm. A man may happen to live in the limits of a village; his farm adjoins the village, and his buildings
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are on the farm, but he has no residence on it. Under the provisions of this section that would not come under the interpretation of "residential property", because he has no residence on his farm.


James Lorimer Ilsley: That is correct.


Alfred Henry Bence: He should be entitled to
the reduction far more than a man whose mortgage happens to cover his residential property and, say, ten sections of land.


James Lorimer Ilsley: Ordinarily this is not intended to cover investments in mortgages as a business investment. In the great majority of cases it will apply to a man's own residence, not to property in which he has invested.


Alfred Henry Bence: According to the statement which the minister made this morning it would, in some cases. But I am not so much concerned about that as I am about the man who has a small farm and does not happen to have a house on that farm, so that he rents at a nominal figure a house in an adjacent village; yet his whole farming operations are carried on at this particular farm. Surely some adjustment should be made in his case; he is just as much entitled to it as the other man.
Will the minister explain to the committee the principles underlying the decision which governed his conclusion that insurance policies should be restricted to those on which there is a premium of $100? It seems to me the reason why he brought this in was that he wanted to give people the opportunity of taking out a certain amount of protection for the sake of their families or their families to be, and he reached the solution, I assume through means in which the Department of Finance is interested, by limiting the actual amount which can be deducted under this refunding, proposition. But if he carries out his principle to the logical conclusion he should have determined it on the face value of the policy on the whole life plan, because after all a man of twenty-five can purchase much more insurance with his $100 than a man of thirty-five or a man of forty. If he carried out his principle to its logical conclusion he would have decided that $5,000, say, was a fair amount of protection, and a man would be entitled to take out that amount of insurance and deduct the premium which was chargeable on the whole life plan.


James Lorimer Ilsley: That may be logical. It is complicated; I do not know how it would be stated. The rates would be different for different companies; one could not say.


Richard Burpee Hanson: It is the same plan.


James Lorimer Ilsley: Well, I don't know. They
will vary.


Harry Rutherford Jackman: The more expensive the plan the more savings element there is in it.
If I may say so, I think that this amendment to resolution 7 is much worse than the original draft, although the original draft required in my humble opinion certain changes. I do not know what the philosophy of the minister is behind this whole minimum savings requirement in respect of resolution 7. I assume that where the taxpayer is saving money, which in turn goes for the most part to the government, as it does under insurance policies and many annuity contracts, the taxpayer is to be given some allowance for that saving, because he cannot save on every hand, and it works an injustice on those who have been provident and who have contracts or are about to take out contracts, as against others who do not do any saving of their own but in their old age throw themselves on the community for relief. I think that the minister should take a more liberal attitude in regard to the savings of individuals.
I was struck by the suggestion of one of the two ministers that payments under a dominion government annuity might not be considered part of the minimum savings requirement. Here is a case where the money actually goes from the individual direct into the treasury of the dominion, and yet it has been suggested that such payment will not be allowed as an offset against the minimum savings requirement. The minister owes a great deal to the policyholders in insurance companies, because that is where he has to look for a large amount of new money to help finance the war. He should do what he can now to stimulate that, because the war, in the opinion of many of us, will last for some years yet, and he will have his accrual of income next year, with all the pressure that insurance companies exert to keep up their collections. He should be very thankful indeed for the premiums which are payable now by reason of contracts entered into in years gone by.
That argument does not bear so strongly on the case of a man who buys a house and perhaps gives a mortgage back when he does it, but nevertheless pays money over to some person else, and that money is at least theoretically available for investment in government securities. I think of one case where a house was sold and the total purchase price was paid in cash. To-day that money is awaiting investment in government bonds, because, in the opinion of most of us, owing to taxation measures, controls, et cetera,

Income 'War Tax Act
government bonds are the only security in which one can have any confidence at the moment. So that even where a house is purchased, money is released which will be available for investment in government securities, and the government will get it-which is the prime object that the minister must surely have in mind.
With that general background I wish to discuss paragraph (a):
Payments into any approved superannuation, retirement or pension fund or plan established prior to the 23rd day of June, 1942 (or if established subsequent to the said date, approved by the Minister of National Revenue). . . .
Is it not sufficient to leave the first part of the clause, namely payments into any approved plan, and delete the cut-off date? What is added by it, under any legal interpretation? Going further the paragraph says, paid as a term of employment. Most of the large companies that have a superannuation or annuity plan dislike inserting a provision in the employment contract that employees must subscribe to or come under the terms of an agreement as a compulsory measure. There are always one or two per cent of the people who do not want to come under any compulsory scheme, while 98 per cent are more than delighted to take advantage of the opportunity which the large companies provide. If you make it a term of the policy you imply something which is binding, and you make more difficult unanimous endorsement of it by the employees. As the minister knows, no person likes being told that he must do a certain thing.
I am also told that the unions do not like to have employees told what they should do about saving money. They do not object to employees coming under a superannuation or annuity scheme with a corporation with which they work, but in the United States this has caused a great deal of trouble where there has been an element of compulsion. In the original draft it was provided that the amount should not be repayable during term of employment. That has been withdrawn in the amendment as submitted, and I think it was a good change, because there are times when even those who would like to adhere to the savings plan which the company has in vogue are faced with an emergency in which they require money in a hurry. I suggest that in paragraph (a) all the words be struck out after the word "plan". It must be approved by the department, and that should be suffi-cent protection.
As regards paragraph (b), "premiums on life insurance policies or annuities or other instalment saving contracts of a type which in the
opinion of the Minister of National Revenue are such that the premiums cannot be postponed without substantial loss or forfeiture to the taxpayer," that changes the whole aspect of the proposal as contained in the original budget resolution. Is everyone who holds an insurance contract to have to request the Department of National Revenue to pass upon it? I do not suppose the ordinary insurance policy will be greatly prejudiced if the policyholder lets it ride two or three years. Many of us during the depression had to let many policies ride because we could not meet the current payments, but we took them up afterwards and paid interest on them. We paid six per cent compounded, but that did not destroy the effective value of the policy. The paragraph goes on "and one-half of the first year's premium, and the whole of subsequent years' premiums, on life insurance policies of a type not more expensive than insurance on the whole life plan." I understand the reasoning for the one-half of the first year's premium. Personally I should not have advocated anything more than this, or I might say that I should not have been dissatisfied if the minister had said the first year's premium. It should be borne in mind however that these life insurance agents are going to keep on. They will get their living out of the insurance business, and it is sufficiently good to support them. I do not know that it is necessary to put in the one-half, but I raise no particular objection to that. But it says the type of insurance must be no more expensive than the whole life plan. I fail to understand the reasoning of the department in putting that in. When you take the whole life plan, or cheaper plan, you are paying the minimum amount of premium in the form of savings. It is the pure risk of death which you pay for. When you take out an endowment policy the major part of the premium is really a savings contract, and that is what the government wants. It wants money which will in turn flow into the treasury through subscription to victory bonds. I do not understand the reason for the restriction as to insurance costing not more than the life plan.
Then we come to the bottom of paragraph (b) where it says it shall not exceed $100. That is an unnecessary limitation. It fails to provide very much insurance, and many young men who are entering the services will want to take out policies for more than that, particularly when, as mentioned this morning, $100 will not carry very much insurance, when you have to pay a very high percentage to-day to include the war risk in it. I see no reason why there should be a limitation of $100. It should be whatever the minimum
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savings requirement is on the man's income, which in most cases will not amount to more than a few hundred dollars at the outside.


James Lorimer Ilsley: To begin with, the phrase "term of employment" is not very accurate. It is not intended to meet a condition of employment. It is intended to cover cases where the employee would not qualify for participation in the plan unless he were in fact an employee.


Richard Burpee Hanson: It is an unfortunate expression.


James Lorimer Ilsley: Yes. There was a struggle over the language. First it was "condition of employment" and then "term of employment". The idea was to get away from condition of employment. All that was intended was that the plan must be participated in by employees as such; that is to say, they would not be able to participate in the plan if they were not really employees.


Richard Burpee Hanson: That will be taken care of in the bill?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: That is satisfactory.	-


Harry Rutherford Jackman: Why the cut-off date?


James Lorimer Ilsley: In regard to (b), the hon. member is right in construing the language as he has, but there again it was intended that it should be read as if there were a comma or a semicolon after "policies" in the first line, so that the words "of a type" and the words which follow qualify annuities and other instalment saving contracts alone, and do not qualify life insurance policies. In other words, we have not whittled down the terms of the resolution as found in Hansard and in the ways and means resolutions so far as life insurance policies are concerned.


Harry Rutherford Jackman: It does not apply to life insurance policies?


James Lorimer Ilsley: No. The words "of a type which in the opinion", and so forth, are not intended to apply to or qualify life insurance policies. They are intended to qualify annuities and other instalment saving contracts. The clause is to be read as if there were a comma or semicolon after "policies".


Harry Rutherford Jackman: It does not include dominion government annuities?


James Lorimer Ilsley: No.


Harry Rutherford Jackman: And yet the money goes to you.


James Lorimer Ilsley: May I deal with the other points of detail. The suggestion made by the hon. member, and also by the hon. member for Saskatoon City, is that instead of looking at the amount paid by way of premium one should look at the amount of insurance. But that would mean that the income tax department would have to go behind the receipts and ascertain whether they actually represented premiums on more than the amount of policies permitted, which would give rise to administrative difficulties of considerable importance, of which there are going to be plenty anyway. I do not think we can go too far into making these provisions logically complete and correct in every particular when administrative difficulties are thereby multiplied. This $100 provision is reasonably good for the average person.


Harry Rutherford Jackman: Is the reason for the
dominion government, annuity 'being excluded, that 4 per cent is allowed on it? Or is there a more general reason?


James Lorimer Ilsley: The reason is that which I stated-that the contract is such that there is no penalty for dropping the payment for a number of years.


Harry Rutherford Jackman: It is forming a good habit, though, which does the government a lot of good.


James Lorimer Ilsley: But there is no substantial loss or forfeiture to the taxpayer.


Harry Rutherford Jackman: That idea of substantial loss or forfeiture was not in the original draft. It must have been a belated thought on the part of the department. No one else would think of it. Why is that brought up now? It seems to me unfortunate and unreasonable.


James Lorimer Ilsley: It is not a belated thought. I mentioned it in the budget speech. That brings me back to the difference in principle between my hon. friend and myself. He is off on a different tack altogether from the one I have taken. In the budget speech I said-Hansard, page 3580:
Allowance is to be made, however, in this refundable portion of the tax for certain types of savings already being made by the taxpayer under contract, which the taxpayer cannot cease making without substantial loss or danger.
That is the principle which underlies this whole clause. We do not mind getting this money, apart altogether from stimulating the laudable habit of saving. But if we permit every kind of saving to be used as an offset we shall not get any money. While that may be my reason in part, hon. gentlemen last night wanted to know how we were going to

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finance the war. This is one of the ways. The reason we are making these concessions to the taxpayer is that we felt there would be some person who would already be loaded up with obligations to save, obligations which perhaps they could not continue, or not wholly, unless we made some such concession. But let us not proceed on the assumption that no one shall save anything over and above the total amount provided for by this budget. The Canadian people have to save more than the amount of their taxes and these compulsory savings if the war is to be financed.
I am afraid that a good deal of the discussion has gone on the assumption that unless certain savings were allowed as an offset they would no longer be made. A great many have to make savings in addition, even if they have no offset at all. They will be expected to pay their taxes and pay this refundable tax and make savings over and above that. This is not intended to be a list of worthwhile savings, all of which will be allowed as offsets because they are worth while; it is only intended to be a list of the obligations which cannot be dropped without serious loss and danger to the taxpayer. We have tried to keep it to that.
We have made an exception in favour of the young man who wants to insure his life. Strong pleas have been made that there are powerful social reasons why some insurance, some protection is desirable. It may be that we have got mixed in our principles a little there; I do not know. But I do not see how in the total there is any sacrifice of savings feature in the payment of premiums on ordinary life policies as distinguished from endowments. In endowments more money comes back to the person who actually pays it in; in the case of ordinary life policies it comes back to the estate. It may not come back to the same person, but it comes back in the same proportion, or practically the same, as the other.
Mr. ROSS (St. Paul's!: I agree so far as that is concerned, but there is another point. There are many people who might not be able to get insurance on the whole life plan because of physical disability. That is why I do not like this $100 clause. It certainly is discriminatory. One man, on account of disability, might have to pay a much higher premium than he otherwise would.


John George Diefenbaker: There is one administrative difficulty that I should like to take up with the minister, in connection with deductions that will be made from the pay envelopes by the employers, beginning in September next. According to the Canadian
Press of July 9, as a result of some conference that took place between the commissioner of income tax-


James Lorimer Ilsley: May I interrupt? This is a very important subject and it comes under resolution 25. I must ask that the discussion of this matter be deferred until we come to resolution 25, when my colleague, the Minister of National Revenue, will make a statement.


Mr. DUROCHER:: I concur in the remarks of the hon. member for Verdun so far as taxpayers are concerned. I am not fully conversant with real estate conditions throughout the country, but I am familiar with those in my own town. What he has said about taxes having been increased in Montreal and Verdun is quite true. We had a revision of real estate values in Montreal a short time ago, and while some assessments are down, others are up, and some have to pay more this year than last. Besides, the rate of interest has not been adjusted. This is a matter we tried to adjust some time ago with the federal government, and we were told that it was under the provincial government. We went to the provincial government and tried to have the rate made 5 per cent, and from them we got just the opposite answer-that this was a matter for the federal government. So that for a time we were between the devil and the deep sea. But the Minister of Finance has given us a loophole now, and we want to take advantage of it. Since we have mixed up in provincial affairs to the extent of telling our people that they shall not do this and that, and in particular that they must not raise their rents, it seems to me we could tell the trust companies and the money lenders that they must adjust their interest rates to a certain level, which I think should be 5 per cent. This would be only fair for the small property owners who in 1932 and 1933 were asked to make all kinds of sacrifices because poor people could not pay their rents. All organizations, government as well as private, were clamouring that we should be human, that we had to be Christian. We were human and we were Christian, and we kept for months tenants who could not afford to pay their rents. But there was humanity on the one side only those to whom we owed money, or the governments to which we owed taxes, did not, I am sorry to say, show much sympathy for the small property owners. Some of them suffered to the extent of losing all they had, the savings of a lifetime, and they were put out of their houses. That was accepted all right; no one made any great protest. Now something else has come up; just when we might have a chance of breaking even, we are stopped by the price ceiling. We do not
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object very much to that, but if you can put a ceiling on rent we ask why you cannot adjust the rates of interest at the same time so that at least we may make both ends meet. Just now we cannot do that, with the heavier taxation.
School taxes are also higher, and municipal taxes have gone up. We have to be satisfied with a limited revenue, and after meeting our expenses we do not receive the legitimate returns which those investments should bring us. As a matter of fact I do not believe there is a property owner in Montreal to-day, especially among the small property owners, who can realize three per cent on his investment. Everything goes for taxes, repairs and other expenses. Some of us have been fortunate enough to be able to renew mortgages with trust companies, but in such form that we are not left anything in liquid assets. As hon. members are well aware, we can make new arrangements, but every trust company, every insurance company with whom we have to deal, I would not say exact their pound of flesh, but at least exact quarterly payments, so there is not a small property owner who has five cents in the bank as revenue from his property. We have to pay out the money often before we get it in. Most tenants are paying their rent in a legitimate and regular way, but many of them got far behind during the depression; they owed so much to the grocer, the butcher, and in other ways that we are getting only very small amounts against arrears, which are not much help to us. So that while we are well pleased with this provision in paragraph 7 (c), I again ask the minister whether he could not use the same instrument that he iis using in connection with the price ceiling on rent in order to put a ceiling on interest rates as well. Such rates should be in accordance with the revenue from the property, and in no case should be more than five per cent. I understand that the provision now under consideration applies to only one residential property. Often people will buy two or three adjoining properties, but I understand that this provision applies to only one.


James Lorimer Ilsley: Yes.


Eugène Durocher: And the other two do not come under it?


James Lorimer Ilsley: No; not the second or third.


Eugène Durocher: In that way some of
these' people are hard hit. They will not get any more revenue from the second and third properties, but they will have greater expenses. I support the request of the hon. member for Verdun that this matter be looked into and some help given, if possible, to the small landlords, particularly those in Quebec. 
We have heard a good deal abut Quebec being different from the other provinces, and in some respects that is so. In Ontario there is a moratorium which is still in existence, but the moratorium in Quebec will not operate after September 1. Then we will be called upon to pay the full amount of our mortgage, or at least a substantial portion of it. I know that I tried to obtain a renewal of some mortgages from firms that have previously lent me money on property, but they were not prepared to grant those renewals unless I could pay quite a substantial sum of money. We cannot pay more than we earn; and with the high taxes we will be called upon to pay this year-with which as a general rule people are not finding too much fault-[DOT] we shall not be able to pay other things. We should receive assistance from the government in this respect, so that we may not lose the savings of a lifetime.


Mr. FAUTEUX:: I concur in the remarks of the hon. member for St. James. I have received representations from many people jn my own constituency, which adjoins that of St. James. As has been stated already, we have thousands of small property owners who during the depression had great difficulties in retaining their property, and I may add that it was because of their generosity that many people were not forced out on to the streets during that period. The owners of many small houses, renting at $12, $15 or $20 a month, did not receive any money at all from their tenants; they were obliged to try to collect something from the city, or from charitable organizations, in order that these people might be left in the houses. Then when the war started and business became better, at the very moment that people were able to pay, the ceiling was placed on rents. I do not blame the government for that; I believe it was a very good thing, but the fact is that those people have not had a chance to get their money back They are very nervous now, with all this new taxation, and they wonder how they are going to be able to pay for repairs, make payments on their .mortgages, and so on. Under this provision we are allowed to deduct the amounts we pay on the mortgage on the property where we live, but we cannot do that in connection with other property. I just want to draw the attention of the minister to these facts, and to say that if it would be possible to do anything to help these small property owners, it would be a very good thing.


James Lorimer Ilsley: Perhaps I might answer the hon. member for Verdun, the hon. member for St. James and the hon. member for St. Mary. It must be understood that it is not the object of this resolution to provide an offset

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against the compulsory savings in regard to payments made in the course of business dealings, that is, business payments. If I invest my money in residential property and derive income from the property by receiving from it more than enough to meet the mortgage interest, the repairs, the insurance and so forth, what I have left is business income, and the interest which I pay the mortgagee may be deducted from the receipts.


Gaspard Fauteux: No, payments of principal.


James Lorimer Ilsley: That is correct. In any event it was not the intention of the resolution to go into the field of business investment. Any payments on principal in that connection are payments made to acquire capital, which is business capital intended to be the source of income in the future. The intention of this provision was to protect an entirely different kind of property, that is, the property in which a person resides. We did not put it in that way, because it would have been difficult perhaps to deny an offset if someone moved out of a house and went to live in some other place. For simplicity of administration we are allowing one residential property per person. It is merely accidental that the residential properties which are business investments are in the same category as the farm the bon. member for Saskatoon City is worrying about. That is, it is a business investment.


Alfred Henry Bence: Oh, no.


James Lorimer Ilsley: Oh, yes it is.


Alfred Henry Bence: Not like the case I gave the minister.


James Lorimer Ilsley: The farm is certainly a source of income for the farmer.


Alfred Henry Bence: It is what he lives off.


James Lorimer Ilsley: That is what the business man lives off. Because of administrative difficulties we extended the privilege of this offset to mortgages on farms. It would have been difficult to confine it to mortgages on residences. Nearly every farmer who is carrying a mortgage has the mortgage on his farm on which his house is located. You could not separate the part of the mortgage that applied to the house from the part applied to the farm. The farm is part of his business assets, his capital.


Alfred Henry Bence: Has the minister thought that a man might move a shack or makeshift building on to a piece of property?


James Lorimer Ilsley: You do not legislate with those eventualities in view. He would then have two residences, and he could only apply the mortgage interest in the case of the one.


Mr. MacINNIS:: I think the amendment is an improvement over the original resolution. To the extent that I disagree with it I am hot going to suggest any wide modifications, because if we keep on broadening it there will be nothing left of the savings part of the income tax. I wish to support the hon. member for Rosedale (Mr. Jackman) in the suggestion he made in connection with paragraph (b), which deals with premiums on life insurance policies or annuities or other instalment savings contracts. I cannot understand why annuities and savings contracts should be modified or need to have the approval of the Minister of National Revenue. As was pointed out by the hon. member for Rosedale, most likely these annuities would be government annuities, and the payments made thereon would go directly into government funds, while the premiums on life insurance policies would go to the life insurance companies. If the minister cannot see his way clear to delete all the words after contracts in the second line to "provided" in the sixth line, I suggest that he put a comma after "annuities", and then he would be excluding only instalment contracts. I think both these suggestions are reasonable, the last one particularly so.


Ernest Edward Perley: The minister has said that a comma should go in after "policies" in the first line, and the subsection would then read:
Premiums on life insurance policies, of a type which in the opinion of the Minister of National Revenue are such that the premiums cannot be postponed without substantial loss or forfeiture to the taxpayer.
Do I understand that it will be within the power of the minister to state that the premiums should not be paid or that there should be no offset or reduction if in his opinion it did not affect the loss of the policy or the forfeiture of the policy?


James Lorimer Ilsley: No.


Ernest Edward Perley: Some policies have been carried by business men to protect their estates in case of death and have been in force for a number of years. If a policy is paid up to date the minister can decide that there would be no loss or forfeiture to the taxpayer if the payment is postponed and the premium is entered as a charge against the policy?


James Lorimer Ilsley: Those words do not apply to life insurance policies.


Ernest Edward Perley: The hon. member for Verdun (Mr. Cote) and other hon. members have referred to subsection (c). There is hardly a town in the west where you will not find farmers who have left their farms to come
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in to town to live. In some instances a man may own three or four farms and be interested in other businesses as well. One such man is mayor of the town, and another is reeve of the municipality. I know of such a man who has no mortgage on the house he occupies in town. One case I could cite is that of a man who runs a hardware business, and another is that of a man who operates an elevator for a grain company and lives' on his farm. Can these men get a reduction for the taxes they pay and the interest on their loans and any principal payments? Can these things be taken into consideration in the statements they make? A man may obtain revenue from a business or from a farm; he accounts for that, and then he may want a reduction or an offset. I do not think the amendment is quite clear.


James Lorimer Ilsley: Allowance is given for principal payments on the mortgage on one residential property.


Ernest Edward Perley: A man owning three farms with buildings on each can claim only on the one?


James Lorimer Ilsley: That is right.


Ernest Edward Perley: Many farmers in western Canada who have done a great deal to build up the country will be working under a great handicap.


James Lorimer Ilsley: I do not think so at all.


Ernest Edward Perley: In Indian Head there are at least twenty men in that position.


Mr. STIRLING:: Some weeks ago I took up with the minister the question of the Investors Syndicate bond, and if I understood correctly the reply which he gave a little while ago to the hon. member for Peterborough West (Mr. Fraser) the holder of such a bond will have to send a copy to the Minister of National Revenue and obtain his opinion as to whether it comes within the wording of this resolution.


James Lorimer Ilsley: That is right.
Mr. S1IRLING: What would be the position of a man who some years ago borrowed $10,000 on a life insurance policy or some other security and undertook to repay it at the rate of $100 a month; will he be able to apply those payments to the graduated tax?


James Lorimer Ilsley: Repayments on loans on policies are not allowed.


Grote Stirling: The question has been raised as to credit being allowed on the purchase of war bonds and war savings certificates, and it has been suggested that the government

should give consideration to permitting a percentage of these purchases being used in this way. This would prove an added incentive in connection with the minister's great desire that the purchase of war savings certificates and bonds shall continue.


James Lorimer Ilsley: We have decided after careful and lengthy consideration that we cannot and should1 not permit payments for war savings certificates or government bonds to be allowed as offsets.


Mr. ROWE:: I urge upon the minister that he give that point further consideration, because I think the argument made by my colleague is sound. I agree that the principle of this resolution is entirely in keeping with what I and others urged during the budget debate, and I realize that if the door is opened too wide the merit of the compulsory savings feature may be destroyed, and it would not have the effect which the minister desires. But I do urge upon the minister that he reconsider the matter, in fairness to the men who are working for small or moderate wages and are buying war savings certificates.
The war savings certificate is the type of investment which the man who is working in industry and the young child at school buys as a voluntary and cheerful contribution to our whole war effort. The man in the higher income brackets buys victory bonds. It is the wage earner who buys war savings certificates. I realize that the minister is endeavouring to guard against certain dangers, but it must have been an encouragement to him to see the magnificent response that was made by the workers in industry to the war savings campaign, when factory after factory employing from 600 to 800 or 1,000 employees, within eight or ten days after the war savings campaign was under way, made a 100 per cent contribution to the campaign.
If war savings certificates are not to be allowed as an offset to the compulsory savings it will be impossible for many of these people to continue to buy war savings certificates. The minister, of course, if he will not reconsider, will be able to collect and put into the treasury an equivalent amount to that now spent in the purchase of war savings certificates, but in the one case it is being done voluntarily and in the other it will be done by compulsion. I hope the minister will reconsider.


Mr. NOSEWORTHY:: The hon. member who has just taken his seat has emphasized the amount that has been contributed in war savings certificates through the voluntary efforts of industrial workers. Has the minister

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taken into consideration, in his refusal to allow war savings certificates to be an offset in the compulsory savings features the fact that hundreds of thousands of workers in this country are almost compelled by their employers, as a condition of employment, to buy war savings certificates? In numerous industries pressure amounting almost to compulsion is brought to bear on the employees to buy these certificates, and there is going to be hardship if that pressure is kept up and no exemption is granted for war savings certificates.
Would the minister also make clear to us just what the position is with respect to government annuities in relation to paragraph (b). That is the point which was raised by the hon. member for Vancouver East.


James Lorimer Ilsley: I do not think that government annuities would qualify, for the reasons I have given. I am absolutely certain that I will not permit war savings certificates or bonds to be exempt, because that would be destructive of the whole principle of this resolution.


William Earl Rowe: I did not mention bonds.


James Lorimer Ilsley: Well, war savings certificates. The doors are wide open for any form of worth-while or praiseworthy savings. But to permit savings to go in here which can be discontinued without substantial loss or forfeiture or danger to the taxpayer-I cannot consider it for one minute. We have made provision here for two or three forms of offsets in order to relieve hardship, but we shall still have to ask people to buy war savings certificates and bonds. That is the principle, and it is the principle we shall have to stick to.


Louis Côté: If a taxpayer owns more than one property, do I understand the minister to say that he may choose between those properties when taking advantage of paragraph (c) ?


James Lorimer Ilsley: That is right.


Louis Côté: Whether he lives in one of these properties or not?


James Lorimer Ilsley: That is right.


Louis Côté: So that he is not restricted to the property in which he lives?


James Lorimer Ilsley: That is correct.


James Arthur Ross: Did I understand the minister to say that no deduction would be allowed for repayments of loans on life insurance policies?


James Lorimer Ilsley: That is correct.


James Arthur Ross: Suppose a man raises a loan against his life insurance policy to carry on his year's operations. Is he not allowed to count that as a deduction within that year's operations?


James Lorimer Ilsley: It is not allowed as an offset against compulsory savings.


James Arthur Ross: But under section 16 he is allowed certain deductions for losses in revenue during the preceding year. Why should not a loan on a life insurance policy be allowed as a deduction when he borrows the money to carry on his year's operations? I know many people in that position.


James Lorimer Ilsley: Let us wait until we get to that section. That is a different subject altogether.


Gordon Knapman Fraser: What arrangements has the minister made with 'life insurance companies in regard to receipts for policyholders? Are the companies going to use a different form of receipt?


James Lorimer Ilsley: No arrangements have been made.


Gordon Knapman Fraser: It
would not be right for the policyholder to send in to the government the receipts he receives from the life insurance companies, because on many of the old policies it is stated that the receipts must be attached to the policy.


James Lorimer Ilsley: There may be some arrangement for duplicates; I do not know. But that can be discussed under resolution 25.


Alexander Malcolm Nicholson: A point has been
brought to my attention which I have taken up with the Department of National Revenue, but they were not able to give me an answer. The department is interested in having payments under the home improvement plan continued. Is any provision made here to have those payments allowed as an offset to the compulsory savings?
Mr. ILSLEY': No, they will not be allowed 'as an offset.


Charles Edward Johnston: The amendment states that the amount that can be deducted from compulsory savings in respect of life insurance is limited to $100.


James Lorimer Ilsley: For future insurance policies, not for the past.


Charles Edward Johnston: What will be the maximum amount of principal payments on a mortgage or agreement of sale? The difference between $100 and the 10 per cent?
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James Lorimer Ilsley: The $100 does not come into it at all there. The offset is limited only by the amount of the compulsory savings for that person.


Charles Edward Johnston: In regard
to the life insurance premiums it says that the deduction since the said date shall not exceed $100.


James Lorimer Ilsley: That is on new policies.


Richard Burpee Hanson: I gather
that the minister has turned a deaf ear to the plea I made in the course of my budget address for allowances for old debts?


James Lorimer Ilsley: Yes.


Joseph William Noseworthy: I should like to
know why the deadline for principal payments on a mortgage is fixed at June 23-why young people who buy houses after that date cannot be granted the exemption.


James Lorimer Ilsley: They are voluntarily assuming new commitments, and it would be an encouragement to the mortgaging of property. We are relieving persons from commitments that they have already entered into, almost exclusively.


Donald Alexander McNiven: The minister made such
a brilliant exposition of his budget proposals and has defended them so skilfully, and at the same time has been so courteous in his replies to the numerous questions, that I hesitate to intrude now.


Richard Burpee Hanson: Oh, do
not be afraid of him.


Donald Alexander McNiven: I know the leader of the
opposition will not regard that expression of opinion as fulsome flattery, because in his own budget address he concurred in a sentiment with regard to the finance minister in almost identical terms. I am glad that the minister has placed an agreement for sale on the same basis as a mortgage, and I was also glad to hear his defence of the amendment as to life insurance policies. But there my appreciation comes to an abrupt close. I regret exceedingly that the same consideration is not shown to annuities.
The annuity, particularly the dominion government annuity system, is one of the greatest social experiments ever embarked upon by any government. Introduced in 1908, it has grown steadily, and has for its objective provision by the individual for his old age. Now, the dominion government annuity comes squarely within the exception provided for in the amendment. As I understand a dominion government annuity, any amount can be paid in at any time, and the amount

which is at the credit of the contract on the maturity date will be paid out over an extended period of years. So that the individual holder of an annuity will not suffer any material loss. But the principle behind this feature of the proposal was savings, and the annuity has brought about much of what was expected of it. Not so very long ago, one man out of every two reaching the age of seventy was dependent upon a relative or upon public charity for his support. As at December 31, 1941, there was at the credit of the dominion government annuities the sum of $156,053,072, and in the same period the dominion government has paid out $231,040,821.82 as its share for old age pensions. The number of old age pensions being granted has increased, but it has not increased proportionately. What I mean by that is that the logical intention of those who introduced the old age pension scheme has accomplished results. I was hopeful, therefore, particularly inasmuch as the money comes to the dominion government, that the minister would recognize the moneys paid in under the dominion government annuities scheme as part of the compulsory savings plan.
I am likewise a believer in insurance. I always have been, so much so that when I was a member of the Saskatchewan legislature back in 1923 I introduced a resolution to require every young man on attaining the age of twenty-one to take out a thousand-dollar insurance policy. I believe in insurance; I believe it is necessary as a protection and a means of saving money. There are certain policies which carry with them the right of loans, and during the depression years loans granted on policies have steadily risen. In 1939 the loans standing against policies in Canada amounted to $246,940,020. Loans reached a peak in the year 1933, having steadily decreased in volume and amount from that year to the present time. Nevertheless there still stands against the policies of Canada the sum of $246,000,000 which I mentioned a moment ago. Canadian policyholders are making an honest and substantial effort to reduce the loans on their policies, but they have not been able to do so to the extent which could be desired; for I find on looking at the insurance records for 1939 that there were lapsed and surrendered policies to the value of $383,595,970, made up in this proportion:	lapsed policies, $165,303,531;
surrendered policies, $218,282,619. The total lapsed and surrendered policies amounted to 63-8 per cent of all the insurance written in 1939. This means that policies to the value of $218,000,000 had to be surrendered because the loans or premiums had exhausted the cash

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surrender value of the policies, and the protection of Canadian homes was reduced to that extent.


Harry Rutherford Jackman: It kept people off relief.


Donald Alexander McNiven: Possibly for the time being it kept people off relief. At the same time it deprived Canadian homes of that protection. The point I am making, on which I have written to the minister, is that payments made on account of policy loans designed to protect the policy and put it in good standing, thus creating a nest-egg as a reserve for a Canadian home and as protection for dependents, should be allowed as a deduction from the amount required to be paid under the compulsory feature.


Mr. BLACK (Yukon):: The minister says that he wants the people to continue buying war savings certificates and government bonds, but most of those in receipt of moderate incomes will have very little money to put into war savings certificates and bonds after they pay these taxes. I call the attention of the minister now, as I have already done to some extent, to the effect of these increased taxes on the wage earners of the mining districts of Yukon. To begin with, the cost of living in that territory is 100 per cent higher than it is in other parts of Canada. I mention a few necessary items that go to make up the cost of living. Flour, vegetables, meat, eggs, fuel, cost twice as much in the Yukon as in other parts of Canada. Fruit up there costs 200 per cent more than it does outside, and electricity costs 500 per cent more than in other parts of the country. The government recognizes that expenses are high in Yukon and makes provision for its employees up there by giving them, as part of the remuneration or salaries, what is termed a living allowance; and normally the living allowance of the government salaried man in the Yukon is $1,500. The people in sheltered positions may ,be able to meet the increased taxes, but I doubt if the ordinary salary or wage-earner can do it.
The total exemption for all persons under the taxes now about to be imposed is $660. By resolution 2 it is provided that the exemptions shall be reduced for purposes of the graduated rates to $660 for all persons. The cost of moderate board and lodging in Canada, taking the very minimum of $35 a month, represents $420 a year, which would leave the taxpayer $240 for clothing and other necessities. That would" take up the whole of the $660 exemption. But in the Yukon you cannot get board and lodging in the mining districts or settlements for less than $900 a year. That is $240 more than the exemption allowed on the taxes, and if the exemption throughout the dominion,
outside the Yukon, is barely $660, it ought to be $900 up there. The cost of living, taking reasonable board and lodging, cannot be had there for less than $900, and in addition to that, such essentials as clothing and other necessities will cost any man $240, so that to be fair the exemption there ought to be at least $1,140. Let me quote from a couple of letters I have received in the past twenty-four hours from that country. One writer says:
People living where most of the necessities of life are somewhat cheaper than in the Yukon realize how drastic this tax is to their economy. In Yukon it means annihilation. It means wholesale migration of those who are able to move, and for those unable to leave the country it means defaulting in taxes. The latter is evident when it is proposed to collect taxes from September next through until August, 1943.
Another letter states, describing the conditions since the additional taxation has been announced:
I have it that over fifty-three families in Dawson have made reservations to date for transportation to outside places during this summer and early fall, excluding the families who have already gone. .
That is what it means. Either they have to get out of that country or they must be given fair exemption from their taxes. The work of the wage earner up there is seasonal. Men can earn wages for six months of the year-high wages, it is true-but they are idle for the next six months because during that period placer gold mining cannot be carried on. But notwithstanding the fact that for six months of the year a man earns no wages, from late October to the following March, under this budget he will have to pay taxes throughout that idle period. It is a financial impossibility. I do hope the minister will realize the importance of the situation so far as that part of the country is concerned, a territory which has produced so much wealth for the dominion and which has been such a good market. I hope he will find some solution for this problem.


James Arthur Ross: There are many people who have taken out policies on young children to care for their future education. Will those policies be allowed under (b) ?


James Lorimer Ilsley: The hon. member is referring to children?


James Arthur Ross: Yes. I have two small children, say, and take out a policy on each of their lives to ensure their future education. Would I be allowed deduction in that case-or any family man in a like position?


James Lorimer Ilsley: I wish my hon. friend would allow that to stand until the bill comes in, when it can be raised again. It has received
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some consideration, and I do not know that I have come to a decision. The same applies to insurance policies on the wife of the taxpayer. I should be inclined to think they ought to be allowed, but I cannot give an undertaking. I wish to give more consideration to the question and deal with it on the bill.
M. ROSS (Souris): The same applies to a joint policy on the man and his wife. If the minister is getting an answer to that question I wish he would answer at the same time the question in regard to annuities for children.


George Black: If the premium is $1,000 the exemption will only be $100?


James Lorimer Ilsley: That is for new policies only.


George Black: But I am speaking of old policies.


James Lorimer Ilsley: No. It goes up to the full extent of the compulsory savings.


George Black: Under resolution 6 it is provided that one-half of the total taxes payable by a taxpayer under the normal rate of tax and the graduated rates of tax shall be refundable to a taxpayer provided that such refund shall not exceed 10 per cent of the income of a married person, or $1,000, whichever is the lesser. It may be a great deal less than $1,000. Then resolution 7 provides that the total taxes payable by any taxpayer under the normal rate of tax and the graduated rates of tax shall be reduced by the amount paid by the taxpayer in respect of premiums on life insurance policies in force prior to the twenty-third day of June, 1942. But if the premium paid is $1,000 he does not get exemption for more than $100 according to that wording. It says:
Provided, however, that such reductions shall not exceed the amount of the refundable portion of the tax as provided for in resolution 6 above; and the said refundable portion shall be reduced accordingly.


James Lorimer Ilsley: There is no limitation to $100 in respect of premiums on policies taken out before the date of the budget.


Richard Burpee Hanson: Only on new policies since the budget.


Louis Côté: Does subsection (c) cover a mortgage registered prior to June 23 last but afterwards renewed?


James Lorimer Ilsley: Yes, we shall have to make provision for renewals of mortgages.


Louis Côté: It is the same mortgage but a different deed of obligation.


James Lorimer Ilsley: That will have to be provided for. Anything else would be unreasonable.


Louis Côté: I did not hear the minister's reply a few minutes ago to the hon. member for York South about the case of a young couple building a home after June 23. It might be possible for the Minister of National Revenue to reserve a certain amount of discretion about these cases, as he does in the case of mortgages not registered by June 23.


James Lorimer Ilsley: I would not dare open that up.


Harry Rutherford Jackman: Before the section carries we should have a clear statement from the Minister of National Revenue as to whether or not the premium which is paid on an ordinary simple life insurance policy will be an offset against the minimum savings requirement.


Colin William George Gibson: A new or an old one?


Harry Rutherford Jackman: An old one.


Colin William George Gibson: It is, up to the amount of the allowable deduction.


Harry Rutherford Jackman: I did not understand it distinctly, because the section in the amended draft talks about those which cannot be postponed without substantial loss or forfeiture.


James Lorimer Ilsley: Those words do not apply to insurance policies. I made that clear several times.


Harry Rutherford Jackman: They do apply on an annuity?


James Lorimer Ilsley: Yes.


Robert William Gladstone: The amendment provides in clause (b) for new life insurance to the extent of premiums amounting to $100. The minister has thereby placed a restriction on the amount of new insurance. Not having the amendment before me I do not know if there is any restriction as to the amount of premiums that can be regarded as offset on insurance in effect prior to June 23.


James Lorimer Ilsley: No.


Robert William Gladstone: There is an offset
allowed on premiums on very small policies, and that offset continues. Some men in this country I presume have policies for $500,000 or $1,000,000. Does the amendment propose any restriction in that regard? In section 15, relating to medical and hospital deductions, the maximum allowed is $1,000. Where there is a restriction of that kind, and also as to the amount of new insurance that can be placed, the minister could very well place a limit on the offset for insurance in effect prior

Income War Tax Act
to June 23, 1942, by adding, for instance, in subparagraph (b), after the word "premiums", the words "to an amount of SI,000".


James Lorimer Ilsley: It cannot be more than
$1,000 anyway, because that is the limit of the refundable tax. It is therefore the limit of the offset.
Resolution 7 as amended agreed to.
Resolution 11 stands.
12.	That any pension granted to any^ member of His Majesty's military, naval or air forces or to any member of the military, naval or air forces of His Majesty's allies, for any disability suffered on active war service by the pensioner or any pension granted to any dependent relative of any person who was killed or suffered any disability while on active war service in the said forces, shall be exempt from taxation.


Donald Alexander McNiven: Will the minister make some explanation of this resolution?


James Lorimer Ilsley: It is self-explanatory. It
simply says that disability pensions of members of the forces are not to be taxable.
Mr. HANSON York-Sunbury): That is, pensions of the last war and this war?


James Lorimer Ilsley: That is right.


Donald Alexander McNiven: Then a pension payable because of the last war which has been taxed since the year 1932 is now exempt?


James Lorimer Ilsley: Yes.


Donald Alexander McNiven: Thank you. That will bring great satisfaction to many deserving people. The minister is to be commended for that progressive step.


Louis Côté: This resolution mentions only pensions granted to any member of his majesty's forces, for any disability. The pensions granted under section 21 of the Pension Act are granted not on account of any disability of the veteran, but sometimes in lieu of a disability allowance, and on compassionate or meritorious grounds. I have in mind the case of a widow in my constituency whose husband died some years ago with disability below 50 per cent. In his lifetime he was paid a pension, but from the moment of his death the widow loses the pension because the disability was below 50 per cent. In view of the fact that this veteran had served in the South African war and the last war, she was granted a pension on compassionate and meritorious grounds. Is such a pension covered by this resolution?


James Lorimer Ilsley: It is intended to be. I will take care of that in some way in the bill. I never had any intention of excluding the meritorious clause pensions.


Grote Stirling: It is meant to cover service pensions as well as disability?


James Lorimer Ilsley: No.


James Arthur Ross: This includes all pensions, even in respect of service in Canada?


James Lorimer Ilsley: All disability pensions.


Howard Charles Green: The wording of the resolution does not make that quite clear. It is restrictedby the words "on active war service." In the last war the insurance principle was in force so far as pensions were concerned, and even if a man were serving only in Canada, if he suffered a disability he got a pension. That insurance principle is not applicable in the present war, I understand, unless a man goes overseas. I take it from what the minister has said that if the veteran of the last war is getting a pension it does not matter whether he served only in Canada or whether he served in England or France, he will be eligible for this exemption. Is the position the same with regard to men serving in the forces in the present war?


James Lorimer Ilsley: I had better give this more thought. I do not want to embark upon a course that is going to extend step by step to all kinds of pensions, including service pensions and all that sort of thing, because if we do that we will be in confusion. My intention was to exempt the pensions that are ordinarily payable under the Pension Act, that is, disability pensions, whether the man left Canada or whether the disability was incurred in Canada or not. That was my intention, and I do not know exactly the significance of the words "active war service". Is not a person on active war service if he enlists for active war service?


Howard Charles Green: I think the exemption should be based on the Pension Act; that is, if a soldier is entitled to a pension under that act, then he should be entitled to exemption under the Income War Tax Act. If the minister will word his section in that way I believe he will avoid a great deal of difficulty.
I should like to impress upon the minister again the position of some men not now covered by the Pension Act. First there are the merchant seamen. While they are not covered by the Pension Act, they are covered by a special order in council. Only yesterday in a bill that went through this house, the Veterans' Land Act, provision was made for these merchant seamen. That was just one more bill in the legislation being passed by this house which recognizes that the merchant seamen are entitled to the same consideration as the men in the navy, the army and the air force. I was greatly impressed by a dispatch appearing on the front page of the Ottawa
Income War Tax Act

Citizen yesterday morning, under the heading, "His Majesty sends thanks to brave men of two navies." The dispatch reads in part as follows:
"On this day of thankful remembrance for the services of the officers and men of the royal navy and the merchant navy, I wish to express once again the heartfelt gratitude of the peoples of the empire to the brave men of the two navies, on whom so much depends and on whom we place our unbounded trust."
I suggest that to bring this legislation in line with other legislation passed by this house, the men of the merchant navy also should be granted exemption. Then there are two other very small groups; first, the firemen who are serving overseas, and who I presume will be covered by order in council in respect to any injuries they may receive, and second, the men in the auxiliary services overseas, who I believe are covered by order in council but who do not get this exemption. I suggest that all these classes should be included in those receiving the exemption.


James Lorimer Ilsley: I will give that matter consideration before the bill goes through.


Harry Rutherford Jackman: May I ask the Minister of Pensions and National Health just how far this principle of insurance in relation to soldiers is carried, and whether it extends to the Aleutian islands. Do men serving there obtain this benefit? I noticed recently that one of our men lost his life in that area. Do they come under the insurance, or do they not?


Ian Alistair Mackenzie: What were the conditions surrounding the case?


Harry Rutherford Jackman: I do not know; I am just asking as to the general principle. The man was killed in the Aleutian islands.


Ian Alistair Mackenzie: That would be a theatre of actual war. The definition of a theatre of war was broadened very much by the pensions committee last year, and doubtless that would be a theatre of actual war. It is outside Canada.


James Arthur Ross: I think the pension commission has discretionary power to grant pensions to anyone killed on active service in this dominion, has it not?


Ian Alistair Mackenzie: Yes, if death is due to service-I have forgotten the exact phraseology of the act, but I think it says if injuries or death "arose out of or were directly connected with" military service.


James Arthur Ross: For instance, we had quite an argument the other day about the accident that occurred recently in the canal

here, as to whether or not the dependents of those men would be entitled to pension. I am quite sure the commission has power to grant pensions, and that they would do so.


[Stage Direction]
Resolution agreed to.
13.	That any amount received as compensation, other than compensation for loss of time, under any workmen's compensation legislation of any of the provinces of Canada in respect of any injury or disability incurred or in respect of any death, shall be exempt from taxation.
Mr. BLACKMORE:: Mr. Chairman, you went so quickly after we passed resolution 7 that we hardly had time for any comment, or for any questions we wished to ask the minister. Would you mind if I referred back to resolution 7?


The CHAIRMAN:: That has been carried.


James Lorimer Ilsley: We discussed resolution 7 during half the afternoon.


John Horne Blackmore: I do not think it is fair for the Chairman to move so quickly that an hon. member has no chance to comment.


Thomas Vien: Unless there is unanimous consent I am afraid the hon. member cannot refer to resolution 7, which was discussed for quite some time and which has been carried.


John Horne Blackmore: It is not a question of how long it was discussed; it is a question of whether or not there is further discussion.


Thomas Vien: It is not a question of how long the discussion took place, but it is a fact that resolution 7 has been carried.


Richard Burpee Hanson: If a workman or any other person were to receive damages in an action at law, altogether outside the workmen's compensation legislation, would that be looked upon as income? I should not think so.


James Lorimer Ilsley: Generally speaking it is not regarded as income.


[Stage Direction]
Resolution agreed to.
14.	That any employer may deduct as an expense an amount up to 5 per centum of his payroll, under limitations to be prescribed, paid as contributions to any employees' superannuation or pension fund or plan, excluding therefrom, however, portions in respect of salaries over $6,000 per annum.
Richard Burpee Hanson: When are the limitations to be prescribed? Apparently the ceiling has been set at $6,000, but I should like to know by whom the limitations will be prescribed-by the governor in council, by the minister, or by the commissioner. And

Income War Tax Act
have not payments to superannuation- funds always been deductible by the employers as expenses? I think they have been, and if not they ought to have been,


James Lorimer Ilsley: Before coming to that point I should perhaps give the explanation for this resolution. It relates to a deduction from income by employers in respect of contributions to superannuation or pension funds on behalf of their employees. The present law allows the employer to make a deduction of up to 5 per cent of the remuneration of any employee, or $300, whichever is the lesser.


Richard Burpee Hanson: It is
limited?


James Lorimer Ilsley: Yes. It has been found that in cases where the employees may be well along in years, the amount which the employer actually contributes in order to provide such elderly persons with pensions is at a rate higher than 5 per cent. In the case of younger employees the percentage figure is normally quite a bit below 5 per cent. It is proposed to amend the law and provide that the total deductions in respect of all employees shall not exceed 5 per cent of the employer's payroll.


Richard Burpee Hanson: That is the average of the whole?


James Lorimer Ilsley: Yes, and at the same time the limit of $300 is retained in respect of the deduction on account of any one employee. Apparently that is the limitation that is to be prescribed. The resolution also provides that in calculating 5 per cent of the payroll, the amount of any salary in excess of $6,000 shall not be taken into account. Safeguards will be introduced to prevent abuses under this arrangement. There are other limitations to be prescribed.


Richard Burpee Hanson: That is the portion in respect of salaries over $6,000. That is not quite what the minister said. If the salary is over $6,000, no part of that is to be allowed. Or is it just the part up to $6,000? It must be remembered that these men are getting superannuation.


James Lorimer Ilsley: The amount of the salary in excess of $6,000 per annum is not to be taken into account.


Richard Burpee Hanson: But the amount up to $6,000 is to be taken into account?


James Lorimer Ilsley: That is right.


[Stage Direction]
Resolution agreed to.
Resolution 14 agreed to.
15.	That a taxpayer shall be allowed a deduction from income in respect of medical expenses in excess of 5 per centum of the income of such taxpayer, incurred and paid by such taxpayer in the taxation year, or paid in the taxation year and incurred within one year prior to the date of payment if such payment is made to any qualified medical practitioner,_ dentist, or nurse, registered under any dominion or provincial legislation or regulation, or public or provincially licensed private hospital, in respect of any birth in the family of, illness or operation upon, the taxpayer or his spouse, or any person dependent upon the taxpayer, in respect of whom the taxpayer would heretofore have been entitled to an exemption and if the said dependent is resident in Canada, provided that the allowance in any taxation year shall not exceed the sum of
(a)	$400 in the case of a single person without dependents, or
(b)	$600 in the ease of a married person or a person entitled to an equivalent allowance to that of a married person; plus
$100 in respect of each additional person (not exceeding four) dependent upon the taxpayer for support;
Provided, however, that the maximum deduction hereunder shall not exceed $1,000; and provided further that the said amounts are substantiated by receipts and that such receipts are lodged with and at the time of filing the taxpayer's income tax return;
John Horne Blackmore: I think it would be
a good idea if the minister would state what provision he has made to enable people to pay debts which were contracted as a result of the experiences of their family life. If I had been permitted, I was going to suggest under resolution 7 that a stipulation be added to allow deductions of moneys paid on old debts. Since resolution 7 has carried, perhaps some provision can be made under this resolution. Quite frequently as a family goes forward in its development, bills accumulate for dental services, for books, for groceries, for clothing and other things of that sort and which become an indebtedness against the family. At times these become a difficult burden to carry. So far as I can see, no provision is made for the man with old debts. I know of people who have had debts outstanding for six, seven and eight years. They have been trying to pare these down out of their incomes. In many cases the debt accumulated throughout the depression. Just as soon as conditions appear to be a little better and the householder is able to get employment and hopes to pay off his debt, in comes the minister and appropriates the money with which the man expected to pay off his debt. Has the minister given any thought to making provision for that?


James Lorimer Ilsley: I certainly gave it consideration, and I decided it would be utterly impossible to introduce that principle into our
Income War Tax Act

income tax law. We certainly cannot have a law under which people may incur debts instead of paying taxes. The hon. gentleman may say that that is all very well for the future, but what about the past? Similarly I am firmly of the opinion that we cannot make provision for the payment of debts before the payment of taxes to the government.


John Horne Blackmore: 
James Lorimer Ilsley: The moratorium would not help the merchant.


John Horne Blackmore: If the moratorium
will not help him, then something else ought to be done. Otherwise there is grave danger of many merchants in the three prairie provinces being forced into insolvency because of the budget taxation structure. Large numbers of people have been utterly disheartened because they can find nothing in these income tax provisions but a death-knell for their hopes of getting out of debt. Their situation is completely hopeless. I do not think the minister can afford to ignore a situation like this because there are too many people affected. There is too much of our morale at stake.


Gordon Knapman Fraser: Many working families in Canada cannot afford to employ a registered nurse when they have illness, and must rely upon a practical nurse. In such a case would a certificate from the doctor be sufficient to bring them under this resolution?


James Lorimer Ilsley: My view is that we cannot
let in the practical nurse, because anybody could qualify.


Gordon Knapman Fraser: Most working people cannot afford to employ a registered nurse at $7 per day. I submit that they should come under the provisions of this resolution if they are able to obtain a certificate from the doctor as to the employment of a practical nurse.
_ Mr. COLDWELL: I mentioned this matter in my speech on the budget. Perhaps I speak from some personal experience, because I know what it is to have an invalid in the home over a number of years and what that does financially to anyone who is thus handicapped. I know also that it is impossible, even with a fairly good income, to employ the services of a registered nurse over a long period of time-it simply cannot be done. I support the plea that has just been made. A large number of persons have had members of their family ill for extended periods, and some consideration should be given to them. There are many people not as well off as the members of this house, and some consideration should be given to those who are under such a financial burden. I know it opens the door wide, but in my opinion a good case can be made out for the home in which it is impossible to employ a registered nurse but where some provision has to be made for additional help on account of prolonged invalidism or sickness. While the minister said a few moments ago that he could not give consideration to this, I am urging still that some consideration be given to cases of the kind to which I refer.


Grote Stirling: I want to read to the committee two paragraphs of a letter from a clerk in a city:
My wife has been totally confined to bed for two years. Being an arthritis case the medical expenses for doctor's services are not heavy and would not exceed the allowance of $100. But I have to engage a nurse at $30 per month and my drug store bill is $20 per month. Thus I am paying $600 a year without counting nurse's maintenance.
The bill allows me nothing whatever unless I engage registered nurses. This is not only entirely beyond my income possibilities but would necessitate the employment of two individuals to get the same attention.


John Ritchie MacNicol: I want to present another picture. I know an electrical engineer who after long years of steady work and thrift had saved a considerable amount of money. He lived with his mother, who had the great misfortune to break the head of the femur of her right leg, which as everyone knows is a

Income War Tax Act
very serious accident for an elderly lady. Loving his mother as he did, this man sent her to the private pavilion of the best hospital in the city and gave the very best attention for her. Her case required three nurses a day-the General hospital, Toronto, has three eight-hour shifts for nurses. On account of her age this lady was laid up for a long time. Her leg had to be kept up so that the two pieces of bone would grow together again, and they did. The hospital made a wonderful job of the fracture, although it took quite a long time. This man told me that his bills for hospital and medical expenses were over $3,000, nearer 83,500. An allowance of 81,000 on income tax would not be very much in a case of that kind, and I have been wondering whether the minister, if any such case was brought to his attention, might not feel, upon the advice of medical officers, that some further allowance should be made. The particular case I speak of is long past, several years ago. I am speaking of the future, and I am wondering whether the minister would not, in such cases involving a large expenditure, make a greater allowance than $1,000.


James Lorimer Ilsley: Was the man's income substantial? Would the 81,000 deduction not bring the taxpayer below the taxable class? I am just asking; I do not know.


John Ritchie MacNicol: This man was an employee in one of the large iron and steel plants. His salary was not large, but he was a steady worker and a thrifty man, and he saved as much as he could, so that he was able to pay the hospital and medical expenses out of what I might call his capital savings. He would not have been able to pay the bills out of his income.
Mr. ILSLEY; From what the hon. member says I do not think a greater allowance than
81,000	would have been of any use to him. Under .this-I am not making a ruling on the case by any means-he would get $1,000 in addition to his other deductions. Perhaps I am wrong in that. Perhaps the limit is less than that. At any rate it does not make very much difference. The hon. gentleman is talking about a principle, whether there should be an upper limit or not. If there is no upper limit it opens the door to some abuses probably. I can understand that there might be cases of wealthy persons suffering perhaps from some nervous trouble or something of that sort whose medical expenses might run up to fifteen or twenty thousand dollars. I do not think those expenses should be allowed. I think there should be an upper limit.


John Ritchie MacNicol: Most other folks would have sent their mother to a public ward or to a hospital where she would not have received as good attention, but this man almost worshipped his mother, and that is why he sent her to the best hospital and provided the best attention for her. If the minister felt satisfied that a greater allowance should be-made in cases of that kind than the sum mentioned here, I would be satisfied. I am not asking that the maximum amount of $1,000 be raised. I am suggesting that the minister in his discretion might grant further relief in cases of that kind which are brought to his attention.


James Lorimer Ilsley: There must be a limit to the discretionary powers that are thrown on ministers and officials, or the situation will become impossible after a while. That would be the case if the Minister of National Revenue had to check the bona fides of claims for medical and dental expenses and try to decide whether the bills were excessive or not, and whether they were really necessary or not. The situation would become hopeless. This is a new provision. We have had nothing like it in our law in the past, and it may turn out from experience that it is not generous enough. I do not know.
Mr. HARRIS (Danforth); It is a good start.


James Lorimer Ilsley: At least it provides against serious, calamitous operations and that sort of thing in families. It provides some relief, and that is all it is intended to do.


Gordon Knapman Fraser: Could not a proviso be inserted in the bill covering the engagement of practical nurses where the man's income was $5,000 or less? Then it would not cover the rich.


James Arthur Ross: I think this resolution is a step in the right direction. I approve the principle. Much has been said this afternoon of obligations that have had to be incurred by people for medical and hospital and nursing bills with which they are unable to catch up. In the west, in the very tough years-I am speaking from municipal experience-the municipality would employ practical nurses on the certificate of the local health officers, and I am wondering if the minister could not add a few words to this resolution to cover the engagement of practical nurses who were certified to by the local health officer. He is a responsible citizen appointed by the local government, and he could issue a voucher. That worked with us in the municipalities out west in the tough years, and was of decided
Income War Tax Act

assistance to our people because often registered nurses were impossible to obtain. Would the minister consider adding a few words to cover the engagement of practical nurses?


Mr. McCANN:: I think the minister is to be commended for putting a provision like this into the Income War Tax Act, allowing an exemption for medical, nursing and dental expenses. A large number of people have experienced terrible hardships by reason of excessive bills through sickness. If this results in the men of the medical profession being paid their fees more regularly, from their point of view I suppose it will be considered good legislation. However, I would point out to the minister that, in being so specific as to the type of nurse, he is taking away from a great many people the advantages of this exemption. Nurses are becoming increasingly scarce. As all of us know, a great number are in the armed services. Hospitals are finding it increasingly difficult to get sufficient nurses to carry on, and throughout the country they are becoming so busy that in many institutions there is not bed room for those who make application for hospital services, so that it becomes imperative that many families have medical attention and nursing service in their own homes. I can readily see where there could be an abuse of this provision if the term "practical nurse" were used, because probably a man who had somebody ill in his home would engage a maid to do maid service and some nursing. I think the wording should be amended so that the exemption would apply if one has a nurse employed full time, and not necessarily a nurse who has received her degree from a province and has become registered in that particular province. There are plenty of people in the nursing service who have never been registered, yet who continue to do nursing. Take, for instance, midwifery; that is nursing of a particular kind, utilized to a great extent in many parts of the country, particularly in the rural areas. Therefore it would be too exact to specify that the nurse must be registered; you would deprive the great majority of people of any value attaching to this exemption. I ask the minister to give that phase of the question his close consideration.


James Arthur Ross: What is the hon. member's opinion about the local health officer's certification?


James Joseph McCann: I do not believe that either doctors or health officers should be in the position that they have to certify. After all, in an income tax return one has to rely on the honesty and good faith of those who are making the return. If a man under particular circumstances has somebody in his home for whom he

has excessive medical, nursing, or dental fees, he is not the type who is likely to put in a claim for an exemption which is other than bona fide. The medical profession should not be put in the position of having to give a certificate as to whether nursing services were required.


Mr. HOWDEN:: I understand that for the last two or three years many of the large hospitals have been training practical nurses, who get practically the same training as registered nurses but are not required to take the same studies. Most of these women, all of whom are young because they are accepted only at a certain age, are really trained practical nurses, and they leave the hospitals with practical nurses' certificates. I believe that these semi-professional women should be taken notice of in this legislation, because they give excellent service, and the fee required by them does not begin to compare with the fee of the regular trained nurse.


Louis Côté: I agree with hon. members who have so well pleaded the cause of the unregistered nurse. I should now like to draw the attention of the minister to the expenses incurred for the services of registered optometrists. In Quebec and all the other provinces there is provincial legislation which regulates the practice of optometry; and since the privilege is extended in respect of expenses of medical practitioners, dentists, and nurses registered under any dominion or provincial legislation or regulations, I would ask that the same treatment foe given optometrists. I believe that lack of suitable glasses is just as likely to debar a man from work as is sickness. In my province it is the duty of the optometrist to examine sight and prescribe the wearing of suitable glasses. I believe that this type of professional man should be added to those already mentioned, since he is duly registered in each province and his practice is regulated by a distinct provincial statute.


Clarence Gillis: I, too, think the minister is to be commended for much that he has done in this particular resolution. But with respect to the provision mentioned by several hon. members for lowering the category of nurses, I believe there is much justification for that course. In many homes there will be found . persons who have been invalids for years. It is not possible for the family to pay the expenses of a registered nurse; nevertheless a nurse is necessary; and, as the resolution stands, it would mean that many people who have been keeping an invalid in the home on this basis will have to discontinue it, and shift the member of the family who happens to be sick to a hospital or a home, with the

Income War Tax Act
consequent breaking up of the family. I think the minister could well consider the representations made by the hon. member for St. Boniface. If the hospitals are turning out practical nurses who can be hired at a much lower rate and will perform the necessary services in that category, I think this recommendation should be given consideration.
There is another matter to which I would call the minister's attention. Dentistry and all these other services are provided for. After you go through all that you die, and I wonder whether the minister has given any consideration to this angle. Any of us may have relatives who are not carrying insurance; there is a death in the family; you may be called upon to bear the expenses, and you can run into a bill of $300 or $400. Funerals are more expensive than hospitals. There are many people who do not carry insurance-some through prejudice, others because they cannot afford it-nevertheless when the time comes for them to shuffle off this mortal coil somebody has to pay the burial expenses. Did the minister give any consideration to exemption in case of funerals where there is no insurance to cover the cost?


James Lorimer Ilsley: No.


Mr. ROSS (Calgary East):: Why is the deduction limited to expenses incurred during the taxation year?


James Lorimer Ilsley: Otherwise old bills would be brought in for several years back.


Mr. BRUCE:: I should like to lend my voice in support of the hon. member for Cape Breton South when he said that the exemption should be allowed for a practical nurse. I think it is an undesirable discrimination to say that the nurse must be a registered nurse. There are many poor families and even some who are not so poor who have to employ practical nurses, and I think the minister would be well advised if he would consider exempting payments to such a nurse, provided the doctor gives a certificate that she is thoroughly qualified, although not registered.


Mr. GRAHAM:: For brevity's sake I am just putting myself on record as supporting the suggestion that the minister sympathetically consider the possibility of widening the definition of "nurse" under the circumstances referred to by the various members. I think the minister would satisfy the committee if he would say that before the actual bill comes down he will give that proposal sympathetic consideration.


Harry Rutherford Jackman: First of all I support the suggestion that if at all possible there be an exemption with regard to practical nurses.
As the resolution is now worded it defeats its purpose. Very few people, even among the well to do, can afford a trained nurse for any length of time. As soon as the critical period is over, they have to resort to practical nurses, and that cost may run for months or during the whole lifetime of the patient. I would advocate as strongly as possible that that provision be worked out if it is at all feasible.
There is a second point. It is not specified whether the 5 per cent applies to gross or net income. Surely it must apply to net income, because that is the only real income one has.


James Lorimer Ilsley: What does the hon. gentleman mean by net income-after marital deduction?


Harry Rutherford Jackman: Suppose a person has
$5,000 gross. He must spend $250, as I read this, before he is allowed to deduct extra medical expenses from total income.


James Lorimer Ilsley: That is correct.


Harry Rutherford Jackman: When you get into the higher brackets, the man with an income of $20,000 has to spend $1,000 before he is allowed the deduction. Under the present budget, he gets, not $20,000 but only $9,000, so that I contend he should have to spend only $450 before being entitled to the deduction if his medical expenses exceed that. We must be realistic about this. It is what is left that one has to spend, and 5 per cent of the gross income may be a very large amount. I suggest that it should be taken off the net income.


James Lorimer Ilsley: There is certainly no intention of regarding income as income after payment of taxes. That is what the hon. gentleman suggests it ought to be?


Harry Rutherford Jackman: Yes. Does the minister not think that is fair?


James Lorimer Ilsley: No.


Harry Rutherford Jackman: There is one other small point. If I remember rightly, in the income tax returns there was a slight change in the wording in regard to claims of exemption for children. Formerly, if a child was born during the taxation year the claim was allowed, but under the present wording that is not possible, although I stand corrected if I am wrong.


Colin William George Gibson: There is no change in that. If a child is born even on December 31 exemption is given for the whole year.


Gordon Knapman Fraser: Will the minister not allow this resolution to stand
Income War Tax Act

until after this sitting to see if something cannot be done with regard to my suggestion in connection with practical nurses?


James Lorimer Ilsley: I am willing to give it consideration, but I think the resolution had better pass and consideration be given before the bill is brought down.


Gordon Knapman Fraser: That would be satisfactory.


James Lorimer Ilsley: I do not want to leave the impression that I am very favourably impressed by the arguments about practical nurses. The member who made the strongest impression upon me was the hon. member for St. Boniface (Mr. Howden). If there were some test; if, for instance, there are nurses who are registered, having certificates, that might guard against abuse, but the other suggestions do not appeal to me. I do not think we should depend upon the certificate of a provincial or municipal officer or a doctor, or anything of that kind, because that would leave the door wide open. Many hon. members have suggested that, but it would invite widespread abuse.


Gordon Knapman Fraser: I
suggest that the minister limit it to incomes of $5,000 and under. That would help to some exent.


James Lorimer Ilsley: I do not like that sort of thing if I can avoid it.


John Horne Blackmore: Would the minister consider some measure to alleviate the distress of people who are deeply in debt, particularly those in the income brackets between $2,000 and under? The matter is so serious that it merits careful and sympathetic consideration.


James Lorimer Ilsley: It must be borne in mind that the Minister of National Revenue in the administration of the act sometimes has to make concessions to taxpayers in individual cases, not pressing for payment when he knows that in all common reason it would throw the taxpayer into bankruptcy. That is part of the ordinary administration. I do not think, however, we *would be justified legislatively in doing anything about persons in debt. It would be out of the question. We cannot make provision for everything in legislation.


Harry Rutherford Jackman: I do not think I made the point as well as I might have with regard to the 5 per cent, as to whether it related to gross or net income. The resolution as it stands has a delimiting feature. The maximum deduction is $1,000. The minister surely knows-and I am speaking not for those in the low bracket particularly, but for those in

the higher brackets-that there are people who cannot live on their income despite the fact that they have been trying by various means to avoid drawing on capital. The minister himself does not want people to draw on capital. They do not want to do it. If they have a large income, half or more than half of it is taken from them. Suppose that a man's income is $20,000. He has to spend $1,000 before he is entitled to the exemption. It does not apply in the same degree to the smaller brackets, and where there may be a good deal of sickness in the family it may create a real hardship among the class which is already doing its share and more than its share. In any event it is not open to substantial evasion, because there is that limitation of $1,000 which, applies to the poor man as well as the formerly wealthy man.


James Lorimer Ilsley: I am not so greatly concerned about persons who have capital and can meet exceptional medical expenses out of it. That is what people have done in the past from time immemorial. When people had money saved up and were faced with hard times through illness they had to use some of their savings, and from that there arose the saying about saving against a rainy day. This is provision for the small man who has no capital, and has not enough income and is saddled with an exceptional amount of medical expenses.


[Stage Direction]
Resolution agreed to.
16.	That the revenue losses in any business, of the immediately preceding year, may be allowed as a deduction.
Mr. CASTLEDEN:: What is the definition of "revenue losses"?


James Lorimer Ilsley: Operating losses-losses on profit and loss account.


George Hugh Castleden: For the last year?


James Lorimer Ilsley: For 1942.


George Hugh Castleden: Will be deductible for the 1943 payment?


James Lorimer Ilsley: Right.


James Arthur Ross: I suppose "business" includes farmers or anyone operating such a set-up?


James Lorimer Ilsley: That is right.


James Arthur Ross: For the previous year they could deduct a loan on insurance, or a bank loan, which had taken place the previous year and which they were not able to meet then?


James Lorimer Ilsley: No; this does not apply to a loan in 1941. It begins now; it is for the

Income War Tax Act
future. We cannot go back and determine losses in previous periods; we have no way of doing so. It means losses; when the hon. gentleman says "deduct a loan", that may not be a loss.


George Hugh Castleden: Has the minister any idea as to what extent this will affect the revenue for 1943?


James Lorimer Ilsley: No. Not very greatly I think; not many people are making losses.


[Stage Direction]
Resolution agreed to.
17.	That contributions not exceeding $500 to any one registered prospecting syndicate searching for base metals or strategic minerals, but not exceeding $5,000 in the aggregate, and payments not exceeding $5,000 by any corporation in respect of its own prospecting expenses for similar minerals, may be allowed as a deduction from the income of any taxpayer, provided that the tax saving under this act and the Excess Profits Tax Act, 1940, shall not exceed 40 per centum thereof in each case.
John Ritchie MacNicol: Have the engineers and geologists of the Department of Mines and Resources decided that $500 is a fair amount to allow for a single prospector, or $5,000 to a firm having many prospectors out. I know firms that have a large number of prospectors out. Is that a reasonable amount?


James Lorimer Ilsley: It is not intended to be. This $500 is not estimated to be the costs of a syndicate doing prospecting or even of the prospector. A contribution of $500 by any person is allowed as a deduction if it is a contribution toward the costs of a prospecting syndicate.


John Ritchie MacNicol: But a contribution of $500 for the operations of one prospector?


James Lorimer Ilsley: No, one contributor.


Howard Charles Green: As this resolution reads it does not apply to a contribution to a prospector as an individual; it is a contribution to a prospecting syndicate.


James Lorimer Ilsley: That is right.


Howard Charles Green: Is there to be no exemption for money advanced to a prospector?


James Lorimer Ilsley: It has to be a registered syndicate. I understand the registered syndicate employs the prospectors.


Howard Charles Green: In how many provinces is there provision made for registering the syndicates?


James Lorimer Ilsley: Does the hon. member want me to get some information about the provinces that register syndicates?


Howard Charles Green: Yes.


Ernest Edward Perley: It relates to the search for minerals. If a person contributes $500 to a search for oil and gas, would that come under this provision?


James Lorimer Ilsley: No, it is not covered.


Ernest Edward Perley: If a person, instead of contributing to a syndicate, contributes to an incorporated company for the same purpose, does he get the deduction?


James Lorimer Ilsley: It is not covered by the resolution. I think that the kind of minerals referred to here are found by prospecting and that the prospecting is carried on pretty generally by syndicates.


Ernest Edward Perley: If an individual who does not tie up with a syndicate or company decides to drill a well prospecting for oil or gas, he does not get anything under this resolution?


James Lorimer Ilsley: No, that is not covered.


Ernest Edward Perley: The minister asked that resolution 11 stand. What was the idea?


James Lorimer Ilsley: I wanted to get some more information. We have had strong representations that we should not pass this, but I am not convinced, and I wanted to get a little more information before I put it before the committee, because some hon. members will make the same representations that have been made to me, and I wanted to be in a position either to answer or admit their soundness.


Howard Charles Green: Why is this exemption to be restricted to a prospecting syndicate? Surely there should be some provision made for contributions to individual prospectors.


James Lorimer Ilsley: This was an arrangement worked out some months ago-I made a statement about it in the house at the time-with the metals controller, at the instance, I think, of the metals controller and with the knowledge and advice of the Department of Mines and Resources and also the prospectors' association, of Ontario, I think. It was thought advisable to confine these advances to bodies that could be controlled, whose books could be audited, bodies of recognized standing. I do not know that it would be appropriate to recognize contributions to individuals.


Howard Charles Green: The point to be made clear is whether similar provision is made for prospecting in other provinces. I do not believe this plan would work out in British Columbia; as far as I am aware it would not. Some plan should be inaugurated which would enable prospecting to be done in the other provinces on the same basis. I understand

Income War Tax Act

the purpose is to find new metal deposits. It is not a matter of helping some people; the purpose is to find new metals. That purpose should be kept in mind in drawing up the provisions; in other words, what is the best way to get prospectors out in the hills in each of the provinces.


James Lorimer Ilsley: We acted on the advice of people who seemed to know about it, and we understood that in every province where prospecting is practicable, facilities exist for the registering of prospecting syndicates.


George Henry Ross: I do not know of any registration of syndicates in Alberta.


Mr. EDWARDS:: With whom are they registered?


James Lorimer Ilsley: The provincial governments, I am told. I shall have to get more information. I was going on the advice of people who know, the metals controller and the Department of Mines and Resources. This was carefully worked out with them. I think hon. members will find that there are facilities for registering these syndicates in all the provinces where prospecting is done, but I will find out more definitely.


John George Diefenbaker: As far as these mining and prospecting syndicates are concerned I think they are in existence in practically every province. When a prospector is sent out, provision is made whereby those who grubstake him register what is called a syndicate agreement, so that when the prospector returns and registers the claims those who advance the money will be assured of registration. The regulations are practically the same in every province. Originally they were dominion regulations. I am sure they are in effect in British Columbia; they are in Saskatchewan and Alberta. It is the only way protection can be accorded to those who bona fide send out a prospector with a view to locating mineral deposits.


Thomas Vien: Shall the resolution carry?


Howard Charles Green: The minister has promised to get some information.


Mr. QUELCH:: Is gold classified as a strategic metal?


James Lorimer Ilsley: No.


Thomas Vien: Carried.


Howard Charles Green: No. I understood this resolution was to stand until we got certain information.


James Lorimer Ilsley: All right; let it stand.
Resolution stands.

18.	That the deduction provided for by section 7 of the said act under which a taxpayer is entitled to deduct from tax the amount paid under part III of the Special War Revenue Act, be repealed.


George Hugh Castleden: What will be the effect of repealing this section?


James Lorimer Ilsley: That is quite a long story. This resolution is related to the proposed amendments which were discussed the other day, regarding taxes on insurance premiums. The premium taxes provided for under the resolutions in question were not to be allowed as a deduction from income tax, and this resolution provided the amendment for disallowing the deductions. That is the whole story. If I remember correctly, there is a provision at the present time providing for the deduction from the income tax of fire insurance companies of the amount paid in premium tax, and we have changed that. The fire insurance companies are to pay straight ineome tax without the deduction, which means that they pay exactly the same amount, provided it is in profits. They do not pay the same if it is in losses.


[Stage Direction]
Resolution agreed to.
19.	That salary and other periodic payments payable to non-residents of Canada who are residents of a country which imposes a tax of a similar nature shall be subject to a tax of 15 per centum at the source.
Gordon Knapman Fraser: Will the Minister of National Revenue tell us when refunds may be expected from the United States government? At the first of last year the rate they charged was 16J per cent; then it was increased to 27i per cent, and later cut down to 15 per cent. When will the difference between 15 per cent and 164 per cent or 27i per cent be refunded?


Colin William George Gibson: I understand that if the company which deducted the tax has turned it over to the government of the United States, application must be made to the United States government, and I was given to understand that it would take several months before such application could be dealt with. I could not say definitely how long it will take the United States government to make these refund's.


Gordon Knapman Fraser: Is it the company that made the deduction that has to apply to the United States government for the refund, or is it the individual?


Colin William George Gibson: If the tax was still in the hands of the company that deducted it- because I believe they turn in their taxes to the government only about once a year-the company would pay it out. If the company

Income War Tax Act
has already turned the tax over to the United States government, then application would have to be made to that government.


Gordon Knapman Fraser: By the individual?	.


Colin William George Gibson: By the individual-the shareholder or whoever would be entitled to the refund.


Mr. ESLING:: Does this section have reference to the discrimination, in connection with the remittance tax, in favour of film producers?


James Lorimer Ilsley: This has reference to the same section of the Income War Tax Act, which relates to the tax on film rentals, but it does not deal with film rentals.


William Kemble Esling: But it is the section to which I referred the other evening, under which for some reason rentals or revenue from motion picture films is singled out from all other payments, in that the tax paid is only 10 per cent instead of 15 per cent.


James Lorimer Ilsley: That is right.


William Kemble Esling: Those rentals amounted to $12,600,000 this year. Then the agencies were allowed to deduct $3,000,000 for distribution expenses, leaving almost $10,000,000 net; and it does not seem to me that any syndicate or concern or aggregation of agencies that can take in a clear $10,000,000 is in such necessitous circumstances that it should request the government to single out its remittances and reduce the tax from 15 per cent to 10 per cent, while all other sums remitted to any other persons having investments in Canada must pay the higher rate. Only to-day every hon. member from British Columbia received a telegram charging that the motion-picture agencies were endeavouring to squeeze out the independent theatres by increasing their charges for these films, notwithstanding the fact that the price control board fixed the rates at a certain level last September. Those protests will go to the wartime prices and trade board, and eventually to the minister, but I am emphatic in my protest against this consideration being given the film agencies. They are making enough money as it is; yet in every case since 1936 some special consideration seems to have been given to these people. Will the minister tell us why that has been done. We shall lose half a million dollars in 1942 as a result of this sympathetic treatment of these film agencies.


James Lorimer Ilsley: This matter is not strictly covered by the resolution, but I know the hon. gentleman's views on this subject. I listened very carefully to his remarks the other night, when he urged that we were not justified in 44561-283|
imposing a rate of less than 15 per cent. I am very familiar with this matter; it has been under consideration several times, as the hon. member says, and certainly last year, when we raised the rate from 5 per cent to 15 per cent, I was satisfied that this rate would be unjust in regard to film rentals. The statements of the companies were submitted to us, and as far as I could ascertain there could not be anything wrong with those statements. The argument they advanced was that if this tax, which is a gross tax, were levied at the rate of 40 per cent or perhaps even 50 per cent or 60 per cent on the net earnings of these companies, it would yield much less than is paid under the 10 per cent tax on the gross rentals, that is, on the proportion of the net earnings which would be allocable to the Canadian business. We may have been misled; we may have been fooled, but I have no reason in the world for thinking so. The film companies certainly consider that this rate is entirely too high in the light of their net earnings.


William Kemble Esling: Well, Mr. Chairman, these must be the net earnings.


James Lorimer Ilsley: No, this is the gross income remitted.	.


William Kemble Esling: But from the gross income they have been allowed a reduction of $3,000,000 to cover all the expenses of distributing these films, which expenses include the cost of the film and the cost of printing. Three million dollars is quite a large sum to cover such expenses. It covers not only costs of distribution, but the pay of every employee in the seventy-three agencies. These agencies represent the moving-picture producers in the United States who send their films here.


James Lorimer Ilsley: The real costs are in connection with manufacturing the films in the United States.


Thomas Vien: I have allowed some latitude, but I am afraid that the question being discussed by the hon. member does not fall within the scope of the resolution now before the committee.


William Kemble Esling: With all deference to you, Mr. Chairman, it is the 15 per cent tax on remittances to residents of the United States.


Thomas Vien: Not corporations.


William Kemble Esling: These people are singled out for great preference. I merely asked the minister why this is done and he does not tell us.


Howard Charles Green: On the point of order, the minister has stated that this resolution deals with the particular matter to which the hon.
Income War Tax Act

*member for Kootenay West (Mr. Esling) is referring, and therefore I submit that he is *directly in order.


Thomas Vien: I understood the minister to say the very reverse.


James Lorimer Ilsley: It would be an amendment to the section. These salaries and other periodic payments do not include the periodic payments to which the hon. gentleman is referring.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


Mr. GRAYDON:: Mr. Chairman, I am not quite certain whether you ruled out any reference to the tax on non-residents on this clause, but there was one point I wanted to raise with the minister, if I may.
In 1941 the tax on non-residents was increased, as the minister said this afternoon, from 5 to 15 per cent. There have been a number of people in Canada who have not been very well satisfied with the taxation of non-residents who make their income largely in the Dominion of Canada itself. I realize, at least I think I do, some of the difficulties we face in imposing a tax on these nonresidents which will be in some measure commensurate with what should be placed upon them. It would appear from the information I have that non-residents take out of Canada about $300,000,000 of profits and interest from investments of one kind and .another. I am not sure that that figure is absolutely accurate, but it is the latest figure that was given to me. As opposed to that, Canadians owning investments outside this *country have brought into Canada something like $35,000,000. The discrepancy between the two is very great. The non-resident taxpayer, in the opinion of a good many business people in Canada, gets off rather lightly *compared with the heavy increase in income taxes that we have to pay.
Has the minister given any thought to the [DOT]question whether, now that our income tax on residents in this country has been raised to such high levels within the past few weeks, we are not dealing just a little too leniently with the non-resident taxpayer who does not live in Canada, and who gets off almost scot-free compared with the taxation our own people have to pay? The tax of 15 per cent *on non-residents is very small having regard to the taxes our own people are called upon to pay. I know there must be some answer to that; nevertheless a good many people

in this country are concerned lest we are missing a splendid opportunity at least to increase our revenues, when they are so badly needed, by imposing a heavier tax on nonresidents.


James Lorimer Ilsley: A year ago we raised the non-resident tax from 5 to 15 per cent, and automatically the tax in the United States went up to 164 per cent, and later was raised by congressional action to 274 per cent. We then made an agreement with the United States by which this tax in both countries was reduced to 15 per cent, which is the present level.


Richard Burpee Hanson: That was the basis of that convention, was it not?


James Lorimer Ilsley: Yes. Our traditional policy has been a low non-resident tax. Before the war it was considered good policy to have a low non-resident tax to encourage investments in Canada. The same considerations do not apply now to anything like the same degree. However, 15 per cent is a substantial tax as a gross tax. It is not a tax on net income but is a gross tax which is taxable against a person who has no income abroad. He is taxed, nevertheless, 15 per cent on what he receives in Canadian income.


Gordon Graydon: In the debate last year the minister mentioned the item of rent. For instance, he said that the non-resident taxpayer paid on the full amount of rent he received and was not allowed to deduct tax or mortgage interest from that.


James Lorimer Ilsley: We started out to do that and then found it was too severe altogether.


Richard Burpee Hanson: And had to back up.


James Lorimer Ilsley: And had to back up, as
the leader of the opposition says.


Gordon Graydon: I should have remembered that. It was one of your retreats, and they are rare.


James Lorimer Ilsley: Exactly. I think the
$300,000,000 which my hon. friend mentioned must include payments from Canadian subsidiaries to United States parent companies. We deliberately refrained from placing a tax on such payments, although there is a 5 per cent tax on remittances from United States subsidiaries to Canadian parent companies.


Richard Burpee Hanson: These
Canadian subsidiaries pay a tax here, of course.


James Lorimer Ilsley: Yes. The argument for no tax on these remittances is pretty strong

Income War Tax Act
because the earnings of these Canadian subsidiaries are taxable at our excess profits tax rates.


Richard Burpee Hanson: Is much
care taken in checking up to see how flhey arrive at their profits? Bookkeeping is a wonderful art, and if you know how to handle a situation you can cover up a multitude of sins. Are their accounts audited regularly by competent auditors?


James Lorimer Ilsley: It is an income tax problem.


Harry Rutherford Jackman: I suppose the minister is familiar with the case of some people in the United States who derive a very small income from Canada. Perhaps they were formerly residents here. The tax of 15 per cent, plus the 11 per cent discount on exchange funds, does create a certain hardship for these people. Their own tax in the United States is probably a good deal less than 15 per cent, or their income may be so small that it is not taxable at all. I presume the minister has considered such cases. I do not know that anything can be done on behalf of these people. I merely point out to him that resolution 19 seems to impose a severe penalty on people living in the United States, probably former Canadians, who derive their income from Canada.


James Lorimer Ilsley: That is the answer to the hon. member for Peel.


Gordon Graydon: I have no objection to the answer coming from an authoritative source. I feel more confident about that answer than about some I have received in the last few days.
There has been some question as to the amount of income which goes out of Canada into the United States. Has the minister any figures on that?


James Lorimer Ilsley: I have not the figures.


Richard Burpee Hanson: On balance the transfer is very much against us, is it not?


James Lorimer Ilsley: Yes.


William Kemble Esling: Prior to the dinner recess I referred to a matter of which the chairman questioned the relevancy. The minister intimated that it had something to do with this resolution, although it is not specifically mentioned in it.
The minister brings down a budget to raise funds for the conduct of the war, and this resolution places a 15 per cent tax on remittances to non-residents of dividends, interest, royalties, rentals and so on. Here is a specific case of remittances for the rental of films. I presume the minister must have a good reason for discriminating in favour of these
film agencies, which have $10,000,000 to remit, when the tax is reduced from 15 to 10 per cent in their case. To-day every member for British Columbia has received telegrams protesting against these very agencies raising film rentals to independent theatres, apparently for the purpose of putting independent theatres-out of business and getting control of them. But aside from all that, this tax remains; you are raising money; you are asking people to buy war savings certificates, and you are giving to these big picture producers this year and every year thereafter $450,000 by way of exemption of tax. It does not seem unreasonable for one to ask why.


James Lorimer Ilsley: I told the hon. member why. There is not a flat rate of 15 per cent on everyone else. Receivers of real estate rents in the United States from Canadian properties-are taxed 15 per cent on their net, if I remember correctly, not on their gross. An exception was made in their case because of very strong representations in this house and out of it. Among others, I remember, the diligent hon. member for Vancouver South (Mr. Green! urged that the tax was entirely too great.


Howard Charles Green: Not on films.


James Lorimer Ilsley: No, I did not say that. I said, on real estate rents. The point I am trying to make is that this is not the only exception. For a number of royalties and the like, 15 per cent is an appropriate rate, but representations which were made certainly convinced me that it was an excessive rate in this particular case. Anyone is entitled to-his opinion about this. If the Canadian business of the United States motion-picture producers is regarded as so much velvet to them, as surplus business, export business, we might be justified in putting a very high tax on them. But they have always contended, and I think with considerable justice, that that is a very unfair basis on which to impose the tax. They have said that we should have some regard to their net position, and they have pointed out that this 10 per cent tax is much higher than a 40 per cent tax would be on their net earnings if an allocation of a fair proportion of their net earnings is made to the Canadian business.


Richard Burpee Hanson: That
would be a question of fact.


James Lorimer Ilsley: Their facts, I think, are
correct on that. They appear to be represented by reputable counsel, at any rate; they show us all the figures; and on the net basis, if we convert this into a tax on the net income, it would be at a terrifically high rate. It is-away high now.
Income War Tax Act


Richard Burpee Hanson: Having
regard to the excess profits tax?


James Lorimer Ilsley: I do not know what its equivalent is on a net basis, but it would be very high. The matter was carefully gone into, and I came to the conclusion that 15 per cent would be harsh.


Ernest Edward Perley: What is being done about the large United States grain companies known as the "Big Three"-the Dreyfus company, Bunge, and the Continental-with headquarters in New York? They have offices in Winnipeg, and as the minister knows, during peace time they did about 50 per cent of the exporting of Canada's wheat. Even now, I am informed, they are doing a considerable business in Winnipeg, not only as exporters, but generally, and they must be making substantial profits. Is there any check on the amount of business they are doing and the profits they are making on Canadian business? If there is, has the minister any way of ensuring that these companies pay a tax comparable with the business they are doing in Canada?


James Lorimer Ilsley: I do not know what the situation is. It is my recollection that the point came up when I was Minister of National Revenue and that the ruling was that they are not doing business in Canada in such a way as to be taxable.


Ernest Edward Perley: They exported at least
70 per cent of Canada's wheat in 1938 and a very considerable amount in 1939, and I understand that even now they are exporters on a large scale. Consequently they are certainly doing business in Canada.


James Lorimer Ilsley: The hon. gentleman is a lot surer of it than I am. The practice about the taxation of principals that are doing business by agents in Canada is well settled, but I should not like to say exactly what treatment these grain companies have received.


Ernest Edward Perley: They are members of the
Winnipeg grain exchange and of the clearing house, and they have their offices there.


James Lorimer Ilsley: I see.


Richard Burpee Hanson: Will the
department look into the situation now? They may have Canadian subsidiaries; I do not know. Maybe they have merely agents in Winnipeg, but if they are doing a substantial portion of the export trade as well as a general grain trade, it is up to the department to examine the position with care.


Ralph Maybank: What is the present
status in connection with payment of income tax, of the pools? Is that sub judice, or has a decision been made?


Colin William George Gibson: I could not give a statement as to what is being done with regard to any individual taxpayer. We have had an opinion of the Department of Justice, and the matter is receiving legal consideration at the present time.


Richard Burpee Hanson: That is
where it was a year ago.


Colin William George Gibson: Well, it has progressed
beyond that.


Harry Rutherford Jackman: Would the minister explain why United States subsidiaries operating in Canada do not pay a 5 per cent withholding tax, whereas Canadian subsidiaries operating and perhaps fully owned in the United States have to pay a withholding tax on the part of the United1 States government? Is it because Canada is normally a capital importing country and we want these investments?


James Lorimer Ilsley: We have the right to impose a 5 per cent tax under a convention. We just do not do so, as a matter of policy.


Ralph Maybank: I want to follow up my question a little further. I realize that the minister cannot say what any particular taxpayer is paying, but in the way his answer was given it amounted to about this, "we came to a decision last year." The answer did not mean much more than that.


Colin William George Gibson: What do you mean by "we came to a decision"?


Ralph Maybank: What I wanted to know is whether it is clear that the wheat pools are taxable. If a decision has been reached to that effect, has it been appealed; is it before the courts? I should like something more than "we came to a decision a year ago." That is a year ago; we ought to be able to get a little farther than that.


Colin William George Gibson: I do not quite understand
what the hon. member is referring to when he states that we came to a decision last year.


Ralph Maybank: I was quoting the
minister.


Colin William George Gibson: Well, the investigations
*were in progress last year; I do not know that there is any particular secret in the fact that we are going ahead assessing the various pools, and possibly the question will come before the courts whether they are or are not cooperatives.

Income War Tax Act


Ralph Maybank: Well, that is what I
want to get. The matter is still sub judice?


Colin William George Gibson: I imagine it will be before
the courts for final decision.


Richard Burpee Hanson: What the minister has said is that a year ago the matter was under decision. Since then it has been decided to assess them. I assume that the pools are repelling that position and that the matter will have to go to the courts.


Colin William George Gibson: That is probable.


[Stage Direction]
Resolution agreed to.
20. That the tax payable by all persons other than corporations shall be paid by quarterly instalments during the six months immediately prior to the close of the calendar year and the six months immediately subsequent to the close of the calendar year
(a)	as to the six months, July to December, one-quarter of the estimated tax on or before the 15th day of September and the 15th day of December each year, having regard to the previous year's income and applying the current year's rates, and
(b)	as to the six months, January to June, one-half of the tax (after deducting therefrom the previous two quarterly payments) on or before the 15th day of March and the 15th day of June each year, having regard to the income and applying the rates of the taxation year.
This shall be applicable to the tax on income of the calendar year 1942 and each year thereafter.
Any additional tax found due over that estimated or declared by the taxpayer shall be paid immediately upon assessment, together with interest at 5 per centum after four months from the close of the calendar year.
This instalment method of payment shall not apply to persons whose tax is being deducted at the source in respect of salary or wages, and whose salary or wage constitutes three-quarters or more of his income;
Gordon Knapman Fraser: Will the minister explain why he has changed payment* this year to quarterly for the individual and monthly for the corporation, and why he has made the last payment June 15 instead of August 31?


James Lorimer Ilsley: I have an amendment to propose to this resolution which changes some of the dates of payment. The amendment is:
That resolution 20 be amended by changing the dates for quarterly payments provided in paragraphs (a) and (b) from the 15th day of September and the 15th day of December in paragraph (a) to the 15th day of October and the 15th day of January, respectively, and from the 15th day of March and the 15th day of June in paragraph (b) to the 15th day of April and the 15th day of July, respectively;
and that resolution 20 be further amended by adding to the end of the final paragraph thereof the following:
"Such persons shall file their income tax returns on or before the 30th day of September in the year following the close of the taxation year."
That makes two important changes with regard to those who are paying in four instalments. The dates are made a month later throughout than the dates mentioned in the resolution, and another very important change is that so far as the yearly return is concerned, instead of its being made on the 31st day of March as at present, it will be made on the 30th day of September at the end of the instalment period.


Colin William George Gibson: I move accordingly.


Richard Burpee Hanson: That is to be the general rule. I think the taxpayers of the country will be obliged to the minister for the change, because in my view the payments were coming too thick and sudden. If we are to have until October 15, it gives us a month longer in each case. I am wondering why the minister has made it necessary for corporations to pay on a monthly basis but is making a change with regard to personal incomes from the monthly basis, which I at least found so satisfactory, to the quarterly basis. Why should not a taxpayer have the right of election? Why has the method of last year been discarded altogether and the quarterly basis adopted? I do not think the delay in the filing of income tax returns until September will help him materially. It is the question of payments and how rapidly they are to be made that bothers most of us, and I wonder if the minister would take this into consideration and answer first this question: Why should corporations be allowed to pay income tax by monthly instalments, whereas individuals in certain categories-this applies only to individuals in certain categories-are required to pay by quarterly instalments? I should think those individuals who desire to pay by monthly instalments should have the same privilege extended to them as to corporations. Personally-and I think this would be true of a good many other small taxpayers-it would be very much more advantageous and easier to pay by monthly instalments than quarterly. You can budget so much more easily. There may be an administrative reason; I do not know. Has the work doubled, or has it greatly increased? Under the present system a man paid in the four months of 1941 a relative portion of his assessed tax. Then at the end of the year he made up his assessment and arrived at what balance was
Income War Tax Act

due, and he paid it in eight monthly instalments. We are still paying on these and shall be until the end of August. That position was a fair one, and it made it easier to pay. I wish the minister would tell us why the change has been made. That will be the first question.


Colin William George Gibson: There is nothing to prevent the taxpayer from paying on the monthly basis as heretofore.


Richard Burpee Hanson: That will be in the statute?


Colin William George Gibson: No, but the income tax department will always take payments on account. He is required to pay at least quarterly but monthly payments can be made if desired.


Richard Burpee Hanson: Thanks
for that. The provision is then that the taxpayer will have an optional method of paying. He may pay in twelve monthly instalments if he chooses. In that event he would have to go on the same formula as last year, or he could make quarterly payments if he desired.


Colin William George Gibson: We are not even restricting him to monthly payments. He oan pay as often as he likes, provided he pays the required amount within the quarter. We do not care if he pays every two weeks.


Richard Burpee Hanson: He has to pay a quarter at least by October 15. He has just finished paying for 1941, and he will have September and half of October to pay a quarter of the whole.


Colin William George Gibson: Yes.


Richard Burpee Hanson: That is a little severe. He has to pay in six weeks a three months' period. On this basis he would have to finish by July 15, and that is six weeks ahead of what he is doing this year. The whole thing has been moved up by several weeks.


Colin William George Gibson: There is overlapping.


Richard Burpee Hanson: That will make it difficult.


John Ritchie MacNicol: Moving the date from
September 15 to October 15 will certainly help many people. In the cities on or before September 15 the last instalment of city taxes will just have been paid; the water rates will be due, and the householder has either put his coal in for the winter or is putting it in, so that the month's grace will help. But I wonder if even October 15 will not handicap a good many. There are some who would

like to pay all at once, but the discount does not make it worth while. Is it one per cent where the taxpayer pays all in advance?


Colin William George Gibson: There is no discount.


John Ritchie MacNicol: Then there will be no
advantage in paying in advance.


Richard Burpee Hanson: Not a bit.


John Ritchie MacNicol: What about the farmer? I am connected in one way with a farm, but it does not affect the farm I have in mind. Farmers' crops may be	harvested by
October 15, but they will not have been disposed of by that time.	How will the
farmer pay even on October 15 before receiving from the government, as in the western provinces, the allowance with respect to wheat, for instance? The fall payment on machinery will be due. I sincerely hope that the income tax will not work to the disadvantage of the whole country as so many seem to think it will. It certainly will come very hard on most people, advancing the payments from March 31 as they have been making them in the past, to October and January, at a time earlier than they formerly paid their taxes.


Ernest Edward Perley: I am sure the minister will appreciate the plea made on behalf of the farmers by the hon. member for Davenport. He is always on the job, whether it is farming, mining or anything else. The change in the dates of the quarterly payments will be of some assistance, but I should like to have seen the first made November 15 at least, and the second, February 15. Western members can verify the fact that the farmer will not have much return by October 15. This year the season is late; expenses have to be met first; the quota on the first delivery may be very small, not many farmers will be able to take advantage of the first quarterly payment on October 15. Would the minister consider making it November 15? I have no objection to April and July.


James Arthur Ross: I should like to endorse what was said by the hon. member for Qu'Appelle, particularly with reference to this year. If the minister will discuss this matter with his colleague the Minister of Trade and Commerce, he will find he is having difficulty right now with his wheat board in trying to work out some arrangement whereby the coming crop can be marketed. There will be a tremendous shortage of help this fall, and even in a normal season October 15 is very early for the farmer to make his first payment. This is going to be an abnormal season. There is a great shortage of help on the prairies to take
Special War Revenue Act


Richard Burpee Hanson: Are there any changes?


James Lorimer Ilsley: There are a few provisions
additional to the resolution. They are administrative, for the most part, and will be explained by my colleague the Minister of National Revenue. I was asked to consider many changes. I cannot remember them all, but they have all been considered.


Richard Burpee Hanson: Articles
purchased by instalment payment but not delivered-I do not know what clause that would come under.


James Lorimer Ilsley: That is the retail purchase tax section, I suppose. I will bear that in mind and mention it when we come to it. I do not know how far I should go in drawing to the attention of the committee changes which have been made, but I want to do so, so that it will not be said that anything important was changed without the committee having been advised. There is a change made in the definition of "company", and in subsection 2 will be found paragraph (b) defining or interpreting the term "company".


Richard Burpee Hanson: That is, insurance company?


James Lorimer Ilsley: Yes. A change has been
made with reference to companies all of whose business is the insuring of churches, schools, or other religious, educational or charitable institutions. The situation in the past has been that a mutual company which insured farm property to the extent of at least 50 per cent of its business was free from the special war revenue tax of one per cent on the premium. But that exemption did not extend to companies whose business was wholly the insuring of churches, schools or other educational or charitable institutions.


Richard Burpee Hanson: Are there such companies?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Where?


James Lorimer Ilsley: Parish mutuals, in the province of Quebec. When we prepared the resolutions we substituted a 3 per cent for a 1 per cent tax on those institutions, although there had never been any provincial tax on them. The result was clearly unjust. The whole question was then whether in preparing the bill we should remove the 2 per cent that we had inadvertently imposed in the resolutions, or whether we should relieve them altogether. Well, if their business is wholly- 100 per cent, not only 50 per cent as in the case of the farm mutuals-the insurance of churches, schools or other religious, educa-
tional or charitable institutions, it seems to be a reasonable thing to remove it altogther. That is what is done here.


Richard Burpee Hanson: Is it a
large business, and would the amount of revenue be important?


James Lorimer Ilsley: It is very small. I think there are onfy two which have been brought to my attention. I believe there are arrears due from one of them and they never knew they were taxed. We shall have to collect the arrears, but I do not think it makes much difference.


Richard Burpee Hanson: The total premium income of two small parish companies would not be very much.


James Lorimer Ilsley: They might not be so small. I do not know just what it is, but my impression is that it is not a very serious matter.


Mr. LOCKHART:: Does that enable the setting up of new companies which may be relieved too?


James Lorimer Ilsley: Yes, if there are mutuals formed, 100 per cent of whose business is the insuring of these institutions there will be no tax on their premiums.


Richard Burpee Hanson: What steps do you take to ascertain that it is a 100 per cent, that their operations are limited to this business? Is there any inspection? Does the superintendent of insurance make any examination of their books?


James Lorimer Ilsley: He has to ascertain the facts in some way or other.


Mr. SENN:: Do I understand that there is no tax on farmers' mutual fire insurance
companies?


James Lorimer Ilsley: There is none if 50 per cent of their business is the insurance of farm property. That exception was inserted some years ago, at the instance of the late Mr. Cayley, who was the member for one of the Oxfords. He pressed very strongly that farm mutuals be relieved, and they were relieved.


Richard Burpee Hanson: And that is maintained here?


James Lorimer Ilsley: It is maintained here, yes.


[Stage Direction]
Section agreed to.
Sections 3 and 4 agreed to.
On section 5-Tax on certain insurance companies upon net premiums.
John George Diefenbaker: Why is it that, for instance, Lloyd's are required to pay 3 per cent tax and other companies in the Domin-

Customs Tariff
on raw leaf tobacco there was an advantage of 25 cents a pound to the producers of that commodity, that being the amount of the duty on manufactured tobacco when there was no duty on the raw leaf. It became necessary to raise the duty on manufactured tobacco to 35 cents a pound, and it was felt necessary to maintain the old relativity by imposing a duty of 10 cents a pound on raw leaf tobacco. This still left a spread of 25 cents a pound. In this budget we are increasing the duty on manufactured tobacco to 51 cents a pound, and have increased the duty on raw leaf tobacco by 10 cents a pound. This increases the spread between manufactured and raw leaf tobacco to 31 cents a pound. It would give a great competitive advantage to raw leaf tobacco if we left the preference in favour of that commodity at 41 cents a pound, which is what the hon. member is advocating.


John Power Howden: Is this an excise tax?


James Lorimer Ilsley: It is what we call an excise duty. The difference between an excise duty and an excise tax is that the duty is payable before the goods are released. While the committee may not be interested in the outlays of the manufacturing companies, it must be remembered that their initial outlay is simply enormous. We have had strong representations against our adopting the duty principle in regard to the manufacturers, because it forces them to have many millions of dollars tied up for substantial periods. They must pay the money to the government before they can sell, before their product can be released, and their money is tied up for months, sometimes for longer periods. I am afraid that it would be a violation of the principle applicable to competitive business if we left too great a spread between the tax on raw leaf and the tax on manufactured tobacco. Raw leaf tobacco is a competitive product because people put it in their pipes to smoke. We did not think we could go any further in increasing the spread.


John Power Howden: Have the local growers
any tariff advantage over American tobacco?


James Lorimer Ilsley: There is a heavy duty on
importations.


John Power Howden: Then they will still have
some advantage?


James Lorimer Ilsley: The hon. member was not
complaining about imported tobacco. I think there is sufficient protection against that. He was referring to the heavy outlay which the small man has to make to put himself into a position to sell.


John Power Howden: I gathered that the
farmers get only about 10 cents a pound for
their tobacco, and if this tax is going to run it up to 20 cents, it would seem to be a poorpaying proposition for them.


James Lorimer Ilsley: The farmers were selling
tobacco to the manufacturing companies. I do not know what the price was, but I remember that we discussed it at length before the price spreads committee some years ago. It is away below the duty.


Mr. FERLAND:: WThat was the revenue
from the tax on tobacco during the fiscal years 1940 and 1941 from the month of August?


James Lorimer Ilsley: The quantity of Canadian
raw leaf tobacco sold for consumption and the duty collected since the inception of this item was as follows:	For the fiscal year
1940-41 from August 1, 1940, rate 10 cents per pound, quantity in pounds, 1,754,173, and excise duty collected $175,417.40; for the fiscal year 1941-42, rate 10 cents per pound, quantity in pounds, 3,458,006, and excise duty collected $345,899.30.


[Stage Direction]
Section agreed to.
Preamble agreed to.
Rill reported, read the third time and passed.

[Stage Direction]
Hon. J. L. ILSLEY (Minister of Finance) moved the second reading of Bill No. Ill, to amend the Customs Tariff.
Motion agreed to, bill read the second time, and the house went into committee thereon, Mr. Vien in the chair.
Sections 1 to 3 inclusive agreed to.
On the schedule:
Grote Stirling: On several occasions
when this bill was in the resolution stage the minister said that he would give consideration before the bill was presented to certain questions which had been raised. Were there any such in connection with this schedule?


James Lorimer Ilsley: There were none in this one.


[Stage Direction]
Schedule agreed to.
Bill reported, read the third time and passed.

[Stage Direction]
Hon. J. L. ILSLEY (Minister of Finance) moved the second reading of Bill No. 114, to amend the Special War Revenue Act.
Motion agreed to, bill read the second time, and the house went into committee thereon, Mr. Vien in the chair. j
Section 1 agreed to.
On section 2-"Company."
Excise Act Amendment
[Stage Direction]
this type of tobacco, but that was removed by the Liberal government in 1923. When the new tax of 10 cents a pound was imposed in 1940 I made representations to the Minister of Finance and some other ministers of the crown against the tax. At the same time, at my request, the premier of Quebec, Mr. Adelard Godbout, made representations. Then, the farmers' organization, L'Union Catholique des Cultivateurs, and some other interested organizations, made their representations. However our requests were not met. The answer to our protest was that the raw leaf tobacco industry was amply protected through the higher taxation on manufactured tobacco. Last year's tax on Canadian raw leaf tobacco was 10 cents a pound, and on manufactured tobacco it was 35 cents a pound. To-day under the present scheme the tax is increased on all Canadian raw leaf tobacco from 10 cents to 20 cents a pound, and on the manufactured or cut tobacco it is increased from 35 cents to 51 cents a pound. Then, there are increases to the extent of a few dollars a pound on other types of manufactured tobaccos, and on cigars and cigarettes. Of course the difference between the tax on Canadian raw leaf tobacco and that on other types is very great.
This great change in taxation is not helpful to the situation faced by the tobacco growers in my district of Quebec. The tobacco industry in that province has been developed under special conditions, and to-day the majority of small dealers cannot carry on their trade. Many of them have been put out of business in the last year. The reason is that some of these people were engaged in the distribution to consumers of pipe tobaccos. Those small dealers have only small capital, and have not had sufficient money to buy their tobacco, to prepare and steam it and put it on the market. They have not had sufficient money to advance to the government to cover the tax. To-day only those tobacco packers under licence are permitted to buy, prepare and steam tobacco. If a dealer wants to buy 5,000 pounds of tobacco he must first pay at least $500 to the farmer. Then he must spend another $500 to prepare and steam the tobacco, and to distribute it to the consumer. Then, on 5,000 pounds at 20 cents a pound he must advance to the government $1,000, making a total of $2,000 expenses before he may expect to receive any profit. From these facts it is clear that those poor, humble dealers who used to make their living by dealing in tobacco cannot afford to invest such large sums of money, and have had to go out of business.
There is a further reason for our objection to the tax. The growers of tobacco in my

district in Quebec used to produce from
5,000,000 to 7,000,000 pounds of big and small types of tobacco each year. That tobacco was distributed in great part by the small dealer. As I pointed out earlier, those who held the monopoly were not greatly interested in buying these types of tobacco. It is probable tnat the tobacco trusts found there was not sufficient profit . in that business, and therefore in the past they bought only a small proportion of the production.
If the farmers lose their markets because of the new tax and the restrictions imposed under the new regulations they will have no market at all. Last year, when the tax was only 10 cents a pound, the farmers were forced to reduce their production, and with the imposition of this new tax they are facing a crisis. I consider it my duty to protest against this tax. It seems to me that the [DOT] Minister of Finance could find some other method of raising revenue and be able to leave this tax at 10 cents a pound. The new tax of 20 cents a pound is unfair and unjust to the farmers of my district and of the province of Quebec. It is' not a liberal way of dealing with a group of farmers.
James Lorimer Ilsley: This is only one item in the Excise Act, and I think it could be more appropriately discussed when we are in committee of the whole-I mean by myself; I am taking no exception to my hon. friend's speech.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Vien in the chair.
Section 1 agreed to.
On section 2-Schedule.
Alexander Malcolm Nicholson: What are the comparable rates on spirits in the United States, Great Britain, Australia and New Zealand?


James Lorimer Ilsley: 
John Ritchie MacNicol: May I ask the hon. member what effect it has on the human race?


Mr. FULFORD:: Are there not other manufacturers in Canada who sell their products under the name of Geneva gin? I think there is a firm called Melcher's, is there not? I am not sure.


Mr. POULIOT:: As the hon. member knows, I have no right to speak again.


Mr. SPEAKER:: I would remind hon. members that this is the motion for second reading. We are not in committee.


Mr. LECLERC:: Perhaps it would be more interesting if we had a sample of the different gins.
Mr% POULIOT: I had a sample once, but it was an empty bottle.


Charles-Édouard Ferland: Mr. Speaker, in rising to oppose this amendment to the Excise Act I wish first to express my deep regret that the tax on Canadian raw leaf tobacco has been increased from 10 cents to 20 cents a pound. I protest again against this excessive tax on the Canadian natural product, for which in my district the farmer is paid only 10 cents a pound. I believe the new tax will give the coup de grace, the final stroke, to the tobacco industry in my district in Quebec. The constituency of Joliette-L'Assomption-Montcalm is the largest centre of production of raw leaf pipe tobacco in Quebec, and in that district there has been a high development of production and distribution.
Our Quebec tobaccos have been popular throughout Canada, and pipe smokers know very well that the tobacco produced in my district is of the best. During the first great war a tax of 5 cents a pound was placed on
Labour Conditions



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Humphrey Mitchell: The leader of the opposition (Mr. Hanson), the hon. member for Cape Breton South (Mr. Gillis), and the hon. member for Inverness-Richmond (Mr. McGarry), asked me about the adoption of the single shift system at the Inverness coal mine at Inverness, Nova Scotia. I think this should be stated, that I received no copy of the telegram except through my hon. friends. I requested the provincial authorities of Nova Scotia to furnish me with the necessary information to enable me to reply.
The mine in question is owned by the government of Nova Scotia. Those responsible for the operation of the mine reported a serious situation due to absenteeism. For example, for the period from January 2 to July 10, 1942, with a labour force of 312 men, they reported that during 152 working days approximately eight thousand shifts were lost by the employees. On the night shift of July 7 a number of men were off work. On July 8 the miners did not turn out for work because of the annual horse races, and the mine was idle. On July 9 the miners did not turn out for work, and again the mine was idle. On July 10 some men were off on the day shift, and on the night shift more than 25 per cent of the total working force of the miners failed to turn out. The absenteeism was causing loss of production, and the cost of operation was excessive. For these reasons the management decided to single-shift the mine, and worked out a programme that would increase production and bring about more stabilized and uniform conditions.
The majority of the men belong to the United Mine Workers of America. I know that it has been stated to some hon. members that the change in working conditions was a breach of a contract with the union. However, the provincial authorities are of the opinion that no breach of contract took place, because the district executive of the union have been told verbally on more than one occasion that the change might be necessary unless the serious condition of absenteeism was overcome.
As to the effect of single-shifting the mine, there are, as I indicated, 312 men on the payroll. Of this number 237 are at present employed, leaving about 75 men immediately affected. The management believe that the absorption of all the men will take place

very shortly if the cooperation of the working force is obtained and production can be increased.
It appears that the quality of coal is not as good as it was formerly, and the management are faced with the necessity of increasing the output or considering closing down the mine.


Richard Burpee Hanson: Does the minister take the responsibility for that statement, or is it just the information which he *has received from the government of Nova Scotia?


Humphrey Mitchell: It is a statement I have received from the government of Nova Scotia.



EXCISE ACT, 1934

[Stage Direction]
Hon. J. L. ILSLEY (Minister of Finance) moved the second reading of Bill No. 110, to amend the Excise Act, 1934.
Richard Burpee Hanson: There is I think a disposition on the part of everyone in this house to expedite the passage of these bills, in order that we may finish the other business of the session. I am not going to make a speech on any one of them, least of all on this one. But since the Prime Minister (Mr. Mackenzie King) is in his seat, and this is the bill which deals with the question of the increase in the excise duties on liquors, and having regard to the debate which has taken place in this house on at least two occasions with respect to the question of the consumption of liquor in Canada, I desire to ask the Prime Minister if he and the administration have given any consideration, other than that indicated by the Minister of Finance, to this great national problem in war time?


William Lyon Mackenzie King: The government has been giving very careful and repeated attention to the question. I agree with my hon. friend the leader of the opposition that it is a great national question. So far as I personally am concerned, anything that can possibly be done to control the liquor traffic will be done. But as the hon. gentleman knows, the matter does not rest entirely with the federal government; there are other governments that have control. Certainly I think that at any time, and most of all in war time, every effort should be made to restrict the liquor traffic as much as possible.
Mr. JEAN-FRANQOIS POULIOT (Temis-couata): Temperance is a great virtue. But a wine-taster who was my guest some years ago told me at dinner that if everybody would

Postal Service
Nays
Bertrand (Prescott)
Parent Jean Dupuis Marier


Mr. DUPUIS:: I was paired with the hon. member for London (Mr. Johnston). Had I voted, I would have voted for the amendment and against the third reading of the bill.


Mr. BERTRAND (Prescott):: I was paired with the hon. member for Springfield (Mr. Turner). Had I voted, I would have voted against the third reading.


Mr. GAUTHIER:: The hon. member for Quebec West and South (Mr. Parent) was paired with the hon. member for Cochrane (Mr. Bradette): Had he been here to vote, he would have voted against the motion.


Louis Côté: I was paired with the hon. member for Athabaska (Mr. Dechene). Had I voted, I would have voted against the motion.


Mr. BRUNELLE (Translation):: I was
paired with the hon. member for Portage la Prairie (Mr. Leader). Had I voted I would have voted against the motion.
Motion agreed to and bill read the third time and passed.
On motion of Mr. Mackenzie King the house adjourned at 11.08 p.m.
Friday, July 24, 1942