1944-07-19

Mr. NORMAN JAQUES (Wetaskiwin):: My attention has been called to an item in to-day's paper as follows:
The incident occurred when Mr. Coldwell, main speaker of the meeting, said that Norman Jaques, Social Credit member for Wetaskiwin in the House of Commons, declared in the house recently that the finance of Canada was controlled by Jews.
I am not apologizing for or retracting anything that I have said in this house or on the public platform outside this house, but I will challenge the hon. member for Rosetown-Biggar (Mr. Coldwell) to show where I have ever made such a statement. What I have said is that international finance is under Jewish control. Now I will go further and say it is evident that the C.C.F. intend to make that control national and are using the

strong arm of their gestapo to enforce their control.


Mr. CASSELMAN:: C.C.F. storm troopers called in.



WAYS AND MEANS


[Stage Direction]
The house in committee of ways and means, Mr. Bradette in the chair.
The CHAIRMAN:: The committee is on resolution 27.
27.	That dividends paid by a wholly-owned subsidiary non-resident company to a Canadian parent company be exempt from tax when received by such parent company.


Mr. KNOWLES:: Will the parliamentary
assistant indicate what amount of taxes will be forgone by the adoption of this resolution?


Mr. D. C. ABBOTT (Parliamentary Assistant to the Minister of Finance):: We have no information which would show the amount of taxes forgone, as the hon. gentleman puts it. As the committee will appreciate, the purpose of the proposed amendment is to avoid triple taxation. The situation now with respect to a wholly-owned subsidiary in Canada is that the dividends to the parent company are exempt because they have already been taxed in the hands of the subsidiary. In other words, company to company dividends are exempt from tax to avoid double taxation. As the law stands at present, if a foreign subsidiary is taxed in the foreign country, say the United States or some other, at rates comparable to those in force in Canada, those profits in effect will be subject to triple taxation because they will be taxed in the foreign country, they will be taxed again in the hands of the parent company in Canada, and they will be taxed once more and distributed to the shareholders. If the tax rates in the foreign country are lower than the Canadian tax rates then there would be some benefit in a complete tax exemption on dividends received from a foreign subsidiary company, and that of course is not the intention of this resolution. In order to guard against the possibility of that situation I am going to ask one of the ministers to move an amended resolution which will in effect provide for a tax credit covering the amount of tax paid in the foreign country by such wholly-owned subsidiary of a Canadian corporation. On that basis there will be no tax advantage to the parent. The Canadian parent company would be in the same tax situation as though it were an individual carrying on business in the two count-tries and subject to tax in the foreign country.

Income War Tax


Mr. HANSON (York-Sunbury):: In the
case of a wholly-owned subsidiary of a Canadian company operating under a Canadian charter in a foreign country, what would be the .position (a) under the law as it stands at present and (b) under the proposed change? What is meant by "non-resident"? Would that be a non-resident company?


Douglas Charles Abbott: I must apologize; there was so much noise I could not get my hon. friend's point clearly. A wholly owned subsidiary resident abroad is not now subject to payment of Canadian income tax at all; but if it brings the dividends into Canada they are taxable income in the hands of the parent company.


Richard Burpee Hanson: I understand that, but what is meant by "resident abroad"? The case I gave is that of a company which is a subsidiary company but is operating under a Canadian charter; that is to say the capital structure is set up under the Canadian Companies Act, but it operates in the United States. Is that a non-resident company within the meaning of this resolution?


Douglas Charles Abbott: The question of residence
is a question of fact. The case my hon. friend cited may be a company which comes under section 4(k) of the Income War Tax Act. Brazilian Traction is an example of that kind of company. It is incorporated in Canada but its business and assets are situated entirely outside Canada, and it operates outside of Canada.


Richard Burpee Hanson: Exactly,
but that is not a subsidiary.


Douglas Charles Abbott: No, it is not a subsidiary.


Richard Burpee Hanson: I do not
mind giving the name of the company. Fraser Companies Limited is a Canadian corporation with subsidiaries. A wholly owned subsidiary, Fraser Paper Limited, is incorporated under a New Brunswick charter, but all of its assets are situated across the Saint John river in the state of Maine, where its whole undertaking is carried on. What will be the position of that company with respect to the provisions of resolution 27? It depends on the meaning * you give to the words "resident" or "nonresident." Is it a non-resident company?


Douglas Charles Abbott: I think the position of that company would be this. It is a Canadian company carrying on business abroad. As such it is entitled to take credit for any taxes which it is obliged to pay to the foreign jurisdiction, and therefore it is not a company which needs
the protection of this proposed resolution because it will have already received credit for the foreign taxes in its own Canadian tax returns. This resolution contemplates a wholly owned subsidiary of a Canadian company which is incorporated and operates abroad and is therefore not a Canadian taxpayer and is not in a position to take credit as a Canadian taxpayer is for taxes which have been paid in a foreign jurisdiction, although in fact all the equity of the company is owned by a Canadian taxpayer.


Richard Burpee Hanson: I think
that explains the situation, but I want clarification of what is meant by "non-resident company." A company has not a residence but it has a legal domicile. The legal domicile of the example I gave is in Canada, but the operations are in the United States. Perhaps it would be better if it were made clear in the legislation what a resident company means and what a non-resident company means.


Douglas Charles Abbott: Consideration can be given
to that in drafting the legislation. As my hon. friend knows, there is a long line of cases which lay down what the residence of a company is for taxation purposes.


Richard Burpee Hanson: Are not
the words "legal domicile" used?


Douglas Charles Abbott: No, a company has residence for taxation purposes.


Richard Burpee Hanson: In the statute?


Douglas Charles Abbott: Yes.


Joseph-Arthur Bradette: Moved by Mr. Gibson
that resolution 27 of the resolutions to amend the Income War Tax Act be deleted and the following substituted therefor:
27. That the provision permitting a taxpayer to deduct from tax the amount paid to any foreign country for income tax in respect of income of the taxpayer from sources therein be amended to permit a Canadian parent company to deduct from tax the amount paid to a foreign country by a wholly-owned subsidiary company with respect to that portion of the profits of the subsidiary company which are deemed to be paid by way of dividends to the Canadian parent company in any taxation year, dividends being presumed to be paid by the subsidiary company from profits most recently earned.


Mr. ADAMSON:: We ought to understand this resolution before it carries. The Brazilian Traction company has been specifically referred to. It is composed of a number of subsidiary companies. There is the Sao Paulo Tramway, Light and Power Company, the Rio de Janeiro Tramways Company, the Brazilian Telephone Company, the Brazilian Hydro-
Income War Tax

Electric Company, and others. All these are subsidiary companies incorporated in Brazil and form the Brazilian Traction Company which is the holding company. The Brazilian Traction Company derives its whole revenue from these other subsidiary companies. Their dividends are the sole source of revenue of the Brazilian Traction Company and their taxes are at the rate of forty per cent, or whatever the corporation rate is. As the Brazilian Traction Company pays that money out to its individual shareholders it is again taxed. Is this resolution intended to overcome the double rate of income tax on subsidiary companies?


Douglas Charles Abbott: This resolution has nothing to do with a situation such as that of the Brazilian Traction Company. I do not wish to go into a long dissertation on income tax, but it happens that Brazilian Traction is a company which is exempt from the payment of Canadian income tax under section 4(k) of the Income War Tax Act, which is a section entirely different from the one we are considering; therefore this provision does not affect the situation of the Brazilian Traction Company. I underestand that the Brazilian Traction Company as a company is not a Canadian income tax payer because it is exempt under section 4(k) of the Income War Tax Act.


Richard Burpee Hanson: Because its returns are all from foreign companies?


Douglas Charles Abbott: Its business and assets are outside Canada.


Richard Burpee Hanson: I do not wish to hold up this resolution because the preliminary statement of the parliamentary assistant indicates that it is intended to correct what I consider to be a wrong, namely, the possibility of triple taxation. I confess that on reading the original resolution and comparing it with the redrafted resolution I am not able to grasp immediately the significance of the section. I should like a little time to study it. However, if that should not be permitted will the parliamentary assistant tell us the effect again because I could not follow him when he gave it the first time. He will observe that this is a completely new resolution.
Mr. iVBBOTT: It is new in form only. The original resolution provided that all income received from a wholly-owned non-resident subsidiary by a Canadian taxpaying company would be exempt from income tax in the hands of the company.


Richard Burpee Hanson: I agree with that.
[Mr. Adamson.1


Douglas Charles Abbott: That is sound, provided that the taxes imposed on the foreign subsidiary in the foreign country are as high as or higher than the Canadian rates of tax; but if the subsidiary happened to operate in a country where there were no income or excess profits tax, or if the tax rates were substantially lower than the Canadian rates, then there would be an advantage over the Canadian subsidiary company. Therefore it is felt that this section should give the same protection that is given to an individual who earns income abroad and is subject to tax there; namely, that he may deduct from his Canadian tax liability the amount of tax he has had to pay abroad, provided that tax is not at a higher rate than the Canadian tax. That is what the amended resolution will now provide. When the bill is before the house hon. members will have an opportunity to see whether it is clear on that point, but I hope I have indicated the purpose of the amendment. I think it is fair, and fully protects the position of the Canadian tax structure.


Richard Burpee Hanson: That is to say, they are to be treated on a basis of equality. What is the reason for the addition of the last clause, "dividends being presumed to be paid by the subsidiary company from profits most recently earned"? That was not covered in the hon. gentleman's explanation. Dividends may be paid out of the most recently earned profits, or they may be paid out of surplus or in any other legal way.


Douglas Charles Abbott: That is in order to determine what effective rate of tax those dividends actually paid in the foreign country.


Richard Burpee Hanson: In the
United States.


Douglas Charles Abbott: Or any other country.


Richard Burpee Hanson: That will be made clear in the bill, I presume?


Douglas Charles Abbott: Yes, it will.


Stanley Howard Knowles: I feel that the amendment which has been proposed in an improvement on the original resolution, so it may be that my protest the other evening was not in vain. However, it does strike me that further thought might be given to the matter, and I still feel that it would be of value to us to have figures such as I suggested earlier. The question that arises in my mind as I look over the amended resolution is this. Are these deductions, since they are in lump sum amounts, going to achieve the purpose when the parliamentary assistant tries to make a comparison between income tax rates in Can-

Income War I'ax
ada and income tax rates in another country? It seems to me it might be possible for this lump sum deduction in lieu of taxes paid in another country to put a company out of line as far as the actual rates are concerned. The minister said the intention of this amendment was to make sure that no company would obtain any undue advantage through a lesser tax rate in another country. It strikes me that this phase of the matter might be looked into more thoroughly. Another point I would like to suggest is this. The parliamentary assistant defends this proposal to provide some relief in taxation to companies of this class on the ground that they are now subject to triple taxation and therefore deserve some relief. Just to call it triple taxation does not settle the case; I still feel we should have the figures. As a matter of fact earlier in the budget debate, when the Minister of Finance felt that he had caught the critic of the official opposition proposing the elimination of double taxation, he launched into quite an attack upon that position, and rightly so, saying that now, in time of war, was not the time to make any such change.


Douglas Charles Abbott: That is another principle, of course.


Stanley Howard Knowles: The principle the minister was proposing was that in time of war unnecessary relief of that kind should1 not be provided. These companies have been getting along all right. I quoted a particular example the other night, namely the aluminum interests. They are getting along quite well, piling up profits in their Canadian balance sheet despite existing taxation, so that I do not feel that the parliamentary assistant has a case here, unless he will give us the figures to show what it amounts to.


Douglas Charles Abbott: My hon. friend will appreciate that the first point he raised is a technical matter which should and will be considered when the bill is drafted. Personally I am satisfied that the language of this resolution is adequate to protect the Canadian tax position, and1 that the only deduction which a Canadian parent company can make from its own tax liability will be a proportionate amount of the tax paid to the foreign jurisdiction with respect to dividends brought into Canada.


Stanley Howard Knowles: I just direct attention to the fact that the word "proportionate" does not appear in the resolution.


Douglas Charles Abbott: I know; but my hon. friend appreciates that this is really in the nature of a notice, and is drafted in general terms. The legislation will spell out, in perhaps more precise legal language, what is intended. My
hon. friend may examine the legislation closely and' see if it meets his point. As to the matter of triple taxation, there is no doubt that is what it is; and while of course there is the argument that our existing tax structure under which corporate profits are taxed once in the hands of the company and again in the hands of the shareholders is justifiable and certainly cannot be disturbed in war time, personally 'I do not believe that argument can be extended to triple taxation, that is that the same profits should be taxed three times, once by a foreign jurisdiction, again under the Canadian corporation income tax and again in the hands of the shareholders. That position is recognized with respect to individuals. If an individual or a partnership carries on business in Canada and in the United States, and is taxed in that country on his operations there, he is entitled to deduct from his Canadian tax liability the amount of tax he has had to pay in the United States, provided the rates are not higher than those in effect here. That principle will be extended by this proposed legislation to the wholly owned1 subsidiary company, but to that company only, and I suggest to the committee that it is an entirely equitable and justifiable proposal.


Richard Burpee Hanson: I think the hon. member has stated the position very clearly, that it is now the intention to treat wholly owned subsidiaries as individuals are . treated.


Douglas Charles Abbott: With respect to foreign
taxation.


Richard Burpee Hanson: With respect to foreign taxation. It is also abundantly clear from this discussion that the hon. member for Winnipeg North Centre not only approves of triple taxation but would like to see it extended. He approves of triple taxation. I wonder how we are going to provide that employment in the post-war period about which these gentlemen are talking with such loud mouths if we are to have triple taxation of industry in this country. Let us expose this hollow sham once and for all. You cannot have your cake and eat it too. You cannot have the state take one, two, three or perhaps more levies from industry and expect that there will be private employment and private enterprise in this country. That is the sort of thing which is driving this nation and other nations into the operation of industry by the state. If we want a corporate state in Canada operating industry, just follow the line of reasoning of the hon. member for Winnipeg North Centre and his colleagues. That is where we will arrive, and that is what I want the people of this country to under-
Income War Tax

stand as fully and as quickly as possible. If unfortunately the socialists in this country should dominate the political situation there will not be any private industry left in Canada ; and what applies to private industry applies to the nationalization of the chief resource of the country, that is, the farms. If it is good for industry it is good for the farmer, for the small storekeeper and every other class, and we will be regimented by gentlemen like the hon. member for Winnipeg North Centre. Not for me-


An hon. MEMBER:: Eor democracy.


Richard Burpee Hanson: And not for democracy, if it is to function properly in Canada. I would like hon. members to realize just what these gentlemen actually mean when they apply it to a concrete case like this. Here is a position where one can understand right down to the ground what they mean.	[DOT]


Stanley Howard Knowles: Just a word on this point, although I think it is hardly necessary, because the hon. member for York-Sunbury really knows our position.


Richard Burpee Hanson: Well, it shifts every day, according to what electoral district you are in.


Stanley Howard Knowles: Oh, no; it does not.


Richard Burpee Hanson: Oh, yes; it does.


Stanley Howard Knowles: Our position has been the same as long as our party has been in existence, and we stand by it. Our position is that so long as you have a capitalist order of society it is necessary for the state to take from industry the wealth that the people create, but which gets into industry's hands in the first instance. It should be taken in the form of taxes, so that it can get to the people. But under a cooperative socialist form of society we believe in the people themselves, through their government, taking the initiative and setting up industry and business in such a way as to produce sufficient wealth for the wellbeing of the people.


Mr. NOSEWORTHY:: I have one question to ask the parliamentary assistant. I think probably this question of triple taxation is getting out of proportion. So far as I know, each of those subsidiaries is a subsidiary of a large company which has control in its field. It does not matter whether they are taxed once, twice or three times. They are in a position to fix the prices of their own products, and in the final analysis it is the consuming public that pays, whether it pays in the form of higher prices or higher taxes. 
So far as that goes I think it is just a question of how they get the profits.


Douglas Charles Abbott: That is just my hon. friend's view; but it is hardly a basis upon which a logical tax structure could be arranged.


Joseph William Noseworthy: My point is that we are quibbling over something that does not make any radical difference. Is there apy reciprocal arrangement or agreement with the United States whereby the subsidiaries of the United States companies operating in Canada pay taxes to the Canadian government first and the residue to the government of the United States?


Douglas Charles Abbott: I am advised that there is. I believe there is a reciprocal agreement.


Stanley Howard Knowles: This resolution does not restrict it to the United States.


Douglas Charles Abbott: That is right; this does not restrict it to the United States.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
28.	That persons authorized by law to accept deposits he required to file information returns showing interest credited to depositors in 1944 and subsequent years.
Richard Burpee Hanson: What is the intention behind this resolution?


Mr. BURTON:: Does this include credit unions required to file a return, and information showing interest credited to depositors?


Douglas Charles Abbott: I have not seen the legislation yet, of course. It will be noted that the resolution refers to "persons authorized by law to accept deposits," and that they shall be required to file information returns showing interest credited to depositors. Obviously that covers banks; and if credit unions are persons authorized to receive deposits and pay interest on deposits, I suppose that would be taxable income-or I assume it would be. I do not know for sure whether it would be or not. In any case I understand this is to be an enabling provision, so that the minister may require institutions to do what is suggested.


Joseph William Burton: As the resolution now reads, the minister is requiring everybody who is authorized by law to accept deposits to file these returns. I suggest that it be made much more to the point, so that persons accepting deposits will be required by law, when asked by the department, to file their returns. With all the banking institutions in the country, and the credit unions, there is an enormous number of accounts. Many of these would be small and would have the effect of cluttering up the department with returns. While I can

Income War Tax
see that the department would need to have a cheek, what I am trying to guard against is the filing of returns with respect to all these little savings accounts which would have no bearing at all on what the department has in mind.


Mr. GIBSON:: That would be covered by the regulations in the income tax branch so that the records would not be cluttered up with small accounts. A limit would be placed upon what returns would be made.


Joseph William Burton: There are many people who have accounts consisting of several hundred dollars. They would not come within the income tax bracket. We have here the possibility of an enormous number of returns being filed every year by institutions and persons authorized to accept deposits. If the depart- * ment asked that returns be filed in certain cases where required, the rest of the people would govern themselves accordingly and probably account for the interest they receive.


Douglas Charles Abbott: As I said a moment ago to the hon. member for Winnipeg North Centre, this is a resolution; it is not final legislation. It is intended to authorize enabling legislation giving the minister power to require the filing of returns. Regulations will be required, as the Minister of National Revenue has indicated, setting out what the returns will be.


Richard Burpee Hanson: The hon. member's remark would seem to indicate that the department has not now the authority to require banks to make returns of deposits, and the amount of interest paid on deposits. Is that correct? I would be surprised to hear that.


Douglas Charles Abbott: The department, of course, contends that it has the power.


Richard Burpee Hanson: Under what authority?


Douglas Charles Abbott: In virtue of the act. The law as it stands at present gives the Minister of National Revenue power to require information from anybody. Although I have not the section before me, I believe I have paraphrased it correctly.


Richard Burpee Hanson: It is a general power.


Douglas Charles Abbott: Yes. The department have taken the stand that they can exercise that with' respect to banks, in the case of individuals. But they have never exercised the power to require a general return of all of a class of depositors. It was felt it was desirable to have a special provision in the law which would enable the filing of those returns.


Richard Burpee Hanson: In other words, you are going to put on the banks the burden of making a general return, rather than on certain individuals.


Douglas Charles Abbott: Yes, if necessary.


Richard Burpee Hanson: It would save the department some labour by putting this responsibility on the banks.


Douglas Charles Abbott: No, it would not save the department labour. But the department would have no means of knowing whether a given individual might have a savings account on which he was getting one and a half per cent.
Mr. -HANSON- (York-Sunbury):	In his
income tax return the individual has to show what, if anything, he receives by way of interest on deposits.


Douglas Charles Abbott: And those returns have to be checked. The same applies to dividends. We have an information return with respect to dividends.


Richard Burpee Hanson: Do not corporations have to file with the department details of dividend payments?


Douglas Charles Abbott: Right.


Richard Burpee Hanson: Do you check one against the other and, if you feel there is anything wrong, go right into the books of the corporation? I suppose that that never occurs because every reputable corporation would make the correct returns. I am surprised to find that it is necessary to pass a law to grant this power, because I would have thought that the powers of inquisition-I do not use that word in any improper sense- already possessed by the department would be sufficiently wide. But if it is said they are not, then I have no objection to this. I merely rose to ask for information.


Douglas Charles Abbott: I understand there was some question of doubt.


Richard Burpee Hanson: Have the banks objected to giving this information?


Douglas Charles Abbott: They have not objected, and I think they would prefer to have legislation of this kind. As my hon. friend knows, the relations between banker and customer have always been considered confidential. They never give information except on a court order.


Richard Burpee Hanson: They want protection.


Douglas Charles Abbott: I think they would want to have the protection of a section of this kind.


[Stage Direction]
Resolution agreed to.
Income War Tax
[Stage Direction]
29.	That with the approval of the governor in council upon the recommendation of the Minister of Mines and Resources there be allowed a tax credit of fifty per centum of expenditures incurred by a corporation, asoeiation or syndicate or exploration partnership whose principal business is the production, refining or marketing of petroleum or the exploration or drilling for oil, on a well spudded in between June 26, 1944, and March 31, 1945, which proves to be unproductive, provided that such well is a deep-test well the drilling of which is deemed desirable in the interest of extending the petroleum resources of Canada and which could not reasonably have been expected to be undertaken without such tax credit.
Mr. SENN:: Under this resolution a tax credit of fifty per cent is to be allowed on exploration work and drilling for oil. The section of the country from which I come contains a considerable natural gas industry. The Minister of National Revenue will know something about this because many homes in Hamilton are heated with gas. A good deal of exploration work is being done by this industry. Has consideration been given to extending this privilege to exploration work for natural gas as well as for oil?


Douglas Charles Abbott: Perhaps I can give a word of explanation as to the purpose of this section. As the minister said in his budget speech, the purpose of the resolution is as follows:
It is, I think, in the national interest that some -additional encouragement be offered to the Canadian oil industry to undertake the drilling of several deep-test wells in certain areas with a view to proving up significant, geological structures.
At present, as the committee is aware, tax credits are allowed in respect of unproductive wildcat wells. These tax credits are'equivalent to the -writing off of this expenditure as an expense in profit and loss account, The present provision is somewhat more generous in the benefits to be allowed. It should be emphasized that this special tax credit is allowed only in respect of projects approved by the governor in council upon the recommendation of the Minister of Mines and Resources, and will apply only in cases where it could not reasonably have been expected that the project would be undertaken without special assistance. In other words it is to encourage operators to drill in non-proven areas where our government geologists would like to see deep-test wells drilled in order to determine whether or not the area is oil bearing. For that reason, on projects approved by the Minister of Mines and Resources and authorized by order in council the special tax credit will be given. As the committee will appreciate, the effect of this will be that the oil explorer gambles fifty cents of his own 
money and the government says, "If you will do that, we will give you a tax credit of fifty cents on the dollar."


Mr. MacNICOL:: I would like to know why you do not give one hundred per cent on the cost of drilling oil wells that do not materialize. In the Dawson Creek area, in the Pouce Coupe area, in British Columbia, in the Peace River area in Alberta, in southwestern Saskatchewan, in northeastern Alberta south of the Saskatchewan -river, legitimate oil people have been drilling for oil. These wells cost up to $150,000 -and more. I observed these men working and I know the difficulties under which they labour. If oil were found it would be a wonderful thing for the country; why should we not allow all the cost of a well that does not produce anything?
The people I have in mind are not wildcatters; they are legitimate oil -producers. For instance, Imperial Oil of Turner Valley are operating. I do not know whether they would be entitled to consideration, but I did see a number of wells that had been drilled in the Turner valley and which have not produced anything. Why should not the producers of such wells be given some consideration in the way of taxation?
No country needs oil production more than Canada. We are producing now about 12,000,000 barrels a year and are using from 80,000,000 to 100,000,000 barrels a year, speaking from memory. Canada would be in jeopardy if her oil supplies from outside were cut off. While no doubt this fifty per cent allowance will be acceptable to the legitimate oil companies, I do not see why they should not be allowed one hundred per cent.


Douglas Charles Abbott: As my hon. friend is no doubt aware, the tax structure does allow substantial tax credits to companies drilling wildcat wells or for off-property drilling. Section 8, subsection 6, reads as follows:
A corporation whose principal business is the production and/or refining and/or marketing of petroleum and/or petroleum products shall be entitled in respect of the year of expenditure to deduct from the sum total of the income tax payable by it under this act and the tax payable under -the Excess Profits Tax Act, 1940, (and if such sum -total of tax is not sufficient to provide therefor, to deduct any balance from the -tax of subsequent years) forty per centum of
(a)	all drilling costs incurred by it directly or indirectly on oil wells -spudded in during the period from the first day of January, 1943. to -the -thirty-first day of March, 1945, and abandoned within six months after completion of such drilling; and
(b)	all exploration costs, including -all general geological and geophysical expenses incurred by it:

Income TFar Tax
provided, however, that in the case of a corporation substantially all of whose income is subject to depletion under the provisions oi this act, the deduction to be allowed hereunder shall he twenty-six and two-thirds per centum of such costs instead of forty per centum.
As I indicated a moment ago, this is a special type of drilling, and the tax credit is granted because it is believed _ that these people would not engage in this type of drilling if they were not given special encouragement. But if we were to give them their entire costs it seems to me it would be pretty much a case of heads I win and tails you lose as far as the oil company was concerned. They would get a tax credit for the entire cost of drilling the well, and if anything should develop they would get the benefit. It is felt that while this is not excessive, it is a reasonable inducement to offer for a special type of drilling on projects which are approved by the Minister of Mines and Resources and authorized by order in council.


John Ritchie MacNicol: During my last visit to Turner valley I spent some time watching the drilling of a deep well. I have forgotten just how deep it was, but I know they were using a large-sized pipe, and it runs through my head that the operator told me the well would cost perhaps half a million dollars. Right there the question of tax allowance came up.
The Imperial Oil is a reputable company; there are other companies in Canada just as good, but none better. The parliamentary assistant spoke a moment ago about an allowance of fifty per cent being made, which would be sufficient perhaps to prevent unnecessary drilling. The Imperial Oil company, a corporation of that magnitude, with their experience, with the geologists and the equipment they have to enable them to ascertain whether oil is below, would not likely drill anywhere unless all the indications pointed to the presence of oil. They have put, I suppose, half a million dollars in the well which I saw-my recollection is that the well would cost about that-and if nothing comes out of it the Imperial Oil cannot make anything out of it, yet if the well should produce oil the whole of Canada would profit from it. I suggest the utmost consideration as far as taxation is concerned should be extended in a case of that kind.
I called to see another area out west of Nordegg. in northern Alberta, away west of Rocky Mountain House, on the north Saskatchewan river. There were a number of men with equipment drilling for oil. If they do not find oil there, of course the cost will be an investment cost to the Imperial Oil.
But there again it seems to me that in any honest-to-goodness effort to discover oil, consideration by way of tax relief should be given to any reputable company which makes a real effort in this direction. The Imperial Oil is a well-known company which has done a very great deal for this country.


Mr. GERSHAW:: This resolution proposes to give a tax credit to corporations, and I notice that the next one proposes that it shall be given in respect of strategic minerals. I wonder whether the minister has considered the possibility of regarding oil as a strategic mineral, in view of the great need for it which exists at the present time, and thus making it possible for tire individual investor under certain conditions to get a tax credit for the amount he contributes towards the drilling of an oil well.


Douglas Charles Abbott: This resolution, as my hon. friend will have seen, applies not only to corporations but to associations, syndicates or exploration partnerships.


Frederick William Gershaw: But not to individuals?


Douglas Charles Abbott: But not to individuals. I do not know whether there are individuals engaging in these deep test wells, but the expenditure would be so considerable that it is unlikely, I should think, that any one man would do that. This benefit is available to partnerships for instance.


Frederick William Gershaw: That is the money which is made by the partnership? Suppose a number of men group together and each contributes so many thousands of dollars to the drilling of a well, can each individual taxpayer get a tax credit in that case?


Douglas Charles Abbott: Well, under our taxation system, as the hon. member knows, we do not tax the syndicate or partnership as such. We tax the individual partners. So that the tax credit would be applied, I take it, by the individual partners in proportion to their interests in the syndicate or partnership.


[Stage Direction]
Resolution agreed to.
30. That the tax credit allowed to a taxpayer of forty per centum of contributions made by him in the year 1943 to associations, syndicates or mining partnerships organized for the purpose of prospecting in Canada for base metals or strategic minerals be extended to include a tax credit in respect of contributions in the year 1944.
Mr. STIRLING:: I think that the purpose of this clause is to extend to 1944 the assistance which was given in 1943; is not that so?


Douglas Charles Abbott: That is correct.

Income War Tax


Grote Stirling: But I do not think that that assistance was open to the prospector or to the individual who so frequently uses his money to grubstake a 'prospector. In the southern part of British Columbia those great rugged mountain areas have been worked over in the past by, shall I term- him, the old-fashioned prospector. But now, what with tuition by mining classes given by the provinces, another class of prospector has arisen who is capable of making use of modern experience and modern instruments, and there is a very great need for the whole of that area to be explored again by geological exploration. It is quite true that at the present time labour is scarce and that individuals are not so able to use their money for the purpose of grubstaking as they were; but the time will shortly arrive when there will be great opportunities of going back to the old method, so common in British Columbia, of individuals putting their money up to back a prospector.
Reference has already been made in this house to the words of advice given us by a member of the geological survey of Canada, drawing attention to the fact that not more than five per cent of the great north country is now properly geologically explored; drawing attention also to the fact that, of the great producing mines of to-day, hardly more than one of them have been discovered in this generation. So that our object should be to do everything we possibly can to further exploration, and for that purpose we need the prospector.
In the working over of the mountains in the southern part of my constituency mines have been discovered, most interesting prospects have been discovered. Copper is mined, platinum has been taken from the creeks, gold and silver are mined, and over a huge area there are valuable showings of lead and zinc. I want to keep going the old method, the old habit, of having the money of individuals used to back the prospector to work over that whole area again, in the hope that mines so far not discovered may yet be discovered. Will the parliamentary assistant tell us whether there is any possibility of extending this facility to the individual who risks his money in that way, not by investing it in a company whose business is prospecting, but investing it in a way which will enable the individual prospector to go out and do the work?


Douglas Charles Abbott: I am afraid there is very
little prospect of this being extended to the individual prospector. As my hon. friend will realize, in a sense this is a rather loose section; it is a straight tax credit to a contribution or

an investment which is made to a prospecting syndicate, association or partnership. That was pretty carefully considered last year when the section was originally brought in, and after consideration it was felt that, in view of the very loose nature of the section, of necessity it should not be extended to cover payments made the individual prospector. This resolution merely extends for another year the incentive legislation put in last year. I can bring my hon. friend's remarks to the attention of the minister, but frankly I feel there is little or no possibility of his being prepared to extend that concession.


Mr STIRLING:: But why was the section made so loose?


Douglas Charles Abbott: The looseness is not so much in the section as it is in the description of the groups to which a contribution may be made. My own view on this matter is this. I have always had rather serious doubts of the desirability of this legislation-as I say, this is only my personal view-because it gave a very great incentive to stock promoters to [DOT] organize these prospecting syndicates and sell shares on the basis of getting the tax deduction. But weighing one thing against another, the desirability of encouraging prospecting and so on, it was felt that this concession should be made. To extend it beyond registered or incorporated prospecting companies or syndicates to individuals was going further than the government felt it should. Perhaps that decision was wrong, but I do not think it is likely to be changed.


Joseph-Arthur Bradette: I crave the indulgence of the committee for a few moments while I discuss the subject before the chair in my capacity as an ordinary member. I have been greatly honoured by my appointment to the chair, and have fully enjoyed the cooperation that I have received from everyone. But as I represent a very populous and widespread constituency with diversified interests, and more particularly with gold mining as one of the predominant industries, I should like to say a few words on the item under discussion. I am entirely in agreement with the present resolution the purpose of which is to help base and other metals, but I am at a loss to understand why gold is not included.
I do not wish to precipitate a controversy over this subject, because my position rather precludes anything of the sort; but at times gold mining has been maligned, notwithstanding the fact that it has played a very important part in the economic life of the nation for at least the last thirty years. I am in a position to know what I am speaking about in this regard because I represent great pro-

Income War Tax
ducers in the Porcupine section and1 I am a neighbour to the Kirkland Lake section in Ontario on the one hand and the Noranda-Rouyn-Val d'Or district on the Quebec side, on the other. I have first-hand knowledge and personal experience of what has been accomplished by the gold mining industry throughout that district and of the contribution it has made to the national and particularly the economic life of the country.
It was certainly marvellous, during the depression, to see what was being done by those sections of the country to give full employment to Canadians. Not only did the miners themselves enjoy the benefit of the employment provided, but agriculture also benefited and the forest activities consequent upon gold mining were promoted.
We knew from the experience of 1914-1918 that gold mining would be a war victim, so that in the fall of 1939 and early in 1940 we anticipated what would follow. But when the government made an appeal to the industry for increased production in order to maintain the Canadian dollar and our balance of export trade with the United States, both the management and the miners themselves responded magnificently. Since those days, however, very grave things have happened and both the *management and the men have been willing to cooperate with the government to the fullest possible extent. They do not want hand-outs. They are anxious to play fair with the people and to pay their full share of taxation. They are not going to ask for favours from this government or from any provincial administration. All they want is fair consideration of their problems. Two years ago the town of Timmins, the whole of the Porcupine district including Schumacher, South Porcupine, the Kirkland Lake section and the Noranda district, sent a delegation here who presented a very able brief to the government, eloquently delivered by Mr. T. R. Langdon, urging the importance of maintaining at least a skeleton force to exploit the gold mining industry. They pointed out that if this were not done a great many people would suffer from the resulting lack of development, more particularly the municipal bodies. They pointed out further the excellent work carried on through the agency of these gold mining operations. They received a fine response from the Minister of Finance who was much impressed by the representations made, and many of the grievances complained of were remedied.
The mineral resources of Canada, generally speaking, belong to the provinces. It is true that outside the northwestern terirtory the mines in this country belong to the various provinces, but it must be remembered that 100-317i
ninety-one per cent of the taxation which they
pay goes to the federal treasury, and that fact alone must make the federal treasury realize that under such conditions certain anomalies-
I will not call them injustices-exist in connection with gold mining in some of the provinces. We must keep the record straight. The central government has responsibilities in this matter. If we plot the gross value of Canada's mineral production for, let us say, ten years back, and then project the curve let us say five years into the future, the trend will startle us, and I think it will be readily admitted that a drastic or radical charge could not be regarded as premature, as has been stated in the House of Commons. I am not discussing the question of the gold standard or of monetary systems, but I suggest that if we try to visualize the conditions that are to prevail in the future, we shall see that the gold standard will have to be maintained after the war, and for this reason Canada is in a fortunate position in that it is one of the large gold producing countries in the world. If gold mining has meant a great deal to Canada in the past, it will mean a great deal to the future of this dominion, and I am sure it will play an important part in the post-war period.
I have no quarrel with anything that is done to promote the development of base metals, but surely it should be found possible to include gold mining in any programme that is implemented by the federal government. New oil and gold mining companies were given a three-year tax exemption. On the surface this is a real concession, but when in practice it is discovered that during that three-year period it is necessary to write off depreciation and pre-development costs at a fixed rate per annum, the picture changes. In practice, experience has taught that the concession has no real or worth-while value. I leave that thought with hon. members to think over. I do not expect that drastic changes will be made at once, but I hope that these representations which I am now making will be taken into consideration.
It is true that last year the cost of outside exploration for base or strategic minerals was allowed as a deductible item, but such expenditures were limited to something like $5,000. This is a feeble and hesitating step in the right direction, but why limit it to base and strategic metals? Why not include gold? I am not theorizing on that score, because I have first-hand knowledge of the situation, and I have seen what it has meant to this country to have had gold mining operations in Canada. I know what it has meant to my own section of the country and to the rest
Income War Tax

of Canada. Those engaged in gold mining are willing now, as they have been in the past, to make a one hundred per cent contribution to the development of Canada and to its war effort, provincially and federally. But some people seem to think that mining operations can be enlarged or curtailed at will on short notice. There seems to be no understanding of the fact that it takes four or five years, frequently longer, to bring a gold prospect into profitable production, and that in order to obtain that one profitable development it is necessary to weed out a large number of losing ventures for which no provision is made in the mine tax structure. If we are to play any real part in providing post war employment, we may be somewhat late now in anything we do in connection with gold mining.
Many people regard gold mining as a sort of luscious bonanza. Some people seem to think it is like some fruit that grows in abundance and has only to be picked. Well, it may surprise the committee to learn that out of 4,500 ventures, only two per cent come to full development and that only one per cent of gold mining ventures have been paying dividends. It can readily be seen, when you take these facts into consideration, that gold mining presents us with a serious problem. It would be easy to single out one or two or three mines in my own constituency which are paying dividends, but I know of hundreds of mortalities among the new projects-ventures which never come to fruition at all. It is interesting to note the concern that is felt for the oil industry as well as for the base metals, which have their raison d'etre.
We must also realize that it is almost impossible to differentiate between gold mining and the mining industry generally under present conditions. Let us for one brief moment look at the mining industry generally, not gold mining only, which means so much to our national economy. We will take as an example the boot and shoe industry. No doubt there are different factors connected with that industry compared with mining generally, but the raw material is always easy to obtain in Canada, United States or Great Britain. We may send government agencies outside of Canada to sell the products of the boot and shoe industry. This industry has a large national market. You cannot apply the same principles to gold mining or mining generally, because it employs practically only two factors. The first is the size and grade of the ore deposits, and the other the cost of production. That applies more forcibly to gold mining than to any other mining in Canada, because in 
most cases they are mining a very low grade of ore indeed. This applies particularly to the old mines. No doubt a lot of new mines will come into operation after the war as they did when the United States increased the price of gold to $35 an ounce, if proper attention to its problems are given. The new price did much more than that; it gave a much longer life to some of the old producers that had been producing for a number of years.
As I say, the second factor is the cost of production. That must necessarily enter into gold mining as it does in any other kind of mining industry in this country. For industry generally there has been set up a standard profit based upon a fixed standard period. Anything over that standard profit is subject to a so-called hundred per cent excess profits tax, but for industry other than gold mining any profits equal to-and I wish the committee to pay particular attention to this-or less than the computed standard profits are not subject to the hundred per cent excess profits tax.
To encourage gold production in the early stages of the war, the gold mines, you will remember, were urged to increase gold production by every possible means. Hon. members will be familiar with that situation. To encourage the increased production of gold it was arranged that the' standard profit base should move up with the increase in production measured in ounces of gold. In other words, if a mining company doubled its ounces produced, its standard profit base would be doubled. Then, to punish those who might remain indifferent to the government's appeal, it was further arranged that where the ounces produced fell below the output during the standard period, the standard profit base would diminish in the same ratio. At the time the industry raised no objection to this arrangement; but conditions changed. The government declared gold mining non-essential and placed it in the lowest category. I know the government will realize there was no protest from any of the gold mines or from any of the workers in this section either because we knew there was a war on and we were absolutely in favour of a total war effort. However, increased production was not allowed to continue, and decreased production could not be avoided. As a result, gold mines are now discriminated against. The boot and shoe company, as an example, can make up to the standard base before the hundred per cent excess profits tax is applicable, but not so the gold mines. To show the unfairness of this situation, let us assume that a producer in my section ceases all mining operations and

Income War Tax
that after paying the cost of maintenance they have out of their return from their investments sufficient income to cover costs and retain a small margin. No matter how small that margin is, it is excess profits subject to a hundred per cent levy, because no gold is being produced. There can be no difference of opinion as to whether or not such an arrangement is equitable and just.
I wish to mention one other matter which is very important. Proven and potential ore reserves constitute the mine's real assets, and from the moment abstraction begins, the sum total of these assets is being diminished. It is a wasting asset, different from agriculture or some other industry. That applies to gold mining in every section of the world. In a comparatively short time these assets are completely liquidated. It follows then that the earning power of a gold mine is comparatively brief and very largely unpredictable, and cannot be treated by the intelligent investor as a selfiperpetuating industry such as an ordinary commercial or industrial enterprise.
The committee no doubt will be surprised to learn that if to-morrow I were to invest in some of the old producers in my section like Hollinger, MacIntyre and Dome at the present day prices and the company never reduced or missed the dividend paid at the present time, it would take over eighty-three years to get my capital back without interest.
I thank the committee for its kind indulgence in allowing me to bring to its attention some of the difficulties of gold mining. In making this appeal I make it in an open-minded way, realizing that the industry has done much for our national economy in the past as it is bound to be called upon to do in the future. I also make it on behalf of the miners themselves, who have been fruitfully employed for the last thirty years in my own section of the county. They have meant a lot to the economy of Canada. The man-power situation in that section is now tight, because nobody backslided so far as voluntary enlistments were concerned. I am making the appeal in behalf of the farmers in my section of the country. The new clay belt was opened up over thirty years ago. The success of the farmers in that section largely depended on the success of the -mining centres. I am making my appeal sincerely, not only in the name of my own constituency but in behalf of the people of the whole of Canada, and more particularly from the point of view of the great help that the gold mining industry is -bound to be called upon to give in the post-war period. *


Mr. BLACK (Yukon-):: Under the resolution as it stands a tax credit is allowed to a taxpayer up to forty per cent of contributions made -by him to associations, syndicates, mining partnerships organized for the purpose of prospecting in Canada for base metals, and so on. I think the provsion is too narrow. Contributions made by a taxpayer to individual prospectors should receive the same proportion of tax credit. On June 7 I wrote the Minister of Finance suggesting to him that a taxpayer in Canada contributing to prospectors for base or strategic metals should be entitled to deduct from the income tax payable by him under the Income War Tax Act and the Excess Profits Tax Act of 1940 an amount equal to forty per cent of the contribution so made by him, as is allowed- to taxpayers who contribute to associations, syndicates or mining partnerships registered or otherwise recognized by the laws of any province of Canada, and as provided and regulated by section 8, subsections 4 and 5, of the Income War Tax Act. I suggested to him that any -prospector or prospecting partnership in Canada should register their activities with the mining recorder on payment of a fee and file with the mining recorder a sworn statement of work done and amounts so expended, such statement to be filed by the mining recorder with the inspector of income tax, and upon making return for income tax such taxpayer should file a similar sworn statement with corroborating evidence, with the inspector of income tax. I said further to the minister:
I know that it is common -practice for people living in Yukon and British Columbia -and I dare say in other provinces to advance money to prospectors, so making it possible for them to remain in the field and to carry on prospecting. I have frequently done so myself -but not since such contributions have been dealt with in tax legislation.
It would seem only just that bona fide contributions so made and proved by individuals should be similarly exempt -as contributions made to associations, syndicates or mining partnerships and I respectfully request that the proposal be given your favourable consideration and be appropriately dealt with in the coming budget and attendant legislation.	.
To that letter the minister replied ou June 28 as follows:
As you know-, my colleague the Minister of National Revenue is charged with the administration and -interpretation of tax legislation. Whether, from his point of view, your suggestion would be practicable I cannot say. However, I am forwarding a copy of your letter to him for consideration, and I shall be pleased to discuss the point with -him when this item is_ being considered in connection with the new income tax amendments which will shortly be before the house.
I hope the minister has been as good as his word and has discussed the matter with the
Income War Tax

Minister of National Revenue, and that between them they will agree to a broadening of this provision to allow the same credit to a taxpayer for contributions made by him to an individual prospector, registered and properly approved, as is now allowed for contributions to associations, syndicates and mining partnerships. It is only fair to do this. .


Mr. GREEN:: The key word of this resolution, it seems to me, as with the resolution of last year, is "prospecting". The government decided that it was wise to encourage pros-' pecting in Canada, and there can be no doubt whatever as to the soundness of that decision. The whole mining industry depends upon new mines being found. For some few years now comparatively few have been discovered in Canada. I think the government was quite right in taking the step that was taken last year, in providing for this tax credit. At that time some of us suggested that it should be extended to include the individual prospector, and certainly the time has now come when that should be done. From my own knowledge of the situation in British Columbia I can say that the great majority of the .mines there were discovered by individual prospectors who went out in the hope of striking something worth while. They were found as the result of individual initiative. That is quite a different matter from having men sent out by big companies, but under the present arrangement the companies are the ones who are helped. Most of the mines in British Columbia were found by men who went out on their own, in many cases backed by the local merchant or someone else in the town in which they lived. We feel very deeply about this matter in British Columbia, because we are convinced that the only way we will find new mines is by having individual prospectors go out once more, just as they went out at the turn of the century. The British Columbia-Yukon chamber of mines have made representations along this line. I have here a wire in which they say:
We also urge that tax deductions of contributions for prospecting at present granted persons financing associations, syndicates or mining partnerships be extended to include individual prospectors financing themselves.
The position is that the government is helping the big fellow but is not helping the little fellow. That is exactly what it amounts to. I do not object to the help being given the mining companies or syndicates, but I say it is far more important to help the prospector and his friend in the town who is willing to put up money so that the prospector may carry on his work. We are going to have several hundred thousand young men coming

back from the armed forces one of these days, perhaps before the next budget is considered, and I am convinced that many of them would take up mining and go out prospecting if they were given reasonable encouragement. A measure such as we are suggesting, that is the extension of this tax credit to cover individual cases, would be one way to help those young returned men get into the hills and take up prospecting. They are just the right age, just the right type. They are the finest young men in Canada, young men of great initiative, and I am convinced that they could do something really worth while for the mining industry if the governments of this country, not only the federal government but also the provincial governments, gave them reasonable encouragement. We realize that there would be difficulties in working out these tax credits in connection with individuals; perhaps that is why it has not been done so far. The government cannot work out a method of doing it; it is just too much trouble to try. It is a comparatively easy matter in connection with the big companies, but when it comes to helping the little fellow they just do not know how to go about it and therefore they say he cannot be helped. This matter should not be simply pushed aside. The government should take some steps to give this assistance, under this budget, to the individual prospector.


Mr. GILLIS:: I want to say a few words on this item, and first I would state that I agree with the hon. member for Vancouver South. I think he made a very important point. To follow that through, however, after the individual prospector or whoever may grubstake him is given a tax credit, under present arrangements any discovery he may make is handed over to some private company to exploit. In this field, particularly in the post-war period, if the government is going to invest money in the discovery and development of new mineral resources; if the taxpayers of Canada are to foot the bill through tax credits and so on, at least they should get something in return by way of social services. I am a little doubtful as to whether that is practical on this item. Up to the present I think this was a practical arrangement made necessary because of the urgency of the war situation. I believe the government had to take the position of helping everyone who might find and develop base metal mines; the urgency of the war made that necessary. At the present time, however, I think our war requirements are being fairly well met, so I think now we should carefully examine the situation and lay down certain regulations to

Income War Tax
cover future developments in connection with any operation in base metals. We should take great care to see that they are so located as to fit into the economy of this country, and have some peace-time usefulness when the war is over.


Richard Burpee Hanson: How can
you affect their location? They are where nature left them.


Clarence Gillis: I will give an example of what is happening now, and will leave it to hon. members to decide whether this is a profitable investment for the people of Canada to make. I had a visit from some of the employees of the Quyon Molybdenite company, located not far from here. This company began operations in 1940; it was a war-time set-up. In addition to other assistance they were given a subsidy of 75 cents a pound on the metal they produced. Later that subsidy was discontinued, and the company immediately ceased operations. The plant was taken over by another company, headed by Mr. J. E. Gray of Toronto, who operated it until a week or so ago. The employees of that company have not been paid since June 15. That company was largely the creation of the federal government, and continued in operation only as long as that operation was profitable. You see, the war does not enter into the picture as far as these people are con-concerned. As long as it was profitable, as long as they were subsidized, as long as they were making money out of it, it was fine and they were prepared to stay. That is the sort of private enterprise about which the hon. member for York-Sunbury talks.


Richard Burpee Hanson: Oh, you are just talking sheer nonsense.


Clarence Gillis: I have the floor, Mr. Chairman. All morning I listened to my hon. friends to my right talking about private enterprise-private enterprise with both arms round the neck of the government. They say, "We will go as far as the government is prepared to finance us, but when that financing is not forthcoming we will walk out." The point I am making is this. While you are protecting the fellow who wishes to make money, at the same time you are building up a community on that basis, as happened in this instance. Employees were working for this company. It was a new set-up, and they moved in, taking their families with them. Some established homes. They have an investment and an equity in that community which was not government subsidized. If the regulations are such that just as soon as a fellow cannot make money he can pull up, walk out and leave the
property completely valueless, then I say the employees or the people in the community are entitled to some protection. There should be some understanding that organizations subsidized by the government into new industry owe some responsibility to the community. It should be pointed out to them that they cannot just walk out without even paying wages. Let us remember that the average worker depends from week to week on his daily wage. They have received no wages since June 15, and they are frozen to their jobs because they are in a high priority industry. Selective service has not allowed them to move out to other employment.


Mr. JACKMAN:: I thought it was closed down.


Richard Burpee Hanson: If it was closed they could move out.


Clarence Gillis: They have not, so far. I am not arguing about selective service, because I think that end of the matter will be taken care of, once it is understood. The point I am making is that this has been an attempt to establish a new industry to produce base metals for war purposes. We must now concern ourselves with this situation: If the government is going to give tax concessions to those who want to establish industry, then it is the responsibility of the government to see to it that regardless of where mineral deposits are found, if we are going to spend money we should have a permanent industry, and one which can be routed into our peace-time economy. Let us assure ourselves that it will not be just a mushroom growth for the purpose of making money during the war, and that those in charge will not be able to walk out and leave it.


Harry Rutherford Jackman: The hon. member said it was still working.


Clarence Gillis: No, it is not still working. The workers are trying to put a lien against the property for their wages.


Harry Rutherford Jackman: The hon. member said that selective service would not let them get jobs elsewhere.


Douglas Charles Abbott: I have been listening to what the hon. member has been saying, and while I do not like to rise to a point of order, still I must point out that the subject he is discussing is a long way from that of concessions to prospectors. I wish my hon. friend would try to bring his remarks within the resolution.


Clarence Gillis: I think I am absolutely within it; I am on the point. I have shown what has happened, something that the government
Income War Tax

is apparently going to continue. I am urging that some regard should be had by the government to the establishment of base metal industries, so that it may preclude what is taking place now, namely exploitation for war purposes. This is a use of the taxpayers' money, and when it is no longer profitable, or when the government is not prepared to continue to make it a paying proposition, out of the public treasury, private enterprise picks up and walks out.


Douglas Charles Abbott: The question whether or not the government should subsidize an unprofitable industry is away outside the provisions of this resolution.


Richard Burpee Hanson: Mr. Chairman, I should like to say a word, although I am not going into the ramifications of the position outlined by the hon. member for Cape Breton South. I do not know much about molybdenite, but I understand the great production is in the United States. Someone discovered some of it in Canada and thought it would help the war efiort. The government gave a subsidy. I suppose it was found unprofitable, and the subsidy was withdrawn. Someone with private initiative thought he would stake something or risk something, and he failed and folded up. I suggest the plight of the men is bad, but they have their remedy against the directors of the company. I am sorry for them, and I would do anything I could to help them; but it is not at all germane to the subject matter we are now discussing.
I should like to add a word in support of the plea made by my three colleagues from the west coast-the hon. member for Yale, the hon. member for Yukon and the hon. member for Vancouver South. On principle, if it is right to give a tax concession to a company or to a syndicate which sends out its employees, finances them and reaps the profit of their knowledge and industry- probably out of all proportion to what a private individual would do for and reap from prospectors-then on principle it is right that this same assistance should be extended to two private individuals, one the prospector and the other the man who grubstakes him.
The hon. member for Vancouver South has pointed out that it is the history of the industry that individual prospectors have discovered the most and the best mines. That ought to be encouraged. What have we here? We have here discrimination between two positions, and the reason is quite clear. In my vierw the reason is that in the case of a corporation or a syndicate, supervision or checking can easily be carried out and the

quantum of allowance determined with mathematical accuracy, while in the case of the individual it may be difficult. Obviously that is why there is a distinction and discrimination, because in my opinion the principle is absolutely the same. In fact if there is a weight, on balance, it is in favour of the individual prospector. I suggest that in respect of the Yukon, the hon. member for Yukon has given with great particularity the modus operandi which would protect the public treasury against fraud. It can be done in any individual case by the exercise of diligence and labour on the part of the taxing authorities. The difficulty is in administration, and I think the minister will tell us that when he comes to reply. I do suggest that in setting up the income tax too much regard is given to the convenience of administration, the centralization of administration, and not enough is given to business and employees of business. The whole thing is based upon this principle: how can we get the most dollars in the easiest possible way and with the least administrative difficulty? That is an indictment against the administrative policy of the department.
It is of course only natural that a departmental head would say, "Well, this is the easiest way; we can get the same results along an easier path." But they do not think the thing through clearly. They do not ask themselves: which is the better way, having regard to the whole national economy, and the public interest? I suggest the whole position ought to be reviewed. I am wondering if we have not put our finger right on the weakness of the administrative position, namely that this is an administrative problem they have not tackled and do not wish to tackle. It stands to reason that if it is a good principle to give a tax concession to a company or a syndicate or a group, then certainly that principle is sound as it applies to an individual. You cannot get away from it; you cannot deny it. In this instance if there is to be discrimination it would be to the greater advantage of the national economy and would bring about a greater national productivity if such discrimination were in favour of the individual rather than the company.
My reading of history is that individuals with inventive minds or a flair for prospecting who are employed or sent out by companies never have reaped the part of the reward that was due to their industry; it is taken up by the company concerned. I know that is true of individual inventions which have been financed by companies. I know it is true in connection with chemical research.

Income War Tax
I have a clear recollection of a chemical engineer of a very high type who delighted doing work of this kind. He was in the employ of a company and of course in receipt of a good salary. He would not have been there if he had not been getting that salary. But he had capabilities, and he discovered something, and I regret to have to say that he did not reap where he had sown to the extent that he ought to. This type of tax legislation just puts a premium on what I have been talking about.


Douglas Charles Abbott: I do not know that there
is much I can add to what I said in reply to the hon. member for Yale. It does not seem entirely clear from the remarks of some hon. members that individual prospectors do not get any benefit. Apparently they would not get any benefit even if the suggestion of the hon. member for Vancouver South were adopted.


Howard Charles Green: The minister's assistant is not right. The man who grubstaked the prospector would get a credit, but the prospector would also get a tax credit for his expenses.


Douglas Charles Abbott: That has never been suggested before to my knowledge.


Richard Burpee Hanson: I suppose he would get it automatically.


Douglas Charles Abbott: I suppose he would get it
as expenses. This resolution is intended to benefit the man who puts in an amount not exceeding $500 in the case of one association or syndicate, and not exceeding $5,000 in the case of contributions made to all such associations or syndicates. The man who is in the S100,000 income bracket may grubstake prospectors up to $5,000 provided that they are properly registered and are recognized as a prospecting syndicate. In the case of individual prospectors I could get one to go into the field-I am told there are none out of work at the moment. It is not simply a question of administrative difficulty, it is a matter of knowing whether or not a man is a prospector.
If I wanted to give a fellow a nice holiday I could give him $500 to go up and look around northern Quebec. He could spend his time on the delightful lakes up there. Perhaps he could take a pick along or he might even register as a prospector, but the result is that I would get an income tax credit. That would be extremely difficult to check.


Richard Burpee Hanson: It is an administrative difficulty.


Douglas Charles Abbott: It is more than an administrative difficulty. I think the view was that
the government would not be justified in extending it to the individual. That was the position taken last year, and so far as I know there has not been any change.


Richard Burpee Hanson: That is not an answer.


George Black: The parliamentary assistant has referred to the individual prospector who might go up into northern Quebec or some other mining section and have a holiday. The taxpayer who contributes and gets a tax credit does not go out himself. The syndicate does not go out, nor does the mining partnership. It is the prospectors who go out, and they are just as apt to go on a holiday as the man referred to by the parliamentary assistant. You cannot keep track of the individual prospector any easier when he is working for an individual than you can when he is working for an association or syndicate. What has the Minister of National Revenue to say? The Minister of Finance said that he would discuss it with him.


Colin William George Gibson: The hon. member for Yukon has referred to the Minister of Finance passing to me a letter that had been sent to him concerning this matter. What the Minister of Finance was referring to me was the question under section 8, subsection 5, whereby an allowance is made for an association, syndicate or mining partnership registered or otherwise recognized under the laws of any province of Canada. The hon. member for Yukon brought up the fact that this does not extend to the territories, and he contended that they were just as much entitled to it as the provinces. That matter is being taken care of in the legislation this year, and this allowance will be extended to residents of the Yukon and other territories.


George Black: Do I understand that contributions made by taxpayers to individual prospectors will be taken as a credit?


Colin William George Gibson: That is a matter of finance, not for national revenue.


George Black: It could be easily accomplished by amending the resolution by adding the words "to individual prospectors" after the figure "1943" in the second line. The resolution would then read:
That the tax credit allowed to a taxpayer of forty per centum of contributions made by him in the year 1943 to individual prospectors, to associations, syndicates or mining partnerships organized for the purpose of prospecting in Canada for base metals or strategic minerals be extended to include a tax credit in respect of contributions in the year 1944.
You could do it by the addition of three
words to the resolution.

Income War Tax


Douglas Charles Abbott: There is no trouble about doing it if the government felt it was proper to do it as a matter of policy. I have been endeavouring to explain for some time, no ' doubt inadequately, that after considering the matter fully last year and again this year the government felt that it could not go that far.


Richard Burpee Hanson: For administrative reasons?


Douglas Charles Abbott: I would not say for administrative reasons only.


George Black: The objection is for administrative reasons, but the amendment I have suggested would obviate those administrative difficulties. Now the tax allowance is made only in the case of contributions to prospectors who organize and incorporate a company.


Mr. ESLING:: Mr. Chairman, the observations of the previous speakers should bring forcibly to the attention of the government the importance of the prospector. The Minister of Finance and the Minister of National Revenue have taken part in a discussion of this matter, but where is the Minister of Mines and Resources? He is the man who should be evolving a broad and comprehensive programme of mining development in this country. He knows the provinces in which mining is most active.
I cannot recall a single mining property in British Columbia which is not the result of the efforts of an individual prospector. The great Sullivan mine, which gives employment directly or indirectly to 100,000 people, such as railway men, machinery men, and other employees, was discovered by a prospector many years ago. The individual prospector was the basis of all mining organizations. The different companies raised the money; the government did not raise it. Individuals subscribed for shares in these companies and smelters were built; machinery was bought. All of this contributed to the development of mines, which in British Columbia at least have created the greatest prosperity that that province has known.
The average life of a mine is twenty years, and then comes the depletion period for which the mining industry is asking a fifty per cent depletion. After twenty years most mines have to close and unemployment is created. As one of the members noted, in the post-war period it is the mining industry that will create the most employment and the most prosperity. I do not know of any better argument I can present that the prospector is the basis of it all than to state the fact that in British Columbia, you can count seven smelters which have gone out of business, or rather,

seven smelters which have been treating British Columbia ores; one of them is on the international boundary. These smelters created an immense amount of business and a great volume of employment. Then we come to the gold mining industry. In 1938 there were thirty-nine plants in British Columbia for the treatment of gold ores. To-day there are just seven. There is no encouragement from the government. The department of mines should cooperate with the various provinces in a broad and comprehensive programme for the recreation of the mining interests and the mining activity and the mining development in every province which appeals to the prospector.


Agar Rodney Adamson: I want to go on record as supporting the contention of the hon. member for Kootenay West. The minister has a peculiar idea, and the Department of Finance has an even more peculiar idea, that this is a generous thing which they are doing. Let me say this: you limit it to base metals or strategic minerals. In the view of the treasury officials that is what they want. Now, base metals and strategic metals are frequently found in connection with mining gold. I suggest through you, Mr. Chairman, to the minister that they reword this clause and omit the words "for base metals or strategic minerals.", and so have the section in this form:
That the -tax credit allowed to a taxpayer of forty per centum of contributions made by him in the year 1943 to associations, syndicates or mining partnerships organized for the purpose of prospecting in Canada shall be extended to include a tax credit in respect of contributions in the year 1944.


Richard Burpee Hanson: To apply to all metals.


Agar Rodney Adamson: To apply to all metals, to apply to all prospectors, because in our peculiar and very intricate geological structure, if you limit the prospector to going out looking for strategic or base metals you will find that the clause will have very little effect at the present time. It is of very little use to the prospector, because it is an extremely limiting clause. I believe we could well follow the Australian practice, by which they allow one hundred per cent as a deduction for prospecting, up to a certain percentage of the total income. I am going to read the specific clause, because I think it is important, particularly at this time in the war. Clause 23 provides:
The following income shall be exempt from income tax:

Income War Tax
That is, it is unequivocally exempt from income tax. Here is the clause concerning the prospector:
(p) Income derived by a tbona fide prospector from the sale, transfer or assignment by him of his rights to mine for gold in a particular area in Australia or in the territory of New Guinea. For the .purpose of this paragraph "bona fide prospector" means a person, other than a company, who has personally carried out the whole or major part of the field work of prospecting for gold in the particular area, or who has contributed to the expenditure incurred in the work of prospecting and development in that area, and includes a company which has itself carried out the whole or major part of such work.
That is a broad provision, and I think it is a sound and reasonable clause to insert at this time in our act. We are going into the postwar period very shortly, possibly within the next year, and we are going to find our mining industry on a salvage basis. Remember this, that while during the war we have had great metal production in base metals, in such strategic metals as tungsten we shall be unable after the war to compete with the rest of the world, because we have only produced them under the stress of war, because a bigger supply was not available; it was cut off by war. We needed the metals and we needed them at any price; we had to have them. But when the war is over, world sources of these strategic metals will be opened up; it will be found that it will be uneconomic to continue producing a number of them, and in all probability the operations will close down. Some of them have already closed down. The mercury situation is a peculiarly dangerous one; if I may use the word about mercury, it is a peculiarly volatile one, because it fluctuates tremendously, depending upon the outlook and upon certain peculiarities of the industry. Tungsten is another such instance. We have the Emerald mine: having opened up that mine we find that there is no market for its products. There was a market: we had to have the tungsten at that particular time: but at the present time the mine, I believe-the hon. member for Kootenay West will correct me if I am wrong-is closed. That is the sort of thing we are going to find.
The limitation of the credit to base and strategic metals is defeating the very end for which this resolution is required. In the future we shall be worried not so much about getting production of strategic metals as about putting the mining industry back in a sound and a replenishing condition. At the present time, as I have said, the-mining industry in many instances is on a salvage basis.
At one o'clock the committee took recess.
100-318J
The committee resumed at three o'clock.


Agar Rodney Adamson: When the committee rose I had not quite finished what I had to say with regard to this item. One of our most immediate problems, as I have tried to point out to the parliamentary assistant this morning, is not the finding of strategic metals. The operations specially undertaken for war purposes have to a very great degree been closed down because they cannot now compete with the natural source of supply. I mentioned tungsten, molybdenum, mecury, mica and others. These operations are not going to be of much use to us because even now, while the war is on, they cannot continue; so that with the resolution as it now stands the minister is flogging a dead horse. To make the resolution really mean something I would suggest bringing it into line with legislation elsewhere, that expenditures on prospecting be allowed at the rate of 100 per cent. By this I mean that if an individual or a company grubstaked the prospector the whole amount so expended in grubstaking would' be allowed as a deduction. There would have to be some safeguard with regard to the way in which that money was expended. That I see. But in Canada to-day we have active and extremely capable prospectors associations who are jealous of their good name. Not only that, but we have an equally active Canadian institute of mining and metallurgy, and there are the various provincial mining associations. They are all responsible bodies of men and they have a great responsibility to the state. They would join with the government in judging of the bona fides of the prospector. That is the way it has been done elsewhere. I believe that the private association is the one that is recognized in England where legislation similar to that which I have suggested is in force.
Let us see what this means. Mining is a game that is completely unlike any other operation. Mining is one of the few operations, in fact it is the only one I know of, where the small man, the individual who has as little as $50, has an opportunity -to enter into the development of Canada. May I give the minister some figures on the national character of this industry, and I do so to prove the point I wish to make. To-day there are in mining companies 136,801,310 shares. Of that number there are owned in Canada 99,579,476, or 73 per cent; in the United States, 28 million, or 20-5 per cent; elsewhere, 9 million, or 6-5 per cent. This shows that the shares are very largely held in Canada. But it has escaped so many people that there are 274,192 individual shareholders
Income War Tax

in Canadian mines, of which number 168,404 are resident in Canada, while 81,869 are in the United States and about 24,000 elsewhere. In other words, 61-4 per cent of the total number of shareholders reside in Canada. This means that 168,404 individuals are dependent on or have a stake in the mining industry.
There is no other industry anywhere in the world that can show a comparable general and widespread public interest as the mining industry in Canada. It is truly a national industry. The average shareholding of all these people is around 500 shares. These are the facts. It is nationally owned; it is owned by the small man; and it is the one industry that can serve us immediately at the end of the war. Under this clause, however, no encouragement whatsoever is given to the general prospector. You are told you can go and look for molybdenum or tungsten or other strategic minerals knowing that mine after mine is being closed down because they are not economic. Nobody would go into a tungsten mine to-day or into a molybdenum mine. Properties are being closed because the other natural and great source of these metals is being opened up.
If the minister would accept my suggestion and remove the qualifying conditions in this section and allow prospecting for all metals, not merely restricting it to base and strategic metals, it would mean that the prospector could go and benefit by whatever he might find. I wish to urge that very strongly upon the minister. I believe the Minister of Mines and Resources should have been here and should have stressed it as hard as I am, in fact harder, because he can say to the Minister of Finance and the Minister of National Revenue things which it would be perhaps unparliamentary for me to say. However, I say to the assistant that there is no outlet, there is no field of endeavour that offers the possibility of the mining industry, and it offers it right away.
You will say that there has been a great boom in the Yellowknife and elsewhere. True, there has been a speculative boom, but the Yellowknife has been known for a number of years. The market has certainly reflected a speculative interest in a number of drill holes, but remember, a drill hole is not a mine. Because we are led away by looking at the mining market that is not a sound basis on which to regard the future of this industry. We have to see to it that -the mines are developed. Mere speculation as the result of a drill hole is not development. I leave that with the minister, with the most earnest request that he give it serious consideration before these resolutions are finally passed.
[Mr. Adamson.!


Richard Burpee Hanson: In the few remarks which the Minister of National Revenue made on these resolutions he made it quite clear that he did not make the balls of taxation; he only rolled them. I think in that terse statement I represent clearly the gist of his remarks before the committee. I and others have suggested here to-day that the reason why the line of demarcation, or shall I say discrimination, has been drawn so closely is that it is an administrative one and an administrative one only. It lies within the minister's power to indicate whether that is the real reason why the resolution does not go as far as hon. members have urged. I ask the minister to lay the cards on the table and to say that this is the real reason. Then I suggest to him that a complete answer has not been given to the hon. member for Yukon and others who have indicated a way, in their localities at least, whereby this discrimination may be overcome. A case has been made out for the prospector and his individual backer that is unanswerable. There should be encouragement given to them, because, as the hon. member for York West has just indicated, there is no occupation in the country that can be put into action so quickly and easily immediately after the war as the mining business. Surely we ought to try to encourage that I request the Minister of National Revenue to state the positon frankly. Is not this an ad^ ministrative difficulty?


Colin William George Gibson: No; I would1 not say that at all.


Richard Burpee Hanson: Then what is the real difficulty?


Colin William George Gibson: The. parliamentary assistant to the Minister of Finance has answered that question on two occasions.


Richard Burpee Hanson: With due respect to the minister, I do not think he answered it at all. He just said it was a matter of policy on the part of the government, without giving any of the reasons lying behind that policy.


Douglas Charles Abbott: I have tried to do it
several times. I do not think there is any purpose in repeating what I said this morning. Would my hon. friend allow me to ask him a question? Does he think there are not sufficient funds coming forward now for prospecting purposes?-because that of course is all this section covers. It does not affect the individual prospector, as I tried to make clear this morning. It does, I presume, encourage some people to put money into prospecting. Does he from his own experience feel that

Income War Tax
there is not enough money being put up for prospecting purposes? My own opinion is that there is.


Richard Burpee Hanson: My experience would not be worth anything, because I do not come from a mining country and am not interested in mining stock. But those who ought to know and do know say that prospecting is dead. I think it was the parliamentary assistant who said that there were no men available for prospecting.


Douglas Charles Abbott: My information is just the contrary. Every prospector in the country is working his head off.


Richard Burpee Hanson: Somebody said there were no prospectors available. I do not believe that for a moment. I believe there will always be an opportunity for prospectors, and as the hon. member for Vancouver South said, after the war there will be many, within a year perhaps, who will want to engage in prospecting.


Douglas Charles Abbott: That is the time to give the incentive.


Richard Burpee Hanson: No; now is the time to give the incentive so that they will know what the position is.


Douglas Charles Abbott: My hon. friend realizes that originally this was for one year only, for the 1943 period. This resolution proposes that it be extended for one more year. It is not a permanent part of our taxation legislation and the taxation that has arisen in this war. I should like to quote what the minister said with regard to mining company taxation in his budget speech. I think it is well worth repeating. At page 4182 of Hanard the minister said:
During recent months we have been urged to introduce a number of drastic changes in the tax structure as it affects the mining and oil producing industries. These industries are very properly considering their post-war position and the contribution which they can make to the solution of post-war problems. Needless to say, the government has very much in mind the need of a comprehensive and many-sided programme to encourage the efficient development of our natural resources and to assure that these industries vi 11 make the maximum contribution to the expansion of employment, national income and national wealth after the war. Natural resources, of course, are for the most part in the hands of the provinces, but the dominion, it is believed, can do much to promote full development and wise conservation. Tax policy may be one of the devices which it may appropriately use ti these ends but it will be by no means the only one. The dominion's programme should be part of an integrated programme worked out in cooperation with the provinces. At the forthcoming dominion-provincial conference, this programme, it is proposed, should be discussed with provincial governments and agreement reached as to the contribution to be made by the respective levels of government.
For these reasons I believe that any radical changes in tax policy of special application only to the mining and oil companies would be premature at this time. The Excess Profits Tax Act already includes a special formula for the taxation of oil wells and gold mines. New companies in the metalliferous mining field enjoy a three-year exemption from excess profits tax. In last year's budget we made a number of important concessions to encourage exploration and drilling for oil and also made it possible for mining companies to write off exploration and prospecting expenses incurred in prospecting anywhere in Canada for base-metals or strategic minerals.
That is the provision we are referring to now. I continue:
With this measure of encouragement the oil and mineral industries have been able to make a very important contribution to the country's war effort. They have also been willing to bear their full share of the burden of financing the war and they well recognize, I believe, that the need for war revenue continues at least as great and as urgent as ever. The changes I have announced in respect of income and excess profits taxation and the indications I have given in regard to future tax policy will apply to these -industries as well as to other industrial enterprises and I hope that it may foe possible to announce at the next session of parliament the comprehensive and integrated programme for the development and conservation of natural resources to which I have already referred.
This statement relates to the broad picture of taxation with respect to mining and other companies engaged in developing the natural resources. This particular provision is a limited incentive provision which was inserted in last year's budget provisions for one year only and which rightly or wrongly was felt should be extended for another year. I think my hon. friend from York West will agree-in fact he has already indicated-that this cannot be taken as a broad measure to cover encouragement in general to the mining industry. It was put in because last year it was desired particularly to encourage the prospecting for base metals and so-called strategic metals. That is all the section is. It is not a broad measure to cover the mining industry as a whole. I think it is desirable to renew it for another year. I think it should be considered along with other provisions when there is a discussion with the provinces as to the proper basis for mining companies as a whole.


Richard Burpee Hanson: That means just stalling on the whole proposition. All that has been asked for here to-day is that the discrimination against the private prospector and his backer be removed.


Douglas Charles Abbott: There is no discrimination against the private prospector. There may
Income War Tax

be-I am not prepared to admit there is-some discrimination against the backer of the private prospector.


Richard Burpee Hanson: I said -'and his backer".


Douglas Charles Abbott: My answer to that is, whether my hon. friend agrees with it or not, I think in such circumstances the incentive to .abuse would be so great I do not believe it should be introduced.


Richard Burpee Hanson: That means administration.


Douglas Charles Abbott: Administration is a necessary part of any tax law, and if a law cannot-


Richard Burpee Hanson: But it is not a fundamental part.


Douglas Charles Abbott: If a tax law cannot be
administered efficiently and fairly, so that the people will believe in it, in my opinion it is a bad tax law.


Agar Rodney Adamson: I just want to refer to
one point. The statement was made that there were enough prospectors. Referring to the official blue book containing the report on reconstruction, I find the significant statement that successful prospecting had almost come to an end after 1940. That is what has happened; successful prospecting has come to an end. I have tried to point out that the great boom in the Yellowknife was the result of a series of diamond drill holes, which may or may not mean a mine there. Until we have the definite development we cannot tell. I repeat that prospecting has virtually ceased in a great part of Canada, other than some special sections where I admit there is a good deal of activity at the present time.


Douglas Charles Abbott: Certainly I cannot say with any personal knowledge whether or not prospecting has ceased. My officials tell me that according to their information that is not the case. Of course it may have been curtailed because of the man-power shortage, but I cannot say as to that.


Mr. SLAGHT:: Will the assistant to the
minister inform me whether I am correct in assuming that the write-off is designed to encourage prospecting in regard to base metals, and not in regard to gold?


Douglas Charles Abbott: That is correct.


Arthur Graeme Slaght: Then I should like to make this contribution, if it be one, to the discussion. My experience is that prospecting has practically dried up. It is my view that prospecting for gold mines should be encouraged now, instead of waiting until the war is over. It has

been said previously, and I do not want to go all over it again, that from the time the prospector is lucky enough or scientific enough to stake out a claim, at least four years must elapse before the mine can be brought into production. I took the trouble to elaborate on this point on another occasion; I am not going over it again, but I do not think anyone who understands mining will dispute that statement.


Agar Rodney Adamson: Four years is a very short time.


Arthur Graeme Slaght: It is probably the minimum length of time, according to all our experience with silver in the old Cobalt days, with gold in the various gold camps, and with base metals. If it be right to encourage prospecting for gold, why should we wait until the war is over, and then have a further hiatus of four years before any more gold properties can be brought into production? After the war our friends to the south may not be as liberal with us as they have been up to the present in the matter of credit. They have given us splendid cooperation so far; we have been enabled to make goods for the mother country because the United States have given us credit for the raw materials we required. However, notwithstanding what may happen at Bretton Woods, in the natural course of events that cooperation will begin to taper off to some extent. Then we may be told again by the Minister of Finance, as the predecessor of the present minister, who is now Minister of National Defence, told the gold mining industry two or three years ago, "Spend your money. Increase your plants. Take on all the men you can. Produce every ounce of gold you can possibly produce to enable us to maintain our exchange with the United States at something like a reasonable level, because we have to do it." What is going to be the use of that if we are to be blacked out for a four year interval after the war? I do suggest to the Minister of Finance and his associates that this matter should be given some further consideration.
Now I should like to say a word about the suggestion that there are no prospectors available to go into the field, if they could do so under attractive conditions. It is true that there is a sprinkling of prospectors in the armed forces. Those in the north country who were of army age flocked to the colours; there was no more loyal body of men in the country. But there is a vast army of prospectors who are over military age, but who, because of their experience, are still extremely useful. Indeed, without throwing any stones at the younger men, I might say the older ones are

Income War Tax
perhaps even more useful. If you take the trouble to go back through the statistics and look up the prospectors who have been most prominent in discovering valuable mineral properties of all types throughout Canada for the last thirty years, you will find that in the main the original discoveries were made by men of fifty years of age and over. In other words the old timer, of whom we speak in the mining camps, is still with us. If you would give him proper encouragement he would go all over the country carrying on his work. I want to join with those who have said that we have not understood the encouragement we ought to give those prospectors. I fail to appreciate why we should continue to encourage men to look for base metals, which we will require to a much smaller extent after the war, and at the same time refuse to encourage men to prospect for gold, which we will require to a far greater extent after the war.


Harry Rutherford Jackman: In rising to support the suggestions that have been made by various hon. members I should like to say that I hope the spirit behind this section will be embodied in our post-war taxation legislation. This house has been reminded already, but I will take time to repeat it, that eighty-four per cent of our mineral production is coming from mines discovered before 1920. As the hon. member for Parry Sound just said, prospecting is at a standstill, and nothing we could do would be better calculated to open up our great north country than to have more prospectors. However, I should like to direct my remarks to the suggestion that there should not be any substantial administrative difficulty in extending the benefits of this provision to the individual prospector who is backed by another individual or a small group of people. The parliamentary assistant has suggested that such a provision would be full of loopholes, that a father might send his son into the woods on a vacation, to fish, and he would be able to get an allowance in his taxation bracket under the pretext of having sent his boy out on a prospecting expedition. I do not believe such things are likely to occur. Of course there may be a few cases of that kind, but I do not believe their number would be at all substantial. I think the parliamentary assistant or the Minister of National Revenue, who is in charge of the enforcement of this provision, should outline some of the cases which they fear will deprive the treasury of a substantial amount of revenue.
Let us analyse the case of the father and son. Is a father going to give his boy S500, or some such amount, to go into the north country and spend his summer fishing, and then
claim this $500 as a deduction from his income tax? In the first place that would mean that a father would have to be in collusion with his son in an effort to cheat the government out of a certain amount of money. I doubt very much if there are many fathers in this country who would be willing to conspire with their sons for such a purpose. I think the fears of the Department of Revenue are ill-founded. I heard just the other day of an interesting story about a saw mill owner who was said to have forty bosses and who operated at a loss. I could not understand how that could be, but it was explained to me that he was in the habit of taking logs out of the river which did not belong to him. His employees knew about that, and they proceeded according to their own ideas as to how long or how hard they should work. The result was that he was certainly worse off than if he had operated as an honest man.
I doubt very much if dishonesty would further any person in this game of sending a man into the north country, any more than it would in any other field. In my view the fears of the department are entirely without foundation, and I would ask for information as to other eases than that of the father and son, which has been mentioned. What man is going to give some other person $400 or $500 to go up to the north country to waste? People are not disposed that way. I should think any attempt at collusion would be pretty well confined to a family, and I have endeavoured to explain that the honour existing between father and son would be such as to prevent any great number of these cases at any rate. Furthermore, if the Department of National Revenue would undertake a few prosecutions, where there may be loopholes, they would soon find that there would be no more advantage taken of those so-called loopholes, and the result would be a stimulus to exploration and prospecting activity in this country, something which is so badly needed for the post-war period.
The department has admitted the principle that we need more prospecting in the north country7. An extension is granted to companies and syndicates which are registered, but refused to individuals. I call upon the department to review its decision to exclude advances to individuals to encourage prospecting, as having been based upon ill-founded fears. The administration must not consider itself first, even if there are some who do slip through their meshes. The important thing is the matter of job creation, and the bringing of more production to the market, whether it be of minerals or any other commodity, which will help the standard of living of the people.
Income War Tax

That is the important thing. We must recognize that man is not made for the budget, but rather the budget is made for man. And where there may be more production, it must not be restricted by considerations based upon ill-founded fears in the minds of officers in the Department of Finance and the Department of National Revenue.
Mr. BLACK (Yukon)! The parliamentary assistant to the Minister of Finance has made it quite clear that the government will continue its policy of discriminating against contributions by taxpayers to individual prospectors. I do not think there is any mistake about that. To my mind that is a poor policy, and one which will not tend to increase mineral production in this country. I said in the first place that it was unfair, and I say it should not be continued. This morning I suggested to the government a veiy simple way in which they can remove the difficulty so far as the administration is concerned. It was my understanding that the Minister of National Revenue said that this provision of the Income War Tax Act, subsection 5 of section 8, will be extended to apply to the Yukon territory and the Northwest territories, as it does now to the provinces.


Colin William George Gibson: That is correct, yes.


Howard Charles Green: I can see the difficulty in the minds of the Minister of National Revenue and the parliamentary assistant to the Minister of Finance in understanding the pleas which have been placed before them to-day. From what they have said, they envisage the big man in Montreal or Toronto or Hamilton who puts up 8100,000 or $50,000, or some other large sum of money-


Douglas Charles Abbott: It is limited to $5,000.


Howard Charles Green: *-to help out a prospector. But the situation we are asking the government to meet is entirely different. We are thinking of the small town of perhaps 500 or 1,000 people, where there are young men, or perhaps older men, who know the country, understand prospecting and are willing to go out and take a chance in the hope of finding a bonanza. That is the way the mines in British Columbia were found. As a matter of fact, in many instances these individual prospectors are in direct competition with the prospectors sent out by the big companies. Mind you, that is heavy competition, because the big companies in the event of a strike in a district may send out twenty-five or fifty employees to stake everything in sight. In some cases they keep the little fellow right out of the field.

We are asking for help for the individual prospector who will go out from the small towns. In the first place, we think his backer, the local merchant who puts up the food or an amount of cash, should be entitled to this tax credit. I go further and say that the man himself who goes out should be entitled to his expenses as a credit. This morning the parliamentary assistant said that he thought that was already done. I am informed that it is not. The prospector spends his money in the purchase of food and mining equipment, but does not get any credit.


Douglas Charles Abbott: The deputy minister tells me that under those circumstances a man is entitled to the expenses entailed in earning his income.


Howard Charles Green: But is he entitled to his food? Is he entitled to the amount he pays for food?


Douglas Charles Abbott: He is entitled to ordinary equipment, whatever expense he incurs, just the same as you and I as lawyers are entitled to our expenses in earning legal fees.


Howard Charles Green: But we are not entitled to the cost of our food. This man would be going out and taking a chance. For instance, let us consider the man returning from the war who has a small amount of money coming in from other sources, which will be taxed very heavily. There is no chance that he will use that money to go out and risk it in the hills. I suggest he should be given a tax credit just to aid him in prospecting. Those are the cases we are worried about.


Douglas Charles Abbott: Upon what does the hon. member say he should get a tax credit?


Howard Charles Green: For his expenses.


Douglas Charles Abbott: He gets that now. From what would it come?


Howard Charles Green: Well, if we can be sure he gets it, that helps.


Douglas Charles Abbott: He does get it.


Howard Charles Green: But I do not think he does.


Douglas Charles Abbott: This section gives tax assistance to the man who puts up the money to help some person to do the prospecting.


Howard Charles Green: I am referring to the prospector himself; does he get an allowance?


Colin William George Gibson: Does the hon. member mean a credit from the income he earns from his prospecting?


Howard Charles Green: In making out his income tax return each year, does he get credit for what he had to spend in order to equip himself to go out prospecting?

Income War Tax


Colin William George Gibson: If he has earned income from his going out and prospecting, he does. That is what he can deduct expenses from, namely, the expense incurred in earning that income.


Howard Charles Green: In many cases the prospector goes out but does not earn an income.


Colin William George Gibson: Then he is not taxable. What could he put the tax credit against then?


Howard Charles Green: Any other income he has.


Colin William George Gibson: No; he cannot do that.


Howard Charles Green: Then he is not getting any help at all under the present law. That is the picture. I cannot understand why you help the big companies but will not help the little fellow. So far as we are concerned that is all wrong and certainly should be remedied.


Douglas Charles Abbott: May I just make one point clear? My hon. friend has referred to the big companies, but if he will look at the resolution he will see that they are not necessarily big companies. A big company may get the benefit of it, but it says:
That the tax credit allowed to a taxpayer of forty per centum of contributions made by him in the year 1943 to associations, syndicates or mining partnerships registered or otherwise recognized under the law of any province in Canada.
That is pretty broad. Take the case of a small town, such as my hon. friend mentioned, and of a group who want to grubstake a prospector. It is perfectly open to them to register as a mining partnership in accordance with the law of the province. They can put their capital into this partnership, and the partnership may engage a prospector and grubstake him to go out. Contributions or payments to a mining partnership, a prospecting syndicate or whatever you want to call it, would qualify under this section. The limitations under the section are twofold. First, there is a restriction as to base or strategic metals, and we had some discussion on that point. Second, the credit is not allowed in the case of contributions made to individuals. It has been urged strongly by the hon. member for Yukon and others that this credit should be extended to contributions or subscriptions to individuals. I have endeavoured to put forward, perhaps unsatisfactorily, the reason why it was decided last year after consideration that that should not be done, and that the same considerations ruled this year. But that is the only limitation. As I have pointed out, it covers associations, syndicates or mining partnerships registered or otherwise recognized under the laws of any province of Canada.
Mr. GREE'N: The parliamentary assistant stated this morning that he is opposed to this tax credit because in the large cities promoters are using it for their own purposes.


Douglas Charles Abbott: Please do not misquote me. I did not say they were using it. I expressed my personal opinion, which I have always had, that it gave a certain amount of incentive to stock promoters to form these syndicates or associations for the purpose of getting subscriptions from the public on the ground that they would be partly exempt from taxation. That is only my own personal opinion. I think that objection is more than overcome by the desirability of encouraging this work.


Howard Charles Green: That objection would not be applicable in the case of a merchant in a town who advanced money to a prospector.


Douglas Charles Abbott: There are other objections that are equally strong.


Howard Charles Green: In that case it is not a question of financing or floating a company.


Agar Rodney Adamson: I am going to move an amendment to this resolution which I think will resolve some of the difficulties we are up against. I move:
That the word "base" be struck out of clause 30.


Douglas Charles Abbott: I am not an expert on parliamentary procedure, but I think this is a money resolution, and if it is-


Richard Burpee Hanson: It is a tax resolution; it is not expending money.


Douglas Charles Abbott: I am in the hands of the committee.


Richard Burpee Hanson: That is a new doctrine, that a private member cannot amend a tax resolution. I have seen it done fifty times.


Mr. GOLDING:: Not if it increases-


Richard Burpee Hanson: The hon. member is no authority on anything as far as I am concerned. If he will just keep quiet I will explain my position. If this resolution provided for the expenditure of public money, then the parliamentary assistant's point might be well taken.


Douglas Charles Abbott: The hon. member is attempting to amend a tax exemption.


Richard Burpee Hanson: A resolution providing ways and means of raising money is in an entirely different category.


Douglas Charles Abbott: This is a resolution which provides a tax credit.
Income War Tax


Richard Burpee Hanson: This resolution is the reverse of one to raise money; this resolution gives some relief.


Douglas Charles Abbott: It affects the revenue.


Richard Burpee Hanson: I do not agree with that. If that is to be the case we might just as well fold up and go home as far as these tax resolutions are concerned. It will be ridiculous if parliament is to be hamstrung in that respect. The rule is that no one but' a member of the government can introduce such a resolution, but that does not say that we cannot amend it. I have seen time after time motions put in committee of the whole to reduce an item in the estimates to one dollar.


William Henry Golding: That is in order.


Richard Burpee Hanson: Thank you for the commendation; I am glad to hear that you agree with me. This amendment is of the same nature.


Stanley Howard Knowles: May I rise to a point of order?


Richard Burpee Hanson: I am not through yet.


Stanley Howard Knowles: I was going to help you.


Richard Burpee Hanson: I hope you are, but wait until I am through. I am a little fearful of help from that quarter, but I will welcome it if it is genuine. The illustration I gave about reducing the estimate is I submit on a parallel with this amendment. I hope the parliamentary assistant will not be serious in pressing his point of order.


Douglas Charles Abbott: An amendment to reduce an estimate simply provides that we spend less money, and it is open to any hon. member to move such an amendment. But this resolution affects the revenue. If the exemption is extended to other classes than have been provided, then the revenue will be affected. I prefaced what I said with the remark that I am no expert on parliamentary procedure but I have always understood that a money resolution or a resolution affecting the revenue had to be introduced by a member of the government and had to be preceded by the formula we have listened to on many occasions, that it has been communicated to His Excellency the Governor General, and so on. This is a resolution which affects the revenue. The suggestion made by the hon. member for York West would have the effect of diminishing the revenue which would be

received under the Income War Tax Act. If that is so, then I think it would be out of order.


George Black: I suggest that we
should know just what the amendment is.


Joseph-Arthur Bradette: It is moved by the
hon. member for York West that the word "base" be struck out of clause 30.


Stanley Howard Knowles: Whether or not a point
of order has been raised, I should like to refer to citation 502 in the third edition of Beauchesne's Parliamentary Rules and Forms. I am not discussing the merits of the amendment moved by the hon. member for York West, but I should like to read this citation:
A private member may move that certain specified taxes be readjusted and that the scope of tax exemptions be enlarged.


Richard Burpee Hanson: On the
point of order again, the parliamentary assistant has correctly stated the position that no one but a member of the government can move a money resolution, but I have never heard it. advanced that a private member could not move an amendment to that resolution.


Harry Rutherford Jackman: Perhaps they will be less stubborn about making changes.


Douglas Charles Abbott: I do not know whether
the hon. member for York West had concluded what he had to say, and perhaps I should not have interrupted him. After he has completed his remarks I would prefer that the committee allow the resolution to stand until the minister is able to be here.


Agar Rodney Adamson: I want to make two short statements. The Australia act describes exactly what a prospector is. It is not easy to be a prospector. There are prospectors' associations in the various provinces which are very jealous of their good name. If the government are going to cooperate and allow a credit for money spent in prospecting, then I think they will find the prospectors' associations and the mining associations extremely jealous. They will be careful to see that their good names are maintained and that no money earmarked for prospecting is spent in any other way. To that extent I am certain of the genuineness of the prospectors' associations.
Now I come to the amendment. A prospector goes out into the field. In our complex geological structure he may be looking for anything-copper, zinc, molybdenum, tungsten or half a dozen other base metals, and he may find a showing of precious metals mixed with base metals. Nickel is a case in point, also

Income War Tax
Noranda and Hudson Bay Mining and Smelting. All have a definite precious metal content in their ores. Frequently base metal mines have started out because it was thought they were precious metal mines. If you continue to have this limiting clause, when a prospector finds a showing of precious metals when he is out looking for base metals, he will turn it down because he can get no allowance.


Douglas Charles Abbott: The individual prospector gets no concession under this. It is his backer that gets it.


Agar Rodney Adamson: In nearly every case you will find that the prospector is in part his own backer.


Douglas Charles Abbott: If he found a showing of precious metals I doubt that he would quit simply because he could not get the benefit of this exemption.


Agar Rodney Adamson: It depends on the showing. You can never tell what you are going to find. In some gold areas some of our biggest base metal mines have been discovered, and vice versa. That is why I say that this amendment should be given very serious consideration.


Douglas Charles Abbott: The section might stand
until the minister can be here. But I just want to say one word about the individual prospector. I am advised that no prospectors' association has requested that this concession be given to the individual prospector-not one. Mrs. MacMillan is the president of the Dominion Prospectors' Association, and her association has never requested that this be extended to the individual prospector. I am advised that one reason why they have not done so is that they feel it might bring the section into disrepute and result in the concession being withdrawn entirely. I just wanted to get that on the record.


Richard Burpee Hanson: They are fearful of abuse.


Douglas Charles Abbott: These prospectors' associations, as the hon. member for York-Sunbury knows, are extremely well organized in each province, and we have had no request from a single prospectors' association that this concession should be extended to the individual prospector.	,


George Black: You have this
request from the members of this house.


Douglas Charles Abbott: Yes, but we have had no request from any of the associations referred to.


Grote Stirling: These associations might not be interested in private individuals, merchants and others, who desire to grubstake the .prospectors.


Douglas Charles Abbott: I would think that most of the prospectors would be members of the associations and therefore that the associations of prospectors would be interested in the backers of individual prospectors to have this concession extended which is given to syndicates and partnerships. I just wanted to point out that we have had no such representations from any of these associations.


Agar Rodney Adamson: I am surprised, because that certainly is not the story that was intimated to me.


Douglas Charles Abbott: That is the information
given to me by my officials.


Joseph William Noseworthy: I do not know, Mr. Chairman, whether it is in order for us to discuss the amendment until you have declared whether or not it is in order.


Joseph-Arthur Bradette: I have not yet given my decision, but i* would be in order for the hon. member to speak to the amendment in the meantime.


Douglas Charles Abbott: In any case I have asked that the resolution stand, so that the minister himself might consider the amendment.
Resolution stands.
31. That one-half of expenditures on maintenance and repairs incurred by any taxpayer carrying on a business (or an underground development, in the case of a taxpayer operating a mine) in a period to be fixed by order in council be regarded as deferred maintenance and repairs and be deductible as an expense, at the option of the taxpayer, either in the year or fiscal periods when incurred or in years or fiscal periods ending subsequent to December 31, 1942.


Richard Burpee Hanson: This is a very important matter which was referred to by the Minister of Finance in his budget speech. His remarks will be found at the beginning of the last paragraph on page 4181 of Hansard. Just to refresh the minds of hon. gentlemen I am going to read what the minister said, and make, I hope, a few appropriate comments. He said:
Another point at which our taxes on business income have gone beyond the taxation of true income, is an the matter of expense for maintenance and repairs.
That is a sad admission, that the taxation policy of the country has in that regard gone
Income War Tax

beyond the taxation of true income; that is, it is violating the real principles of taxation. The minister went on:
For the past two years, in certain industries at least, it has been impossible, by reason of shortages of material and labour and the necessity of continuous operations-
That is in industry itself.
-to carry out the maintenance and repair work that would be normal and necessary to prevent the deterioration of plant and equipment.
That is quite true; there is no doubt about it, and I would say that it goes beyond the past two years. The minister went on :
As a result, deferred maintenance expense is accumulating, and, in the meantime, profits are inflated because full maintenance is not charged.
That I think is a true statement of the position. Apparently the minister's advisers are properly informed of what the position is. The only remark I would make about that is that it is an understatement of the position. Full maintenance is not charged, deferred maintenance expense is very rapidly accumulating, and profits are thereby tremendously inflated and are taxed improperly, taxed in some cases 100 per cent less the 20 per cent refundable. That is a serious indictment against the present taxation structure. The minister goes on to say:
We have 'tried in the past to find some equitable formula for permitting the setting up of a maintenance reserve, but it is extremely difficult to devise one which will fit the varying circumstances of all industry.
I suppose that is an administrative difficulty, but I see no difficulty in devising a formula that would operate for a particular industry, and I do not understand why it has not been permitted before. The minister goes on:
We are now recommending a provision for the future which 1 hope will meet the -problem in at least a partial way-
I suggest that that is not good enough. I characterized it in my address on the budget as a pseudo remedy, and I adhere to that term for lack of a better one. Here you have an admission by the minister of a weakness in the tax structure and that he is attempting to meet the problem merely in a partial way which will speed up the work of plant repair in a period when additional employment may be needed. What is the proposal?
The proposal is that one-half the expenditure on maintenance and repairs, incurred in a period to be fixed by the governor in council-
I pause here to criticize the giving of authority to have the period fixed by the governor in council. How can the governor in council-which means the Department of National Revenue, which means the commis-
sioner and his staff-know iwhat is to be the appropriate period? Yet they make the final and only decision. The man who should be able to fix it definitely in his own particular case is the man who wants to catch up on the deferred maintenance, not a government bureau. What is the parliamentary assistant's answer to that indictment of bureaucratic power, a power which is reserved in this resolution, purposely and with intent aforethought, according to the minister's statement as it appears at page 4181. They are to hold the strings in their hands, and if their opinion differs from' that of the proprietors of the business, then the latter are overruled and the department is the sole judge. I continue the quotation:
-may be charged against the income of a previous fiscal period but not farther back than the fiscal periods ending in 1943. In the case of the mining industry, maintenance and repairs will be held to include also underground development work.
I am not concerned about that at the moment. Now I submit that we are entitled to a much fuller explanation than is contained either in the minister's statement or in the resolution before us. The resolution before us takes an arbitrary half of the expenditures on deferred maintenance and repairs and carries into effect this period to be fixed by order in council and to be deductible as expense at the taxpayer's option in any fiscal year within the limitations mentioned.' We should have a thorough explanation of this half remedy, according to the minister's own admission. I call it a pseudo remedy, because it is not a real remedy at all but a partial remedy. Perhaps his language is better than mine. It is a partial remedy for what he admits, in his statement at page 4181, to be an evil in the tax structure. He admits that the tax structure on business income has gone beyond the true measure of taxation on true income. That is a damning admission, in the minister's own words, that they have overtaxed companies in previous years. They have not allowed sufficient sums to take care of what is a necessary provision for maintenance and repairs, which must foe deferred because of the lack of labour or perhaps equipment.


Douglas Charles Abbott: That is why it is being corrected now.


Richard Burpee Hanson: Yes, but it is only to the extent of one half of what it ought to be.


Douglas Charles Abbott: Oh, no.


Richard Burpee Hanson: Oh, yes. The parliamentary assistant can explain it if he likes.

Income War Tax


Douglas Charles Abbott: You can have it one half in one year and one half in another.


Richard Burpee Hanson: I would like to have that explanation, because I am trying to understand this as well as to indict it.


Douglas Charles Abbott: You had better do the former first.


Richard Burpee Hanson: I am
strong on denunciation, because it is the only way to get at the truth-that and crossexamination. You cannot get it by mealy-mouthed phrases or polite invitations. You never get anywhere. We have not got anywhere to-day on resolution 30, which was allowed to stand. Indeed, that was the very reason why 30 was allowed to stand-that it is discriminating against one class and in favour of another. My view is that we are never given the actual facts and the underlying reasons for any move on the part of the administration. They are afraid to reveal their hand. I will illustrate that. A supporter of this government this morning, when we were discussing that provision-this is by way of a digression and I hope the chairman will not stop me-when we were considering section 28 dealing with the requirement to file returns showing interest credited to depositors in 1944 and subsequ/ent years, revealed to me the real reason. The real reason is that the government wants to know who has money in the bank so that it can send the national victory loan people and make these people buy victory loans. That is the real underlying reason. They will deny it, but there is a lot of truth in that.


Colin William George Gibson: That is entirely wrong, because the income tax division does not tell other departments of government what information it receives from the banks or anyone else.


Richard Burpee Hanson: I suppose I have to accept the minister's statement, but that was the opinion of one of his supporters.


Colin William George Gibson: It is quite incorrect.


Richard Burpee Hanson: Well, it may be incorrect, and perhaps I am unduly suspicious, but I would not be doing my duty as an opposition critic if I did not have some suspicion of this administration, or any other.


Harry Rutherford Jackman: It is justifiable.


Richard Burpee Hanson: In many cases it is justifiable. I will not waste more time on that because I think I have made my point.
To come to section 31 of the resolution, I do not wish to go over the whole ground again, but we have first of all a frank admission on the part of the Minister of Finance that they have been doing an injustice through the tax structure to corporations and companies.


Douglas Charles Abbott: Only if perpetuated. Be fair.


Richard Burpee Hanson: I beg your pardon?


Douglas Charles Abbott: Only if it is not corrected.


Richard Burpee Hanson: I do not see the applicability of that.


Douglas Charles Abbott: I shall have a word to say on that.


Richard Burpee Hanson: I read the English language and I try to understand it and I think I have some realization of the value of words. He says:
Our taxes on business income have gone beyond the taxation of true income.


Douglas Charles Abbott: But that is because they have not been able to get materials to do repairs, and we are recognizing that fact.


Richard Burpee Hanson: You do not have to lecture me on that. I know the reason why. The parliamentary assistant objects to my stopping at that point; I see that. They have not allowed proper reserves to be set up in days gone by as operating charges to come off operating income and as a result they have, taxed beyond what is true income. That is my indictment against this administration, and that is true all along the line. I have a whole sheaf of comments here against the entire tax structure, and the best indictment I have against it comes from the greatest defender of the administration, the Winnipeg Free Press. I may take occasion to put that indictment on the record before I am through. The Free Press, in a series of articles, indicts the whole tax structure of this government, so far as income tax is concerned, in language that is stronger than any I would use, and it added counts in the indictment that I would not. In the course of their indictment of the government's tax policy they have charged, under the fourth weakness of the system, the method of collection. "The fourth weakness in our system is in its method of collection." I am not indicting the government for that, because I made a number of investigations of it and I had some reassurances. This indictment in the Winnipeg Free Press was published in March of this year. It contains at least three of the most damning indictments that I have ever heard put forward to the public of this country, and it is published by one of the
Income War Tax

strongest supporters of this government. They may have some underlying reason for this indictment; I do not know. I am not in the confidence of the Siftons, but on the surface it speaks for itself.
Let me call this to the attention of the Minister of National Revenue. The first count in the indictment is that our -tax laws are undemocratic. That is a very general statement.


Douglas Charles Abbott: Is that on this resolution?


Richard Burpee Hanson: I think I can talk about taxation on this resolution.


Joseph-Arthur Bradette: We must have reached the stage now after so many months of the session where we should keep within the ambit of the resolution that is before the committee.


Richard Burpee Hanson: I wish to conform to the rules of the house. Will the hon. member across the way stop muttering? I have the floor. If he wants to say anything let him rise. He is only the temporary chairman of the committee of ways and means; he is not the permanent chairman.


William Henry Golding: You are doing yourself credit.


Richard Burpee Hanson: I hope so; I never talk foolishly in this committee.


William Henry Golding: You sit there and interrupt all the time, and if anybody else says anything you crack down.


Richard Burpee Hanson: If you have anything to say about me, get up in your place and say it and I will answer it.


William Henry Golding: I am saying it sitting down.


Richard Burpee Hanson: On the point of order that has been raised-will you be good enough, Mr. Chairman, to ask the hon. member to stop muttering and interrupting me. He has nothing to say that is worth listening to. I am making a reasoned argument. If I am in order I propose to go on; if I am not I shall confine myself to the section. But I do submit in all fairness that we are dealing with a question of taxation and administration of taxation, and under that heading I am entitled to give my views and the views of others that have been communicated to me as to the injustice of our taxation system.


Douglas Charles Abbott: That could be done under any section of the resolution?


Richard Burpee Hanson: I think it could. I think you can attack the system of taxation under any section.


Douglas Charles Abbott: Again with deference I would differ, but perhaps I am wrong.


Richard Burpee Hanson: I am going to conform to the Chairman's ruling. If he says I am wrong I will not pursue the point any farther, but I shall have something to say on it later.


Douglas Charles Abbott: It can be said on the second reading of the bill.


Richard Burpee Hanson: The parliamentary assistant is quite right about that. If I am not permitted1 to say it now I shall say it then.


Douglas Charles Abbott: I do not want to interrupt
my hon. friend, but if we can have the general criticism on the second reading of the bill perhaps it would facilitate the resolutions.


Richard Burpee Hanson: Before the Chairman rules I shall answer that by referring my hon. friend to what the Minister of Finance said about this very proposal at page 4181 of Hansard when he delivered his budget speech. He was referring to the point I have raised. This is what he said:
. . . our taxes on business income have gone beyond the taxation of true income. . . .
Using that basis laid down by the Minister of Finance, under which this resolution is brought in, I propose to indict the taxation system, if I am permitted.


Joseph-Arthur Bradette: On the point of order,
in the committee of ways and means it is easy for hon. members to have a general discussion on almost any resolution but it is not conducive to celerity. The hon. member for York-Sunbury knows the rules better than I do myself-


Richard Burpee Hanson: I -would
not say that.


Joseph-Arthur Bradette: He realizes that I am
the last man who would try to curtail discussion. I am in the hands of the committee. I know they want to play fair in their deliberations. It is absolutely impossible to have ironbound rules. However,' I believe at this stage of the deliberations it should be possible to keep within the ambit of the resolution before the committee and avoid general discussion not germane to the clause.


Richard Burpee Hanson: Then I
take it if I keep within the ambit of the subject matter of the resolution I am in order in proceeding, and I shall be glad to do so.
I lay down the first indictment against the proposal as outlined by the government's

Income War Tax
friend, the Winnipeg Free Press, that our tax laws are undemocratic. This is what the Free Press says:
In the Minister of National Revenue-which actually means in his deputy and other officials-
I hope the minister is not just a figurehead, but that is the implication here.
-the law vests almost dictatorial powers.
That, of course, is the gravamen of the charge, and I think there is a large measure of truth in it.
-almost dictatorial powers; and not only dictatorial powers but sweeping powers of discretion.
I say it is an axiom of any taxation statute that the right to tax must be clear and explicit as against the subject; unless it is, the courts of this country will not give effect to the power to tax. That is one of the fundamental principles of the right of the crown to tax the subject. That has been departed from so frequently and to such a degree in the growing powers of income taxation that we have in this country that it calls not only for an immediate halt but for reform, which is long overdue. I have not the section of the act before me, but in a given case certain government bureaux of this country are entitled to impose taxation that is not imposed by the statute itself; not only that, but to fix the rate and the incidence of taxation. That is taxation outside of the borders of the statute itself. That was done, it was said, to meet a special case of tax evasion. I think that was the reason for it, and there is some basis for that reason, but why give it to a group of men, no matter how much confidence we may have in their personal character? It is wrong in principle to give power such as that to a group of men when parliament has not even been consulted about it. This article goes on to say:
In a democratic country the citizen should never be subjected, if law can prevent it, to the varying opinions of officials, however sincere-
That is exactly what I have been saying in other language. That is the position to-day. In this country citizens are subjected to the varying opinions of officials and perhaps to the varying opinions of the same officials; although I am bound to say I have not before me an instance that would justify me in being dogmatic about that statement, because I have found that once a decision is given it is like the law of the Medes and Persians; they very rarely reverse themselves. They think it is not proper to do so. Well, let me say to the minister that in one of the greatest courts the world has ever seen, the Supreme Court of the United States, they do
reverse themselves. We are not so good at that sort of thing in Canada, we are so bound by precedent; but in reading the history of the Supreme Court of the United States and its place in the history of that country I have been struck by the number of times that that court has reversed itself. I do not think that ever happens in the income tax department of this country.
Then the article refers to the matter which I brought up in this house last week, namely, the inadequate system of appeals against the arbitrary decisions of tax officials. That is the language of the Free Press, not mine. I did not go as far as that, nor am I going as far as that now. It was the system of appeals that I was objecting to, which the parliamentary assistant characterized, I think, as an empty gesture, or something to that effect; at least, that it was not worth while.


Douglas Charles Abbott: I said the worst that could be said about it was that it was a bit of waste motion.


Richard Burpee Hanson: I cannot remember the words my hon. friend used, but I know he gave half-hearted assent to my proposal. The Minister of National Revenue proposed to perpetuate that system making him the sole court of appeal, if I understood him correctly last week, but having a group of technical advisers around him, which of course does not meet the point at all. The next point made by the Free Press is:
Again, twenty-six years after assessing a citizen for taxes, the government can reopen the account and, saying it was mistaken in the first place, force him to pay more taxes for years long past.
That has not been amended, except with respect to men overseas, and for that much consideration we give thanks.


Colin William George Gibson: That has been amended.


Richard Burpee Hanson: There
should be some limitation. I point out that this is not permitted in Great Britain or the United States. I think that is based on the theory that the principle of estoppal does not operate against the crown. I never could understand why that should be so, why the principle of estoppal should not operate against the crown as it does against me as a subject. It is a survival of the old days when the crown was supreme, when it could do anything it liked and was not amenable to the ordinary laws of the country. The doctrine that the principle of estoppal should not apply against the crown should be thrown into the discard immediately, for it is a denial of justice.
Income War Tax


Colin William George Gibson: Perhaps the hon. member has not read resolution No. 20.


Richard Burpee Hanson: I have read it but perhaps I have not comprehended it fully. You know, they were passed through within three minutes after the house met the other evening, before many hon. members got to the chamber.


Douglas Charles Abbott: But we went back to a number of them.


Richard Burpee Hanson: To No. 15.


Douglas Charles Abbott: And two or three others.


Richard Burpee Hanson: I have looked at resolution 20, and I am corrected to a degree; but if I am permitted to say what I would have said if I had been here when that resolution was called, I suggest that the six year limitation should date from the filing of the assessment, and not from the assessment itself.


Douglas Charles Abbott: The hon. member for Rose-dale put forward that argument the other night.


Richard Burpee Hanson: He is putting it forward again through me now, and that is the criticism I am going to make. This change has partly taken care of the objections of the Free Press, and I am not going to labour the point further. On the other hand, supposing after I pay my tax I find that I have overpaid; what right have I to ask the government to reopen my assessment? I think they would do it; I have enough faith in the fairness of the administrative officers of the department to believe that if I could show that I had made an overpayment they would reopen the case and give me a refund, but there is no right on the part of the subject. I think that is a correct statement; and as a corollary to the crown's right to reopen, provision should be made for the subject's right to reopen. That would seem to me to be a balanced position.
Then the provision for refunds is discretionary. Well, I think the Free Press is wrong when it says the government "may" make the refund; I would believe the word "may" as it applies to the crown in effect would be mandatory, and that they must make the refund, so that I am not going to add that count to the indictment against the government.
There is this matter of the charging of interest on deficiency payments. I could tell a long story in that connection, but I hope the matter is going before the courts, so that I am not going to deal with it here. But if the government charges interest on deficiency

payments why should it not allow interest on overpayments? That is a point which I think cries for reform, and I do hope the officials will give effect to that change. It seems to me that is only fair and just. It used to be that if you made an overpayment you got a refund, if the assessment was made within a reasonable time. To-day they put the overpayment to your credit for the next taxing year, long before it is due. That reminds me of the story told me by an old Irish woman who was employed to do the washing in my mother's home; she was paid so much per diem-not so much either, in the light of what is paid to-day. She had to use a certain portion of that money for the final repose of her husband's soul, a most exemplary thing for her to do. I was just a lad, and I asked how she knew when the payments were completed. She replied that she never knew, but that if she overpaid it went to the credit of her next friend. That was her opinion; it may be wrong, but that is the story of which I am reminded. In this case the government exercises some option the authority for which I cannot find in any statute, and instead of making a refund of the overpayment it is credited to the tax for the next year, on the theory that during the time that has elapsed you have again become indebted to the crown, although the amount is ascertained.


Colin William George Gibson: They are entitled to their money at once if they want it.


Richard Burpee Hanson: Then why, without asking, do they put it through as a credit for the following year?


Colin William George Gibson: They get their assessment; they are shown that it is to their credit, and if they want it back immediately they can have it.


Richard Burpee Hanson: I can show the minister an assessment on which it is indicated that there has been an overpayment, with the statement that it is carried forward to the next taxing year.


Colin William George Gibson: That is quite all right; it is just a matter of convenience. If the taxpayer wants it back he is entitled to it.


Richard Burpee Hanson: I say it is not quite all right at all; the money should come back with the assessment. That is what a business firm would do. If I sent a cheque in payment of an account and overpaid it, my creditor on discovering the error would receipt the bill and return the excess payment. If he did not I would think he was a pretty poor citizen. That is all I am going to say on that point.

Income War Tax
Then, of course, there is the second indictment, which is the strongest of all; that is, the injustice of a system which taxes the same income twice. I suppose it is perfectly useless to argue this point here, but I know it is a great injustice. We passed a convention the other day one of the objects of which was to prevent triple taxation, but as far as I can see no one has raised his voice against the injustice of double taxation. I well remember when that system of double taxation was introduced in this house. I should like to commend to the taxing authorities of this country a review of the position in Great Britain and of the effect of the system here.
I have in my hand a little pamphlet which has been compiled just recently. I am not going to read any part of it; I have not time to do so, but I commend it to the taxation authorities. It is a memorandum on the relationship between an incorporated company and its shareholders, and in regard to the incidence of the United Kingdom income tax and surtax. It- is prepared) by Mr. Raymond W. Needham, one of His Majesty's counsel, and a bencher of the Middle Temple. It has to do with this matter and kindred subjects.
It would be perfectly useless for me to argue the point of double taxation now. But until there is a review of the tax structure in this country, and until some indication is given to the business world as to what the taxation system is to be in the immediate post-war period, nobody can plan for the post-war world so far as industry is concerned. They cannot plan as to what they shall do. I know companies that are just waiting to know what the post-war policy of taxation will be. I made a speech in the house on the budget debate and touched upon that point. I have recalled that the Minister of Finance made the statement that no government could bind its successors. In a general way that is true. But any government, visualizing the post-war period in this country, should indicate at least what its views may be in the post-war period in respect of taxation. I talked that matter over with one of the biggest executives in Canada. If I were to mention his name he would be recognized at once as one of the soundest business men in Canada. I gave him my speech to read, and when he had finished he said, "You are absolutely right. In the businesses of which I am chairman"-and he named three big companies-"we do not know what to do with regard to the post-war period, uptil there is some announcement as to what post-war taxation is to be, and with regard to improving conditions to make employment for people
who are coming back to industry." This is a matter of vital importance to Canada, but nobody is giving any consideration to it, and least of all the government of the day.


Douglas Charles Abbott: It has been given constant consideration.


Richard Burpee Hanson: Well, then, they are hiding their light under a bushel. They may be giving theoretical consideration to it. The only thing we are getting is a saturation of taxation-and we certainly have got that. I am going to tell the parliamentary assistant and his colleagues on the treasury benches and members of this government who are now in the chamber that they will know what the public think about it at the next election-make no mistake about that.


Mr. MACKENZIE (Vancouver Centre):: Don't commence to boast.


Richard Burpee Hanson: I am not commencing to boast or to threaten. I am just stating the facts as I hear them from every point, and as I will hear them right in Vancouver Centre.


Ian Alistair Mackenzie: I will take my chances with you any day.


Richard Burpee Hanson: Come on down and we will fight it out. I will take one side of the ring and you can have the other.


Harry Rutherford Jackman: And with one hand tied behind your back.


Douglas Charles Abbott: You do not want to pay until it hurts any more.


Richard Burpee Hanson: As far as I am concerned I am paying.


Douglas Charles Abbott: And so am I.


Richard Burpee Hanson: I am
paying because I want to help. But I am afraid there are a lot of people in this country to-day who do not want to pay. I listened to the speech of the hon. member for Richelieu-Vercheres in this house either last session or the session before; I have listened to speeches from other parts of the house, and I have come to the conclusion that there is a certain amount of public opinion in this country that neither wants to pay nor wants to fight to win this war. And that is a pretty sad thing to contemplate.


Colin William George Gibson: Are you arguing that now?


Richard Burpee Hanson: No, I am condemning it.


Joseph-Arthur Bradette: Order.
Income War Tax


Douglas Charles Abbott: Taxes are too high, are they?


Joseph-Arthur Bradette: I have given a lot of latitude to this discussion.


Richard Burpee Hanson: Thank
you; I realize that.


Ian Alistair Mackenzie: He is taking it.


Joseph-Arthur Bradette: I am in duty bound, however, to consider the rules, and to have hon. members in the committee observe them as closely as possible. Surely the hon. member for York-Sunbury will realize that most of the discussion-although he has made a fine speech, and all that-was not relevant to the subject matter of the resolution.


Richard Burpee Hanson: Thank
you, Mr. Chairman. It will be understood that the last five or ten minutes has been the result of interjections by the Minister of National Revenue. However, I am going to take the chairman's hint, and not wear out my welcome-or perhaps it is not a welcome.
The third point is an indictment against the question of annuities. We shall have something to say about that when the section is under consideration.


Harry Rutherford Jackman: There is no section.


Richard Burpee Hanson: Well, we shall have something to say about it at some appropriate time, because I understand the government is setting up a commission to investigate the whole matter. On that point I should like to know just when that is going to happen Why^ is the commission to be set up? I should have thought the department would have had all the facts and could have evolved a formula to submit to parliament. Apparently there is some disagreement. However I am not going on with that.
I am leaving out the fourth point in the indictment in connection with the intolerance and injustice of our tax system as portrayed by the Winnipeg Free Press, a friend of this government. I hope the government will listen to it, and I hope each member of the government has read it.
I shall now return to a brief discussion of the resolution.


An hon. MEMBER:: Hear, hear.


Richard Burpee Hanson: Well, 1 hope I have not been foolish in what I have said to-day. I hope it has been informative. It is something 1 have thought about for a long time, and something I have thought should be said in the house. I did not hear anyone saying it. It was in the same posi-
[The Chairman.]
tion as the indemnities question. I pointed out last week that what I had said about indemnities was what we were all thinking.


Mr. McLEAN:: No.


Richard Burpee Hanson: Well,
most of us. I know the hon. member for Sirncoe East does not agree with me. But ninety per cent of the members agreed with what I said about indemnities.


George Alexander McLean: What is the hon. member's authority for the figure of ninety per cent?


Richard Burpee Hanson: I gathered that in a general way, because of the support I got in the house. All parties spoke for it. There was support from all shades of political opinion.


George Alexander McLean: But only about ten spoke.


Richard Burpee Hanson: The others did not have a chance. Some members never speak in the house, but that does not prevent their revealing what is in their minds.
To get down to resolution 31, I should like to have an explanation from the government as to why they limit this to one-half, and why in particular they keep to themselves the power of fixing the period of years. I may have something to say after the reply has been given.


Douglas Charles Abbott: In the first place, as the
minister indicated in his speech, many suggestions have been received from industries which want to be allowed to set up a tax-free reserve to take care of maintenance and repairs they are unable to carry out now because of a shortage of materials and man-power. This matter was carefully considered. The feasibility of being able to allow such a tax-free reserve was considered, and it was felt that the difficulties in the way of allowing it were almost insuperable.


Richard Burpee Hanson: What were they?


Douglas Charles Abbott: One was that if you allow
a reserve you are permitting the judgment of managements to determine what is adequate provision for repairs and maintenance.


Richard Burpee Hanson: Who would know better?


Douglas Charles Abbott: Whereas under ordinary
circumstances you have the facts as to what money was actually spent on those repairs.


Richard Burpee Hanson: In a given year.


Douglas Charles Abbott: The proposal here is that
after a period determined by the governor in

Income War Tax
council repairs and maintenance may be charged, half back to a previous year. In other words the income tax return for that year may be reopened. One-half of the repairs in a given period may be charged back to that year and, in effect, the taxpayer would be receiving a refund on taxes.


Richard Burpee Hanson: Even
though the money is not actually spent?


Douglas Charles Abbott: Oh. the money must all be
spent, and the taxpayer may then charge half of it as current and take half of it and put it back in a previous period.	.


Richard Burpee Hanson: When can he do that, in view of the fact that he cannot get either labour or material?


Douglas Charles Abbott: Now I shall meet my hon. friend's second point, the reason for putting in a provision that this will apply during a period to be determined by the governor in council. That period will be fixed when materials and) labour are available and when it is desired to encourage employment. Let us assume for the sake of argument that the war should end some time next year. Materials and labour would then become available for deferred maintenance. The government, would say, "You knew what the provisions were; as and from July 1, 1945, expenditures for deferred maintenance and repairs may be charged in accordance with the provisions of this section; one-half of the expenditure from that date on may at the option of the taxpayer be charged as an expense for any year subsequent to December 31, 1942." The taxpayer is given the option to charge to any year where he had war-time profits but where he was not able to make repairs and do the maintenance which he would ordinarily have been able to do. In other words they are allowing him to put it back into that year, but he has actually to make the repairs or do the maintenance. Then he takes the other half and puts it in the year in which he expends the money.


Richard Burpee Hanson: He is
allowed the full portion of the cost of all maintenance and repairs that he makes?


Douglas Charles Abbott: Yes.


Richard Burpee Hanson: There is no limitation on that?


Douglas Charles Abbott: No. He can take half of it and put it back into a previous period. I have discussed this with a number of concerns that have been unable to make these expenditures for deferred maintenance, and they feel that this will be a real help.


Richard Burpee Hanson: I would not minimize it.


Douglas Charles Abbott: I do not know whether they would have preferred a reserve-, but they seemed to indicate that this will largely meet their problem. I just wanted to clear up my hon. friend's point. The legislation does not contemplate that it shall be chargeable only to the year in which the repairs and maintenance are made; half the expenditure may be taken back into a previous period.


Richard Burpee Hanson: I cannot read into the resolution all that the parliamentary assistant has said but at least his explanation makes it more -understandable. I have discussed this matter with three different lines of industry, and I was told that they would prefer to be allowed to set up reserves. I think that would be the usual method of accounting, would it not?


Douglas Charles Abbott: The Income War Tax Act has never allowed contingent reserves as a deduction from income. The only reserves that are allowed are those for bad debts and depreciation. The English act is the same.


Richard Burpee Hanson: I do not think that is quite correct -in practice. There is the question of inventory reserves.


Douglas Charles Abbott: That has been under the Excess Profits Tax Act since the war began.


Richard Burpee Hanson: They are allowed to set up a reserve for inventories which -have become depleted and the replacement of which is very uncertain.


Douglas Charles Abbott: That is only for excess profits tax purposes.


Richard Burpee Hanson: This is a half-way measure, but I am thankful for it.


Douglas Charles Abbott: It is more than half way.


Harry Rutherford Jackman: Does resolution 31 cover more than one taxation period? Does it cover, perhaps or possibly, three taxation periods?


Douglas Charles Abbott: That is not stated, and frankly I am not sure about it. That will be indicated in the bill.


Harry Rutherford Jackman: There is nothing to equate the amount of expenditure which may be made in the future with the actual amount of deferred maintenance and repairs. Take the railways, for instance. It was stated by the Canadian National in the railway committee- of course this company is not subject to taxation and does not come under the Minister of National Revenue-that they have set aside a large amount of money for deferred maintenance. I questioned them as to how they arrived at the amount and I was informed that
Income War Tax

they had made an actual physical survey of how many stations would have been painted had the paint and labour been available, and how much work on the various sections of the line would have been done. They had made an accurate accounting computation of deferred maintenance, and I believe last year they set aside $13,000,000 for that particular purpose. How will the department know that under this provision full compensation will be made the deferred maintenance? With some concerns it might work out satisfactorily, while with others it might not. I can see where it might be necessary to carry forward these provisions for two or three years in order that a plant might be able to make adequate maintenance.


Douglas Charles Abbott: It would be impossible for the department to say that an actual expenditure made by a company, let us say in 1945, represented ten per cent deferred maintenance and ninety per cent maintenance for that year. We assume that some repairs are being made all the time, and it is recognized that the average concern cannot do full repairs or make full maintenance. They will catch up on these, presumably, as soon as men and materials are available. This resolution provides that the actual expenditure incurred after a date to be fixed may be charged, one-half to a back period and be considered, arbitrarily, if you will, as the cost of deferred maintenance, and the remaining half to be charged as current expense. I am afraid I cannot give any other explanation than that.


Harry Rutherford Jackman: While this resolution does give some relief where there has been overtaxation on income which was not true income, it leaves out entirely the cost of reconversion. Because of the war and to some extent because of the length of it, I suppose well over fifty per cent of the industries of this country are being used to a greater or less degree on war production. In some cases their whole layout has been changed completely to produce munitions of war, and their peacetime production has fallen by the wayside. There is no provision here to cover the cost of reconversion, nor do I see any in any other resolution. I believe that the cost of reconverting a plant which has been on war production should be properly chargeable to war profits, just as we are doing in the case of deferred maintenance, which is chargeable to years in which the money was not spent and in which the over-taxation has taken place. One of the most important questions in connection with post-war matters is the cost of reconversion, which leaves a man's plant in no better condition than it was in 1939 or when he first turned his energies to war production. With the ter-

mination of the war his contracts end and he is faced with the problem of reconverting in order that he may once more turn out goods for civilian consumption. In some plants this cost will run into hundreds of thousands of dollars. In many small plants it will bt $10,000 or $20,000, which is a considerable item. I believe the revenue department should give the same consideration to this problem as they have given to the question of deferred maintenance and repairs.
I should like to hear from the parliamentary assistant if there are any good reasons to the contrary. I have talked over this matter with some industrialists who are going to be faced with this problem, and they find themselves short of working capital because they have paid out so much in taxes to the government and have not been allowed to accumulate any reserves for this purpose. I think one could say that they are at their wits' end to know how they are going to finance the cost of reconversion. If there could be some tax relief it would help in a small measure to solve the problem with which they are going to be faced, namely, the providing of employment through civilian production.


Douglas Charles Abbott: I agree with my hon. friend that this problem of reconversion is one to which the government will have to give, and is giving now to some extent, the most careful consideration. However, reconversion costs are primarily capital costs. Repairs and maintenance have always been recognized in income tax law as current operating expenses. The cost of reconverting a plant has always been recognized as a capital expense and would be charged as such on the books of the company, would be set up as a capital charge and be subject to depreciation. In a great many war plants a substantial amount of capital cost will have been written off during the war by virtue of accelerated depreciation or by a combination of accelerated depreciation and ordinary depreciation. I do not want to minimize the importance of this reconversion problem or to be understood as saying that it is not one to which the government should give consideration, perhaps consideration in framing a budget, although I feel, or rather I hope, that it is a matter which could be more appropriately dealt with in the next budget rather than this one. It is primarily a capital matter and involves questions of high government policy as to how these plants are to be reconverted.


Harry Rutherford Jackman: We have the government already giving consideration to the Industrial Development bank, which might very well be left to a subsequent session if brought up at all. I admit the distinction between capital

Income War Tax
assets and what can properly be charged to maintenance and repairs, but the parliamentary assistant said that most of these war plants had allowances through which they could write off their capital assets which were devoted to war purposes. That is a rightful provision, for the owners of these plants have created certain assets for the production of war materials which will be of little or no use after the war, and the writing off of that capital expenditure should take place during the war. But the parliamentary assistant has endeavoured to hang the principle of exclusion of reconversion costs from this section on to the idea that reconversion has to do with capital assets and that the company can spend its money on rebuilding its plant and getting it ready for civilian production and charge the cost off to depreciation.
But in the great majority of cases a company which has been in war production and has written off its war production facilities, which are now in many cases completely useless, has to use the same physical space to recreate capacity for producing civilian goods, and therefore the company is not better off now than it was in 1939. The company fihds that it has to spend a great deal of money in the way of capital, if you want to call it capital, to put itself in the position in which it was before the war. Some allowance should be made for this expenditure, which will amount to a great deal in the case of many companies, many of them without working capital. Relief, or the promise of relief, should be given to them in the present budget and not in some future one. If the parliamentary assistant's reasoning about postponing the matter to a future budget carries any weight at all, the Industrial Development bank should also be postponed until then.


Douglas Charles Abbott: Not at all. That is setting
up a piece of machinery.


Harry Rutherford Jackman: It is for the very purpose *of reconverting war assets into civilian assets.


Douglas Charles Abbott: Only in part. That is one of the reasons but by no means the only one.


Harry Rutherford Jackman: It is the chief reason that gives the thing any commendation whatsoever. There is no use in having committees and commissions to investigate post-war possibilities and reconstruction problems, such as the James commission and others which the government has created on the principle that the government believes in private enterprise, when at the same time the government will not restore the motivating force behind private [DOT] enterprise.


Douglas Charles Abbott: Surely the hon. member does not suggest that we should reduce taxation at this stage of the war.


Harry Rutherford Jackman: The parliamentary assistant is always bringing up the question of reducing taxation. The hon. member for Parry Sound said that it takes at least four years to bring a gold mine into production from the time of the initial strike, and similarly I say that it takes business a considerable time to lay its plans, to reconvert its plant for civilian production and to recreate markets for its civilian goods which will be needed after the war. All this takes a great amount of work and money. The parliamentary assistant says that we can discuss this matter in the next budget a year from now. By that time we shall have many more men discharged from the services who will be looking for employment. Already we have 150,000 discharged, and we hope that within the next six months we shall have more men discharged than there are jobs immediately available. It is high time therefore that the ground work of industry should be laid so that we may have post-war employment for these men who will be returning.
Mr. HANSON (York-Sunbury)There is one observation I should make arising out of a remark made to my colleague by the parliamentary assistant. He said: "Surely you are not suggesting that we should reduce taxation at the present time." I say, Mr. Chairman, that this budget is reducing taxation. Some of these proposals are reducing taxation.


Douglas Charles Abbott: Very little.


Richard Burpee Hanson: But the principle is there. So that the statement made by the parliamentary assistant is not correct.


Douglas Charles Abbott: We are merely adjusting some inequalities.


Richard Burpee Hanson: You are wiping out some taxation in this budget as well as making adjustments. We are suggesting reductions in taxation, and the reductions which were suggested in our amendment were evaluated by the minister as representing a large sum of money.


Douglas Charles Abbott: Then let me correct my statement. Surely you are not suggesting substantial reductions in taxation at the present time.


Richard Burpee Hanson: We are suggesting reductions in taxation in order to meet the situation that will arise in the post-
Income War Tax

war period. I want to say this to the minister and he can tell it to his friends. The reductions in income taxation which the opposition- amendment advocated this year will not begin to equal the waste in the army in Canada, will not begin to equal the amount of money which the Department of National Defence is wasting in the army in Canada. That is my answer to the statement of the parliamentary assistant.


Mr. CHURCH:: I represent an industrial district, Mr. Chairman, and I do not like the wording of resolution 31. I realize that when the tumult and the shouting dies and the captains and the kings depart in two or three weeks and when parliament will have prorogued, the budget resolutions which we are now passing will have a far different meaning in effect from what this high court of parliament now thinks. We shall make a very grave mistake if we pass this resolution as it stands. It says that one-half of the expenditures on maintenance and repairs incurred by any taxpayer carrying on a business in a period fixed by an order in council shall be regarded as deferred maintenance, and so forth. That includes trade and commerce, large and small businesses. But what did the Minister of Munitions and Supply say the other day? He said that you could not get materials and you could not get labour to do this specific repair and maintenance work. The resolution goes on to say that this provision shall apply also in the case of a taxpayer operating a mine. That is all right. I have always been one of those who ever since the war started have supported the development of our mining resources and all natural resources to furnish employment to our soldiers when they come back from the war, and I think public opinion will support that. But I object to the discrimination which this resolution makes against the small industrial business man. Let it be remembered that a very large proportion, forty-two per cent of our income tax revenue, comes from Ontario and the industrial income tax districts of Toronto.
I object to the language of this resolution. If we pass it as it is, we shall go home and then within two or three weeks the government can fix maintenance and repairs, deductions for expenses, the period and time and place, all by order in council. Already since the war started we have passed nearly 50.000 orders in council. We are fast approaching the stage where the word "liberty" will be meaningless in this country, because we are being governed right and left by rules and regulations, forms

and restrictions, passed under order in council. If you take resolutions 31 and section 33 together-because they are kindred resolutions -and all the resolutions from 20 to 29, you will find that everything that is an enactment is to be done over our heads by means of rules and regulations and instructions and other enactments issued through the department.
Ever since the start- of this war I have been objecting to the work of this red-tape factory that has been set up in the east block, where orders in council are passed and the government of the country has been handed over to various control boards No wonder the people are turning against the old parties. They are turning against those parties because parliament has divested itself of practically all its rights and privileges and has delegated all its functions to one control board after another. But that is the very thing that we are fighting against in this war.
The other day I had a letter from a small business man in my constituency, and he referred to what I said in 1942 in connection with this very same question. He wrote telling me that he would lose his small industrial business, the little store he had, and his home, as a result of income tax and the various restrictions by which business is being hampered. Not only that, but his boy, he said, would be deprived of that schooling to which he was entitled. This man fails to see the necessity for all these regulations.
This whole red-tape factory, in my opinion, should be abolished. We are simply handing over executive power to a bureaucracy, and we are doing it under resolutions 31 and 33. We are well on the road sooner or later to the totalitarian state. In England, in the late Sir Kingsley Wood's budget about two or three years ago there was a discussion similar to that which has been taking place here to-day, in connection with this income tax question, and several members made an argument very much along the lines of the argument advanced to-day by the hon. member for York-Sunbury and others. They referred at that time over there to the various abuses that have crept in as a result of the passing of all these orders in council, rules and regulations. In a remarkable pamphlet written two years ago, "Possible Recovery?" Dean Inge put the matter in a more definite way:
Our upper and middle classes^ in supporting this war committed suicide with their eyes open. They knew that at the end of it they would find themselves deprived of nearly the whole of their incomes, forced to surrender all the comforts and luxuries which their families had enjoyed, and -many of them driven from

Income War Tax
the homes which they had come to love. So great a sacrifice has never before been voluntarily made. I know of no other instance in which a whole class has deliberately signed its own death warrant. No doubt they had not much choice in the matter, since there is a constituency in which the taxpayers are more numerous than the tax-eaters.
He is referring in England to the pacifists' policy.
No doubt they had no suspicion that the stupidest government of modern times had committed them to a single-handed struggle against the greatest military power in the world. No doubt many of them believed that war was forced upon us. But their chivalry in laying down all that they had on .the altar of patriotism has not been sufficiently recognized.
I would not go as far as the Gloomy Dean, but it is obvious by now that a whole class, perhaps a predominating section of society, whether it has voluntarily committed suicide, or not, has been for practical purposes exterminated in the last four years by budgets. People cannot get labour or materials for any maintenance or repairs. On Yonge street the other day I saw small businessmen putting out their goods on the public street on a side lot. What is the reason for all this? Since the war started we have been virtually abolishing private ownership. In the days of Sir John A. Macdonald and Sir Wilfrid Laurier everyone owned a little property of some sort, a small store or mill, * a cow, a team, a small truck, a grocery concern or something of that sort. But since the war started all this has been swept away by the action of parliament in placing artificial barriers and burdens on industry and in handing over power to boards of control. Three years ago in the British House of Commons, as result of pressure brought to bear upon the administration, they were forced to embody in the budget statute many of the rales and regulations that previously had been promulgated by order in council.
There are many inequalities, inconsistencies and injustices to the small businessman and the small manufacturer who pay income tax, and when we go home we shall be faced with a great deal of criticism. The taxpayers are up in arms as a result of what is now taking place. We have the highest income tax in the world, although it may be argued that it is not the highest exactly in that form. But in the United States and in England they have no sales tax as we have it here. Here, when you add the sales tax, corporation tax, excess profits tax, surtaxes and all other taxes the people have to pay, you find that we have the highest taxation in the world. No doubt the government needed the money for war purposes, and no one objects to that.
The ministry must have money, but there is a right way and there is a wrong way of getting that money. I know there is a great chorus of approval, in the press and over the radio, of the victory loan, and a great hip, hip, hurrah over this budget. But when hon. members go home let them talk to men and women in industry and they will find that there is not the same enthusiasm lor all this as we find on the part of this large regiment of paid officials, radio and press boosters, information bureau and all the others on whom we are spending something like a million dollars.
I should like to see this session conclude as quickly as possible, and the opposition has given a great deal of help to the government; but you will find that the people back home have more knowledge than we have of what is going to happen to them and the real meaning of it all as a result of all these orders in council and these rules and regulations.
We also need a vast housing and reconstruction policy1. With regard to reconstruction the minister forgot many things in the budgeb-materials, house building allowances, maintenance and repairs and a national housing plan. If there were allowances for housing and many other things like that in industry, construction and reconstruction, the people would not object to it. What were the industries engaged in this industry called housing told? They were told the other day by the parliamentary assistant to the Minister of Munitions and Supply that they could not get any materials or labour for that particular work, let alone any allowance along the lines indicated. When I was speaking on this matter two years ago I was told by the. minister that I was shooting holes through the budget.
I was not trying to shoot any holes through the budget. But the orders in council, the control boards, the rules and regulations and orders in council shoot holes through the budget, and they will do it to such an extent that we shall not know resolutions 31 and 33 when they are passed, and neither will the taxpayers. Instead of getting allowance for maintenance and all that kind of thing you will find that the applicant will be ruled out by a bureaucracy.
I have admiration and respect for the present minister's head of departments and the chief commissioner, but he has an intolerable task. I think it is the unanimous opinion of the committee and of the public generally that he is a most excellent officer. I think it would be far better for him in the administration of his work if he did not have to allow political machinery and orders in council
Income War Tax

to get beyond control, and if we did not allow this government to come along and pass orders in council or some rules and regulations which will entirely change these resolutions we pass, and make them mean something entirely different from what resolution 31 means.


Richard Burpee Hanson: On this
subject of reconversion I think the hon. member for Rosedale has done a real service in bringing up this topic. I for one regret that there is no intimation in the budget speech, and therefore none in the resolutions, dealing with the subject matter. I wonder if in certain industries which are no longer engaged in war work this problem has not already been facing the department. I would think that there must have been a number of cases where the position has been met and is now being dealt with in the tax situation. As I listened to the discussion between the parliamentary assistant and the hon. member for Rosedale, my mind led me to believe that theoretically and technically this would be a capital expenditure. I think scientifically that would be the correct category, and yet the suggestions that have been made to give some measure of relief apply with equal cogency for the allowance as it did for the capital expenditure in these plants for war purposes. I hope that consideration is being given to that position by the department, although I see nothing in the law as I understand it to-day which would allow it to be dealt with as a special problem. It strikes me that it is a special problem. I can only express the hope, without any thorough knowledge of the situation or the scientific principles upon which legislation should be based, that within a year, if not now-and I would hope now-consideration will be given to this problem and that equity and justice will be done.


Howard Charles Green: This resolution includes
underground development in the case of mines, I believe?


Douglas Charles Abbott: That is correct.


Howard Charles Green: Some of us have received
representations from people interested in mining. They put forward special recommendations for the taxing of the mining industry. Perhaps the parliamentary assistant has had some.


Douglas Charles Abbott: I have had quite a lot,
yes.


Howard Charles Green: The officers of the taxation division of the Department of National Revenue are really in this position. They have in part the future of the whole mining industry of Canada in their hands. That is a condition

which has arisen by reason of the heavy taxation. I freely admit it is wrong that they should have that responsibility, but that actually is the position at the present time.
I ask the parliamentary assistant to make some comments on these recommendations.


Douglas Charles Abbott: If I may interrupt, I do not know whether my hon. friend was in his place when the question came up a little earlier and I quoted the minister's reference to it in his budget speech at page 4183 of Hansard:


Howard Charles Green: I have the minister's reference here. In effect the minister said that he hoped there would be a dominion-provincial conference and that everything would be lovely after that.


Douglas Charles Abbott: I do not think that is a fair paraphrase of what he said; it was a little more complete than that.


Howard Charles Green: He did not go much farther than that.


Douglas Charles Abbott: He pointed1 out concessions that have already been made to the mining industry and that it was premature until the dominion-provincial conference had been held to make any radical changes in tax policy applicable only to the mining and oil companies. I put the statement on Hansard.


Howard Charles Green: I have it here. But I think the situation is sufficiently serious and the recommendations are sufficiently clear to justify some comment from the parliamentary assistant. The recommendations are as follows:
That depletion allowance of fifty per cent of the net earnings of metal and industrial mineral *mines be allowed, and extended to dividends paid by suoh mines.
That taxes paid annually to provincial governments and to municipalities be allowed as a deduction from earnings of all mining companies before assessment for dominion income and/or excess profits tax purposes.
That all annual expenditures made by mining companies on outside exploration in any part of Canada, excepting cost of options or purchase of property, be allowed as a deduction from earnings before assessment for dominion income and/or excess profits tax.
The statement goes on to point out:
The above recommendations represent unanimous views of all investigating bodies appointed by government and industry alike as to the proper method of providing an overall equitable plan of mining taxation and to place the industry on a footing where it will best be able to perpetuate itself to the lasting benefit of Canada.
Some point is also made of the fact that even though those changes are not made now it will be very helpful if the government will announce their policy of mining taxation for

Income War Tax
the post-war years. That would enable men interested in mining to make the necessary preparations now so that they could go ahead and develop their mines after the war. I think the parliamentary assistant will agree that it would be beneficial if the mining industry could have some such blueprint as that. Would he make some comment on these recommendations?


Douglas Charles Abbott: Along with other hon. members I received a great many of these recommendations. The minister also received them prior to the preparation of the budget and prior to the deliver}' of his budget speech. There is really nothing that I can add to what he said at page 4182 of Hansard with respect to the consideration given to the taxing of the mining industry. He refrained from dealing with these specific recommendations. It is true that he dealt with the subject in a rather general fashion, but he did deal in some particular fashion with the special provisions already made for the mining industry from the tax point of view. I cannot speak for him, but my feeling is that it is premature at this stage of the war to attempt to revise the taxation structure for the mining industry alone. I think it has to be dealt with in a larger picture by revising our tax structure when the war is over or so nearly over that we know what our commitments are going to be. I personally do not believe that we can now single out the mining industry as a special industry for special concessions other than the ones which are already contained in the act. I think it should be dealt with as the minister said-and I am only paraphrasing it-as a part of an integrated plan for the taxing of all industry and business. I would not be prepared to comment on these specific suggestions; and, speaking generally, that is the reply which I have given to a number of people who have written me personal letters putting forward these suggestions.


Howard Charles Green: Then in effect the government will make no announcement regarding these recommendations?


Douglas Charles Abbott: I do not think the government can make any announcement now. My hon. friend suggested that no matter if we could not carry it out now, we should announce what our policy is going to be six or nine months from now.


Howard Charles Green: No, I did not say six or nine months; I said for the post-war period.


Douglas Charles Abbott: Well, I should say that would be at least six or nine months from now. It is pretty difficult to announce what your fiscal policy is going to be post-war until you
know what your commitments are going to be post-war. From a budgetary point of view I think it would be dangerous, to say the least, to attempt to put forward any specific proposals now, untij you know how long the war is going to last and what further effort will have to be put forth purely from a war point of view. I think it is too soon.


Howard Charles Green: Sooner or later the dominion government will have to decide on a plan, and I do not think it will get much help through holding a dominion-provincial conference.


Douglas Charles Abbott: This mining question is
certainly a matter on which it is essential that a dominion-provincial conference should be held, because the provinces are vitally interested in these mines. They come under the head of property and civil rights.


Howard Charles Green: But the dominion is doing the taxing.


Douglas Charles Abbott: It is a joint matter; the provinces get substantial revenues from the mines, too.


Howard Charles Green: Then what is the present position with regard to each of these three suggestions? For example, what is the position with regard to the depletion allowance and also with regard to the dividends paid by mines?


Douglas Charles Abbott: You are asking now for information?


Howard Charles Green: They are asking for a fifty per cent depletion allowance.


Douglas Charles Abbott: You are asking with respect to mines? A depletion of 33^ per cent is allowed now; and with respect to dividends paid by the mining companies, the recipients may deduct 20 per cent as not being taxable.


Howard Charles Green: The second recommendation is that the taxes paid annually to provincial governments and municipalities be allowed as a deduction from earnings of all mining companies before assessment for dominion income and/or excess profits tax purposes.


Douglas Charles Abbott: All taxes paid to provincial and municipal governments are now allowed as a deduction, with exception of income taxes, and since income taxes are collected only by the federal government-


Howard Charles Green: I think the hon. gentleman is wrong there.


Douglas Charles Abbott: Taxes paid to provincial governments, other than income or profits taxes, are allowed as a deduction from gross mining revenues, as an expense. I am advised,



Income War Tax
and as a matter of fact I know from my own experience, that this is an absolutely accurate statement of the law.


Howard Charles Green: What about municipal taxes?


Douglas Charles Abbott: They are allowed on the same basis.


Howard Charles Green: The next recommendation is that all annual expenditures made by mining companies on outside exploration in any part of Canada, except the cost of options or purchase of property, be allowed as a deduction from earnings before assessment for dominion income and/or excess profits tax.


Douglas Charles Abbott: That is covered by section 8(9) of the Income War Tax Act, which reads:
A corporation whose chief business is that of mining or exploring for metalliferous and strategic minerals shall be entitled to deduct from the sum total of the income tax payable by it under this act and the tax payable under the Excess Profits Tax Act, 1940, twenty-six and two-thirds per centum of all prospecting, exploration and development expenses incurred by it in searching for base metals and strategic metals during the period from the first day of January, 1943, to the thirty-first day of March, 1945: Provided, however, that such deduction must be taken against .the said taxes payable in respect of the year or fiscal period in which the said expenses -were actually incurred.
There is also a further proviso.


Howard Charles Green: Does that apply to all mining companies?


Douglas Charles Abbott: It applies to all mining companies, but only with respect to expenses incurred in the search for metalliferous and strategic minerals. Therefore it would not include expenses incurred in the search for gold.


[Stage Direction]
Resolution agreed to.
32. That the provision allowing deductions by a corporation from income of amounts paid by way of donations to charitable organizations in Canada be amended to provide that the amount of the donations made in excess of the average of the taxpayer's donations in the last two fiscal periods ending before July 1, 1942, shall be allowed as a deduction for purposes of the Income War Tax Act and the Excess Profits Tax Act, 1940, only to the extent that the total taxes payable by the taxpayer under the said acts are thereby diminished by forty per centum of the said excess, unless made before February 1, 1944, and paid or evidenced in writing before the said date or evidenced by a payment before the said date which is one of a series of payments to be made thereafter and accompanied by proper evidence of the undertaking.
Douglas Charles Abbott: I will ask that this resolution be allowed to stand until eight o'clock, when
[Mr. Abbott.)
the minister will be here. I believe he has some comments he wants to make in regard to it.
Resolution stands.
33. (a) That any enactment founded on resolutions 20 and 29 be brought into force on enactment; and
(b) That any enactments founded on reso-llutions 1 to 19 inclusive, resolutions 21 to 28 inclusive and resolutions 30 to 32 inclusive be applicable, unless otherwise stated, to the income of the 1944 taxation period and fiscal periods ending therein and all subsequent periods.


Douglas Charles Abbott: I think this resolution had better stand also, until all the others are passed.
Resolution stands.


EXCESS PROFITS TAX ACT, 1940
[Stage Direction]
1.	That expenditures in respect of scientific research directly or indirectly related to the taxpayer's business, whether of a current or capital nature, be allowed as a deductible expense, in the case of expenditures of a current nature, in the year when the expenditures are made and, in the case of expenditures of a capital nature, over a three-year period commencing with the year of expenditure.
Douglas Charles Abbott: This is in substantially the same terms as the corresponding resolution under the Income War Tax Act. The committee will recall that resolution 23 under the Income War Tax Act provides that expenditures for scientific research and the like are treated as an expense, and a similar provision is to be inserted in the Excess Profits Tax Act.


Harry Rutherford Jackman: Is there any definition of what constitutes scientific research, or is it left to the discretion of the minister?


Douglas Charles Abbott: I think that is being worked out and will appear in the bill when it is brought down. I do not know that the drafting is quite complete yet.


[Stage Direction]
Resolution agreed to.
2.	That in the computation of capital employed for the taxation year and subsequent periods the requirement to reduce capital by one-half of the dividends paid in cash during any taxation year be altered to provide that such reduction shall be made only -to the extent that earned surplus at the end of the taxation year is less than earned surplus at the beginning of the year.
Richard Burpee Hanson: The hon. gentleman might give us an explanation of this.


Douglas Charles Abbott: In effect this resolution
proposes a technical amendment to the definition of "capital employed". Hon. members will recall that under the law as it now

Excess Profits Tax
stands "capital employed" is defined to include paid-up capital and surplus as it stood at the end of the base period, which I think is December 31, 1939, or the last fiscal period in 1939. The law now provides that this figure of capital employed should be reduced by one-half the dividends paid in cash during the taxation period.


Richard Burpee Hanson: They are to be deducted?


Douglas Charles Abbott: One-half of the dividends paid during the taxation period are to be deducted from the total capital employed, or from the figure as defined under the act as being the capital employed. The proposed amendment provides that if the earned surplus at the end of a fiscal period subsequent to the standard period is not less than at the beginning of the period, notwithstanding the payment of dividends, the capital will remain at the same figure. In other words, if a company pays its dividends entirely out of current earnings, its capital employed, for the purpose of determining standard profits, will not be reduced by one-half of the dividends paid during the year.


Richard Burpee Hanson: That is very fair. If they are paid out of surplus the capital will be reduced?


Douglas Charles Abbott: Yes.


Harry Rutherford Jackman: Which section of the act does that amend?


Douglas Charles Abbott: Section 4 of the first
schedule of the Excess Profits Tax Act.


Harry Rutherford Jackman: Was that schedule passed by this house, or is it in the regulations?


Douglas Charles Abbott: It is part of the statute. I have the section before me, and perhaps it would help the committee if I read it:
Capital as hereinbefore defined shall be increased or decreased by a portion of any bona fide additions to or reductions of the assets of the business made during the taxation period other than additions or reductions resulting from profits or losses of the said period, such increase or decrease to be made pro rata for the time such additions were employed in or decreases withdrawn from the business, provided however, that dividends paid in cash during such period shall constitute a deduction from the capital employed at the commencement at the said period to the extent of one-half the total amount of dividends paid during the same period.
The effect of this proposed amendment will be that if payment of those dividends does not result in reducing the earned surplus as it
100-319i
stood at the beginning of the period, there will be no reduction in the amount of capital employed.


Richard Burpee Hanson: That is fair.


[Stage Direction]
Resolution agreed to.
3. That the refundable portion in respect of which a taxpayer is entitled to repayment may in case of bankruptcy, liquidation, winding-up or dissolution, be repaid in accordance with regulations made by the governor in council.
Richard Burpee Hanson: This resolution deals with payments made in certain cases of bankruptcy, liquidation, winding-up or dissolution. It states that the refundable portion to which a taxpayer is entitled shall be repaid in accordance with the regulations made by the governor in council. The money is taxpayers' money. If it is a corporation which goes into bankruptcy, liquidation, winding-up or dissolution it is proposed to return it to the taxpayer or to the trustee in bankruptcy, or the liquidator, or as we call it in my part of the country, the curator. On dissolution it would be returned to the shareholders. There would be a distribution of the assets of the corporation.
What has the administration in mind with respect to limitation on this? In the case of bankruptcy this money belongs to the creditors, we will say. I think that is correct, although I am afraid a substantial amount of it would go to the costs of liquidation. In liquidation it may or may not go to the creditors, depending on the kind of liquidation, and the reasons therefor.
I think the resolution is too scanty. The question I would put to the parliamentary assistant would be this: What has the government in mind with respect to regulations to be made in each or all of these circumstances?


Douglas Charles Abbott: I can answer it in this way. My hon. friend will appreciate the difficulty which has arisen in respect of a few companies which have either been liquidated, or their charters surrendered. Some of those companies had on their books a refundable portion of the tax, which was an asset. But of course that is not payable, as the law now stands, until after the cessation of hostilities.
The question arose as to who should hold it, to whom it should be paid, and who is entitled to receive it. The liquidator might wish to get his discharge. I think it was ruled, rightly or wrongly, that if a company wound up and the liquidator was discharged, the right to receive the refundable portion was gone. That did not seem equitable. On
Excess Profits Tax

the other hand it was felt it should not be left to a departmental ruling as to what should be done with this money when it eventually became payable. I would welcome any suggestions any hon. members may have. However, it was suggested, after consideration, that power be vested in the governor in council to approve regulations. In other words, it is put on a little more formal basis than a mere departmental ruling. A formal order in council would have to be passed setting up rules providing for the retaining of this money in the meantime or, perhaps, paying it over under certain safeguards, placing it in escrow or something like that. The situation which it is intended to correct is that the right to receive this deferred amount should not be lost .to creditors or shareholders, as the case may be. It is merely a question of setting up the proper machinery.


Richard Burpee Hanson: I suppose situations have arisen which demand the recognition of some action. That must be the cause of its being here.


Douglas Charles Abbott: Correct.


Richard Burpee Hanson: I suggest that in the case of bankruptcy this money should not be kept; it should go to the creditors. Why should it be kept in escrow or kept with the government for a period of time, when the shareholders have not received it? They should get it immediately. I would hope that principle would prevail.
On the other end of the equation is the question of dissolution. The dissolution of a company usually takes place when the shareholders want to go out of business, and surrender their charter. They pay off all their liabilities to the public, and have only liabilities to their own shareholders. They convert their assets into cash, and distribute those assets among the shareholders pro rata. But they cannot distribute this refundable portion. What has the administration in mind with respect to that? Is that going to be held? It is not quite as pressing a problem as that connected with bankruptcy. That would be recognized.
I have an open mind as to what should be done in a case of that kind, although I realize that companies do not dissolve unless their usefulness is pretty well over, or a proprietor wants to get out of business because of age, or for some like reason. It might be a hardship if this were kept from them, although their estates would of course take it, as in the case of deceased persons.
The other two classes are in between the two extremes, as I understand it. The minister has given us the reason why this has

been brought down now, but he has not followed the whole picture through. What does he propose to do in the case of a dissolution by a company?


Douglas Charles Abbott: Of course, I do not know
that that is fully settled. My hon. friend will appreciate the difficulties here. His suggestion that in the case of 'bankruptcy it might be in the public interest to pay money to the creditors at the time the assets are being distributed is perhaps a good one, although we have to remember that these refundable portions do not bear interest.


Richard Burpee Hanson: I understand that.


Douglas Charles Abbott: Therefore the taxpayer who gets it back now, or at an early date, would have an advantage over the shareholders, let us say, of a company which continues in operation. There must be some safeguard against that. It would not be fair, for instance, to allow a small, privately held company voluntarily to wind up and surrender its charter, all the shareholders then being able to get their pro rata portion of the refundable portion.
The thought was that perhaps it would be desirable to try to work out a set of regulations covering these cases. This presumably will be a temporary condition; it will not last in perpetuity. Those regulations should be approved by order in council, and that should be the code, as it were, to govern the disposition of refundable portions in these cases. None of the creditors is really entitled to demand his money now It is to make some provision for the holding of the money during the period of transition.


Richard Burpee Hanson: Does not
the parliamentary assistant think that the creditors stand in a slightly different position from that of the shareholders?


Douglas Charles Abbott: I should think so, yes.


Richard Burpee Hanson: I think
they ought to be given more consideration.


Douglas Charles Abbott: I think so, yes; I should
think consideration should be given to that.


Mr. HANSON (York-Sunibury):: However,
we will wait and see. This just gives power to make regulations, and it will not be revealed, even *when the bill comes down, as to what the regulations are.


Douglas Charles Abbott: But if it is done by order in council, the order in council would be tabled. It would be public. I think it is perhaps a little difficult to expect that this should be spelled out in the statute now. It is a matter which it seems to me might safely be

Excess Profits Tax
left to disposition by regulation, with the added safeguard that it has to be approved by order in council, rather than by just a departmental regulation. However, I have an open mind in the matter.


Richard Burpee Hanson: I am not in accord with the general principle underlying the statement just made. I think as far as possible regulations dealing with the money of the taxpayers of this country should be brought down and revealed to the world in the enabling legislation that is to be passed


Douglas Charles Abbott: I would agree with that as a general principle.


Richard Burpee Hanson: Once again I wish to voice my protest against government by regulation, against taxation by regulation and now against the distribution of the taxpayers' money by regulation. I am not going to follow the point farther than that, but I think the principle is bad.


Douglas Charles Abbott: My hon. friend will appreciate that this is being done to give some relief.


Harry Rutherford Jackman: This is another example of the uncertainty which attaches to refundable taxes. Something the same was found to exist in connection with the refundable taxes of individuals. The government found that to be unworkable because it was not understandable, largely because of the uncertainty. I can understand why it was not possible to make the refundable portion of the individual's tax negotiable, namely his receipt or whatever evidence he might have, but what objection could there be to making the refundable part of the corporation tax negotiable so that it might be transferred from one company to another and thus obviate some of the difficulty which this resolution indicates may exist?
I understand that if a company sells its assets it cannot sell its right to the refundable portion of its taxes because that refundable portion attaches to the charter itself. This creates a certain amount of difficulty for a company endeavouring to dispose of its assets. Would the parliamentary assistant explain why the refundable taxes owing to a corporation cannot be made negotiable? If someone is willing to buy at eighty or eighty-five per cent of the value and a corporation wishes to sell, it is of no concern of any one but the corporation.


Douglas Charles Abbott: I must confess that I find it difficult to see any difference between compulsory savings owing to an individual and compulsory savings in the case of a company.


Harry Rutherford Jackman: The company cannot
spend them and force up prices as an individual may do.


Douglas Charles Abbott: I still cannot see why we should make a distinction between the two.


Harry Rutherford Jackman: If an individual has three or four hundred dollars in refundable taxes coming to him and can negotiate these at the bank or with another individual and get the money, he can spend it, but I do not see how the same principle can be applied to a corporation. If a corporation wants more money very likely it can go to the bank and get it and then spend it, if desired. If the refundable taxes owing to corporations were made negotiable this whole difficulty would be got away from.


Douglas Charles Abbott: So far as I know this is the first time this point has been raised. It was considered desirable that a company should have a reserve available in the form of these refundable portions for the reconversion purposes, let us say, about which my hon. friend was talking a little earlier. These reserves may not be adequate in all cases, but they will certainly be a help to many companies in effecting reconversion. If you make them assignable or transferable a company, in order to realize on its assets, may sell them to some other company. Frankly I am thinking aloud, because this question has not been raised before to my knowledge. I cannot see offhand why there should be any special distinction between the individual and the corporation.


Richard Burpee Hanson: The right of assignment is dealt with in what resolution?


Douglas Charles Abbott: In the next resolution.


Richard Burpee Hanson: I asked a banker recently if a bank would lend money on an assignment or hypothecation of a refundable portion, and he said, "Certainly not because the time of payment is too remote and uncertain." But he told me it would be accepted as collateral security on the borrower's own note. I do not think this is of much benefit to business, but at the same time it is some alleviation. Consideration might be given to paying the actual cash in cases where a company finds itself in a difficult position in the reconversion period.
These companies want certainty; they want something they can depend upon. I do not wish to labour the point, but I think this money which does not bear interest, which belongs to the taxpayer, which in effect is a
Excess Profits Tax

forced loan without interest, should be made available to him according to his requirements at the earliest possible day.


Harry Rutherford Jackman: Why cannot some consideration be given by the department to putting some maturity on the refundable portions which are paid under the 1944 tax? They could be made to mature three or four years hence in order that business may have some certainty. I am not suggesting doing anything about the refundables which have already been created. But if you made them mature in a reasonable period you would give business some certainty as to what it has. This would create collateral against which business could borrow for reconversion and reconstruction purposes. It would also be good collateral in the hands of the banks. You have gone a long way for the individual, possibly because you could not sell him the idea, and here you have the same situation with regard to industry. If these were made repayable in three or four years, or in whatever time the minister thinks the war will be over, there would be greater certainty and there would be the possibility of greater use for refinancing.


Douglas Charles Abbott: Under section 18, subsection 2 of the Excess Profits Tax Act the maturity is fixed with respect to the refundable portions in the different years. In the case of 1942 it will be the second fiscal period commencing after the cessation of hostilities; in the case of 1943, it will be the third fiscal period after the cessation of hostilities, and so on. Then there is the further provision that notwithstanding the provisions of the sections to which I have referred, they may mature at such earlier times and in such instalments as the governor in council may determine. The outside limit of the maturity is fixed and the government may anticipate that maturity.


Harry Rutherford Jackman: It was impossible for the individual to understand the law with regard to the refundable portion of his tax, and it took five or six lines of highly legal language to explain it. It may be you have made things a little clearer here, but if you could state a definite year it would be much better.


[Stage Direction]
Resolution agreed to.
4. That the refundable portion in respect of which a taxpayer is entitled to repayment may be assigned by way of security in cases where the governor in council is satisfied that the purpose of the assignment is to enable the taxpayer to make capital expenditures that will contribute to the post-war conversion of the taxpayer's business and will provide substantial employment.
Stanley Howard Knowles: There is a comment I should like to make in connection with this resolution. There is a principle here which

it seems to me is good. In fact, if my memory serves me correctly, it is a principle that was advocated in this corner some time ago when the Excess Profits Tax Act was put upon the statute books. I refer to the responsibility of the government to see to it that the refundable portion of the excess profits taxes is used for post-war reconstruction and the provision of employment, in the postwar period. I believe that from this group a few years ago the proposal was made that all of the twenty per cent when refunded should be earmarked for those purposes. Now we have in this resolution the acceptance to a limited extent of that principle. By limited extent I mean that it applies only to those who are able to liquidate their refundable portion in advance by the methods set out in the resolution. In cases where taxpayers, corporations, are able to do that under the terms of this resolution, they are called upon to meet the government's requirements that the money be used for post-war conversion of their business and to provide substantial employment. I repeat that that is good. But it seems to me that if it is good for those taxpayers who will be able to liquidate their refundable portion in advance in this way, it is -an equally good principle for all. I know my hon. friends to my right will probably say again, as they have said several times this afternoon, that this is the corporate taxpayer's money, but I would remind them that this is excess profit and that this profit is due to the war, and we feel that the tax on the excess profit should go right up to 100 per cent. Since however, the government has made provision for the return of twenty per cent I think the idea that the government should direct, to some extent at least, the use of that twenty per cent is a good one, but if it is being done under the terms of this resolution 1 suggest that there ought to be legislation to do likewise with the refundable portion in all cases.


Douglas Charles Abbott: This is a very limited right which is given. It is not desired that any one taxpayer should be able to get his refundable portion ahead of another. But in special cases if a taxpayer is able to borrow money which he proposes to use for capital expenditures which will contribute to the postwar conversion of his business, the governor in council may authorize the assignment of his claim to the refundable portion as security for that advance. Three parties are involved- the taxpayer, the lender and the crown. It is a soft of three-cornered arrangement. I do not know how much it will be availed of. Obviously the lender, if he advances money

Income War Tax
against the claim, can take an out-and-out assignment on a discount basis because it does not bear interest, or he might take it as collateral security. I think the average case might be where a business might want to expend money to reconvert its war plant to a peace plant. It has a reasonable credit standing and also some accumulated refundable portion of the tax. If it were able to assign that as security to a lender, it might be able to get a loan which it might not otherwise be able readily to obtain. But the governor in council would have to be satisfied that the money was to be used for the postwar conversion of the taxpayer's business.


Stanley Howard Knowles: I emphasize the last few words that the parliamentary assistant used. Even with the other conditions which have been set out it will be necessary under this resolution, for the corporate taxpayer to satisfy the authorities that its purpose is to do a certain amount of post-war conversion and to provide employment. All I am doing at this point is to emphasize that that is a good principle, and I hope that it will be remembered.


Richard Burpee Hanson: I should like to ask if the procedure that will be adopted has been worked out. A taxpayer wants to make a capital expenditure for reconversion purposes. I would assume that he would have to file some sort of petition or brief with the department asking for permission to assign the refundable portion to a creditor who will presumably advance money against it, whether by way of total assignment or hypothecation or lien. Then I assume that the taxpayer will have to show that he will provide substantial employment. Just what procedure will be adopted? What are all the factors that will enable him to do that?


Douglas Charles Abbott: That has not yet all been worked out. This is an enabling measure, but the procedure will, I think, be very much as the hon. gentleman has indicated. An industry that "had a project in mind and wanted this assistance would file a brief with the Department of Finance or some other department.


Richard Burpee Hanson: That is what I wanted to know. Under whose jurisdiction would it be?


Douglas Charles Abbott: It will be the Department of National Revenue, I would think. If the department is satisfied on the facts as presented, the minister would submit a recommendation to council authorizing the assignment, and I take it that an agreement would be entered into. I am only speculating because the procedure has not yet been worked out.


[Stage Direction]
Resolution agreed to.
At six o'clock the house took recess.
After Recess
The committee resumed at eight o'clock.

Joseph-Arthur Bradette: We are on resolution 32.


Richard Burpee Hanson: In the course of the remarks I made on the budget on July 3 I adverted to this proposal which we now have concretely before us. So far as I can see, there is no mention of this proposal in the minister's budget statement. I think that is correct. But the basis of the remarks I made on July 3 was contained in a press release, which unfortunately I have not before me, made by the minister just prior to the opening of parliament.


Hon. J. L. ILSLEY (Minister of Finance):: Just to keep the record straight-


Richard Burpee Hanson: I am not sure about my time.


James Lorimer Ilsley: -I made the statement in parliament first. In fact, I made two statements, one at the end of January and one about the middle of February, and nothing was given to the press before parliament met. Anything given to the press was given after I made a statement in the house.


Richard Burpee Hanson: It seems I am entirely wrong, and I am depending only on my memory; but I had the idea that notice had been given to the public that the provisions of the last budget, the laws relating to gifts to charitable and educational institutions, would not be allowed to come into effect. When the statement was made is a matter of minor importance. At any rate, I felt that was doing a grave injustice to a body of institutions in the country which are not simply charitable institutions, but which in this war have proven themselves to be a strong arm of government. I venture to assert that the work of certain of our educational institutions directly relating to the war has been of great and paramount importance for which probably some of them at all events have received wholly inadequate compensation. One of these institutions which
Income War Tax

I have in mind has given over its whole curriculum to the navy. I refer to King's college, Halifax, which has been taken over by the department of naval services, and is now a naval school of some kind, and for which the department is paying a rental of $30,000 per annum. I was going to say that the entire college population had to be transferred to Dalhousie university, and that added a great weight to that institution. No one is complaining about that. It was evidence of a measure of good will on the part of the authorities of the institution that does them nothing but honour and credit. The same is true of other institutions.
But the minister announced at some stage that the law as passed by parliament, because of developments which came as a result, would not be allowed to become operative, and in that I consider there was a breach of faith not only with the parliament of Canada and with the taxpaying public, but more particularly with the educational institutions of the country. I deplore that attitude on the part of the government because it must have known, when the law was made as it was, that a substantial part of the excess profits tax which is given to charitable and educational institutions would come out of taxation. That was abundantly clear at the very beginning. I assume that when the minister learned that advantage was being taken by these institutions of the position and used the taxing position, the legal position, as an inducement to corporations within the excess profits tax clause to make contributions, he must have known that those in the 100 per cent class would be taking that money out of taxation, except, I suppose, the twenty per cent refundable which ultimately would come out of the taxpayer. I deplored that position in the statement I made in the house on July 3 in discussing the budget.
I am not going to cover the same ground again; I think that would be a work of supererogation. I merely make these introductory remarks to explain that I was greatly perturbed by that position taken by the Minister of Finance as it affected certain educational institutions of the country, one or two of which are very dear to me and in whose prosperity and welfare I am intensely interested. Campaigns had been put on by the educational institutions, notably I believe by McGill, under which large sums of money in cash and in-pledges were given to some of these institutions, to be payable in cash or over a period of time, and which would have the taxation effect to which I have referred.
(Mr. R. B. Hanson.]
The effect of the minister's announcement was
absolutely to kill the efforts that were being made on behalf of these institutions whose corporate resources needed replenishing, and I thought and still think that was a reprehensible position for the minister to take, because the policy under which that became operative was the government's considered policy.
There was a time when a taxpayer could give up to ten per cent of his taxable income to education and charity.


Douglas Charles Abbott: And still can.


Richard Burpee Hanson: That is for individuals; that is quite true. But under the Excess Profits Tax Act, if I apprehend the position of the law correctly, only five per cent could be given in the way I have indicated, and it is out of that that these gifts were made.


Douglas Charles Abbott: The five per cent applies to corporations.


Richard Burpee Hanson: Well, it was from the corporations principally that these benefactions were expected to come, and it had the effect, at least until the position was fully clarified, of stopping any flow of donations to that class of institutions. I think that was a deplorable situation, and it is up to the minister to support his position.
I do not know that I have made the position absolutely clear, but I know what the effect is. The minister is making in effect what is retroactive legislation. In actual technical expression it may not be retroactive legislation, but it has the effect of being retroactive. It withdraws the provisions of the law as they have existed up to the present time and it substitutes a new formula. If I understand the position correctly-and I shall be glad to be corrected if I am wrong-it now provides that the amount of the donations made in excess of the average of the taxpayers' donations in the last two fiscal periods ending before July 1, 1942, shall be allowed as a deduction for purposes of the Income War Tax Act and the Excess Profits Tax Act only to the extent that the total taxes payable by the taxpayer under the said acts are thereby diminished by forty per cent of the said excess, unless made before February 1, 1944, and paid or evidenced in writing before that date. That is a rather involved formula unless one studies it; but it is as clear as daylight to me.
I said this once before; it means a definite reduction in the amount that this class of taxpayer may give to charitable institutions under the tax-free clause, if that is the proper designation. I venture to suggest that there

Income War Tax
will be no further benefactions, no further contributions to education from that source. The average of such donations made by corporations within the excess profits clause in the two fiscal periods before July 1, 1942, was, I am informed, exactly nothing, or in most cases was absolutely nothing. Perhaps it is not wise to be too sweeping in this statement. It was little or nothing. I shall put it in that way. Therefore in most cases the amount that will now be allowed will be little or nothing. I think that is a very bad situation. There is no class of institution in this country which is feeling the pinch of war in its finances more than the smaller educational institutions, especially those that I know something about in the maritime provinces. They find their classes depleted; they find their revenues from tuition and what-not depleted. They have been doing a lot of good war work. They anticipate throwing the whole of their resources behind the government of the country in the post-war period in doing their share. The educational authorities are among the best class of citizens we have in this country. Yet when the opportunity for them to strengthen their .position at the expense, we will say, of the treasury presented itself, after the position was fully reviewed by the taxing authorities and the finance department of this country with their eyes wide open, as part of government policy, the government withdrew the privilege which those institutions thought they were going to enjoy, with the result that their hopes have been frustrated. That is putting it pretty mildly.
I suggest to the minister that he might have allowed at least one year's operation of this law. I know that in certain cases he would have lost substantial amounts of revenue. I think that is apparent. In the case of one institution which I mentioned, I believe that the sum of $7,000,000 was either paid in or will be paid in, evidenced by pledges in writing which will no doubt be redeemed, and that there will be substantial loss of revenue. But that is not the case of the smaller institutions which stand to suffer most. When the minister comes to make his statement, as of course he will, I want him to justify fully and on ethical grounds the reason for the change that he has made, because I cannot bring myself to believe that he is on strong and sound ground there. It does look to me-I hesitate to say this again; I said it pretty strongly on July 3-as though there were some breach of faith with the smaller institutions, and they certainly feel as I feel about it. They have not asked me to say this, but I know exactly their feelings. They have a sense of frustration in their endeavours to strengthen their position while they are doing a magnificent piece of war work. Anything and everything that the government has asked them to do they have done, and many of them without compensation. That cannot be said of some of the larger institutions. I know of one institution which has received from the army sums in excess of a million dollars in a single year. I should not say "I know", because I have not a personal knowledge, but I have been told that they have received sums in excess of a million dollars in a year. Some others have been paid and some have not been compensated for the services they have rendered.
I suggest to the minister that at this time an educational institution is one arm of government in Canada. It is not a charitable institution. I am not going to labour the point. I know the minister will put this thing through. He has announced he will .put it through. I suppose I am like the famous Bolivar. I am ploughing in the sands when I endeavour to get the minister to change his mind, because I have found he was inflexible in days gone by. But I could hardly let this opportunity go by without entering my protest against this type of legislation and against this change of policy on the part of the administration.


Thomas Langton Church: I had started to speak on resolution 32 this afternoon when it was allowed to stand. I wish to refer to the effect it has had on those who had a little money and had it taken away from them very largely by the burden of war and taxation. In everything that the minister does he has to get the money to run the war and support the war by income tax. About fifty-two per cent of the revenue comes from that source or from capital account. This resolution reads as follows:
That the provision allowing deductions by a corporation from income of amounts paid by way of donations to charitable organizations in Canada be amended to provide that the amount of the donations made in excess of the average of the taxpayer's donations in the last two fiscal periods ending .before July 1, 1942, shall be allowed as a deduction for purposes of the Income War Tax Act and the Excess Profits Tax Act, 1940, only to the extent that the total taxes payable by the taxpayer under the said acts are thereby diminished by forty per cent of the said excess, unless made before February 1, 1944, and paid or evidenced in writing before the said date or evidenced by a payment before the said date which is one of a series of payments to .be made thereafter and accompanied by proper evidence of the undertaking.	.
We are near the close of the fifth year of the war and, as hon. members know, our charitable organizations, the churches, the universities and colleges of this country have had a most

Income War Tax

precarious time of it. The same is true of the hospitals. As a result we were told the other day by the Department of Munitions and Supply that they had no materials, no labour to carry on this extensive building work in war time. The board of education of Toronto is many millions behind in primary and secondary schools. It has the money for it but has been refused materials and labour therefor.
Some constructive suggestions have been offered to the minister, among them a very good one coming from Archbishop Seager of the diocese of Huron, a gifted man, who is the metropolitan of the Church of England in Ontario, representing the house of bishops of the Church of England in Canada, supported by four other Protestant denominations, and also by Roman Catholic bodies and prominent members of their clergy. The bishop has written me several letters in the past nine or ten months. In the last one I received in May last he referred to the city of London, where they have a fine large university, Western, with a very fine medical faculty and some affiliated colleges. That university has done a great deal for western Ontario. Archbishop Seager wishes to offer some constructive suggestions to the minister, who, I believe, has had this memorandum laid before him. In his letter, Archbishop Seager says:
Locally, here in London, we of our own Huron college, together with the university of Western Ontario and the bishop of the Roman Catholic diocese of London have forwarded a proposal to the Minister of Finance in the shape of a memorandum, a copy of which I enclose. The essence of it is that subscriptions may continue to be made for actual building projects after the war, without being subject to any change in the regulations.
In addition, the university of Toronto is making its own representations in the matter . . .
There is a short preamble to the memorandum of this scholar and divine in which reference is made to the difficult time the universities and charitable organizations have had since the war began. As hon. members know, many of their sources of income have dried up on account of taxation and other economic controls, with the result that the universities, colleges and churches have been starved and the charitable organizations have been unable to carry on their work. I do not know what position they will be in after the war. We are a young country, of eleven and a half million people, and these charitable organizations, including the patriotic fund of the last war, the Red Cross, hospitals, churches, universities, and so on, all have to depend very largely upon private enterprise and private subscriptions from those who, before the present heavy taxes were imposed, gave mil-
IMr. Church ]
lions of dollars to these wonderful eharities and educational institutions of Canada. The preamble goes on to say:
The recent amendments to the Income Tax Act which narrow the limits of gifts corporations may make to institutions broadly classified as charitable, have so adversely affected the prospects of leading institutions in Canada as to arouse serious fears in the minds of their officers and governing boards. These fears touch at least two aspects of the national effort to draft, before the end of the war, definite and practicable plans of reconstruction (especially those bearing upon employment) for the first part of the post-war period. The administrators concerned are, with reason, genuinely apprehensive that the new restrictions, if left without modification, will entail certain deplorable results.
(1)	A large number of institutions which have already instituted specific construction projects and have succeeded in collecting a portion of the amounts needed, find their efforts brought practically to a standstill and their plans for taking their part in the activities of reconstruction defeated.
(2)	There is a real danger that the enforced failures to carry out projects as outlined in (1) constitute a great menace to the reconstruction plans of the government in regard both to the problem of unemployment and to the various kinds of social services which the institutions are designed to give.
Because of the government's declared desire to establish a sound and feasible policy of reconstruction in which all classes of citizens can cooperate, the following memorandum has been drawn up by representatives of educational and religious organizations of the dominion, in the hope that the government will give it careful consideration. It is asked that the memorandum be read in the light of the serious situation set forth in the foregoing preamble.
These representatives included four from the Protestant churches as well as some of the fine clergy of the Roman Catholic denomination, all united in the hope that the government will give the matter very careful consideration. The memorandum presented by this body is most constructive and helpful, and contains in the last clause a suggestion which I hope will be adopted. In substance it is as follows:
(a)	That the government, or the government's commission on reconstruction, institute a committee to be designated by some such title as the committee on approved building projects;
(b)	That the government request the educational and religious institutions to prepare plans for their respective building projects, and to submit such plans to the proposed committee on approved building projects;
(c)	That any such building project approved by the proposed committee be officially called an approved building project.
The proposers of this suggestion believe that once building plans have reached the stage of approval they can most expeditiously and economically be carried out by a responsible local committee of public-spirited, competent citizens.
Under the changes recently projected for the Income and Excess Profits Tax Acts, it seems that any corporation in Canada will not be per-

Income War Tax
mitted to charge as an expense operation more than the average of the donations made by that corporation during the two fiscal years ended prior to July 1, 1942, unless the corporation is willing to pay a tax of 60 per cent of the amount of the contribution exceeding the average of the two years above mentioned. Apparently no donations will be allowable which exceed the statutory limitations of the five per cent of the net earnings of the corporation.
It appears to be the expressed policy and intention of the government to carry out numerous construction projects following the war as a method of creating employment. In view of this fact the sponsors of this memorandum venture to suggest that the welfare of the Dominion of Canada and its citizens would be better served through the amendment to the Income War Tax Act, whereby the present stated policy of the government-that the average of the donations during the two fiscal years ended prior to July 1, 1942, shall not be exceeded by corporation donations to operating charitable funds-should be altered to permit a corporation to donate to approved construction projects the difference between the average of the two years above mentioned and five per cent of the net taxable income of the corporation, regardless of the possibility that the corporation might be subject to 100 per cent excess profits tax, and provided that all contributions received by the approved construction project committee must be invested in Dominion of Canada noninterest-bearing securities to be due and payable on a date six months after the cessation of hostilities.
In this connection one must bear this in mind: the costs of construction projects of the above character would be paid for by donations which, even though the corporations making them might be in the 100 per cent excess profits tax class, would represent in each ease a contribution of twenty per cent of shareholders funds which are repayable by the government to the corporation under the provision for refundable portion of the excess jjrofits tax as provided in the Excess Profits Tax Act. This proposed policy would remove the objection of the government to the diversion of funds which are very necessary for the prosecution of the war. It would also ensure that such funds would be received by the government in payment for noninterest-bearing securities, as proposed above, and provide that after the war the government refund twenty per cent of the excess profits tax to corporations. By virtue of the suggested amendment the amounts refunded would be devoted to special war reconstruction and thereby create necessary employment.
One must note that under the provisions of this proposed amendment the government's indirect contribution to approved construction projects would fall far short of the eighty per cent of the total contribution to this object, since a great many donations will be made to such projects by individuals whose income tax would not reach an eighty per cent rate.
He concludes by making a suggestion, a most constructive one, in the following paragraph:
The sponsors of this memorandum believe the proposal should be given serious consideration by the government on the grounds that the carrying out of construction projects would involve beneficially every province of the dominion. If the government does not see the necessity to pass the suggested amendment to the income tax enactment, then the government
is requested to make provision for authorizing the completion of construction projects which have already been started and for which funds have been solicited and partially collected.
That is a sensible proposal by the archbishop, on behalf of Protestant bodies, and it includes a proposal by the able Roman Catholic Bishop of London. Many other members of the clergy have made the same suggestion to the government.
We must consider what the universities in this country" have done. I do not know what the universities are going to do after the war. They are carrying on extensive scientific work, to which the university of Toronto has made a fine contribution, and all universities have in the war given all their buildings for war to the government. Let us look at the work the universities have done in the fields of science and medicine. I referred the other night to the progress science had made, and the glorious contribution made by science in this war and in the past twenty-five years has won the admiration- of the whole civilized world. We think at once of the Banting institute, the magnificent Toronto General hospital. We think of the work which the university of Toronto and all the other universities alike are doing in this war. and what science is doing. We think of the material progress being made as a result in trade and commerce, a progress which is most commendable.
In my view it is the duty of the government to come to the help of the universities and charities, at least to the extent suggested by the bishop. This was a most constructive suggestion, and he has performed a great national patriotic duty in making it.


Joseph William Noseworthy: The application of
resolution 32, and its effect upon universities, has been discussed in this debate. I would call the attention of the minister to a statement I made in the house on June 22, in which I pointed out the basic needs of education across the country, and the extent to which the federal government should come to the assistance of education I gave some details as to how that assistance should be apportioned. On the subject of university education I said:
The financial condition of our universities has been difficult; during the past years they have found it necessary to increase student fees. The fee required to be paid by a university student to-day is on the average, in all our Canadian universities, eighty per cent higher than it was ten years ago. As a result our universities are rapidly becoming institutions for the privileged class. The test of admission to our universities is rapidly becoming a means test rather than a test of ability. This trendy apart altogether from the inequity to the individual and the loss to society through the failure to train our ablest
Income War Tax

and brightest young people, can have but one effect on our universities; that is, a general impairment of educational standards. To-day our universities are operating on approximately $20,000,000. It is estimated that a federal grant of $5,000,000 would enable them to put their financial affairs in order and considerably reduce student fees.
As suggested by the hon. member for York-Sunbury, I think in the first place the legislation which provided tax exemption to individuals and firms contributing to educational and charitable institutions was basically wrong. I am in agreement with the hon. member to the extent that at the present time some public funds should be made available at least to our universities, and also to other educational institutions.
To my mind the only sound way in which that could be done is by definite government grants for that purpose. I think the principle of permitting universities to go out and canvass corporations, with a view to inducing them to put their money into universities, instead of paying it in taxes, is basically wrong. It is the Canadian public which, in the final analysis, is making that payment; and in my view the payment should go directly to the institutions concerned. There is only one ground upon which I would support that principle, and that is if the government finds it constitutionally impossible to make a direct grant to educational institutions. If that were the case, then we might overcome that constitutional difficulty by the indirect or roundabout method of granting exemptions from taxation, until such time as the government can make direct contributions to such institutions.
Certainly the time has come when the federal government must face up to the educational means of this country. The federal government must come to realize that education can never be adequate in many of our provinces, not only in universities but in the lower schools, until federal support is forthcoming. I sincerely hope that in the forthcoming dominion-provincial conference some discussion will be had on that problem, and some effort made to bring about cooperation between the dominion government and the provincial legislature, without infringing upon their constitutional rights, so as to make it possible for the provinces to place their educational institutions on a better basis. In that way we could have education available to all the youth in this country who have the ability and the desire to attend such institutions.


James Lorimer Ilsley: In his speech on the budget the hon. member for York-Sunbury made a vigorous attack on the government's position in regard to charitable contributions. I did

not answer it during the debate, because I thought I would leave such discussion until the resolutions were reached. That resolution is now before the committee, and I should like now to give hon. members a brief resume of the steps taken, and the reasons for taking those steps.
Up until the 100 per cent excess profits tax was imposed

and it dated from July 1, 1942 -corporations made odd contributions for charitable purposes. Some corporations were fairly consistent givers, but not in very large sums. I suppose they felt they must always be in a position to justify to their shareholders the amounts of their contributions, and they were able to do that if the amounts were not excessive.
Up to a certain stage-I forget the year- corporations were given the same privileges as individuals. That ie, they had the privilege of deducting, for taxation purposes, charitable contributions up to ten per cent of the income. But there came a year-either 1941 or 1942- when we thought that should be reduced to five per cent; for, since corporate profits before taxation have increased enormously during the war, after taxation they have increased very little. Five per cent of the total corporate income was a very large sum, in the aggregate. Nevertheless, as the matter appeared to us at the time, we felt that they should be at liberty to contribute for charitable purposes up to five per cent of their income.
I am not altogether sure that the hon. member for York South is wrong in his statement that the whole principle is bad, but I am not sure that he is right. I certainly would not have been worried about the extent of contributions by corporate taxpayers to charities if it had not started to get manifestly excessive and away beyond any legitimate corporate purposes.
When we talk about charitable organizations we must remember that they go far beyond universities. They include a wide range of non-profit enterprises, such as churches and municipal projects of one kind and another. When this fever reached its height about January last I began to hear of municipal projects which were contemplated, some to the extent of 8500,000, 81,000,000 or $1,500,000, to be sponsored directly -or indirectly by the municipal authorities and to be financed by corporations in the municipalities. These. corporations had the privilege of deducting for taxation purposes up to five per cent of their income when donated for charitable purposes. If the company was paying 100 per cent excess profits taxes that meant that for the time being the whole 100 per cent would be diverted from the dominion treasury.

Income War Tax


Mr. GRAYDON:: What does the minister have in mind when he speaks of municipal
projects?


James Lorimer Ilsley: Auditoriums and skating
rinks, which were allowed. These projects are laudable activities for the most part and I do not criticize them, but they covered a wide range and it really meant that Canadian corporations were able to divert funds which otherwise would be public funds. I am not saying that they were public funds, but otherwise they would be public funds. It meant that Canadian corporations were assuming the responsibility of diverting what would otherwise be public funds to charitable purposes of their own choice.
There was no possibility of getting an equitable geographical distribution of these donations; it was a haphazard method of diverting public funds and it was growing with tremendous rapidity. I was much concerned about it, because I knew how unpleasant a step it wou-ld be for the government to interfere with them. It is a thankless task to say to any taxpayer that he shall not donate money for charitable purposes. However, as the guardian of the treasury, as the custodian, to a certain extent at least, of public funds, I felt that the situation had reached the point where I should do something to stop it from going on any longer. I heard of campaigns which were planned and which were being planned in various parts of Canada. On one occasion I was consulted about a campaign that was projected.
It became fashionable, shall I say, for canvassers to go to corporate taxpayers and say frankly to them, "The government will get this if you do not let us have it; why not give it to us?" I do not think we could object to that type of canvass, but it always irked me to have canvasses like that made. I do not like it in time of war, no matter how fine the charitable project may be. It was something that went against my grain, but I do not think I could have taken any exception to it so long as our law was what it was. They could very well say, "There is your statute; that is what parliament has done; you cannot blame us for taking advantage of it, and we will pass upon the patriotism and the ethics of our course."
I felt that the only thing to do was to make a statement, which I did on January 31. This statement would have to take effect at once because no advance notice could be given. To have given advance notice would have meant the feverish collection of donations in the next few days, and I felt I had to make a statement, which I did at the end of
January, with regard to donations made after January 31, indicating that there would be restrictions. I had no power to do this as Minister of Finance; the government had no power to do it, but I could give notice that when the budget was brought down I would introduce legislation which would be effective as from February 1, and that is what I am doing.


Harry Rutherford Jackman: You scared them.


James Lorimer Ilsley: I think the announcement had the effect which I desired and which I think was the proper effect for it to have. The criticism of what had been done was quite voluminous, but the commendation, while more private, was also fairly widespread because there were a great many people who did not feel just right about what was going on.


Harry Rutherford Jackman: Did you get letters of commendation?


James Lorimer Ilsley: Yes, but they are not producible; they are personal. I said that at the time of the budget I would introduce a provision whereby all companies would be on the same basis as to tax advantage, that there would be a forty per cent advantage. The majority of companies could get a tax advantage of only forty per cent on their donations for charitable purposes, but the minority of companies, including some large ones, could get a 100 per cent advantage. Those were the ones being subjected to this intensive canvass by persons interested in various charitable projects.
I do not intend to go into these projects, nor do I intend to deal with them in a hostile or critical way. The canvassers were well within the law; they were within their rights when they proceeded as they did.
Shortly after January 31 representations were made that there were certain companies which over a course of years had established the practice of making certain charitable donations. While it was understood that what the government desired to do was to prevent excessively and unreasonably high donations, donations out of all proportion to the purposes of a particular corporation, it was contended that we ought to make an exception in the case of a company continuing to give what they had normally given before the 100 per cent excess profits tax was in effect. It was contended that they should not be denied the full tax advantage if they kept within those limits, that they should not be penalized for doing what they had done before the 100 per cent excess profits tax came in.
Income War Tax

Therefore on February 18 I modified the announcement by saying that companies might give up to the average of the two years before July 1, 1942. It is only when donations are in excess of that that they are limited to the forty per cent. This gives a great deal of scope for charitable donations, and I think many charitable donations are still made by corporations. Of course, indivi-viduals have never been touched at all.


Harry Rutherford Jackman: They were touched last year, drastically.


James Lorimer Ilsley: They were touched last year by the high taxes.


Harry Rutherford Jackman: That is where it hurts.


James Lorimer Ilsley: I am not arguing with my hon. friend. The ten per cent provision was not changed in so far as individual donations are concerned.
I received the memorandum which was read to the house by the hon. member for Broadview, but, having given this matter anxious consideration, first in January and again in February, I felt that I should not suggest to the house any change in the policy as laid down. Several charitable drives have taken place since January 31 and to change the basis now would be unfair to those who have conducted those campaigns. I think the present basis is sufficiently generous, all things considered.
There is one element of inequity in the situation which I cannot eliminate. Certain groups completed their drives before January 31 and raised a lot of money. Others were under way and were hampered to some extent, I suppose, by the announcement. Others were planning to get under way and as the hon. member for York-Sunbury said, are disappointed in their expectations and feel frustrated. But I did not feel that I could just sit still and see millions upon millions of dollars being diverted from what otherwise would have been the public treasury without taking a reasonable step for the protection of the revenues.


[Stage Direction]
Resolution agreed to.
Douglas Charles Abbott: Perhaps we may go back now to resolution 11.
11. That any enactments founded on-
(a)	Resolutions 3, 4, 5, 8, 9 and 10 come into force on enactment; and
(b)	Resolutions 1, 2, 6 and 7 be applicable to the income of 1944 taxation period and fiscal periods ending therein and all subsequent periods.


Harry Rutherford Jackman: I understand that the minister may have something to say in regard to the proposals which were put forward the

other day, namely, that five years was not a very long period in which to have the lump sum payment on retirement extended for taxation purposes, and that it would be better if the lump sum which was given on retirement were extended either on the basis of the length of service of the man or woman to whom it was given, or on the basis of life expectancy. At least the life expectancy should be considered in determining the length of time over which the capital sum should be spread. Perhaps four or five years might be taken off the total life expectancy.


James Lorimer Ilsley: If nothing is done the whole amount will be taxable in the year in which it is given.


Harry Rutherford Jackman: That would be very
unfair, as the minister will agree.


James Lorimer Ilsley: I agree that that would be unfair to the taxpayer, but I think it would be unfair to the crown if it were spread over the expectancy of life, and for this reason: If the taxpayer lives for longer than his expectancy of life the crown would be collecting taxes only for the period of his life expectancy. If the taxpayer lives for a shorter period than his expectancy of life, the crown would be collecting taxes only on part of the years. If we knew exactly how many years each employee would live I do not know that there would be anything unjust about spreading the payment over that number of years, but to take the expectancy of life as a basis would be far more unfavourable to the crown than that would be. Therefore I think it is fair to take a period somewhat shorter than the normal expectancy of life. Five years is shorter than the average expectancy of life at sixty or even at seventy.


Harry Rutherford Jackman: Of course it would be.


James Lorimer Ilsley: Nevertheless I do not believe that there is any essential justice in taking the expectancy of life, because in all those cases where a person dies before that period runs out, the crown collects income tax only on part of the amount and, when they live beyond the expectancy of life, the crown is limited to taxes on the exact amount.


Harry Rutherford Jackman: It is a matter of equity; it cannot be exact. But surely in equity the subject has some rights as well as the crown. Supposing a man who has been working for a company which did not have a superannuation plan gets a lump sum gratuity at sixty. It is true that these superannuation plans are becoming more the vogue, as they should be, but a great many of our companies have not had them up to date. Suppose that an

Income War Tax
employee or executive on retirement at sixty is given a lump sum of $5,000 or $25,000; he will be taxed on one-fifth of that sum in each of the next succeeding five years, which is a very heavy tax, almost an extortionate tax at the present high rates. JBut suppose his expectancy of life was fifteen years. Why could we not compromise and spread the taxation over ten years? Surely that would be working against the subject and in favour of the crown. But when the minister takes an arbitrary figure of five years he is making the principle work against the subject to a degree which is against all principles of equity.
Some of these large corporations retire all their executives at sixty in order to bring in new blood and give an opportunity to the younger men. We have seen the same principle adopted in the air force. The minister for air has stated in the house that rapid promotion in the air force brings its own penalty, because when men were rapidly promoted they were got rid of at a comparative early age to make room for younger officers who had won their spurs on the field and these younger men were to be promoted to the senior jobs. The same thing applies in business. The Woolworth company retires all its executives at sixty, I believe, to make room for younger men coming in with fresh ideas. Suppose a man is given a substantial sum upon retirement from such a company at sixty, and he has a life expectancy of from fifteen to twenty years. Under this clause he is going to have taxed away the greater part of that capital sum in a five-year period, and it will go to the crown instead of being used for the purpose for which it was given to the employee. I hope that the minister, who surely seeks only fairness in this regard, will see fit to arrive at something that will be in favour of the crown, if you like-I have no objection to that-but that will also be fair to the subject. If we adopted the principle of life expectancy, less a few years, if you will, it would give equity to the subject as well as making sure that the crown gets all the revenue to which it is entitled.


James Lorimer Ilsley: Just how far should parliament go in arranging the affairs of taxpayers for them?. This is a matter which is entirely in the hands of the employer and the employee. If the employer wishes to pay the employee an annuity or pension, there is nothing to prevent the employee from accepting it, in which event the employee will be taxed each year as long as he lives. If the employer wishes to spread it over ten years, or over seven or eight years all that can be arranged between themselves and the taxation
imposed accordingly. If they wish to make another arrangement, to give a lump sum gratuity, there is no presumption that that gratuity is intended to be spread over the remaining years of the employee's life.


Harry Rutherford Jackman: That is a reasonable presumption.


James Lorimer Ilsley: There is no more presumption that it is to be spread over the remaining years of his life than over the next five years. So that all we can do is to take an arbitrary figure and just say that if you want to arrange your affairs in that way and take a lump sum we will not tax it all in one year, which is the law at the present time, but will spread it over five years;- and if you want it in smaller sums, arrange accordingly to pay it in smaller sums.


Harry Rutherford Jackman: Of course a corporation could use its head, if you will, and give a life annuity to the employee. There are cases. How they arise or why, I am not in a position to say; but the very fact that the minister brings in this resolution shows that there are cases where men and women, former employees of companies, do get lump sums given them. The minister can say better than I can why they get them, but he has pointed out that if the company would use its head and give the employees an annual income in place of a lump sum the government would get only so much taxation. On the other hand, because they happen to have given a lump sum, for reasons which the minister can explain better than I can, the taxation is not only three or four times but eight or ten times as much as it otherwise would be. The crown wishes to take advantage of the subject's lack of knowledge of the taxation laws of the country. I am only pleading for something approximating the taxation that the crown would get if the company used its head.
Exactly the same question came up last year in connection with annuities. There, if the husband seeking to provide for his widow leaves an annuity, constituted of all the principal he has, we find that the widow pays three or four times as much taxation as if the widow received the capital outright. The hon. member for Vancouver East supported me after he had heard the arguments and changed his mind against the minister. This case is similar to the annuity question. If a man knew exactly how long his widow would live he would say to her, " Here is a capital sum to draw an income from during your normal expectancy of life, of fifteen or twenty years, and you will also take $400 or $500 of capital and you will have enough to get by on." But
Income War Tax

ht does not know how long she will live, and because he does the only sensible thing he can do and buys her an annuity, the government collects four or five times as much as it otherwise would^
This case is similar in principle. I admit that if the companies used their heads the crown would not get this excessive taxation, to which it is not entitled. At any rate, the cases are there, and I only ask that the subject, seeing that he does not know the incidence of the taxation laws of the country, should be fairly dealt with. I submit that some clause should be framed having as its basis the normal expectation of life of the person who receives a lump sum on retirement. Normally I should say, as the minister has admitted, that if a man retires at sixty or seventy his expectancy is ten years. But the crown wishes to have all the money it can get even from poor people who are trying to provide for their old age and it fixes the period at five years. Ten is not too large a figure, and I should be glad to move that the word five be changed to ten in the section. It is only an approximation. It does not go the whole way, but it does come a little nearer to what is fair and it does not rob the treasury of anything to which it is rightfully entitled.


James Lorimer Ilsley: On a .point of order, the Spreading of the amount over ten years instead of five years would mean of necessity that the amount of income of the individual each year would be less than it otherwise would be, and my submission would be that it would affect the revenue adversely.


Harry Rutherford Jackman: We discussed this matter while the .minister was in the banking and commerce committee this afternoon.


Douglas Charles Abbott: It was held over to be
decided to-night.


Harry Rutherford Jackman: The principle was.


Douglas Charles Abbott: I raised' the same point of order on the motion of the hon. member for York West. That was to be decided this evening.


Harry Rutherford Jackman: I am not an authority on parliamentary rules, Mr. Chairman, and I shall, of course, have to abide by your decision, but I should like to hear argument from others. It was contended in this house, however, in connection with ways and means, that private members did have the right to suggest alternative means of raising revenue and even of suggesting means which might not necessarily raise as much as the proposals brought down by the government.


Stanley Howard Knowles: I am not now expressing my view of the amendment proposed by the hon. member for Rosedale, but speaking to the point of order I would call attention to citation 502, in Beauchesne's third edition, which is the citation I read this afternoon when the hon. member for York West proposed his amendment. It reads:
A private member may move that certain specified taxes be readjusted and -that the scope of tax exemptions be enlarged.
I believe that the citation to which the Minister of Finance has reference is 500. It might be argued that this book of rules at times might be used both ways and- that this is a case in point. In citation 500 I read:
Proposals for the variation or modification of taxation can therefore be made in the committee-
The reference is to committee of ways and means.
-but these proposals must be grafted upon the financial scheme submitted by the government, and mus-t not affect the balance of ways and means voted -for the service of the year. Amendments, "therefore, can be -proposed to substitute another tax, of equivalent amount, for that proposed by the government, as, -for instance, a proposal to substitute probate and legacy duty on real property as an alternative for an inhabited house duty, the necessity of new taxation, to that extent, being already declared on behalf of the crown.
My point is this. Even though the rules do specify the limitations set out in, citation 500 they go on, in citation 502, to specify something that a private member can do in committee of ways and means, namely, to move that certain specified taxes be readjusted and that the scope of tax exemptions be enlarged.


Douglas Charles Abbott: But not reduced.
'Mr. KNOWLES: As a matter of fact I do not agree with the amendment proposed by the hon. member, but -I support his right as a private member to move that amendment.


Joseph-Arthur Bradette: It has been moved- by the hon. member for Rosedale (Mr. Jackman) that in line four the word "five" be struck out and the word "ten" be substituted therefor. There is a point of order; does any other hon. member wish to speak to it? The hon. member for Winnipeg North Centre has mentioned citation 502 of Beauchesne's parliamentary rules and forms, third edition:
A private -member may move that certain specified taxes be readjusted and that the scope of tax exemptions be enlarged.
That principle applies to the committee on the bill only and not to ways and means. That

Income War Tax
is the meaning of that citation and of citation 500 as quoted by the hon. member. Citation 500 reads:
Though it is the function of the committee of ways and means to impose rather than to repeal taxes, example of the repeal of taxation effected in this committee are to be found upon the journals. Proposals for the variation or modification of taxation can therefore be made in the committee; but these proposals must be grafted upon the financial scheme submitted toy the government, and must not affect the balance of ways and means voted for the service of the year.
I have no doubt that such an amendment will affect the balance of ways and means. Consequently I rule the amendment out of order Shall resolution 11 carry?


[Stage Direction]
Resolution agreed to.
Joseph-Arthur Bradette: The hon. member for Broadview, with the sanction of the committee, wishes to revert to resolution 13 to raise one question. Does the committee consent?


Some hon. MEMBERS:: Yes.


Thomas Langton Church: A week ago last Monday night at eight o'clock the Chairman very properly called twelve resolutions, and all were carried in five minutes at the time I was in. I wished to ask but missed a question at that time regarding resolution 13. My question had reference to the allowance of $300 to a trade union deduction in connection with a superannuation or pension scheme approved by the minister. Doctors, physicians and lawyers have trade unions. Would resolution 13 apply to the superannuation fund of a clergyman of the United church, the Baptist church or any other church that has superannuation funds-they are all trade unions- if it is approved by the minister?


Douglas Charles Abbott: I am advised that the amounts paid into that type of superannuation fund are already covered by the law;


Thomas Langton Church: Does that include fees? Is there a uniform practice for all clergy in Canada?


Douglas Charles Abbott: I do not know what my hon. friend means by "fees". But contributions by the clergy to recognized superannuation funds are deductible by them from their income for tax purposes.


Thomas Langton Church: Do they all file income tax returns?


Douglas Charles Abbott: I am afraid I do not know.
Those who are taxable do.
30. That the tax credit allowed to a taxpayer of forty per cent of contributions made by him in the year 1943 to associations, syndicates or mining partnerships organized for the purpose
of prospecting in Canada for base metals or strategic minerals be extended to include a tax credit in respect of contributions in the year 1944.


Agar Rodney Adamson: Is this the resolution as amended?


Douglas Charles Abbott: The same point of order was raised on the amendment, Mr. Chairman.


Agar Rodney Adamson: Speaking to the point of order-*


Joseph-Arthur Bradette: Resolution 30 stood this afternoon.


Agar Rodney Adamson: We are now back on it and, since a point of order was raised on my amendment, I have a right to speak on it. This is in a rather different category from the previous amendment, and I again wish to quote citation 502, of Beauchesne's, which is as follows:
A private member may move that certain specified taxes be readjusted and that the scope of tax exemptions be enlarged.
This amendment of mine merely strikes out one word, enlarging the scope of exemption and therefore comes under citation 502. It does not increase or diminish the revenue; it merely increases the scope of tax exemptions because it is a definite case. I have moved that in resolution 30 all prospectors for all metals and all strategic minerals be exempt. It is an enlargement of the resolution and comes under this citation. I feel that citation 500 is not germane to this particular case because it is a definite and specific motion with regard to the enlargement of the tax exemption. It applies to a specific instance of enlarging the exemptions to include all prospectors engaged in the search for all metals. At the present time the resolution is limited to base metals and strategic minerals. We discussed this matter at length this afternoon. I want the resolution to read that it includes all metals and strategic minerals. I therefore suggest, Mr. Chairman, that your ruling is not in conformity with the rules in this case.


Stanley Howard Knowles: I wonder if I may speak again on this point of order; in essence it is the same point we had when the last amendment was before us. I am not speaking on the merits of the amendment but only on the point of order. I hope, Mr. Chairman, you will permit me to address myself to the point that you made in discussing the point of order the last time when you called my attention to your belief that citation 502 referred to the committee of the whole when dealing with the bill. I would first call your attention to the index to Beauchesne's Parliamentary Rules and Forms, at page 883. About half way
Income War Tax

down the page appears the heading, "committee of ways and means." The eighth entry under that heading is, '"readjustment of tax, 502." I realize that the index is not necessarily the final authority, but we start from there as indicating the fact that citation 502 deals with the committee of ways and means. Then if we turn back to citation 502 itself, although we do not find any reference there to the committee, if we check back to the previous citation which you quoted, Mr. Chairman, citation 500, and also citation 494 as well as some others, we find that the references all along are to the committee of ways and means. I therefore submit with due respect, despite the ruling you gave on the previous occasion, that citation 502 does refer to the committee of ways and means, which is the committee in which we are now sitting. I can see that there might be some difference between the essence of the amendment moved by the hon. member for Rosedale and the amendment moved by the hon. member for York West; yet it does seem to me that this present amendment, entirely apart from what I may think of its merit, is a motion for readjustment of taxes and an enlarging of tax exemptions. I would therefore respectfully suggest that this amendment should be considered as in order.


Joseph-Arthur Bradette: On the point of order, I must refer again to citation 502. Every hon. member fully realizes that we are now dealing with the different paragraphs of the resolutions. Those resolutions will eventually become a bill. When that bill goes into committee of the whole some amendments that are out of order now will be in order on the committee stage of the bill. However, I must give my ruling on citation 500, and I will ask hon. members to listen very attentively to it. It is as follows:
Though it is the function of the committee of ways and means to impose rather than to repeal taxes, examples of the repeal of taxation effected in this committee are to be found upon the journals. Proposals for the variation or modification of taxation can therefore be made in the committee: but these proposals must be grafted upon the financial scheme submitted by the government, and must not affect the balance of ways and means voted for the service of the year.
I shall read the amendment moved by the hon. member for York West (Mr. Adamson):
That the word "base" be struck out of clause 30.
There is no doubt that the moment you include all precious metals you immediately change the balance of ways and means. There could be no question about that. For these reasons I move the amendment out of order.


Harry Rutherford Jackman: May I ask what you
mean by "the balance of ways and means"? Do you mean the total amount of revenue the treasury may get? Is that what you mean? I do not know what it means.


Joseph-Arthur Bradette: I am sure that every
hon. member will be struck by the fact that the moment you include some very large industries which are not included at the present time in the resolution, as is proposed to be done in the amendment, it is bound to affect the revenue, since it enlarges the scope of the resolution. There is no doubt in my mind that it must affect the balance of ways and means voted for the service of the year. That is the point on which I base my ruling.


Harry Rutherford Jackman: I presume by "balance of ways and means" you mean the total revenue the crown might receive. If that is the case, the change I have suggested, from five years to ten years, might work to the benefit of the crown. It might easily be found that many companies would be willing to give their employees a lump sum which could be spread over ten years and on which the government would get its proportion of taxes, instead of giving them life annuities or some other form of payments based on expectancy.


Joseph-Arthur Bradette: Order.


Harry Rutherford Jackman: I am suggesting that the balance of ways and means, if affected at all by the change I have mentioned, might work to the benefit of the crown rather than to its detriment. I think it is up to the minister or up to you, Mr. Chairman, if you maintain your ruling, to point out that what I suggest would be against the amount of revenue which the crown would receive rather than in its favour.


Joseph-Arthur Bradette: Shall the resolution carry?


Harry Rutherford Jackman: I should like an answer to that question.


Douglas Charles Abbott: You are questioning the ruling of the Chair.


Joseph-Arthur Bradette: I have given my ruling and the hon. gentleman must either abide by it or appeal from it. There is no doubt there would be a decrease in revenue if the suggestion of the hon. gentleman were applied to the entire mining industry. Undoubtedly this matter could be better dealt with by the Minister of Finance, but I am not changing my ruling in regard to the amendment.


Harry Rutherford Jackman: I was not speaking on the amendment; I was merely asking whether you had given consideration to this phrase, "the balance of ways and means," when you

Income War Tax
i095
ruled against my amendment on the ground that it would decrease the amount coming to the treasury. Of course I accept your ruling, but I suggest that my amendment might easily bring more rather than less revenue to the treasury.


Howard Charles Green: Before this resolution carries, may I point out to the Minister of Finance that earlier in the day several hon. members suggested to his parliamentary assistant and to the Minister of National Revenue that the resolution should be extended to cover a contribution made by one individual to a prospector rather than left to cover, as it does now, merely contributions to an association, syndicate or mining partnership. We had in mind the well known practice of grubstaking an individual- prospector. I do not want to repeat the arguments that were advanced this afternoon, but I thought we made out a very good case, and I am convinced that the membership of the house at large would be in favour of extending the provision to cover such contributions. We feel that the only argument put up by the minister's assistant and by the Minister of National Revenue was the difficulty of administering such an extension, and frankly we do not consider that to be good enough. I would ask the minister if he would not give further consideration to the suggestion.


James Lorimer Ilsley: I was not here this afternoon; however, I understand that there was a long argument on that point, and that reasons were given by my parliamentary assistant and by the Minister of National Revenue as to why contributions to individual prospectors should not be recognized. Those hon. gentlemen are more familiar with those reasons than I am, but it seems to me the reason why it was limited to syndicates and associations is that there is a degree of control over audit and an examination of the affairs of syndicates and associations which are impossible in the case of individuals. The very association of people makes it more certain that the money will be spent for the purposes set out in the act than would be so in the case of individuals. I do not know all the reasons given this afternoon by hon. gentlemen on this side of the house, but I believe that is the principal reason why we thought this should be limited to these syndicates. This point has not been raised previously. I remember that we had a long argument over this provision a couple of years ago, during which everything was discussed but this suggestion that donations to individuals should be recognized. That would be a transfer of money from one man to another, provided he would do' certain things with it.


Howard Charles Green: That is the way most of our mines in British Columbia were opened up.


James Lorimer Ilsley: I do not know why the point is so late in being brought up. This provision was fully debated in the house two years ago. I do not believe it was debated last year; I think we were on some other phase of the matter then, but now the hon. member for Yukon has brought up the point. I think I have given the main reasons why we consider such donations could not be recognized.
Mr.- GREEN: In all mining centres in British Columbia there are gold commissioners or mining recorders, who are officers of the provincial government. They have wide powers of control over all mining and prospecting within their respective districts, and they are responsible officers. I should think a certificate from one of those officials would be quite sufficient. If the government received a certificate from the gold commissioner, they could bank on it as being absolutely correct. I believe the difficulty could be overcome in some such way as that. Actually the fact is that most of the mines in British Columbia have been discovered by individual prospectors, and in many cases that was made possible only because those prospectors were grubstaked by people in the towns.


James Lorimer Ilsley: Is this worth while doing from a public point of view? This is the 19th day of July. I am informed that all prospectors in Canada are at work now. It may be that a great many individuals and perhaps companies made advances to prospecting syndicates or associations believing that the law for the year 1944 would be extended, and that therefore they might have some moral claim to consideration,, such consideration being the privilege of deducting these donations from their income for taxation purposes. Certainly if the prospectors are all out now, no one who contributed out of his own means to an individual prospector has any moral claim or equity at all, because that never was the law; it was not the law the year before last or last year, and he had no reason to think it would be the law this year. To make it the law now will, as far as I can see, not get a single prospector out for the rest of the year. Is that not correct?


Howard Charles Green: No; the minister is wrong there. The year is not over yet; it has only begun. The men could not get out in the

Income War Tax
mountains of British Columbia until a couple of months ago. There is plenty of time yet, and there will be all next year.


Gordon Graydon: If I may intervene and say just a word, I suggest that the last part of the minister's argument was not very sound. He based his position on the fact that because it is so late in the year the change suggested would have very little effect upon the prospectors. If we take that attitude each year, how can we make a change at all, for each year the same argument will apply. We must make a start somewhere, and perhaps this is the time to prepare for next year. I only rose to point out what I think are obvious flaws in the argument of the minister, and to suggest that his argument does not do his case justice in this instance.


James Lorimer Ilsley: I think my argument is pretty good. We are legislating for the year 1944 only. It is war-time legislation, to encourage prospecting for base metals and strategic minerals. That is for war purposes, and for this year only. This was enacted two years ago, and again last year and this year. I should hope that this would be the last year it would be necessary to give more encouragement to search for minerals having strategic necessity.
The hon. member has suggested that perhaps we should get started on next year. I do not know whether there will be any such legislation next year. But what I am saying is that if my information is correct-and I may say I do not know much about it, except what I get through the officials, and from people who come to see the officials-prospectors are all busy. Is that not so?


Mr. McCANN:: No; ordinarily prospectors do not go out until the fly season is over, that is in July or August.


Gordon Graydon: Better not rely on that
kind of advice.


James Joseph McCann: They know more about it than you do.


Gordon Graydon: That would be a very
poor standard to set up.


James Lorimer Ilsley: Well, it is a shame to hear the leader of the opposition criticizing the advice, because the advice, unfortunately, corroborates the hon. member himself.


Agar Rodney Adamson: The minister must
remember that when he says prospectors are busy, all able-bodied men are busy at this time. Because prospectors are busy it does not follow that there is a healthy state in prospecting. Because there is a tremendous speculative 
boom in two particular sections of this country, it does not mean that that reflects a healthy state in prospecting, or that all prospectors are busy and engaged in their professions.
That is why I brought in this question of allowing prospectors to prospect for all metals, using their complete profession, rather than prescribing and limiting the metals they are to look for. I do not intend to argue this matter further, because I argued it this afternoon. It must be remembered, however, that the prospector of to-day is a very different individual from the prospector of a few years ago. To-day the prospector employs a great deal of scientific equipment. He uses a diamond drill, and a process of radio-location known as the doodlebug. He employs a great many scientific instruments, and has to be trained in his work. Not only that, but in the main ore-bearing belts in Ontario and Quebec he has to overcome a great deal of overburden, and has to get down to bed rock.
In other words, he has to do a great deal of work that the old prospector, the man who went out and found the minerals showing, did not have to do. His work to-day is entirely different. To-day it is a science, when compared with the old system. It was said that the old prospector had a nose for ore, but it is very different to-day. I do not think the minister appreciates fully the dependence in the future that we shall have on the prospecting industry. He does not appreciate the fact that from the time a find is made, four or five years must pass until the time of a producing mine, irrespective of how encouraging the find may be, or irrespective of the fact that the mine may be close to an established gold camp or base metals camp.
That is the reason why I moved the amendment this afternoon, and that is the reason why I tried to say, "Let us broaden the picture this year, even though it is a war year, and even though we are still in the greatest depths of strain in t'he war." Let us enlarge this now, because it will not have immediate effect. These things have delayed action, and we must remember that now is the time to let the action start-because we are" not going to use up any more of our man-power. The men are there. Let this delayed action start now, so that when the time comes when our men require work and when, with all due respect to our monetary theory, we are going to need every ounce of gold we can produce, we shall be in a good position. Let us now strive to find that new gold and all those new precious metals we shall need. Now is the time, irrespective of the fact that we are still at war.

Income War Tax
I appreciate the minister's argument, and I appreciate his difficulty in changing taxation in the depths of war. But we must prepare at this time for the time which lies ahead.


Joseph-Arthur Bradette: Before we proceed
further, hon. members will find that standing order 40 refers to repetition. I must say that for two hours this afternoon hon. members, including myself, spoke on this matter. The time has arrived when we ought not to repeat ourselves, when members should speak to the resolution before the committee. I believe that every hon. member will agree to that suggestion.


Joseph William Noseworthy: I should like to ask three questions. First of all. I understand that the effect of this resolution is to benefit the financial backer of the prospector, not directly the prospector himself. The prospector benefits only to the extent that this makes it easier for him to secure financial backing. Is that not correct?


James Lorimer Ilsley: The backer is the only one who gets the tax benefit.


Joseph William Noseworthy: Yes. So that the only benefit the prospector gets is that this makes it a little easier for him to get money from someone to grubstake him.


James Lorimer Ilsley: Yes.


Joseph William Noseworthy: My second question is this: What is involved in a partnership? I notice that this exemption may be claimed for anyone financing a partnership. I know a number of prospectors, and so far as I have been able to learn, very few of them go out singly. On most occasions they go out in pairs. What is involved in their getting support under this resolution? What is involved in establishing the fact that they are partners? How difficult is that?


Douglas Charles Abbott: I explained that this afternoon, in part. The resolution provides for contributions or payments made to associations, syndicates or ordinary partnerships registered or otherwise recognized under the laws of any province in Canada, and organized for the purpose of prospecting in Canada for base metals or strategic metals. So that the partnership would be an ordinary partnership constituted in accordance with partnership laws of the particular province in which it was operating and registered or otherwise recognized by the laws of that province.
In other words, it would be a legally organized partnership, organized for the purpose of prospecting for base minerals. The point is that it need not be a corporation. This
resolution does not extend the benefits only to incorporated bodies. It extends them to partnerships and syndicates, which are unincorporated bodies. A partnership may consist of two or more individuals.


Joseph William Noseworthy: My third question is this: Let us suppose that funds are provided for a partnership on the understanding that they are out to prospect for base metals. If in the course of their prospecting they discover precious metals, would they be penalized to any extent, or would they lose the benefits of this resolution?


James Lorimer Ilsley: In order to qualify an association, the syndicate or mining partnership must be organized for the purpose of prospecting in Canada for base metals or strategic minerals. That purpose must be established' to the satisfaction of the taxation authorities. If gold is found, that fact of itself would not be sufficient to rebut the allegation that the purpose waB to prospect for base metals and strategic minerals, but if it is made clear that the purpose was to look for gold and not for the base metals or strategic minerals, the deduction would not be allowed.


Joseph William Noseworthy: How do they establish the fact that they are prospecting for base metals? lit is not necessary for them to discover base metals in order to get the exemption?


James Lorimer Ilsley: No.


Joseph William Noseworthy: How do they establish the fact that they are searching for base metals?


Douglas Charles Abbott: They just say they are looking for them.
Mr, JACKMAN: They cannot get any manpower for gold.


James Lorimer Ilsley: The facts would all have to be looked' into. As I say, the fact that they found gold would not of itself be sufficient to rebut their claim that they had been established for the purpose of searching for base metals and strategic minerals, but the places where they had looked and all the circumstances might indicate that they were not looking for strategic minerals and base metals, in which event the deduction would not be allowed.


Joseph William Noseworthy: I had in mind the prospector who went out definitely to prospect for base metals but who happens to find precious metals. He is not penalized because of that accident or good fortune?
Income War Tax


James Lorimer Ilsley: That ia covered by the
previous answer.


Joseph William Noseworthy: Can the minister tell us what was allowed last year to syndicates, partnerships and associations under the terms of this resolution?


James Lorimer Ilsley: The deputy minister informs me that he thinks it is available but it is not here. We shall try to have it before the bill is brought in.


Harry Rutherford Jackman: If any of these associations, syndicates or mining partnerships happened to be successful and found a claim which was worth money, would they be taxable as an entity in themselves apart from the individuals who composed them?


James Lorimer Ilsley: The hon. member is asking if they would be taxed on the profits they make?


Harry Rutherford Jackman: If an individual prospector went out he would not be taxable if he made a find, as might happen in one out of ten thousand cases. But where you have an association or a syndicate or a mining partnership and in the one case out of ten thousand they are lucky and make some money, would tha profit be taxable, and at what rates? If it is, then obviously it would create a substantial discouragement. As the minister knows, the present tax lauvs prevent the starting up of any new business because the government take is so large that very little is left to recompense the person for the risk involved, to say nothing of his having a return on the money invested. What rate of taxation is there on the association? What rate is there on the syndicate? What rate is there on the mining partnership? If this resolution is to have any meaning at all we must know that.


James Lorimer Ilsley: Could we give the answer later? It is a pretty general question.


Harry Rutherford Jackman: General, but rather
significant.


James Lorimer Ilsley: The hon. gentleman perhaps wants to know what would be considered as profits. There cannot be any question about profits being taxed, but the question would be whether it would be capital gain or profit.
'Mr. JACKMAN: I suppose there is only one way of getting money. If you grubstake a prospector and he finds a claim which is developed into something and you sell it for a worth-while amount, you may get many times what you put into it by way of grubstaking. I want to know whether that potential profit would be taxable, and at what rate. For instance, w'hat is meant by "association" in the

eyes of the taxation law, and what rate applies? 'It is not a question of whether it is capital gain or operating profit. I presume you look upon these things as capital profits or operating profits or capital gains on the part of the association, syndicate or partnership.
That is the only source of revenue they are likely to have, what is obtained by disposing of claims which have developed into real prospects. I want to know what the rate of taxation is. It may be so high as completely to defeat the purpose the government has in mind in inserting this resolution in our taxation scheme.


James Lorimer Ilsley: I do not know how much farther I can go in this. If they make a profit-


Harry Rutherford Jackman: The association?


James Lorimer Ilsley: If the association, mining partnership or syndicate make a profit, it is taxable. If they are incorporated, it would be taxable at the corporation rate.


Harry Rutherford Jackman: Is the association a corporation?


James Lorimer Ilsley: Bring along your association and I will tell you. If it is incorporated, of course it is a corporation. If it is not, it is not.


Harry Rutherford Jackman: Supposing the minister and I formed an association to grubstake some people to search for essential materials.


Gordon Graydon: That would be a pretty shaky partnership.


Harry Rutherford Jackman: It certainly would be. By a stroke of good fortune they come across a likely looking prospect and we sell it for $100,000. Is that $100,000 taxable, and at what rate? I do not know; I am asking the minister. If business does not know where it is at, how is it to go ahead? People do not lay plans unless they know what the chances are. That is what is wrong with so much of this taxation legislation that is brought down before this house. If the minister formed a partnership with me and we make $100,000, is that to be frittered away and shall we get no return even though fortune smiles on us? I am asking what the rate is and nobody seems to know.


James Lorimer Ilsley: Would it be different from any other business we might go into? If the hon. gentleman and I formed a partnership to go into business we would be taxed on the profits of that business.


Harry Rutherford Jackman: How much?


James Lorimer Ilsley: At the individual rates. The principles of taxation of partnerships and in-

Income War Tax
dividuals constituting partnerships are all set out in the Income War Tax Act and the Excess Profits Tax Act.


Harry Rutherford Jackman: Where an individual grubstakes a prospector he is not taxable, ;If I go up into the north country, find a mine and sell it for a good price, I am not taxed on that money. That is a capital gain. If I form a partnership you say I shall be taxed, but an individual would not be taxed.


James Lorimer Ilsley: I was trying to find out
whether the hon. gentleman wanted to know whether something would be regarded as a capital gain or as profit. Is that his question? If he would write me a letter outlining the circumstances and ask for a ruling as to whether it is a capital gain or an operating profit I would try to get a ruling from the Department of National Revenue.


Harry Rutherford Jackman: Suppose that an association makes $100,000 by the sale of one of these claims; what rate of taxation applies to that? Suppose it is a syndicate. I do not know what rate of taxation a syndicate pays; I never was in a syndicate. That is a simple question. Suppose that there is a gain of $100,000 and that there are five partners.


Joseph-Arthur Bradette: In my opinion many of the questions asked have not been relevant to the resolution before us.


Harry Rutherford Jackman: On the point of order,
Mr. Chairman, my question is extremely relevant because busines men must know whether there is any reward for their effort and for their assumption of risk.


Mr. NOSE WORTHY:: I should like to ask a question along the same lines as that asked by the hon. member for Rosedale. Let us suppose that six prospectors find a claim and the claim is sold to a syndicate, which in turn sells the stock to the public and realizes, let us say, one million dollars on the transaction. That one million dollars is considered a capital gain and is not taxed. Has not that been happening all the time?


Douglas Charles Abbott: I think this is completely
outside the resolution, Mr. Chairman. The members of the committee are anxious, I take it, to get a high-class legal opinion as to whether a certain man is taxable or not. This resolution does not affect the taxability of individuals, mining partners, syndicates or anybody else. If they have made a net profit they will be taxed under section 3 of the Income War Tax Act, We do not tax partnerships as such under the Income War Tax Act, but the individual partners are taxed on their
proportion of the profits. I do not know whether it is fair to ask the minister or even his parliamentary assistant to give free legal opinions. I make my living outside this house giving legal opinions for an adequate charge.


Agar Rodney Adamson: The minister, I think,
suffers from a fundamental misconception of the mining industry. A prospector goes out and stakes a claim. The minister and I go out in the bush and stake a claim, and we sell it to the minister's rich friend from Montreal sitting beside him. Are the minister and I taxed on what we sell it for to the parliamentary assistant?


Douglas Charles Abbott: I would suggest that my
hon. friend see his solicitor in Toronto.


[Stage Direction]
Resolution agreed to.
33. (a) That any enactment founded on resolutions 20 and 29 be brought into force on enactment; and
(b) That any enactments founded on resolutions 1 to 19 inclusive, resolutions 21 to 28 inclusive and resolutions 30 to 32 inclusive be applicable, unless otherwise stated, to the income of the 1944 taxation period and fiscal periods ending therein and all subsequent periods.
Harry Rutherford Jackman: This was held over because it was consequential on some other clause.


Douglas Charles Abbott: This is just the coming into force clause.


Harry Rutherford Jackman: I was merely protesting
against the haste. If the clause is all right I am satisfied.


[Stage Direction]
Resolution agreed to.
Mr., MARTIN:	Before we go any farther,
Mr. Chairman, this might be a convenient time for me to bring up a matter which was discussed the other evening and which the acting chairman ruled was out of order. It had to do with complaints of people who are known as commuters, people who live in the border communities.
Joseph-Arthur Bradette: I shall have to rule
again that the hon. member is out of order. We are in committee of ways and means, and there is a rule that there must be a clause before the committee.


Mr. MARTIN:: We have just passed resolution 33, and before we go any farther, Mr. Chairman, I thought I would be in order in bringing up a matter which might well have been dealt with specifically by a resolution in ways and means.


Joseph-Arthur Bradette: If there is no clause among these resolutions dealing with the
Income War Tax

matter I do not see how the hon. member can be in order in discussing it unless the committee gives its unanimous consent.


Paul Joseph James Martin: I have great respect for your ruling, Mr. Chairman, but I did discuss the matter with no less an officer than the author of Beauchesne's Parliamentary Rules and Forms, and I suggested that this might be the proper place. I do not know whether that can be regarded as a persuasive authority on the matter.	,


Gordon Graydon: When this matter was up before, -the hon. member for Essex East and I took some part in it, and my understanding was the same as his. I thought that at the conclusion of our consideration of these resolutions an opportunity would be provided to discuss matters which might have formed part of the resolutions themselves but which for various reasons of government policy were omitted. I think the committe ought to give my hon. friend the opportunity to put his case before us. I know something about the commuters' case, and my hon. friend is an authority on it because he lives in a border community. I think he ought to be allowed to say a word.


Joseph-Arthur Bradette: I was simply stating the rule. I have certainly no objection if the committee consents, since I am positive that no one would object to the hon. member's speaking.


Stanley Howard Knowles: The same latitude must be given to other members.


Paul Joseph James Martin: Following the suggestion of the leader of the opposition, I think the matter should be aired here. It will not take a great deal of time. It is not a matter that has come to the attention of the Department of National Revenue or the Minister of Finance for the first time. There has been considerable correspondence as well as conferences over it.


James Lorimer Ilsley: If my hon. friend will permit me, if the precedent is established of raising any subject that might have been covered by a resolution, the privilege will have to be extended to other members. The hon. member for Essex East has been making representations to me and to the Minister of National Revenue about this matter, and I know that he wants to discuss it. I am not sure as to the propriety of discussing it now, but I think he could discuss it on the second reading of the bill to amend the Income War Tax Act. That opens up the whole act, and we will bring it on as rapidly as we can. I think under the rules that would be the regular course of procedure. But if my hon.
[The Chairman.]
friend were permitted to raise the subject here, any other member could bring up any other subject and say that it should have been dealt with by a resolution.


Paul Joseph James Martin: If your ruling is, Mr. Chairman, that I am still not in order, although I thought I had prepared my ground sufficiently to be in order, I have no other course than to follow the suggestion made by the minister. I have tried to bring this matter up on two occasions, and I had thought I had convinced the Minister of Finance that the matter is one which deserves careful consideration.


Joseph-Arthur Bradette: I have no doubt that the hon. member would be in order in bringing the matter up on the second reading of the bill to amend the Income War Tax Act,- as suggested by the Minister of Finance. I want to say that I have sometimes been criticized myself for not strictly adhering to the rules and forms, and I know the hon. member alwaj's adheres to them closely.


Gordon Graydon: Can you criticize the Chair?


Joseph-Arthur Bradette: Members of parliament have certaintly been most kind to me. I would point out that when we are in committee of the whole in ways and means officials of the government are often held up at some length in their functions. I believe the point of order was well taken.


Paul Joseph James Martin: I hope the Chair did not take anything that I said as a reflection upon it.


Joseph-Arthur Bradette: Positively not. I know the hon. member too well even to have such a thought.


[Stage Direction]
Resolution agreed to.

[Stage Direction]
6.	That a taxpayer, whose income in the taxation period is, in the opinion of the minister, derived from the carrying on of a business substantially different from the class of business carried on by such taxpayer in the standard period, be required to have its standard profits ascertained by the board of referees as if they had not commenced business before tbe second of January, 1939.
Mr. COTE:: Under this resolution I would call the minister's attention to the remarks I made on Thursday last on behalf of optometry, when I urged that this profession * be considered as a profession and their services exempted from the tax. I do not wish to prolong the debate, and for that reason I would ask the permission of the committee to place on Hansard, without the necessity of reading it, a statement showing points of

Excess Profits Tax
similarity between optometry, on the one hand, and the two professional groups of oculists and dentists, on the other, who are already admitted under the exemption clauses of the Excess Profits Tax Act.
Is a college or university course necessary to qualify?	
Must one pass qualifying examinations and be licensed to practise?	
Are scientific instruments and equipment necessary to conduct practice?	
Does it take years to build up a large practice?	
Where does the therapeutic device or appliance come from ?	
Who supplies and fits the therapeutic device or appliance ?	
Is an examination conducted to determine the need of the aid or appliance?	
Are the specifications for the aid or appliance prescribed ?	
What about the fitting?	
What about the periodical adjustments?	
What about the repair work to the aid or appliance?


Joseph-Arthur Bradette: By unanimous consent of the committee.


Paul-Émile Côté: This comparative statement is not a very long one:
Oculist	Optometrist	DentistYes	Yes	YesYes	Yes	YesYes	Yes	YesYes	Yes	YesMost have them made in an outside laboratory	Same	SameSome have their own laboratory	Same	SameSome supply and fit	Most supply and fit	Most supply and fitYes	Yes	YesYes	Yes	YesfMany do (Most do not	Most do Some do not	Most do Some do notSame as above	Same as above	Same as aboveSame as above	Same as above	Same as above
To supplement this statement, I would say that these three professional groups, the dentists and oculists on the one hand and optometrists on the other, are consumers of certain materials. One consumes certain dental materials, such as set of teeth made of gold, porcelain, platinum and cement, and the other consumes ophthalmic materials such as lenses and mountings. There is no substantial difference in principle. In both cases, the therapeutic or appliance is useless and worthless if professional services are not rendered with it. It must be remembered that the optometrist's fees to his patients are for professional services rendered in his examination, refraction, prescription, interpretation, fitting, and servicing, and the latter service goes on something for years. The cost of the material consumed by the optometrist is only a small part of the fee charged for professional services. Years of faulty thinking on this subject on the part of a few persons cannot alter the facts or effect the truth of the matter. In the province of Quebec the government
has recognized this fact, and neither the dentist nor the optometrist is charged with sales tax in connection with his patients. They are both considered professionally, not as vendors but as consumers of materials. I respectfully submit, therefore, that for most of the reasons I mentioned the other day, when discussing unusual medical expenses, the optometrists should be regarded as a professional group; that the services they render should be considered professional services and that therefore they should be exempted, as regards their fees, from the application of the excess profits tax.


Douglas Charles Abbott: I understand that the practice, really the law, is that in the case of optometrists that portion of their charge which represents the fee for examining the eyes and giving advice and a prescription as to the type of glasses that should be used is properly chargeable as medical expenses under the section which we discussed the other day, but that if, in addition, they procure glasses,
Excess Profits Tax

spectacles, and sell them to the client, that is exercising a trade or business, and consequently that part is not subject to deduction in connection with medical expenses and presumably would be subject to excess profits tax if the business were over $5,000. I am advised that is the practice followed under the English act. A separation must be made between the respective functions performed by this class of practitioners as between professional activities and trading activities.


Paul-Émile Côté: My interpretation is that the procurement of eyeglasses by the optometrist to his client should not be regarded as a sale, because it is not a sale. He prescribes eyeglasses and this prescription is entrusted to an ophthalmic laboratory. Then the produce of that prescription, the eyeglass, is returned to the optometrist who fits and delivers it to his client. The transaction is exactly the same as with the dentist who writes his prescription and sends it to the dental mechanic or laboratory who fills the prescription and returns it to the dentist, who supplies his client with the dental plate or whatever it may be. I contend, therefore, that the whole transaction must be regarded as coming within professional services. This has been admitted in' several instances and more particularly by the city of Montreal, which has enacted a specific bylaw recognizing that the prefessional services of the optometrist must not be limited to the eye examination but must be extended to include the prescription and supplying of glasses. I would ask the minister to give this matter his most serious consideration in order to render justice to a professional group who have a good standing throughout Canada and who urge that this principle be maintained.


Douglas Charles Abbott: I would have to agree with my hon. friend that there is some analogy between the dentist who makes a plate for his patient and the optometrist who examines his client and decides what type of glasses he needs, and thereupon proceeds to sell him a pair of glasses. There is, however, a definite trading aspect on that side of the optometrist's work which is considered as a trade or business for tax purposes. The dentist, on the other hand, is generally regarded as a professional man. We do not hear of dentists selling plates, but we do recognize that optometrists sell glasses.


Paul-Émile Côté: That is a misconception,
because a distinction must be made, for instance, between sun glasses or dark glasses and eyeglasses. Any pair of dark glasses may be equally useful to the parliamentary assistant and to me; it is a public commodity. It is salable as such, and there is no specific or
IMr. Abbott.]
scientific fitting to suit the peculiar requirements of any particular individual, whereas I am sure the eyeglasses which the parliamentary assistant wears would not be of any value to me or to anybody else, because in the latter is an item of professional service which is exclusively necessary to fill the need of each individual case. That makes the eyeglasses a piece of scientific equipment, and for that reason they are entirely different from sun glasses or anything else. That is why I say we may sell sun glasses, but we do not sell optometrist's eyeglasses individually prescribed. These glasses are made for his clients and are of no use to anybody else, to the same extent as is the dental plate.


James Joseph McCann: Shall the resolution carry?


Harry Rutherford Jackman: We are on resolution 6. May I just revert to resolution 5 which I hardly had time to read before it was passed? I wish to make a suggestion with regard to the words, "in the opinion of the minister", which ordinarily means in the opinion of the deputy minister. I do not know whether or not it would change the meaning of the section if these words were left out, but they do create in the minds of a great many people who have to pay taxes a feeling of-I shall not say "distress", but it is like waving a red flag. Surely the question of whether or not a business was started oil or before June 26, 1(M4, is a question of fact. If the taxpayer claims that his business was started on a certain day and the department refuses to accept it, I suppose the taxpayer has the right to appeal to the Exchequer Court of Canada. What purpose do those words serve? They are most objectionable to some people.
We are now considering resolution 6. Would the minister explain the type of businesses or taxpayers which are sought after by this section? I do not quite understand it.


Douglas Charles Abbott: This proposed resolution covers really what is a technical point. At
the present time our Excess Profits Tax Act defines standard profits, and I quote:
The average yearly profits of a taxpayer in the standard period in carrying out what was in the opinion of the minister the same class of business as the business of the taxpayer in the year of taxation.
The proposed amendment provides for the determination of standard profits by the board of referees where the business of the taxpayer is substantially different from the business carried on by the taxpayer in the standard period. In the act there is no definition of standard profits where the business is substantially unlike the business carried on during the standard period,

Excess Profits Tax
and there is no power to send to the board of referees.	In other words, to give an
example, the business may have been carried on during the standard period to manufacture stoves, and by reason of shortage of material or something else they switched to the manufacture of a completely different commodity. There is a gap in the act. Under those circumstances it can be argued that they have no standard profits at all because they are not carrying on the same class of business. I would say it is a technical point arising out of the definition contained in the act. It does not enlarge the scope of the act in any way. It just covers one of those drafting oversights, and probably on balance it may be and should be beneficial to the taxpayer.


Harry Rutherford Jackman: Suppose the stove manufacturer had a fairly successful business and had a reasonable return on his capital over and above what the board of referees are allowed to grant. Owing to shortage of materials the stove business is no longer in operation and the owner turns his equipment over to the manufacture of shells. It is clear he cannot use his old manufacturing base. What I want to find out is what authority the board of referees have to grant him a base over and above five to seven per cent, is it, on his assets in connection with the manufacture of shells, which may be very small in relation to his pre-war profits.


Douglas Charles Abbott: The section which defines standard profits is paragraph (i) of section 2 of the Excess Profits Tax Act, which reads:
Standard profits means the average yearly profits of the taxpayer in the standard period in carrying on what was in the opinion of the minister the same class of business as the business of the taxpayer in the year of taxation or the standard profits ascertained in accordance with section 5 of this act.
It could be argued that in the case such as has been cited the taxpayer has no standard profits at all and that, therefore, all his profits are excess profits. Or it might be argued that since he has no standard profits he is not subject to the provisions of the Excess Profits Tax Act at all and is only subject to the Income War Tax Act. It is to clarify that position and to provide that in the case of a taxpayer whose business is substantially different from the class of business which he carried on during the base period the question of his standard profits shall be referred to the board of referees for determination. Of course, the board of referees will be governed by the general rules respecting determination of standard profits.


Harry Rutherford Jackman: It may easily turn out that if the stove manufacturer was making
$100,000 taxable profits before the war and has turned his business entirely over to war production, on a strict evaluation of his assets in that class of business the board of referees would only grant him perhaps $10,000 or $15,000. Is that a situation which might arise out of the application of this resolution? It seems rigorous. I cannot see that the direction of the board of referees is such as to allow a fair return commensurate with what he was earning before.


Douglas Charles Abbott: He will have the same rights as every other taxpayer appearing before the board of referees. First, as to new business, the standard is determined by the board of referees in accordance with the rules laid down by the act. If he can show that he has a depressed business, then he would get standard profits determined under section 5. If he can show that the business was one in which capital was not a major factor, then the board' of referees can take that into account. But, broadly speaking, where the business is substantially different from the business carried on during the standard period, the standard profit is to be determined by the board of referees.


[Stage Direction]
Resolution agreed to.
7.	That the provision permitting a taxpayer to -deduct from tax. the amount paid to any foreign country for income tax in respect of the income of the taxpayer from sources therein, be amended by deleting the requirement that such foreign country in imposing tax allow a similar credit to persons in respect of income thereof from sources within Canada.
Stanley Howard Knowles: Would the parliamentary assistant explain this resolution?


Douglas Charles Abbott: This resolution corresponds exactly to resolution 25 of the income tax resolutions which were discussed at some length this morning. It is exactly the same provision. If a Canadian income taxpayer is subject to tax abroad he may deduct from his Canadian tax the amount of tax which he is obliged to pay in the foreign jurisdiction. That is the law now. But the requirement that the foreign country should afford a similar privilege to our citizens is now being eliminated, and the Canadian taxpayer can take that credit whether the foreign country grants a reciprocal provision or not. It is exactly the same provision that was set out in resolution 35 with respect to income tax, as distinct from the excess profits tax.


Harry Rutherford Jackman: Which other countries do not afford us reciprocal provisions? I presume the only two countries in which we are interested are Great Britain and the United States.
Excess Profits Tax

Possibly there are some others, but the minister might explain why we cannot get reciprocal provisions with them and what countries they are.


Douglas Charles Abbott: I am advised that a great many countries do in their statutes as we do in ours, grant this provision. The deputy minister advises me that in the department they have a list, which may be incomplete, setting out the various statutory provisions, but that is not here. Certainly the United States and Great Britain do have this reciprocal arrangement, and they are the two most important countries from our point of view.


[Stage Direction]
Resolution agreed to.
8.	That the standard profits be adjusted upwards to the extent of five per centum of the increase of the capital employed at the commencement of the 1944 taxation period over the capital employed-
(a)	at the commencement of the 1939 taxation period; or
(b)	at the commencement of the first fiscal period after 1939 in respect of the taxation of the profits of which the board of referees have determined a standard profit:
Provided that such increase in capital employed shall be reduced by the amount of any increase in capital employed accompanied by an equivalent increase in capital stock on which an adjustment of seven and one-half per centum has been made to the standard profits as already provided in the act.
Douglas Charles Abbott: There is an amendment to be moved, a further proviso to be added. The amendment is that resolution 8 to amend the Excess Profits Tax Act, 1940, be amended by adding thereto the following proviso:
Provided that, if the capital employed at the beginning of any fiscal period ending in 1945 or a subsequent year is less than the capital employed at the beginning of the 1944 fiscal period, the standard profits may be reduced by an amount equal to five per cent of the reduction in capital employed, but not to an extent greater than the previous upward adjustment made under this provision, dividends being presumed to be paid from profits most recently earned.


Ian Alistair Mackenzie: I move accordingly.


Stanley Howard Knowles: I listened closely to the minister's arguments in favour of this move, which he gave on June 26, and I have reread them as they appear at page 4182 of Hansard. I grant that the minister has made a case for the step he is taking, but I consider that some of the things that strike me in this connection should be pointed out. I am prepared to have the minister correct me if my understanding is not accurate. It seems to me that once this upward adjustment of standard profits is allowed, it must be admitted that it will have certain effects. It will provide some relief in taxation to certain corporations. It

will result in some loss of revenue to the treasury. It will also result in certain increased profits to corporations and, to the extent that there may be greater profits for distribution in the form of dividends, it has a bearing on the fight against inflation. As I have said, I grant that the minister has made a case, but the point I wish to emphasize is that if he finds it necessary to take this step, in spite of the results I have enumerated, he should appreciate the position when some of the rest of us in this house come along and suggest adjustments that we feel need to be made, even though they may have some of these same effects. The parliamentary assistant and I had a little spat the other day over that very attitude.


Douglas Charles Abbott: Very friendly, though.


Stanley Howard Knowles: Oh, quite; the fyon.
gentleman and I get along very well even when we fight. The point I was making then was that the adjustments for which we on this side of the house ask should be considered in the same light as the adjustments proposed by the government. I suggest that resolution 8 is a particular example of an adjustment the minister has found necessary, despite the effects which I have enumerated as likely to result. I have in mind at the moment one group of people in particular who are much concerned at the delay in making an adjustment as far as they are concerned; I refer to the railroad employees throughout the country. For some considerable time their case has been before one of the boards, and they have been anxiously awaiting a decision. The discussion that has gone on in the press in regard to that matter has related to the very things I have mentioned, particularly, the fight against inflation. Still these things are allowed to happen in this case, while on the other hand we have the railroad employees who are feeling quite disturbed at the long delay in dealing with their case. I know that does not come directly under the minister, but it is part of the government's wage-freezing and anti-inflation policy. The point I am suggesting here is that there has been some relaxation in resolution 8 as far as the profits of private corporations are concerned. We ask for similar consideration for other groups of people.


James Lorimer Ilsley: I think it is a pretty farfetched comparison. The idea of the Excess Profits Tax Act is to take away excess profits; but when a company grows into an altogether different sort of thing than it was in the standard period; when it becomes a much larger entity than it was in the standard period, then the provision is no longer fair.

Excess Profits Tax


Stanley Howard Knowles: I grant that, but the
same thing is true in the other case. All we are asking is fairness on both sides.


James Lorimer Ilsley: The hon. gentleman is saying that he wants fairness, and so do I. He points to certain things and says that this has some inflationary effect. It would be very remote indeed, I should think. We would have to take a particular case and trace it through. It does have this effect, I admit: If you raise the standard profits it makes a little less than you take away in 100 per cent profit, but whether or not that would have any effect upon dividends I should think would be very uncertain. There might be a little more there in the company. However, the hon. member does not oppose this on grounds of unfairness.


Stanley Howard Knowles: No, I am just trying to emphasize the fact that if the reason for this is the ground of fairness, that is likewise the ground we use in the cases vre bring to the attention of the minister.


Harry Rutherford Jackman: I would point out to the hon. member that this is not an increase in rates earned. It is simply an application of the same rate to a greater number of employees. There is no increase in the rate. It is simply that more capital has been put into it, and they are getting returns on it for the first time.


Stanley Howard Knowles: It is a relief in taxation, as compared with what the case would be if the resolution were not passed.


Harry Rutherford Jackman: It is a relief from a hardship. At the same time, the second amendment means that if the amount of capital is less than it was before, he ought not to be allowed to earn so much. The rate remains the same.


James Lorimer Ilsley: If you let the situation alone you would be taking more than 100 per cent of the true excess. It is merely applying the 100 per cent rule on a fair basis. That is all it is doing. It is necessary to do certain things in a time of war that are not altogether fair, because of the terrible consequences of not taking that course of action. The economy becomes so complicated that precise equity in every instance is impossible. I presume there is not precise equity here even yet. Certainly there has been inequity through the year.
This is applicable to 1944 for the first time, even though the company had been growing during that period. There were inequalities all during that time, and they were not recognized at all. But there comes a time when
it becomes a little too difficult, and an adjustment has to be made.


Harry Rutherford Jackman: I should like to draw the minister's attention to some of the remarks I made in my budget speech. I made a plea for a step-up for those in the salaried brackets, above those who received cost of living bonus. As I said at that time, many people accept low salaries in their early years, just as do civil servants, until they reach a maximum. Owing to the effect of the wage-freezing order their wages have been kept at a very low level. I believe it is three or four years-perhaps three years is correct-since the wage-freezing order was made. So that I think consideration should be given to the effect which that order has had on many of the white-collared class who not only have been faced with higher taxes-as we all have-but are not getting the advances which they otherwise would have got, and who as a result are feeling a peculiar hardship.
Wage-earners, particularly those who are unionized, have been able to get increases in wages or, in some cases, have transferred their employment. But many of our finest citizens, receiving small salaries, people in the white-collared class, have had no increases in pay, yet their responsibilities have greatly increased during that time. It seems to me that there must come a time-and I think that time has already come-when consideration should be given to a step-up in their salaries, where justified, and where employers would be willing to make the increase which would ordinarily be made, if the freezing order had not been in force.


James Lorimer Ilsley: I listened to the hon. member attentively when he made his budget speech. It is a question whether there should be a gradual retreat.


Harry Rutherford Jackman: When a man becomes more useful to his employer, it is just like an increase in capital.


James Lorimer Ilsley: I cannot say anything in reply to those representations. The trouble is they are there on every side. They are on prices, they are on wages, they are on salaries and on everything else. I do not know what the government should do under those circumstances. You might very easily make a retreat, and then the fight against inflation would become a rout. I might easily do that. But, on the other hand, certain adjustments have to be made from time to time. As the hon. member has said, there have been a great many wage adjustments.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
[Stage Direction]
Excess Profits Tax
9.	That companies which elect or have elected since January 1, 1940, under the Income War Tax Act to file consolidated returns be not permitted to file such returns under the Excess Profits Tax Act in respect of fiscal periods ending on or after January 1, 1944.
Stanley Howard Knowles: May we have an
explanation?


Douglas Charles Abbott: I shall endeavour to explain it. The law now permits companies which have wholly-owned subsidiaries to file a consolidated tax return, upon paying two per cent additional tax, I believe it is. Up to comparatively recently, in the case of a company and its subsidiaries, the standard profit for excess profits tax was taken as being the standard profit of the parent, together with the standard profit of the subsidiaries.
A ruling was issued some time ago that in the case of companies which had elected to consolidate subsequently to January 1, 1940, the standard profit should be restricted to the largest standard profit of a company in the group, plus $5,000 for each of the other companies.
This measure further restricts that right, and it provides that in the case of companies which elected prior to January 1, 1940, to consolidate, there is no change in their position. That was before the war. In the case of companies which have elected since that time, after January 1, 1944, they will no longer be able to file consolidated returns for purposes of excess profits tax. It is a measure which I think would have the effect of curbing or checking possible abuses. In other words, each company will stand on its own feet so far as excess profits tax and standard profits are concerned.


[Stage Direction]
Resolution agreed to.
10.	That the provision allowing deductions by an unincorporated taxpayer from income of amounts paid by way of donations to charitable organizations in Canada be amended to provide that the amount of the donations made after January 31, 1944, iby a taxpayer carrying on business, in excess of the average, of the taxpayer's donations in the last two fiscal periods ending before July 1, 1942, shall be allowed 'as a deduction for purposes of the Excess Profits Tax Act, 1940, only to the extent that the tax payable by the taxpayer under the said act is thereby diminished by fifteen per centum of the said excess, unless made before February 1, 1944, and paid or evidenced in writing before the said date or evidenced by a payment before the said date which is one of a series of payments to be made thereafter and accompanied by proper evidence of the undertaking.
Douglas Charles Abbott: Exactly the same provisions are included here as were included in the Income War Tax Act with respect to charitable donations.


[Stage Direction]
Resolution agreed to.
(Mr. Ilsley.]
11.	That any enactments founded on
[Stage Direction]
(a)	Resolutions 3, 4, 5, 8, 9 and 10 come into force on enactment; and
(b)	Resolutions 1, 2, 6 and 7 be applicable to the income of 1944 taxation period and fiscal periods ending therein and all subsequent periods.
Harry Rutherford Jackman: Reverting to resolution
10, may I say that I do not think there is any complaint to be made about the intention of the resolution; it is meant to apply only to the taxpayer whose business comes under the Excess Profits Tax Act, but it says "unincorporated taxpayer," which would mean any one of us.


Douglas Charles Abbott: If he is subject to the provisions of the Excess Profits Tax Act.


[Stage Direction]
Resolution agreed to.

[Stage Direction]
Resolved, that it is expedient to amend the Dominion Succession Duty Act, and to provide:-
1. That the definition of "child" be extended to include that child to whom the deceased stands in loco parentis.
Howard Charles Green: Under this act as it stands
at the present time an estate is taxed in accordance with the terms of the will, but in some provinces there is what is known as a testator's family maintenance act under which judges of the superior courts have the power to vary the succession. I understand that the Dominion Succession Duty Act pays no attention to an order made under one of these provincial acts, and the result is that succession duty may be levied against a person, say on $10,000, when a judge of the provincial court may order that that person shall receive only $1,000. I understand that some cases have been adjusted by refunds of money or something of that sort, or by the passing of a special order, but I think the act should be amended so that situations of this kind will not arise.


James Lorimer Ilsley: I am totally unaware of the situation to which the hon. gentleman refers, and I shall have to give it consideration between now and the time the bill is brought in. I shall have to take it up with the Department of National Revenue to see if consideration has been given to the problem. The deputy minister informs me that he does not know of the situation.


Howard Charles Green: 
James Lorimer Ilsley: I will look into the matter. On the facts stated it would look as though the taxpayer should have a refund, but I do not know.


Mr. BENCE:: I understand that this act was passed to raise additional money during war time. It is purely a succession duty proposition, but there is one thing I should like to point out and object strenuously against. The people who administer the Dominion Succession Duty Act are the same officials who look after the collection of the dominion income tax. They use the powers granted to them to prevent the issuance of a certificate in order to force the representative of the estate or the beneficiaries to file income tax returns over a period of years in the event that they have not been filed.
I suggest that the administration is taking an unfair advantage of the Dominion Succession Duty Act to go into another field of taxation in order to hold up a person from getting a little bit of money. I have a recent case where the only asset of the estate was a little bit of insurance. The widow knew nothing about her husband's affairs, but she was obliged to dig around for a lot of information about her husband's business in order to be able to file income tax returns for a number of years before his death. I do not contend that the deceased was justified in not filing income tax returns, but the fact is that this money was held up and the certificate was not issued. The powers granted under this act are being used for an entirely different purpose. I suggest that if the matter is to be dealt with, it should be dealt with under the Income War Tax Act.


Colin William George Gibson: We were not taking unfair advantage at all. After all, the estate was being wound up, and it is the duty of the taxing officials to see that any income tax returns should be filed that have not been filed. It is their duty to do this when the size of the estate indicates that returns should have been filed.


Alfred Henry Bence: The estate may indicate that a man was fairly well equipped financially, but this case was a small estate of about $5,000 life insurance. It happened to be the only cash asset the widow had, but it was held up until she furnished income tax statements with respect to the last three or four years before her husband's death.


[Stage Direction]
Resolution agreed to.
2. That when a person is given a general power of appointment or disposal over property, such property be subject to duty as if it were given directly to him, and, upon his death, the person then benefiting be regarded as his successor for purposes of taxation.
Agar Rodney Adamson: I should like to mention a specific case which I think will come under this resolution. Since this case is public property I will mention the name. It is the Arthur E. Burgett estate. Mr. Burgett was the former bishop of Edmonton and his estate was left entirely to charity. I should like to show what happened to the estate. The deceased resided at Oak Bay, Victoria, British Columbia, and he died on December 13, 1942. He was formerly Bishop of the Diocese of Edmonton, but resigned his episcopal office in 1940 and removed his place of residence to Victoria. He was unmarried and had no relatives in this country.
His estate had an inventory value of $179,469 and consisted almost entirely of securities which were in his possession in Victoria. By his will be made provision for an old servant by the devise of a cottage and the bequest of an annuity. The total amount expended for the benefit of this servant was between $14,000 and $15,000. The point I wish to bring up is in connection with the residue of his estate. This amounted to $163,914, and apart from a small bequest to the Diocese of Edmonton, it was given for the aid of divinity students at Bishop's college, Lennoxville, Quebec, and Trinity college, Toronto, and for missionary work in the ecclesiastical province of Rupert's Land.
Among the securities which the decedent owned were stocks in companies having head offices in British Columbia, Manitoba, Ontario and Quebec, and all of these provinces claimed succession duties on assets transferable in their respective jurisdictions. These claims amounted as follows:
British Columbia-
Probate duty	 $ 2,190 45
Succession duty	 12,828 98
,

Manitoba	
37	08Ontario	
11,647	42Forward	
26,703	93Quebec	
12,865	65The Dominion of Canada also claimed duty on the estate less one-half of the charitable gifts, and this amounted to	
9,191	89Making a grand	total of	$48,761	47
The dominion, of course, also claimed the "forgiven" portion of 1942 income tax which, with other income tax assessments, amounted to approximately $2,000 additional, so that out of the estate of $179,469.28, over 90 per cent of -which was given for charitable purposes in Quebec, Ontario and western Canada, the several government taxing bodies deducted almost $50,000, or approximately 27 per cent of the estate. None of these taxing bodies
Succession Duty

made any allowance for duties paid in other jurisdictions in estimating the taxation rate which was fixed on the aggregate value of the estate everywhere.
It seems to me an indefensible policy that there should be so many jurisdictions in this case, and I bring this matter up on this resolution just to show what is happening to-day through our system of dual and triple taxation by succession duties. The whole estate of this bishop with the exception of a small bequest to a faithful servant was left to charity, and yet very nearly fifty thousand dollars in taxation was imposed. I wonder whether the committee is aware that this is the sort of duties that are being imposed to-day by our succession duty acts. Practically the whole estate was given to charity. I hope the minister agrees with me that these rates are quite indefensible in justice and in law. This estate is closed now and has been probated1, but I honestly suggest that the minister give serious consideration to an immediate conference with the provinces, so that these double and triple imposts shall not continue to destroy particularly assets of a clergyman of the church who was leaving his entire fortune to charity. I think our whole succession duty system should be given the most careful revision to prevent things like this from happening in the future.


James Lorimer Ilsley: I have not anything really to say about that. It is not strictly relevant to the resolution.


Agar Rodney Adamson: I thought it would be relevant under "power of appointment".


James Lorimer Ilsley: I would not think so. That has a technical meaning. We proposed once that all succession duties be handled by the dominion, but we did not get very far. I think there is much to be said for their being handled by one administration only. But I would not agree that charitable donations be entirely exempt from succession duties. I cannot help thinking that one very important purpose for which money should be devoted is the transaction of the important business of government.


Alfred Henry Bence: I should like to have an explanation of this resolution and to know why it is introduced at this time. Does a person who is given a general power of appointment under this resolution include persons who do not get any benefit out of the estate? In other words, does it include a person who is just a trustee or a type of trustee who is given a general power of appointment for a certain number of years and has to distribute the proceeds of the estate among sons and daughters or other classes at a certain time, and has not the use
FMr. Adamson.]
of the money himself? Does this double taxation exist in a case like that?


Douglas Charles Abbott: This is to cover a technical omission from the act. It is to take care of the case where a general power of appointment is given and the man does nothing about it. The resolution says "such property be subject to duty as if it were given directly to him and, upon his death, the person then benefiting be regarded as his successor for purposes of taxation." There would, I take it, be no additional taxation.


Alfred Henry Bence: I am not clear on that yet.
Resolution stands.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Thursday, July 20, 1944