1946-07-25

Mr. SPEAKER:: In view of the discussion that has taken place, I thought it would be helpful to the members of the house to give a decision, subject to appeal, with regard to the placing of questions on the order paper.
As hon. members of the house know, it is the Clerk's duty to scrutinize the questions submitted by members for the order paper of the
3832	COMMONS
Questions Dropped jrom Order Paper
house in order that, if these offend the rules, proper action may be taken in order to conform therewith. Bourinot, fourth edition, page 313, states:
It is the duty of the Clerk to point out any irregularities to the Speaker, as in the case of notices of motion, and if the latter is of the same opinion he will order the Clerk to communicate with the member so that he may have an opportunity of amending his notice.
I am informed that for the past few years a practice has developed whereby the Clerk communicates with the member before seeing the Speaker. It is only where the Clerk has serious doubts as to the proper course to follow that he consults the Speaker.
Mr. Fraser, member of parliament for Peterborough West, sent to the Clerk a number of questions inquiring as to the number of motorcycles declared surplus-I emphasize those words, "declared surplus"-by the army and air departments, and asking how many of those vehicles had been disposed of through War Assets Corporation.
Doctor Beauchesne, the Clerk of the House, pointed out to the hon. member that the information sought dealt with matters referred to the special committee on war expenditures and economies, which was appointed on March 22 to examine the expenditures defrayed out of moneys provided by parliament for national defence and demobilization and for other services directly connected with the war, including-and again I emphasize those words -the disposal of surplus war assets. He returned them to Mr. Fraser, and on the next day I made a statement in the house to the effect that the committee was the proper authority from which the information ought to be obtained. Immediately after I had made that statement Mr. Fraser sent the questions again to the Clerk, who understood this as meaning that they should be sent to the war expenditures and economies committee, and he forwarded them to the chairman of that committee.
The said questions were not submitted to me and I did not give any direction as to their admissibility on the order paper, but in looking into the matter I find that the action taken by the Clerk was justified by the following citation from May's fourteenth edition, recently published, and edited by Sir Gilbert Campion, the present Clerk of the United Kingdom House of Commons. At page 337 Campion gives the following as a type of question which may be enumerated as being out of order:
Dealing with matters referred to a royal commission or with matters before a parliamentary committee.

There can be no doubt that Mr. Fraser's questions dealing With war assets referred to matters which had been specifically and distinctly referred to the select committee on war expenditures and economies. The recognized authorities all agree that where a specific matter has been referred to a committee of the house, questions relating thereto were inadmissible, and we properly look to the authorities in Canada and in Great Britain to guide us in the practices and usages that have grown up in the parliamentary system in Canada.
The Speaker has a clear duty to interpret, as best he can, the rules in force and to apply them sensibly to different matters that call for a decision on his part. I can assure hon. members that I have no desire but to carry out this duty fairly and impartially. In case of doubt I shall always decide in favour of free speech and a broad interpretation of the rules which are recognized as a great protection to the members of the house in their assertion of their parliamentary rights and privileges, and particularly to His Majesty's loyal opposition and other parties in minority in the house. I know that members will desire me to uphold that spirit of harmony between the Speaker and all members so much needed in the conduct of the business of the house.
The admissibility of questions on the order paper is complicated during this session by the fact that matters dealing with the affairs of several departments have been referred to select and standing committees by an order of the house, and if the rule is applied too rigidly members might be deprived of their right to inquire into eve^y phase of the public service. There was no doubt as to Mr. Fraser's questions not being admissible, but I would not shut the door to inquiries about the Department of Reconstruction on the ground that the war expenditures and economies committee is functioning, or about any other department because another select committee is functioning. As long as the matter has not been specifically referred I am of the opinion that it may be made the subject of a question to be placed on the order paper. There are certain questions that may be described as borderline cases, that is to say, which concern matters referred in general to a committee of the house, but which do not include themselves in the actual work of the committees. In such cases I have no hesitation in allowing these questions to be placed on the order paper.
Mr. Castleden's question appeared on the order paper on Wednesday, the 10th, was

Questions Dropped, from Order Paper
taken off on Friday the 19th, and restored on Tuesday, the 23rd, without my knowledge. This action was taken by the Clerk of the House because the question was of the same nature as Mr. Fraser's. On second thought, however, the Clerk realized that there was a serious doubt as to whether or not anything can be taken off the order paper without the consent of the house, and he immediately instructed Mr. Sherwood to restore the question in its proper place. He based his action for this on the ground that all orders appearing on the order paper have been placed there by a standing order, which means by command of the house. Standing order 44 authorizes the placing of questions on the order paper seeking information from ministers relating to public affairs, and standing order 45 lays down that forty-eight hours' notice must be given for placing an order on the order paper. The effect of these two standing orders is that a question is the possession of the house from the moment it appears on the order paper, and even the sponsor should not have the right to withdraw it without the consent of the house. When Mr. Castleden's question was called from the chair in the house on Thursday the 11th, and allowed to stand, no decision was given by a vote but the question was disposed of in a manner which cannot be overlooked and is binding on the officers of the house. With this, I am in perfect agreement.
In conclusion, I think it is, generally speaking, a wise rule that provides that while a committee is inquiring into a matter the house will not encroach on its jurisdiction by allowing the same matter to be discussed in the house, but members must not be debarred from seeking information by placing on the order paper questions which are not debatable and do not give rise to discussion. As long as these questions do not deal with the very specific matter referred to, they should be permitted to appear on the order paper.
Hon. members will remember that I started this memorandum by saying:
In view of the discussion that has taken place, I thought it would be helpful to members of the house to give a decision, subject to appeal, with regard to the placing of questions on the order paper.
What I read to hon. members is based on standing order 12, which reads as follows:
Mr. Speaker shall preserve order and decorum, and shall decide questions of order, subject to an appeal to the house without debate.


Mr. GRAYDON:: Mr. Speaker, in view
of the fact that you have been good enough to suggest that, this matter should be subject

to appeal and decision by the house, may I be permitted to say a word in connection with your ruling?


James Horace King: I am sorry, but the
hon. gentleman knows perfectly well that I cannot permit a debate on the ruling, according to standing order 12 which I just read to the house.


Gordon Graydon: If that is so, and we
are to be prevented under this ruling, as I understand it, from putting questions on the order paper relating to the War Assets Corporation, then I respectfully suggest that we should appeal your ruling now.


James Horace King: Those in favour of the
Speaker's decision-


Mr. COLDWELL:: Mr. Speaker, if I may say a word-


Some hon. MEMBERS:: No.


Major James William Coldwell: I was just going to
say that-


Gordon Graydon: I want a word-


Major James William Coldwell: Would Your Honour
make the decision clear? I did not understand your decision as the hon. member for Peel (Mr. Graydon) seems to interpret it. My understanding is that questions will be permitted on the order paper when the subject matter of these questions is not referred specifically to a committee, which makes all the difference in the world.


Mr. MACKENZIE:: That is right.


Major James William Coldwell: I think that is a ruling which the house should substantiate, because I think it is a correct one.


James Horace King: The hon. gentleman is
perfectly right, and for the information of the house I shall read the conclusion of my remarks:
In conclusion, I think it is, generally speaking, a wise rule that provides that while a committee is inquiring into a matter the house will not encroach on its jurisdiction by allowing the same matter to be discussed in the house, but members must not be debarred from seeking information by placing on the order paper questions which are not debatable and do not give rise to discussions. As long as these questions do not deal with the very specific matter referred to, they should be permitted to appear on the order paper.


Gordon Graydon: Mr. Speaker, may I
just ask for clarification of that point?- because I think it is important when there is an appeal to be made. Questions which refer to the War Assets Corporation apparently cannot be asked in the house?
3834	COMMONS
Questions Dropped from Order Paper


James Horace King: Order. I think that what I have read to hon. members is quite clear. I do not think it is proper to have questions put to the Speaker from the floor of the house.


Gordon Graydon: Then I desire to ask
for an appeal.


James Horace King: Do I understand that
the hon. gentleman is now appealing the
decision?


Gordon Graydon: Yes._


Ian Alistair Mackenzie: May I suggest to the house that this matter stand in abeyance until to-morrow and until hon. members have had the opportunity of reading the carefully prepared statement of Mr. Speaker? -and then they may possibly record their judgment accordingly. Would that be satisfactory?


Gordon Graydon: On one condition-that
we have an opportunity of at least saying a word in connection with this ruling. It is not fair that we should be barred entirely from any discussion in connection with it.


Mr. FRASER:: As I am the one affected,
may I ask a question?


James Horace King: Order. I will not permit a debate, and I will not permit to happen again what happened these last days. I put the question, does the hon. member wish to appeal the decision?


Gordon Graydon: The hon. member
desires to appeal from the decision.


Mr. ABBOTT:: Mr. Speaker, on a question of privilege, may I say that I did not notice that the hon. member for Stanstead (Mr. JULY 25, 1946
Wheat Agreement
Hackett) was not in his seat. I am paired with the hon. member, and I voted inadvertently.


Mr. POWER:: I object, as a matter of privilege, to the Clerk of the House saying in a loud and raucous voice, as if he were giving instructions, that there are no pairs.

(The list of pairs is furnished by the chief whips.)
Messrs:
Isnor
Parent
G-ariepy
Ross (Hamilton)
Clark
McDonald
(Parry Sound) Claxton Grant
Stanfield
Rowe
Hatfield
Cockeram
Desmond
Daniels
Tustin
Kuhl


Mr. HOMUTH:: In spite of anything else, I was paired with the Solicitor General (Mr. Jean). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. ROSS (Souris):: I was paired with the Minister of Agriculture (Mr. Gardiner). Had I voted I would have voted against Mr. Speaker's ruling.	,


Mr. CARDIFF:: I was paired with the hon. member for Chateauguay-Huntingdon (Mr. Black). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. JACKMAN:: I was paired with the hon. member for Bellechasse (Mr. Picard). Had I voted I would have voted against Mr. Speaker's ruling.	[DOT]


Mr. McMASTER:: I was paired with the hon. member from Champlain (Mr. Brunelle). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. STOKES:: I was paired with the hon. member for Chambly-Rouville (Mr. Pinard). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. WHITE (Middlesex East):: I was paired with the hon. member for Middlesex West (Mr. McCubbin). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. LESAGE:: I was paired with the hon. member for Kamloops (Mr. Fulton). Had I voted I would have voted to sustain Mr. Speaker's ruling.


Mr. BRACKEN:: I was paired with the Prime Minister (Mr. Mackenzie King). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. COTE (St. Johns-Jberville-Napier-ville):: I was paired with the hon. member for
Grey North (Mr. Case). Had I voted I would have voted to sustain Mr. Speaker's ruling.


Gordon Graydon: I was paired with the Right Hon. the Minister of Finance (Mr. Ilsley). Had I voted I would have voted against Mr. Speaker's ruling.


Mr. BREITHAUPT:: I was paired with the hon. member for Danforth (Mr. Harris). Had I voted I would have voted in favour of Mr. Speaker's ruling.


Mr. BROWN:: I was paired with the hon. member for Lambton-Kent (Mr. Henderson). Had I voted I would have voted in favour of Mr. Speaker's ruling.


[Stage Direction]
Hon. J. A. MacKINNON (Minister of
Trade and Commerce): Mr. Speaker, I wish to announce that agreement has been reached between the government of the United Kingdom and the government of Canada for the purchase by the former of Canadian wheat over the four years beginning 1st August, 1946.
The agreement provides that the United Kingdom will purchase and the Canadian government will supply the following quantities each year: 1946-47-160 million bushels; 194748-160 million bushels; 1948-49-140 million bushels; 1949-50-140 million bushels. The contract provides that in the event of the United Kingdom requiring from Canada any additional quantities of wheat that the Canadian government is prepared to make available, such additional quantities as the Canadian government offers and the United Kingdom government accepts shall in all respects be subject to the provisions of the agreement. Part of the quantity of wheat specified in the contract will be supplied in the form of flour to the following amounts: 1946-47-500,000 tons firm with an additional quantity up to 140,000 tons dependent upon the out-turn of the crop; 1947-48-400,000 tons firm with an additional quantity up to
140,000	tons dependent upon the out-turn of the crop; 1948-49-a minimum of 300,000 tons, the actual tonnage to be negotiated by 1st July, 1947; 1949-50-a minimum of 300,000 tons, the actual tonnage to be negotiated by 1st July, 1948.
Mr. COLD  WELL@: Are those long or short tons?


Mr. MacKINNON:: Long tons.
3S36
Wheat Agreement

The price which the United Kingdom government undertake to pay for the wheat supplied is as follows, basis No. 1 Manitoba northern, in store Fort William-Port Arthur, Vancouver or Churchill: 1946-47-a fixed price of 1 -55 dollars per bushel; 1947-48-a fixed price of 1-55 dollars per bushel; 1948-49- a minimum price of 1-25 dollars per bushel, the- actual price to be negotiated by 31st December, 1947; 1949-50-a minimum price of one dollar per bushel, the actual price to be negotiated by 31st December, 1948.
The contract provides that its terms and conditions shall be subject to any modification or amendment which may be necessary to bring it into conformity with any international agreements or arrangements later concluded to which both governments are parties. Nothing in the agreement will affect decisions which may be taken on the basis of recommendations of the International Emergency Food Council.
The contract is based upon commercial considerations of mutual interest. It ensures to the United Kingdom substantial quantities of wheat during the expected period of shortage at prices below those which would be payable were there to be a free market at the present time. This is the commercial advantage which the United Kingdom secures. In the later period of the contract Canada receives the advantages of a guaranteed market, though for a diminished quantity, and of the assurance of at least the stated minimum prices. In determining the actual price in the last two years regard will be had to the extent to which the agreed price for the first two years falls below the world price for that period. Our farmers are therefore protected from crippling losses should there be a world slump in wheat prices. This is the commercial advantage which Canada secures.
I wish to table three copies in English and three copies in French of the agreement signed between the government of the United Kingdom and the government of Canada.


John Bracken: I should like to direct a question to the Minister of Trade and Commerce arising out of the announcement he has just made. The house is aware that the practice has grown up of permitting members of the government to make statements at the opening of the house, which statements are not debatable. I do not wish to infringe that rule, but I should like to ask the minister or the Acting Prime Minister if they have in mind providing an opportunity for discussion of the policy just announced by the Minister of Trade and Commerce.


James Angus MacKinnon: Mr. Speaker, I anticipate that the estimates of my department will be before the house very soon, and at that time there will be an opportunity for full discussion.


Major James William Coldwell: May I ask the minister a question? Were any of the agricultural organizations, the federation of agriculture or the western pools, consulted before the agreement with Britain was signed?


James Angus MacKinnon: Not as to details of the contract-not as to prices or details-but conversations took place in general terms with representatives of the pools and, I believe, the Canadian federation of agriculture, and almost anybody interested in the problem.


Major James William Coldwell: But not as regards quantities or prices?


James Angus MacKinnon: I do not think that
actual quantities or actual prices were specifically revealed to anybody.



IMMIGRATION


[Stage Direction]
Right Hon. L. S. ST. LAURENT (Acting Prime Minister): I have a statement I should like to make to the house with respect to the admission to Canada of a certain number of members of the Polish armed services to engage in agricultural pursuits. Hon. members are no doubt aware that the government of the United Kingdom, honouring undertakings given somewhat earlier, has obligated itself to find domicile for members of the Polish army which served with the allied forces, who may not choose to return to Poland immediately.
It is estimated that in all there were 159,000 men in this army: what portion have not been disbanded are now located partly in Italy and partly in the United Kingdom. It is well known that this Polish army served faithfully and well the common cause of the united nations, that the individual served with courage and distinction, and that most of these men have chosen not to return to Poland at this time. It is perhaps not unnatural that the government of Canada should give some thought to assisting in the establishment in civilian life of these Polish nationals who so staunchly aided the allied cause in securing the victorious outcome of hostilities and who now face peculiar difficulties in regard to demobilization.
In the circumstances the government [DOT] has reviewed the situation to see whether we could render any assistance. And we have also considered as related to the first problem of the

Immigration
establishment of these Polish nationals the fact that at the present time there still exists in Canada an acute shortage of suitable labour for agricultural employment, not only on a seasonal basis but as a more or less permanent situation.
In surveying the problems involved the government had the benefit of advice from an interdepartmental committee which was set up under the chairmanship of A. Mac-Namara, deputy minister of labour, and upon which there were representatives also of the Department of External Affairs, of the Royal Canadian Mounted Police and of the immigration branch of mines and resources.
After due consideration by the government of all the factors involved, the Ministers of Labour and Mines and Resources have recommended to cabinet council that a limited number of single ex-members of these Polish armed forces should be admitted to Canada conditionally for farm work.
The recommendation of the two ministers has now been approved by the governor in council P.C. 3112 of July 23, 1946. It authorizes a programme for assisting our farm labour problem, while at the same time sharing to some extent in the solution of an allied problem. I might summarize the main points of the order in council as follows:
1.	Four thousand single ex-members of the Polish armed forces who served with the allied forces will be admitted to Canada shortly, on a conditional basis.
2.	The men admitted must be qualified for and willing to undertake agricultural employment in Canada.
3.	The Minister of Labour is authorized to arrange for representatives of the immigration branch of Mines and Resources, of the Department of Labour and of the Royal Canadian Mounted Police to proceed to the United Kingdom and Italy to select the
4,000	suitable men to come to Canada for agricultural employment.
4.	The facilities of the national employment service will be utilized for the work of placing these men on farms, but provision is also made for dominion-provincial agreements if it be. found desirable 'to arrange for the assistance of the provinces in connection with the task of placement.
5.	Every Polish soldier admitted to Canada will be required to sign an underbaking that for a period of two years following arrival he will accept direction to farm employment and will remain at agricultural work.
6.	Steps will be taken to ensure that the men admitted are engaged at current wages
and in accordance with living and working conditions prevailing in the locality of employment.
7.	The United Kingdom will bear the cost and responsibility of transporting the men to Canada and the Canadian government will bear the cost of distribution within Canada.
8.	The order in council sets forth a declaration that each man admitted to Canada under this arrangement who fulfils for two years after arrival the terms and conditions under which he is admitted will then .be granted permanent admission to Canada.
It is understood, of course, that any man who fails to carry out his obligation in relation to farm employment, or whose deportation becomes necessary otherwise, shall be returned to the United Kingdom.
I wish to lay on the table a copy of order in council P.C. 3112 of July 23, 1946, as referred to in this statement.
Gordon Graydon: Has the minister any
information with respect to whether it will be married or single men who will be brought in?
Mr. ST. LAURENT: The order .in council provides for the admission of 4,000 single men to be chosen because of their qualifications and willingness to engage in agricultural pursuits.


Gordon Graydon: I take it they will be experienced farm help.
Mr. ST. LAURENT: That is the intention. Representatives of the three departments affected are proceeding overseas to interview the men and to make sure that they will be in position to carry out the undertaking they will be requested to sign.


Mr. STEWART (Winnipeg North):: Will these immigrants take precedence over refugees? .
Mr. ST. LAURENT: I am not sure that I understand the hon. member's question. I will consider it and see what form of answer should be made. These persons will be chosen and their transportation to Canada will be arranged as a joint undertaking of the government of the United Kingdom and the government of Canada. I am not in position at the moment to say if it will interfere in any way with the movement of other persons.


Karl Kenneth Homuth: At least they were allied soldiers.


Mr. MacNICOL:: Do I understand that all these Polish citizens are to be compelled to w'ork on farms? In my experience there have been many Poles working in industry, par-
3S38
War Crimes

ticularly in the iron and steel foundry business, and they were excellent moulders. There have been no better men in the foundry business than the Poles, and I should not like to think that they were to be barred from taking positions in foundries, in which they have demonstrated that they are as good as the best moulders in the country.
Mr. ST. LAURENT: The order in council which I tabled this morning makes provision only for four thousand persons qualified and willing to engage for a period of at least two years in agricultural pursuits.


Mr. CHURCH:: Could not agricultural
workers also be brought into Canada from Holland or Great Britain? Men from these countries have done wonderful work in North York.
Mr. ST. LAURENT: I shall have to take . the hon. member's question as a notice of a matter to be given consideration by the government. The announcement I made had to do with the members of the Polish army who found it would be difficult to return to Poland at the present time and for whom the government of the United Kingdom has undertaken to find domicile. The question my hon. friend raises is one which will have to be considered on other grounds than those which motivated the action which I announced this morning.



ROYAL CANADIAN AIR FORCE


Hon. COLIN GIBSON (Minister of National Defence for Air):: Hon. members of the house will remember that on June 29 a Meteor jet-propelled aircraft flying from Kapuskasing was reported as missing. In spite of an intense search covering several weeks no trace of the missing plane or pilot was found. I am glad to inform the members of the house that a report has been received to-day that the pilot of the plane, Flight-Lieutenant W. H. McKenzie, has walked into Blind River, nearly four weeks after he was reported missing.



UNEMPLOYMENT INSURANCE


Hon. HUMPHREY MITCHELL (Minister of Labour):: I wish to announce to the house that the government has received the resignation of Mr. Louis J. Trottier, of Montreal, as chairman of the unemployment insurance commission, effective September 30 next. The

resignation of Mr. Trottier has been accepted as of that date with regret. Announcement of the appointment of a new chairman will be made as soon as possible. For the information of the house I table herewith copy of Mr. Trottier's letter of resignation and copy of my reply.



WAR CRIMES


[Stage Direction]
Right Hon. L. S. ST. LAURENT (Acting Prime Minister) moved for leave to introduce bill No. 309, respecting war crimes.
Gordon Graydon: Would the minister
explain?
Mr. ST. LAURENT: The explanation may be very short. This is a bill to reenact in statutory form the regulations that were made by order in council with respect to the trial of war criminals. The bill will provide that it shall remain in force until such date as is fixed by a proclamation to be published in the official Gazette. It is not thought that it is necessary to have the regulations in force as permanent legislation, but it is felt that it is necessary that they be in force for a longer period than would prevail under the order in council.
Motion agreed to and bill read the first time.



QUESTIONS

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

Mr. CHURCH:: 1.	Who is the rental administrator of the wartime prices and trade board, and who acts as his deputy during his absence?
2.	What salary, travelling and other allowance is he paid?
3.	Where is his office and how large a staff
is employed therein?	_
4.	What was his occupation prior to appointment, and has he had any experience in the real estate business?
5.	Who is his representative in Toronto and what are the names of the staff employed there?


Mr. MAYHEW:: 1.
Administrator of Rentals Administration- Owen Lobley.
Deputy Administrators of Rentals Administration and Region:
J. P. V. Desaulniers, Quebec and Maritime Provinces.
L. A. McKinley, Ottawa and Eastern Ontario.

Veterans Rehabilitation
R. E. B. Brocklesby, Ottawa and Eastern Ontario.
A. W. Johnson, Manitoba and Saskatchewan Provinces.
D. J. Bryan, Alberta and British Columbia Provinces.
H.	MacKay, Montreal and Northern Quebec.
W. L. A. Pope, Toronto and Western
Ontario.
2.	S5,000 per annum (part time) plus his actual and reasonable travelling and living expenses when absent from Montreal on duty.
3.	(a) Aldred Building, Place d'Armes, Montreal, P.Q.; (b) Twelve.
4.	Occupation prior to appointment-Molson and Lobley Co. Ltd., Real Estate Brokers.
5.	W. L. A. Pope, Deputy Administrator; G. R. G. Baker, Officer; Mrs. J. M. Bewley, Clerk; Miss B. G. Bourgoin, Stenographer; Miss E. A. Trott, Stenographer; Mrs. N. J. Cross, Secretary.


PASSPORTS
Gordon Knapman Fraser: I.	How many passports have been issued by the passport branch of the External Affairs Department since June 1, 1945?
2.	How many of these were issued for travel to the United Kingdom?
3.	How many were issued for travel to the United States of America?
Mr. ST. LAURENT:
1.	From 1st June, 1945 to 23rd July 1946, Passport Office, Ottawa, issued 56,193 new passports and 21,518 renewals. Numbers of passports and renewals issued by missions abroad are not immediately available.
2.	From 1st June 1945 to 17th April 1946, 18,564 new passports and 5,204 renewals of passports were endorsed valid for the United Kingdom. Figures for endorsements since April 17, 1946, are not immediately available due to a change of procedure in registration.
3.	All Canadian passports are valid for travel to the United States of America.


MUD LAKE INDIANS
Gordon Knapman Fraser: How many Indians of the Mud Lake Indian reserve, Peterborough county, have been enfranchised during the past ten years?


Mr. GLEN:: One.


VETERANS REHABILITATION
[Stage Direction]
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs) moved that the house go into committee at the next sitting to consider the following resolution:
That it is expedient to present a bill to amend the Veterans Rehabilitation Act, whereby provision is made, inter alia, that the Minister of Veterans Affairs may,
(a)	provide Canadian universities with moneys to enable them to make, as an emergency measure, small loans to veterans attending universities and also to pay expenses of repatriation of certain veterans discharged in the United Kingdom in order to take training outside of Canada and to pay transportation expenses of the wife and child of such veterans from the Lbiited Kingdom to Canada or other designated place outside of Canada;
(b)	provide training and re-training and pay allowances to a pensioner requiring such training by reason of an increase in his disabilities.
Provision is also made for entitlement of a member or former member of the Canadian forces to the statutory allowances and benefits in respect of all of his full-time service, if he is not accepted as a member of the permanent or regular force, or is not accepted for service for a special prescribed period; also for bringing a veteran suffering personal injury by accident when in training under the Government Employees Compensation Act.
He said: His Excellency the Governor General, having been made acquainted with the subject matter of this resolution, recommends it to the consideration of the house.
Mr. BENTLEY:: Mr. Speaker, if it is in order for me to ask a question at this stage, I would point out that the veterans affairs committee also recommended that provision be made for out-of-work benefits for those who are waiting to take vocational training where the facilities are not yet available, and that is not included in the resolution.


Ian Alistair Mackenzie: I will take my hon. friend's question into consideration.


[Stage Direction]
Motion agreed to. .


Thomas Langton Church: Mr. Speaker, on a question of privilege I call attention to a report in this Morning's Globe and Mail in which I am quoted as using words I never used. The report in the Globe and Mail says that I said that-
-the housing shortage was caused by taxation because those in building industry did not consider it worth while to work overtime.
I never used those words. The report goes oni:
He also expressed criticism of the proposal to defer tax relief until next year. The government should legislate for 1946 not 1947.
I said that. Then, adds that I said:
Everyone was complaining about the budget.
I never said that.

Field Marshall Montgomery



FIELD MARSHAL MONTGOMERY


[Stage Direction]
On the orders of the day:
Gordon Graydon: Mr. Speaker, I should like to direct a question to the acting Minister of External Affairs, perhaps in his capacity as leader of the government. I would ask him to acquaint the house with the progress being made in the plans of the government for the forthcoming visit of Field Marshal Viscount Montgomery. I understand that he is arriving in Canada during the coming month, and I am sure that the house and the country would be glad to know what plans the government has in mind for his welcome and for his itinerary.
Right Hon. L. S. ST. LAURENT (Acting Prime Minister): Mr. Speaker, I thank the hon. member for letting me know yesterday that he was going to ask this question so that I could get the information and be in a position to make some reply to-day. The information that has been supplied to me is this.
Speaking here shortly before his departure for London last May, the Prime Minister announced that Field Marshal Viscount Montgomery would be visiting Canada some time during the latter part of August or early in September. Owing to the present irregularity of trans-Atlantic sailings, the actual date of the field marshal's arrival had not become definite until within the last day or two. It is now fairly certain, however, that he will arrive in Halifax by boat on August 24.
Field Marshal Montgomery is coming as a guest of the Canadian government, and arrangements for his tour have been made by an inter-departmental committee working in conjunction with provincial and civic authorities through the military authorities in the various military districts. As Field Marshal Montgomery has undertaken to arrive in Washington on September 10, his tour in Canada will be comparatively brief. In order to permit him to visit all the provinces during the short time he will be here, the field marshal will travel almost entirely by air.
A schedule covering the dates of Field Marshal Montgomery's visits to the various provinces will be issued as soon as arrangements are complete.



SUNNYBROOIC HOSPITAL


[Stage Direction]
On the orders of the day:
Thomas Langton Church: This is the eighty-eighth day of the session and so

far we have had no information regarding the completion of Sunnybrook hospital. Would the minister foe good enough to make a short statement as to when the men will be moved in. It is reported that 150 will be moved in on September 15.


Hon. ALPHONSE FOURNIER (Minister of Public Works):: I will take the hon. gentleman's question as notice. I may remind him, however, that I have been sending him progress reports regularly on the work that is being done at Sunnybrook.


Thomas Langton Church: May I ask whether the reports in the newspapers are correct-


James Horace King: Order.



FROST DAMAGE TO WESTERN CROP

[Stage Direction]
On the orders of the day:
John Bracken: I should like to direct to the Minister of Trade and Commerce a question with reference to the report, a couple of days ago, of damage to the western grain crop through frost. I have given him no intimation of the question and he may not have a full answer at hand. The question is whether his department has made any estimate of the damage to the western crop as a result of that frost and whether that damage is likely to have any serious effect on the output of grain in the western provinces this .year. If the minister does not feel in a position to answer the question to-day perhaps he will take it into consideration and give a reply at an early opportunity.


James Angus MacKinnon: The information that has come to me has come through the Canadian wheat board at Winnipeg, gathered by them from representatives throughout western Canada. The information I have is that there were serious low temperatures covering a very considerable area of Alberta and running into Saskatchewan. I am told by those who know that it is difficult to make any accurate estimate of what the damage may be, because, as we know, in such frosts in western Canada certain parts here and there are hit where other parts escape. In a great many cases it will be impossible to know what damage has been done until threshing. I shall make inquiries, and if I can give a more informative answer I shall be glad to do so.

Interim Supply



FREE PORTS


[Stage Direction]
On the orders of the day:
Mr. D. K. HAZEN (St. John-Albert):: I wish to address a question to the Minister of Transport. I have not given him notice of it, although I tried to do so. Has a report been received from the free-port interdepartmental committee? If so, will it be tabled this session.


Hon. LIONEL CHEVRIER (Minister of Transport):: The report has not yet been received from the free-port committee, and that for several reasons. A number of cities in the dominion have asked for leave to present briefs. The briefs are not all in, and from my present knowledge of the situation I do not expect that the report will be made before the end of the session.

Hon. DOUGLAS ABBOTT (Acting Minister of Finance) moved that the house go into committee of supply.
Motion agreed to and the house went into committee of supply, Mr. Macdonald (Brantford City) in the chair.



INTERIM SUPPLY BILL

Douglas Charles Abbott: That a sum not exceeding $136,598,972.86, being one-twelfth of the amount of each of the several items to be voted, as set forth in the estimates for the fiscal year ending 31st March, 1947, laid before the House of Commons at the present session of parliament, be granted to His Majesty on account for the fiscal year ending 31st March, 1947.
Resolution read the second time and concurred in.



WAYS AND MEANS


[Stage Direction]
Hon. DOUGLAS ABBOTT (Acting Minister of Finance) moved that the house go into committee of ways and1 means.
Motion agreed to and the house went into committee, Mr. Macdonald (Brantford City) in the chair.
Douglas Charles Abbott: That towards making good the supply granted to His Majesty on account of certain expenses of the public service for the fiscal year ending March 31, 1947. the sum of $136,598,972.86, being oned.welfth of the main estimates, be granted out of the consolidated revenue fund of Canada.
63260-242J
Resolution reported, read the second time and concurred in. Mr. Abbott thereupon moved for leave to introduce bill No. 310, for granting to His Majesty certain sums of money for the public service of the financial year ending the 31st March, 1947.


[Stage Direction]
Motion agreed to, and bill read the first time.
Mr. ABBOTT moved the second reading of the bill.
Mr. KNOWLES:: Is the bill printed?


Douglas Charles Abbott: It is printed and is in identical form with the bill passed on June 25. It asks for one-twelfth of the estimates as submitted to the house.


John Bracken: I think the Acting Minister of Finance ought to give a little more information. Will he tell us what interim* supply has already been granted by the house?


Douglas Charles Abbott: Yes.


John Bracken: Give us a little detail.


Douglas Charles Abbott: Four-twelfths have already been granted. It might be expected that that amount should cover requirements for the four months period to July 31; but in practice this does not follow, owing to the seasonal nature of many of the activities that must be undertaken in the early part of the year and others where the demands are normally heavy during the first few months of the year,, such as the sessional expenses of the Senate and the House of Commons.
A further complication this year is the large number of services which are closing out or materially curtailing their activities progressively during the year, and for which provision is included in the estimates on that basis. The additional proportions previously granted were to provide for a selected number of special items covering services which would have been seriously hampered without such additional provision. Many other services are affected to a lesser degree, but to a point where present supply is inadequate to pay accounts now on hand and to provide for salaries payable by the end of this month. In view of these circumstances it is necessary to ask for further interim supply at this time.
As I said a moment ago, the bill submitted asks for one-twelfth of all items to be voted in the estimates now before the house and is in exactly the same terms as the bill which was passed on June 25 last. When passed it will have provided for five-twelfths of the main estimates.
3S42
Interim Supply


John Bracken: Mr. Speaker, the measure proposed by the Acting Minister of Finance asks for interim supply for another month., and after four months' interim supply have already been voted without question by parliament. The official opposition will offeT no opposition to this proposal. But while we are agreeing to it, I think we should point out that it is not good parliamentary practice. Without debate, without consideration, we are voting one-twelfth of the total supply asked for by the government. That cramps the style of the house in dealing with the whole question of supply. The remedy, I suggest, is that this house ought to meet earlier, and I respectfully urge upon the government the importance of meeting earlier so that we shall not only have more time for these things, but shall not be called upon to vote interim supply month after month after month without any consideration at all. We are now agreeing to vote one-twelfth, after voting four-twelfths, of every item of expenditure asked for by the government, some of whidh the 'house may not approve in full. Even though the house may want to disapprove ;5ome part of it, its hands are tied.


Douglas Charles Abbott: It still has seven-twelfths 'do work on.


John Bracken: Our hands are still tied m the five-twelfths that we might not wish to grant.


Douglas Charles Abbott: It is almost inconceivable that the country will not require five-twelfths of these estimates for the full year.


John Bracken: That is not the point. Interim supply is not voted in bulk.


Douglas Charles Abbott: Yes, it is-1136 million.


John Bracken: Is the Acting Minister of Finance asking for $136 million that he may distribute anywhere in the whole estimates, or is the amount not tied to each one of the resolutions that we adopt in supply?


Douglas Charles Abbott: I think there is a proportionate amount to each department, yes, but it is not tied to a particular item.


John Bracken: Is the minister quite
sure that that is so? Is he sure he is correct?


Stanley Howard Knowles: Read lines 24 and 25 of the bill.


John Bracken: The minister cannot take this money and apply it anywhere he likes. We are voting one-twelfth of every item in the estimates, and even though the house wanted to disapprove any one of the items later, five-twelfths will have been voted

without consideration by the house. That is the only point I am making. We are agreeing to this interim supply, but as I say, it is bad parliamentary practice. The answer to it is that the government should give consideration to the matter and should call this house together in January rather than in March.
Mr. ST. LAURENT: The answer to that was given to the house a few weeks ago when the Prime Minister discussed the introduction of a bill to extend from fifteen'to sixty days the duration of emergency powers act. On that occasion he said that it was the firm intention to have the house meet at the end of January, 1947.


Thomas Langton Church: I wish to object to another five-twelfths being granted at this time, for the same reasons that I gave before. Some years ago I said that parliament should be the sounding-board for the public. Only three or four departments have so far been considered, and we vote five-twelfths in all. You cannot blame the newspapers for not reporting here; they are short of newsprint. To-day we are voting money, five-twelfths of all the estimates, and all we know about it is a post mortem. The people who pay taxes find that on the schedules now before us they have to pay income taxes up to 22 per cent, 32 per cent, 42 per cent, and all that kind of thing. We might just as well admit that parliament is meeting in private, because judging from the reports in the newspapers the public generally do not know what is going on; the only ones who know are those who read the daily Hansard.
I referred to a matter this morning which appeared in a newspaper, and which was not mentioned by me yesterday. What information has the house received about the five-twelfths we are voting to-day? The amount runs into millions and millions of dollars. For the first two months of the session secondary matters were dealt with. It has come down to this, that those who pay no taxes, or very little, are imposing them on others. Business cannot be conducted much longer in that way. Here we are voting one-twelfth; we have voted four-twelfths already, which will make five-twelfths of the whole budget passed by us over the heads of the representatives of the people, who have so far dealt with only three departments. I protest against this sort of thing, as I have done on other occasions. I believe it is bad finance, that it is not in the public interest, and is against the principles of responsible government on which the Liberal party prides itself so much. Shades of the men we had

Income War Tax
in this parliament in former years! On the 88th day of the session we have passed five-twelfths of the total budget, and some departments have net even been considered. This morning we have completely wasted' one hour on the dead text books of the past, and all that sort of thing. I can tell you that a hundred years ago they did not vote money this way. That was what led to the tea being thrown into Boston harbour, the principle of taxation without representation. Fifteen months after the close of the war we have the Minister of Finance standing up in this parliament and adopting the same principles which led the people of Boston to take that action. Evidently we have not made a bit of progress. Every day we hear read opinions given a hundred years ago. It is time to restore responsible government.
The time has come to reject motions like this, and I shall vote against this motion even if I am the only member to do so. I shall assert the right of the people to be heard. They talk about conditions in the country, and all that sort of thing. I find that the main debates in this parliament are hardly reported at all in the press. The debate on the Judges Act was not even mentioned by some of them. I read several newspapers looking for it; that was an important debate, but there was hardly any report of it. I want to object to the way legislation is being put through. The opposition is not doing its duty, nor are the leaders in the house when they tell the Minister if Finance they will consent to another one-twelfth of the estimates. I am not going to consent to it; I am objecting. I am sorry this motion has been brought forward. Surely a matter of this kind should have come up at the opening of this morning's sitting, when all hon. members were in their places. Many are not in the chamber now. and of course the press gallery is gone. Hon. members no doubt are attending meetings of committees, but as far as the people back in the constituencies are concerned, from the reports appearing in the press we might just as well be meeting here behind closed doors. I do not blame the press for that because I know that through peace and war alike they have done their duty at great cost to themselves, and you cannot blame them for not reporting what goes on here when we spend tens of thousands of dollars on publicity and in other useless ways. Several departments of the public service, the main departments that are srpending money like water, have not been even touched as yet.
As I say, this procedure is against the principles of Liberalism, and it is against the
principles of the old Conservative party and of responsible government. I have sat here for many years, and I never knew of this being done, having five-twelfths of the estimates passed on the 88th day of the session. Here we are financing not only for this year but for 1947. Wait till you see the estimates next year! The people are taxed to death and controlled to death. We have an abundance of coal and other mineral resources, but we cannot get them out of the ground. It is different in the mother country, where they have real responsible government. What is the use of spending another one-twelfth? It would be far better to take the money and send bread daily to the old country by the famous T.C.A. lines. I object to this bill, Mr. Speaker, and if you declare it carried I suggest that it be on division.


[Stage Direction]
Motion agreed to, on division, bill read the second time, considered in committee, reported, read the third time and passed on division.

[Stage Direction]
The house in committee of ways and means, Mr. Macdonald (Brantford City) in the chair.

[Stage Direction]
9. That for the 1947 and subsequent taxation years, a taxpayer, other than a corporation or joint stock company, may deduct from the tax otherwise payable by him the amount of tax on income paid by him to the government of any province in which he resides not exceeding five per cent of the tax otherwise payable by him.
Douglas Charles Abbott: Perhaps I might make the usual brief statement on this resolution, which implements that part of the dominion's offer to the provinces relating to the treatment of personal income taxes imposed by a provincial government which chooses not to enter into an agreement with the dominion. It is proposed that a person subject to provincial income tax in 1947 will be allowed to deduct such provincial tax, if any, from his dominion tax up to the amount of five per cent of his tax payable to the dominion.


Mr. FLEMING:: In the remarks made by the Minister of Finance on June 27, and subsequently when he spoke last week on the budget, as I recall, he indicated that the offers made to the provinces might not be the subject of legislation at the present time. Therefore, this resolution and the one following it may offer the committee and the house the only opportunity which will be given this session to deal in detail with any aspect of the so-called offers submitted by the dominion to the provinces.
Income War Tax

I suggest that the only way resolution 9 can be interpreted is that as to those provinces which are not prepared to accept the so-called offer of the dominion, the dominion is seeking to elbow them out of the field of personal income tax. If you examine this resolution you will see that the dominion is asserting its seniority in that field and is saying to any taxpayer, no matter how hard pressed he may be by the heavy burden of existing dominion income tax: You may not deduct any tax levied on your income by the province in which you reside except to the extent of one-twentieth of the tax on your income payable to the dominion. I think the full gravity of the position asserted by the dominion in this resolution has not been appreciated. In effect the provinces are to be confined to raising from income tax one-twentieth of the amount to be raised by this means, nineteen parts going to the dominion and one part to the provinces. And if the dominion reduces, as we hope it will soon, the levy made by way of income tax on the individual, the provinces will be compelled to reduce this tax accordingly. Otherwise the taxpayer pays so much more.
Similarly, if the dominion increases the levy on the income of the individual, to that extent the provinces will be permitted to take one-twentieth of the increase. I suggest the principle involved in the resolution is fundamentally wrong, and means the elbowing of the provinces out of a field which they claim the right to occupy until such time as an adequate agreement between the provinces and the dominion has been reached with respect to personal income tax.
I recall that certain of the provinces-and in particular I recall the offer of the premiers of Ontario and Quebec-were prepared to lease this field to the dominion on terms for a three-year period. I suggest the principle of this resolution is so wrong that it emphasizes all the more what was said by my leader a few days ago as to the vital necessity, in the interests of this country, of calling the provinces together to resume the dominion-provincial conference. It is particularly dangerous in this respect, too, as opening the way for different treatment of different provinces. It is a proposal that has within it the seed of disintegration of confederation. While my words may fall upon deaf ears, I must nevertheless record my protest.
Having said that, I would ask the acting Minister of Finance to clarify certain aspects of this matter. As to those provinces which do not accept the so-called offer of the dominion, and assuming that the dominion does not call the dominion-provincial conference together,

is it the intention of the dominion to assist provinces which resume the levy of the personal income tax, as was done in the years iminediately preceding the present tax agreement of 1942? Is it the dominion's intention to assist the provinces by way of making returns through one common form, and by putting collection machinery of the dominion at the disposal of the provinces? Would the minister indicate also the way in which the dominion, as a matter of administration, is going to work out the division of the tax in relation to the provinces which enter into the agreement on the suggested basis, as compared with those which do not?


Douglas Charles Abbott: I will deal first with the hon. member's objection that this provision limits the province to one-twentieth, nineteen-twentieths going to the dominion. I trust the hon. member has not overlooked the fact that prior to entering into the wartime tax agreements the dominion income tax law permitted no credit to any taxpayer for income tax paid by an individual in a province. This is therefore a substantial concession over what existed prior to the war when various provinces were imposing personal income tax.


Donald Methuen Fleming: But I am sure the minister will admit that in those days we were dealing with an entirely different scale of taxation.


Douglas Charles Abbott: It is true that the scale was lower; nevertheless the fact remains that this is a concession beyond that which was given prior to the war. And if as my hon. friend indicates there are further reductions in taxation, the field becomes still wider for provincial governments to enter the field and to tax as was done before 1941. It is a concession in principle; I do not think there is any doubt about it.
As the Minister of Finance pointed out at page 2910 of his budget speech:
The provincial government would, of course, have to remain the sole judge as to the amount and nature of the tax it imposed on its own people, but obviously the inconvenience to the individual taxpayer involved in filling out two sets of income tax returns and calculating tax on two different bases would be decreased if the provincial tax were imposed as a fixed percentage of whatever tax might be payable to the dominion by the individual taxpayer.
I remember that that was the case with the city of Montreal income tax, when we had one there. The quotation continues:
In order to be of assistance to that end, the dominion would be willing to make extra copies of its forms available so that when filling out his dominion tax return the taxpayer could merely make an additional copy and mail it with his cheque to the treasurer of the province.

Income War Tax
That is what the Minister of Finance had in mind in connection with the question put by the hon. member whether the dominion would be prepared to assist a province in the collection of personal income tax where such province decided to impose it. The present view, as indicated in the minister's statement, is that the dominion would be prepared to supply additional forms, but the province would be expected to undertake its own task of collection.


Donald Methuen Fleming: I understood from the statement by the Minister of Finance that that applied to provinces coming in on this basis, but not to those which might seek to levy a tax in excess of the five per cent.


Douglas Charles Abbott: If a province comes in, it relinquishes the right to impose personal income tax.


Donald Methuen Fleming: No; that is not my point. What application can it have to a province which does not come in on the basis of this resolution, by way of confining its tax to that fixed proportion of the federal tax, namely the amount of one-twentieth? What application has it to a province, for instance, which decides to set its own basis of income tax, without reference to this proportion of one-twentieth of the federal tax?


Douglas Charles Abbott: All that the legislation to be based upon the resolution is intended to do is to establish a dollar limit up to which the taxpayer in a province which imposes a personal provincial income tax is entitled to take credit. The province must exercise its discretion as to what rate it imposes-whether it imposes it by way of a percentage of the dominion tax, a graduated percentage of the taxpayer's income, or whatever system it feels would be most appropriate in the circumstances.


Donald Methuen Fleming: What about the forms in that case?


Douglas Charles Abbott: If the province did not adopt a percentage of the dominion tax, obviously it would be of no value to file an extra copy of the dominion income tax form.


Donald Methuen Fleming: Will the collection of the tax be entirely on their own?


Douglas Charles Abbott: In those circumstances provision would have to be made for the filing of a separate return and, of course, separate collection.


Stanley Howard Knowles: I have taken strenuous objection to certain of these resolutions, particularly Nos. 1 and 2, but I was surprised to hear the opposition voiced by the hon. member for Eglinton to resolution No. 9, and I believe the minister has made a correct
reply when he describes this five per cent provision as a concession. As a matter of fact the only justification I can see for the concession is that it represents an attempt to lean over backwards in dealing fairly with provinces which do not wish, to come in on the proposed agreements. It seems to me the best way to see the falsity of the position taken by the hon. member for Eglinton is to ask what would happen if the figure of five per cent were increased. I take it that that is what he wants. But suppose it were increased to ten, twenty or fifty per cent; if that were done it would simply put us back into the position we were in years before and which it was the whole purpose of the Rowell-Sirois commission to try to correct. It would simply put us back in the position where a province such as the one my hon. friend comes from, or the other of the two central-provinces, could take into its provincial treasury the taxes collectible within the province.
Our whole basic contention is, and I believe this was basic in the surveys made by the Rowell-Sirois commission, that wealth created in Canada is created right across the country; where it happens to end up for taxation purposes does not bear any direct relation to where it was created. If your taxation is primarily on a provincial basis you will enable some provinces to tax wealth which has been created in other parts of the country. To the extent that you make this concession, and particularly to the extent that it is increased, you will aggravate that situation. We feel it should not be any higher. I am, prepared to agree to that as a concession in the name of good will and as an attempt to lean over backwards in an effort to be fair, but that is all.


Mr. MACDONNELL (Muskoka-Ontario):: I just want to say one word which will not be in discussion of the merits of dominion-provincial relations. I simply want to point out that what the hon. member for Eglinton was arguing was that it was the want of agreement that was making this thing necessary, and perhaps even worse things. That is the point he was making.


John Bracken: I should like to ask a question with regard to the collection of income taxes. If the provinces agree with the dominion in this matter the dominion will collect all the taxes, but what is the attitude of the government with respect to the collection of these taxes When a province does not agree? Perhaps this has 'been stated before, but I am not quite clear as to the government's position. I understand its position is
Income War Tax

that if the tax is a percentage of the dominion tax, the dominion is prepared to collect it for the province, but that if the tax imposed by the province is in some form different from that imposed by the dominion, then the dominion does not feel that it could collect. Perhaps a frank statement by the acting minister would let us know the government's position with respect to eliminating the collection of income taxes by one or other of the two governments. How far is the dominion prepared to go to eliminate two different governments collecting the income tax even though certain provinces may not come into the agreement that has been proposed?


Douglas Charles Abbott: I thought I had made that point quite clear in answering the hon. member for Eglinton. As the Minister of Finance pointed out in the statement which I quoted, in the case of a province which did agree to come in, obviously the inconvenience to the individual taxpayer in filling out two sets of income tax returns and calculating taxes on two different bases would be decreased if the provincial tax were imposed as a fixed [DOT]percentage of whatever tax might be payable to the dominion by the individual taxpayer. In order to be of assistance to that end the dominion would be willing to make extra copies of its forms available so that when filling out the dominion tax return the taxpayer would merely make an additional copy and mail it with his cheque to the treasurer of his province. That means that in the case of those provinces the dominion would do what it could to facilitate the completion of the form, but the province must undertake the task of collection.


John Bracken: That is the government policy, that is as far as you are prepared to go-


Douglas Charles Abbott: That is the present policy.


John Bracken: *-in cooperating with the provinces which do not come into this agreement in order to avoid the collection of taxes by two governments?


Douglas Charles Abbott: If their tax is based on a percentage of the dominion tax, there will be very little difficulty involved for the taxpayer. As indicated in the minister's statement, instead of filling out his income tax form in triplicate he would fill it out in quadruplicate and send one copy along with his cheque for two or three per cent, or whatever it is, to the provincial treasurer.


John Bracken: Would not tihe minister agree that it would be much simpler for all concerned if the dominion collected it all and turned a part back in a lump sum?


Douglas Charles Abbott: It would certainly be very convenient for the provinces.


John Bracken: Without much extra work for the dominion.


Douglas Charles Abbott: I would not know. No
doubt it would be convenient for the provinces.


John Bracken: I think we are clear now. The government has stated that that is as far as it is prepared to go, that is, to make the forms available so that the provinces may use them, it will not collect for them?


Douglas Charles Abbott: Up to the moment that is perfectly correct. The present view is that in those circumstances the government of the province should assume the task of collection.


James MacKerras Macdonnell: The minister said a moment ago that he was not prepared to say how much additional work there would be for the dominion, but I should like him to agree that it would be virtually no additional work, or only a trifle. I think we should be clear that the dominion could do this with virtually no extra work at all, and the dominion is refraining from doing it.


Douglas Charles Abbott: My hon. friend is perhaps better able to judge how much additional work would be involved, but it would mean the opening of separate ledgers for the provinces, keeping records, making remittances, and so on. Unquestionably there would be additional work, but how much I am not able to say. As I said to the leader of the opposition, the present view of the government is as indicated by the Minister of Finance in his budget speech, but nothing is final in this world. It is a matter which no doubt can be discussed with the provinces.


James MacKerras Macdonnell: The minister does not do himself justice. I should be quite ready to take his opinion, because I feel he is perfectly capable of giving one. I should like to have him say whether he agrees that the amount of work involved would be trifling.


Douglas Charles Abbott: I am afraid I do not agree,' if the hon. gentleman is asking me for an answer. I do not know how valuable my opinion is.


William Alexander McMaster: It seems to me that we are just skidding around this whole question. This is the clause which deals with provincial-dominion relations. When 1 think of a budget

Income War Tax
I think of it as having to do with the taking in of money and with the spending of money. In the schedule to this budget certain expenditures for the year are set out, and certain receipts; and incidentally there is shown a deficit of $300 million. I find in that schedule provision made for about $98 million to be paid to the provinces. I understand that the agreements with all the provinces will expire before this budget really comes into effect. Am I wrong in that?


Douglas Charles Abbott: Yes. That $90 million odd covers subsidies payable during the fiscal year which began on April 1 last and will terminate on March 31 next.


William Alexander McMaster: I am dealing with
moneys that we expect to collect in the year 1947.'


Douglas Charles Abbott: Those are estimates of revenue, and we are suggesting ways and means by which the revenue is to be raised.


William Alexander McMaster: Whatever we call it, the fact remains that in some future year, and that year is not going to be the one ending December 31,	1946, certain moneys are
expected to be collected in certain ways and we are setting forth the method of those collections. Then there will be certain expenditures, and in the expenditures brought down it is estimated that $98 million will be paid to the provinces. In view of what has been said, that $98 million may be far afield. Is that not so?


Douglas Charles Abbott: No; that amount is fixed under agreement with the provinces. It is made up of two items, the statutory subsidies under the provisions of the British North America Act, and the fixed amounts payable under the wartime tax agreements with the nine provinces. There is no dispute as to what that amount will be. We know definitely how much we are going to have to pay to the provinces for the current fiscal year which ends on March 31 next. There is no doubt as to that.


William Alexander McMaster: The estimates for the next year will come in later?


Douglas Charles Abbott: That is right.


Stanley Howard Knowles: I should like to say a word in support of my hon. friends to my right and of what the leader of the opposition said of a single collection of taxes even in those provinces that do not come into an agreement. I know that it was done in 1940 in Manitoba-the leader of the opposition will correct me if I am wrong, but I believe there was a single collection in that year, and only one form was made out in Manitoba.


Douglas Charles Abbott: That was done in five provinces.


Stanley Howard Knowles: If that is so, the department must have had enough experience for the minister to say whether or not it is a feasible proposition. Certainly I think it was better for the taxpayer. Although I support the principle in resolution 9, I do not think the individual taxpayer should be penalized any more than is necessary for the mistakes his provincial government may make.
1 Mr. ABBOTT:	The hon. member for
Muskoka-Ontario asked me whether I considered that the expense involved in collection would be more than trivial. The deputy minister tells me that it would be very much more than that, and relying on his judgment, I expressed my opinion for what it is worth.


James MacKerras Macdonnell: I would add this. It has nothing to do, of course, with the very agreeable gentleman who is now answering our questions, but I think it should be made clear that in punishing the province the dominion government is also punishing its own citizens who live in that province.


Douglas Charles Abbott: There is no thought of punishment. We are simply allowing the provinces to exercise freedom, which is their right, and the responsibility that goes with it.


Mr. MICHAUD:: I think, Mr. Chairman,
we are discussing hypothetical difficulties which may never arise. I am not aware that any province has yet asked the federal government to collect its taxes. Judging from the action of the provinces at the dominion-provincial conference they are very jealous of their autonomy and some of them insisted on imposing provincial taxes. It would seem, therefore, to be far from their intention to ask the federal government to collect their taxes for them. I would not expect for one moment that they would even think of suggesting that the federal government do their collecting for them, and for that reason I submit that we are discussing difficulties which are not likely to arise.
Resolution agreed' to.


Douglas Charles Abbott: Mr. Chairman, I would ask that resolutions 10 to 16 stand for the moment, and that we take up 17.


John Ritchie MacNicol: When will resolutions 10 to 16 be considered, may I ask?


Douglas Charles Abbott: Perhaps to-morrow.

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James Arthur Ross: They will not be dealt with to-day?


Douglas Charles Abbott: I do not think so.


James Arthur Ross: It is only fair to give us some idea when they will be taken up, because many members have committees to attend.


Douglas Charles Abbott: It will not be to-day, but I hope to-morrow.


John Bracken: Mr. Chairman, it is five minutes to one o'clock and I should like before we rise to make an observation with respect to resolution 9, which has just been passed. The hon. member for Restigouche-Madawaska raised a point which I do not think should pass without comment. Prior to the war certain of the provinces asked that the dominion collect their income tax for them because their taxpayers found it very inconvenient to have to make out two forms. I know something about that, because I was on the other end then and I think .Manitoba was the first province, or among the first, to ask the federal government to collect its income taxes. The dominion government did so, and we paid the dominion government for its extra cost, which was a considerable sum. But as a result the province itself made money because the dominion government could collect our provincial taxes much cheaper than we could, and our taxpayers in the province benefited to that extent.


Mr. LOW:: Was it definitely established that the dominion could collect more cheaply than the province?


John Bracken: We paid the dominion for the cost of collecting, and the price we paid was less than what it cost us to collect our own taxes. That was a saving to the taxpayer and to the government, and a convenience all round. I would ask the government now, is it not prepared to continue something like the arrangement which it had before the war with the provinces desiring it? I gathered that the minister is not so inclined, but I do hope -that he will not close the door to that kind of cooperation.


Douglas Charles Abbott: I have not closed the door. I said it was a matter that could be discussed, but that the present intention was that we could not undertake the collection.


John Bracken: With all respect, I should not like to see the minister or the government leave the impression that they would not do now what they did before because some province may not come into a new -taxation agreement.


Douglas Charles Abbott: I am not trying to leave that impression.


John Bracken: Nevertheless people may get that impression from the attitude of the government so far.
Resolutions 10 to 16 stand.
At one o'clock the committee took recess.
The committee resumed at three o'clock.
17. That a farmer or fisherman he permitted for the 1948 and subsequent taxation years, at his option, to compute his liability to pay tax on the average of his income for the taxation year and the two preceding taxation years.


Douglas Charles Abbott: Under this resolution farmers and fishermen will be allowed to average their income for taxation purposes over a three-year period. The first year in which the tax may be paid on the averaged income will be 1948, and the actual operation of the plan will be as follows:
1.	The taxpayer will pay his actual tax on this actual income in 1946 and in 1947.
2.	In 1948 the taxpayer will average his income for the three years 1946, 1947, and 1948, and will calculate the tax that will be payable in each of those years at the rates of tax applicable to his average income in those years.
3.	The amounts of tax actually paid in 1946 and 1947 will be offset against the total tax payable on the average income of the three years. The taxpayer will make claim for a refund if the actual tax he has paid in two years is greater than the tax on his three years of average income or pay any balance owing it it falls short of the tax on the averaged income.
The following example will serve to illustrate the operation of the method in an assumed case. Suppose a farmer, married with two children, has an income of $7,000 in 1946, $5,000 in 1947 and $3,000 in 1948. For 1946 he wi'H pay $1,620 tax, and for 1947, $787 at the proposed tax rates. In 1948, according to the budget proposal, he will be able to average his income for the three years, recalculate his tax for each year as if he had earned that average in each year, and deduct the amount he has already paid in 1946 and 1947. This is how it would work out in the case I gave. Average income, $5,000; tax for 1946 at 1946 rates, $892; tax for 1947 at 1947 rates, $787; tax for 1948 at 1947 rates, $7S7. For the purposes of illustration I have, of course, assumed that the rates in 1948 are the same as in 1947. The total tax for the three years, according to this

Income War Tax
calculation, would be $2,466, but the farmer haa already paid $2,407 for 1946 and 1947 and will therefore have only $59 to pay for 1948. If he does not average he will pay a tax on $3,000 which, at the 1947 rates, would be $218. I give that illustration for the purpose of demonstrating how the plan would work.


Mr. FAIR:: I am sorry the minister has not farmed in western Canada for a little while as some of the rest of us have, because he is compelled in the- circumstances to go upon supposition. During my first five years of farming I had one successful crop year and four total losses. Anyone who wishes to check that can go back to 1916, 1917, 1918 and 1919. Very often in my district at that time farmers did not get as much grain out of the ground in those four years as they put in for seed. In 1920 we were fortunate enough to get a crop, but we are now again on the way to a recurrence of that programme. Last year in my territory we had an average of from four to ten bushels an acre. On Monday night last, I understand, we had eight degrees of frost and the grain has got to the stage where the bloom is all over and it is now in what is known as the milk stage. That means that we shall have a total crop failure again. What will happen in the next few years we do not know. For these reasons, which can be duplicated in several areas in the west, we should have, the proposed period extended to five rather than three years.
I tlhink the minister and the government are well aware that farmers in the west, and in the east as well, are paying indirectly a very large income tax, which is not recognized either by the administration or by the people of the country, in the low prices they receive for the products they sell. That should be taken into consideration by the government and we should be given some break. For that reason I move, seconded by the hon. member for Bow River (Mr. Johnston):
That the said resolution be amended by striking out the word "two" where it appears in the last line and by substituting therefor the word "four," so that the resolution will read:
"That a farmer or fisherman be permitted for the 1948 and subsequent taxation years, at his option, to compute his liability to pay tax on the average of his income for the taxation year and the four preceding taxation years."


Douglas Charles Abbott: I am compelled to raise the same objection to this resolution as I raised to that put forward by the member for Beauce, namely, that it is a resolution which precedes the introduction of a money bill imposing a charge upon the revenue and therefore is a measure which can be introduced 63260-243}
only by a resolution moved by a member of the government and preceded by authorization of His Excellency the Governor General.


James Arthur Ross: On a point of order, may I say that for all tlhe minister knows this may bring the government more money tihan under present circumstances. Probably the government would raise more revenue in this way than it does now.


Douglas Charles Abbott: It could not bring more revenue, because it is exercised at the option of tlhe taxpayer, and human nature being what it is, the taxpayer would exercise the option most favourable to himself rather than to the government.


Mr. FULTON:: It is stretching the point of older raised by the minister to try to cover this amendment, and have it ruled out of order, on those grounds.


Douglas Charles Abbott: If I may interrupt, I am taking the ground that it is unconstitutional, the same ground that was taken by the Minister of Justice the other day. Under the British North America Act, legislation of this kind cannot be put to the committee unless it is introduced subsequent to an authorization of the governor general.


Edmund Davie Fulton: As I understand it, the basis of the rule is that it might involve the government either in increased expenditure or in reduction of revenue. That is why it is felt desirable that, only the government may introduce these bills or amendments. The point that we are trying to make is that it is not certain that the government will lose money. It is not certain that the amendment would involve the government in a loss of revenue. Indeed, the amendment makes available to the farmer an option which may or may not result in a loss of revenue. In any event the loss cannot be ascertained until the end of three years at least, because under the present proposal the government will not know its position until that time. All the amendment seeks to do is to make it a period of five years. I submit it is a change only in principle, not a change in effect.


Douglas Charles Abbott: I am sorry; I cannot agree with my hon. friend. The amendment, in its terms, is obviously a relief measure, a measure which if implemented in law is designed to relieve the taxpayer of a burden. Because of that I mus't insist that it cannot be put to the committee except by a member of the government.


Mr. MacINNIS:: The Acting Minister of Finance has used a phrase that I have never heard used in this house before. If the Minis-
385U
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ter of Justice used the same phrase on some other occasion I was not present; otherwise I should not have let it go. I have never heard the question of unconstitutionality raised on a point of order. Surely it is not a question whether it is constitutional or unconstitutional. As a matter of fact parliament can do all the unconstitutional things it likes, as it has done on other occasions. I have known of our passing in one session a number of bills which later were declared unconstitutional, but they could not be declared unconstitutional so long as we were dealing with them; consequently the question of unconstitutionality cannot be raised here. The point raised by the minister was that it was a money bill. That may be a point of order, but certainly the point of order of unconstitutionality cannot be invoked in proceedings of this kind.


Douglas Charles Abbott: I do not pretend to be an expert on constitutional law, Mr. Chairman. In my use of the word I was following, I think, my colleague, the Minister of Justice. My point of order, or whatever one chooses to call it, is taken under section 54 of the British North America Act, which reads:
It shall not be lawful for the House of Commons to adopt or pass any vote, resolution, address, or bill for the appropriation of any part of the public revenue, or of any tax or impost, to any purpose that has not been first recommended to that house by message of the governor general in the session in which such vote, resolution, address, or bill is proposed.
It is well recognized British constitutional practice that resolutions of this kind can be introduced only by a member of the government of the day on a message from His Excellency the Governor General.


Robert Fair: I do not think the minister is on very solid ground; in fact I know he is on sandy ground, because his feet are slipping gradually as he steps from one argument to another. There is no indication whatever in the amendment that it will cost the government more money. The amendment is to give the farmers a chance to find out what their true position will be. I think they will average more in each year, and under the amendment the government would make more money over the period during which this amendment is applied. Hon. members know that farmers have had fairly good years for the past two or three years. I can only say that the minister is a wise man if he says it is going to cost the government more money, because he does not know the first thing about it, and neither do I.


The ACTING CHAIRMAN (Mr. Golding) :: Order. The point of order raised1 by

the minister is well taken. Speaking to the point of order the hon. member for Kamloops emphasized the fact that it might reduce the expenditures. I should like to read citation 552 at page 164 of Beauchesne's Parliamentary Rules and Forms, second edition:
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.


Stanley Howard Knowles: That is the key point,


William Henry Golding: I continue:
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.
It is a well-established rule that in committee no hon. member may move an-amendment which would be apt to reduce taxation or to increase expenditures; therefore I shall have to rule the amendment out of order.


James Arthur Ross: If you are ruling the motion out of order I should like to say a few words on the objective which the hon. member for Battle River-


Robert Fair: Mr. Chairman, with all due deference and before further discussion takes place, I challenge your ruling.


William Henry Golding: I hope hon. members realize that it is a well-established rule. It is hot my ruling; it is a rule which has been applied many times. I hope the committee will respect it.


Stanley Howard Knowles: I recognize that the rule and the practice are well-established by attempts which have been made in the past, but I suggest that the amendment is quite different from others, for this reason. The citation which you have just read, No. 552, says:
These proposals-
Referring to any amendment suggested in committee.
-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.

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Douglas Charles Abbott: That is just the point.


Stanley Howard Knowles: I submit that the amendment proposed by the hon. member for Battle River does not affect the balance of ways and means for the service of this year, the year with which we are now concerned. It cannot have any bearing until 1948. On that ground I submit that the amendment is in order.


Douglas Charles Abbott: It then becomes retroactive, and it affects the service of this year. In fact it may substantially reduce the amounts which will be raised as a result of the taxes imposed in this year. I do not think there can be any question of that. It is not a question of substituting another tax of equivalent value for the tax which is proposed by the administration. I urge very strongly, Mr. Chairman, that it is the responsibility of the government, on the recommendation of the governor general, to introduce money bills of this kind. That is where our system differs so clearly from the United States system. It is only the executive of the day which can, on the advice of the governor general, introduce resolutions preceding money bills, and this is clearly a resolution which falls within that category.


Edmund Davie Fulton: Speaking once more to the point of order, I should like-


William Henry Golding: Order.


Solon Earl Low: Does the minister not think
that the suggestion contained in the amendment proposed by the hon. member for Battle River is reasonable? Is it not true that the Canadian federation of agriculture did request such a provision in the income tax resolutions? Before the minister answers let me say this. In view of the fact that this is a very important matter to the farming population of Canada, would it not be possible for the government to withdraw resolution No. 17 for to-day and bring it back in a revised form at another time, perhaps to-morrow or the next day? If that could be done it would obviate the necessity of some hon. members on this side challenging the ruling of the chairman, which I would not like to see happen. If it cannot be done in the way I suggest, however, I shall be forced to support any protest that may be made.


Douglas Charles Abbott: If I may answer my hon. friend at once, of course I am quite ready and should be very glad to have the committee discuss the question whether five years should be substituted for three, and to take into consideration any recommendations hon.
members may see fit to make on that very important question. But on the specific amendment moved by the hon. member for Battle River I must take the stand that it is not in order for him to move such an amendment. This does not mean the question cannot be discussed, but I do take the stand that it is not an amendment which can be moved by a private member of the house.


James Arthur Ross: On that point, would the minister be prepared to let us discuss this resolution and then let the matter stand until to-morrow?


Douglas Charles Abbott: I think I must take the stand now that the amendment is out of order. I shall be very glad to listen to suggestions and discuss a possible amendment, but I must take the position that the motion which has been moved by the hon. member for Battle River is not in order.


James Arthur Ross: I agree, and therefore I was making this point. If the hon. member for Battle River withdraws his amendment will the minister be prepared to let us discuss the many ramifications of this matter, and then have the resolution stand until to-morrow so that he may consider the suggestions?


Douglas Charles Abbott: Oh, gladly. I do not insist on the resolution passing to-day.


James Arthur Ross: It is a very important matter which should be discussed on its merits. Then it might be allowed to stand until to-morrow so that the minister could consider amending it from the government's point of view. Would that meet the wishes of the hon. member?


Robert Fair: That will be satisfactory.


Douglas Charles Abbott: Then I take it, Mr. Chairman, that you have ruled the amendment out of order, and we are now proceeding to discuss resolution 17 as it stands.


Robert Fair: I am not accepting that ruling. I am withdrawing the amendment temporarily, in order to see what the minister will do to-morrow.


Douglas Charles Abbott: If the hon. member withdraws his motion, of course I do not ask for a ruling.


William Henry Golding: I think I should also read to the committee paragraph 40 of Beauchesne's Parliamentary Rules and Forms, at page 169:
The fundamental terms of a money resolution submitted to the house with the governor general's recommendation upon which a committee
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Douglas Charles Abbott: He has agreed to withdraw his motion. He must do that, or I must ask for a definite ruling.


James Arthur Ross: But we can discuss this matter now and the minister will let the resolution stand until to-morrow.


Robert Fair: The amendment is withdrawn for to-day, with the understanding that the .matter will be considered by the minister and the other members of the cabinet, and I or someone else can bring it in again, if mecessary.


William Henry Golding: Has the hon. member leave of the committee to withdraw his amendment?
.Some hon. MEMBERS: Agreed.
IMr. ROSS (Souris): This has been a matter of considerable interest to me ever since I came here in 1940, and in various budget debates I have advocated a period of five years. I think that argument is sound, because I understand that in Britain, where they have not the hazards in agriculture that we have in parts of Canada, they do allow a five-year period. If that is so I think the minister and the department might well consider the point.


Douglas Charles Abbott: I am advised that there is no averaging in the United Kingdom, that it was withdrawn in 1926.


An hon. MEMBER:: Wrong again.


James Arthur Ross: I am quite prepared to admit it if I am wrong. I understood that to be the case, and apparently it was at one time.


Douglas Charles Abbott: I have just been informed that this is so.


James Arthur Ross: My own experience in western Canada has been much like that of the hon. member for Battle River. We certainly have our ups and downs; and while this is a step in the right direction I certainly would like to see the period made five years if possible, instead of three. I think it would
[The Acting Chairman.]
be much better for a successful agricultural programme and for the nation as a whole if the average could be taken over a five-year period, and I trust the minister will seriously consider whether he can see his way clear to amend the resolution accordingly. As I say, it is something we have asked for since at least 1940.
While I am on my feet I should like to ask a question in regard to another contentious matter, particularly in the ranching areas of western Canada. I refer to the question of allowing some exemption in connection with what is recognized as a breeding herd. I have looked through these resolutions very carefully, and I do not see any other place where that matter might be discussed. Various hon. members on both sides of the house have raised this question in previous years. The suggestion is that at least a percentage of the recognized breeding herd should be allowed as capital when the herd is sold. I do not see any provision in the resolutions which would specifically take care of that. As I understand the situation through force of circumstances, because of lack of feed or something of the kind, a man may have to sell within one year a herd of good cattle which he has spent his lifetime building up; and if he does so, what he receives must be shown as income. It is true that under section 17 he can average that income over three years, but still it is quite a hardship on the man who has made the raising of live stock his life's undertaking. I should like to think the minister and the department might find some way to give a little relief to ranchers of this description.


Douglas Charles Abbott: On that particular point, as my hon. friend knows this is a question which has received the fairly continuous and active consideration of the tax department for some time. I do not know that any solution satisfactory to the cattle raisers has been found as yet; the question is under continuous examination, but I do not know that I can give any definite statement now as to what if any change will be made. I recall that the Minister of Finance made some reference to this matter in his budget speech, at page 2918 of Hansard, where he said:
The general adoption of the three year forward averaging system which I have just announced should be of great assistance in more normal cases where a live stock herd is being maintained but annual live stock sales may vary from year to year. Several suggestions for carrying the basic herd principle further have been made and in this connection I must acknowledge the help received from various members. Most of these, however, involve maintenance by the farmer of accounting records of greater or less complexity and whether they will prove practicable from the standpoint of both

Income War Tax
the farmer and the tax administration is a matter which will have to be worked out by the administrative officials in consultation with the Department of Agriculture.
I am advised that those discussions are still proceeding. I think it is clear that the proposed three-year average should afford some measure of relief, but I am not an expert in this field and my opinion on that, as on some other matters, is not of very great value.


Mr. IRVINE:: Would the minister mind indicating to the committee what particular objection could be offered, from the government's point of view, to extending this to five years instead of three?


Douglas Charles Abbott: One obvious objection, of course, is that the farmer would get no benefit for five years, since the averaging must be five years forward. One cannot average back, because the farmer's return may not have been filed. As contemplated under this resolution he would have to go forward. The number of years suggested is the average before the farmer can derive any benefit. In the case suggested by the hon. members for Battle River and Cariboo it would mean that the farmer would have to wait five years before getting the benefit of the averaging. The line has to be drawn somewhere. This, I suggest, is a substantial measure of relief, and it seems to me we should try it out. I should add that it is a moving average, in that it keeps moving forward. '


Mr. SENN:: I approve the resolution as far as it goes. As the minister has already said, it does afford a measure of relief. I am sure however that the contention of the hon. members for Battle River and Souris can easily be justified. From time to time farmers have what are know as dispersion sales, when they sell off their stock and implements which they have accumulated over a good many years-perhaps ten or twenty. If they are to be allowed to average only over three years, then it is certainly unfair because such a sale would represent an accumulation of twenty years of effort. I do not wish to press the matter further, but I think the mechanics of this matter should be examined into. The minister stated a case where a farmer in one year made $7,000, in the next year $5,000 and in the next year $3,000. In the final year, averaging for the three years, he had only a small amount to pay by way of income tax. What would happen if those figures were reversed? Suppose he had more in two years than the three years would amount to; would he get a refund?


Douglas Charles Abbott: He gets a refund.


Mark Cecil Senn: I just wanted to be sure about
that.


Douglas Charles Abbott: I intended to say that in my preliminary statement.


Mark Cecil Senn: I did not hear it. The next thing I should like to find out from the minister is this. Let us take the year 1948, and average it up with 1947 and 1946. Does that complete the calculation or the averaging, so far as it goes? In the year 1949 could one use 1948 and 1947?


Douglas Charles Abbott: He takes 1949, 1948 and 1947. That is what I meant by saying that it is a moving average.


Mark Cecil Senn: He can use those years on two or three occasions.


Douglas Charles Abbott: Yes; it is a continuing three-year average.


Mark Cecil Senn: I am glad to hear that.


Douglas Charles Abbott: It seems to me that that largely takes away the need for the five-year average, once it comes up to the third year. It is a moving average, and, as the hon. member for Haldimand has so aptly said, one may use the same years two or three times in averaging.


Mr. BRYCE:: I want to say something about this five-year average, because I have been sent to Ottawa by the constituency of Selkirk, in which are included both fishermen and farmers, and they want the five-year provision.
The last argument used by the minister was his best. But suppose we have to wait five years-if it is to be just and reasonable we do not mind waiting that time. I want to be sure that it is just and reasonable. I think five years is more reasonable than three. The minister has said that the process of spreading it over a number of years has been done away with in the old country. I would point out, however, that over there they have a crop every year. They do not have to wait five or six years, as we sometimes do in the west. I support the hon. members for Battle River and Souris when they urge that it be made five years.
While I am on my feet I should like to ask the minister for a clear definition of "farmer". I should like to be clear on that before I go back to Selkirk.


Douglas Charles Abbott: This time I knew what I was going to say before I rose. While I should like to oblige my hon. friend by giving that definition, I do not feel I can do so in sufficiently adequate legal t:rms. The deputy minister tells me that consideration has been given this matter. It is a difficult problem,
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and we hope that when the bill is before the house within the next day or two, when we have completed these resolutions, it will contain a satisfactory definition of "farmer".


William Scottie Bryce: Can the minister define
"farmer"?


Douglas Charles Abbott: I would not attempt to define it to-day.


William Scottie Bryce: That is the kind of answer I expected from a lawyer. It does not answer my question at all.


Douglas Charles Abbott: What I intended to say to the hon. member was that the bill which will follow the resolutions may contain a definition of "farmer". I am not capable of defining it.


William Scottie Bryce: "May" and "shall" are much the same. This is a serious matter. I am particularly concerned about my own constituency, because they sent me here. There are many different kinds of farmers in the Red River valley, and I would not like to see any of them left out. For instance, we have mink farmers. Would they be included? A mink farmer might have a good crop this year, but next year a dog with distemper may come around and the farmer might lose his whole crop. Is he to be taken into consideration? Then what about the market gardener when he loses his crop through flooding or a hail storm? Is he classified as a farmer?


Douglas Charles Abbott: The hon. member is pointing out the defects which are obvious to all of us when we attempt to frame a definition of "farmer". I am inclined to agree that we must attempt to do it in the act, although it will not be an easy task. I agree, too, that all classes of genuine farmers should receive the benefit of this proposal.


William Scottie Bryce: Has the Department of Finance given consideration to incomes on farms earned by the whole family? We know that income tax forms are filled out by separate individuals, whereas five or six individuals may have earned the income. This is most unfair to the farmer who has children ranging from ten to sixteen years of age who are going to school but who also milk cows and help at harvest and threshing time. There is nothing in the income tax act which allows anything for their wages. After they become sixteen years of age an allowance can be made for board and a certain amount of wages. Prior to that, however, although they add to the farmer's income, he must pay on it. Has anything been done about this?


Douglas Charles Abbott: I believe the ordinary rules would have to apply. An adult son of a

farmer could hire out to the neighbouring farmer as a helper. I can see no legal reason why he could not be paid by his father, and in such event the wages would be deductible as expenses of operation. The income of the farmer would be reduced proportionately while the income received by the son, let us say, would be taxable income if he were getting over the exemption limit.


William Scottie Bryce: I have not been able to get my point across. What the minister has told me is correct as applied to the young fellow who has reached sixteen years of age and is able to go and work for himself, but I am thinking of the farmer's wife and family, his sons and daughters, who are at home and who milk the cows and do the other jobs. There is no allowance made for that work, ?.nd the farmer has to pay on the income that is made by five or six different people. We all know that the wife on the farm contributes to the farm income by producing poultry, honey, and so forth. She works from morning to night, and no allowance on income is made.


Douglas Charles Abbott: What my hon. friend has said is true, but the same thing is true of other occupations. In the small town where I was brought up the wife and children often helped, possibly around a small store or in the home. It is all part of a way of life, although it may be a bit more pronounced in the case of the farmer's wife.


William Scottie Bryce: In the case referred to by the minister they would work only from eight in the morning until the time came to close the store for the day, but the farmer's family would work from daylight to dark.


William Henry Golding: There are quite a number of sections which deal with these matters. Resolution No. 17 reads:
That a farmer or fisherman be permitted for the 1948 and subsequent taxation years, at his option, to compute his liability to pay tax on the average of his income for the taxation year and the two preceding taxation years.
If we are to make progress I think we shall have to stick to the resolution before the committee and deal with each resolution as we come to it.


Mr. LENNARD:: I should like to follow up the remarks of the hon. member for Souris in respect to the unfair treatment of those who have sold herds over the past several years. I should like to cite an example which I have given before. There is one man in my riding who over the years has accumulated a good deal of land. Any profit which he made from his farming activities he put into more land. To-day his

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holdings are considered as capital gain. I know of several farmers in that same area who have built up large herds but who because of lack of help or difficulty in marketing have had to sell their herds. They have received most unfair treatment; to use a slang expression, they have lost their shirts. The man who had accumulated land over the years is considered to have a capital gain which is non-taxable, while the man who accumulated a herd and had to sell is taxed to the limit.


Douglas Charles Abbott: Of course that is true also in other fields. In the one case the man is putting his earnings into capital, while in the other case he is putting his earnings into inventory.


Frank Exton Lennard: I consider that any man who builds up a herd over the years is making a capital gain.


Douglas Charles Abbott: He charges to his annual income his expenses in building it up.


Gordon Graydon: Surely a calf is a capital gain.


Mr. JAENICKE:: I should like to support the idea advanced by the hon. member for Battle River. I made the same suggestion when I spoke in the budget debate. The minister gave us a hypothetical case of a farmer wrho makes $7,000 this year, $5,000 the following year and $3,000 in 1048. That may be possible in the east, but it is not possible in the west. If a farmer in the west had an experience like that for three years I think he would be quite lucky. As the hon. member for Battle River pointed out, because of low temperatures that have prevailed during the last few days many farmers in the west will likely have nothing at all.
One farmer I know of had a loss in 1942- the income tax department acknowledged that loss-of $1,100. In 1943 he had an income of $2,500 upon which he was taxable. In 1944 he had a profit of a little over $1,100. In 1945, because of circumstances beyond his control, he had to sell $1,100 worth of cattle. Surely such a man is entitled to more than three years in which to average his income. The minister says that this is a sort of revolving affair, but I should think that if such a farmer averaged his income in 1948 he would be through and would have to start all over again.


Douglas Charles Abbott: I did not call it "revolving"; I called it a moving average. We are starting this in 1946; 1946, 1947, and 1948 will be the first three years which can be averaged. When the year 1948 is concluded and' the farmer
knows his results for that year, he will then be in a position to determine finally his income tax liability for the three years. He is entitled to have his average go on to 1949. In 1049 he takes the years 1947, 1948 and
1949,	so that he has the same two years in as he had in the preceding year. Then in 1950 he will have 1948, 1949 and 1950. It is a moving average.


Frank Eric Jaenicke: Supposing he exercised his option in 1948 and averaged his income for the three years, would he be through?


Douglas Charles Abbott: No. In 1949 he has the option of averaging again, unless the law is repealed.


Frank Eric Jaenicke: That puts a different
picture on the whole situation.
Mr. ST. LAURENT: If a man elects to average his income, the income of 1948 will affect the tax of 1946, the tax of 1947, the tax of 1948, the tax of 1949 and the tax of
1950.	In effect, when the thing gets going, the good year or the poor year will have its effect on the two preceding years and on the two following years. In reality there is an effect over five years.


Frank Eric Jaenicke: There will be an averaging of even more than five years.
Mr. ST. LAURENT: The income of the middle year affects that year itself and affects the two preceding years and the two following years.


Mr. ARCHIBALD:: I do not think there is going to be any difficulty about whether we average it on three or the five years, because the income tax department is so inefficient that my fishermen, on the coast have had no tax returns since 1942. The result is they will have a five year average before they are through. I have a letter here which I received from a cooperative in Prince Rupert and which I gave to the income tax department. It is dated April 26, and it points out that sixty-eight fishermen have a total of $21,365.75 being held back. As late as July 10, I received another letter to the effect that they are getting from the Vancouver office dozens of requests to file returns when in fact returns have been filed. I object strenuously to this inefficiency which is putting an unfair burden upon these people. I realize the department has helped out to the extent that it has cut down the amount taken from the fishermen When they sell their fish immediately from twenty per cent to ten per cent and from ten per cent to five per cent, depending on the type of fishing that is done. First, I

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should like to ask the minister wthy there is discrepancy between the east and west coasts; why is it you have to take off ten per cent and five per cent-it used to be twenty and ten per cent-on the west coast when you do not do it on the east coast? I have been on the fisheries committee and heard the canning companies say that the eastern fishermen are as prosperous as any fiAermen in the world. The men on the Pacific coast feel that they are being grossly discriminated against.
I have a suggestion to make to the department in the matter of collecting income taxes. In the halibut fleet on the west coast the men work on a Share basis with the skipper, and the boat also receives a share. The skipper owns the boat and he is taxed both as skipper and as owner of the boat. He feels that he should not be condemned, as it were, because He owns the boat, to have to pay two taxes. I would urge that a departmental income tax office be established in northern British Columbia to solve these problems because our people there are getting no satisfaction from the Vancouver office. The only reply I have had to my letter in regard to the reductions from twenty to ten and ten to five is that letters are still coming from the department asking for more returns. Would the minister consider setting up an income tax office in northern British Columbia? The difficulties have been going on since 1942 and time is rolling on.


Douglas Charles Abbott: I shall be very glad to
consider whether it would not be possible to open an office in northern British Columbia. On the other point as to discrimination, I will look into that. I do not see why there should be discrimination. Mind you, the deduction at the source must be taken care of, but I will concede that so far as I can see there should be no discrimination between the fishermen on the west coast and those on the east coast.


Edmund Davie Fulton: In connection with the three-year moving average, the point made by the minister that if the five-year period were adopted the farmer would have to wait for five years before getting any benefit is not generally applicable, for this reason. The farmers have in large degree shared the fairly high level of prosperity which has been general across the country and the farmers in my district at all events have been fifing returns for the last three or four years. If they were allowed to take into account their returns over the previous years there would be no necessity for their waiting a further five years 
before they could start to average. The Minister of Justice, in the figures which he just gave, I think lent point to the argument in favour of the five-year moving average as against the three-year. He pointed out that if we take the three-year period, the middle year affects the average for the two preceding and two subsequent years. If you take the five-year period, one year will affect the tax for the four preceding and the four subsequent years, and in that way you are more likely to get the real average. I think it is conceded that farming cycles run in at least ten-year periods, certainly not five, and therefore the greater number of years you take into account the nearer you get to the real average, certainly more so than if you take the three-year period. In addition, the five-year moving average was the recommendation of the Department of Agriculture itself. After receiving briefs from the council of Canadian beef producers, representing councils all across the dominion, the Department of Agriculture submitted a brief to the Department of Finance, in which they had this to say:
After careful study, the department makes two recommendations:
1. Taxes be finally assessed on the basis of a five-year moving average of profits and losses.
From the illustration they give on the second page of the brief it is quite clear that they intended it to be a five-year as against the current three-year proposal. At all events they recommended that it be a five-year period. Has the Department of Finance given consideration to that brief? Since the minister has said that he will give further consideration to this matter before to-morrow, I would ask if the Department of Finance has made specific objections to the point raised, and whether there is any reason why the five-year period should not be adopted.


Douglas Charles Abbott: Careful consideration was given to the brief, and it was felt that the three-year average was appropriate. This is a special right which is given to one class of the community. It has been urged for some time. I think myself that it is a step in the right direction. After careful consideration the Minister of Finance, his advisers and the government came to the conclusion that the three-year period was appropriate, and that is the proposal that is put forward in the budget resolutions.


Edmund Davie Fulton: It cannot be denied that it is a move in the right direction, but I hope the minister will between now and to-morrow consider this suggestion, which was first advan-

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ced by the member for Battle River, and see if it does not deserve further consideration.
On the point of the capitalization of breeding herds, it seems to me that this whole question comes down to whether a breeding herd or basic herd is capital.


William Henry Golding: I think that is hardly in order in this resolution.


Edmund Davie Fulton: The resolution deals with the liability of a farmer to taxation, and allows him to average his income over a three-year period. The question of the capitalization of the breeding herds comes in, Mr. Chairman because the farmer may sell all his herd and is liable to income tax on the proceeds. My point is that the three-year period is of no assistance to him.


Douglas Charles Abbott: I think it would be appropriate, Mr. Chairman, for hon. members to discuss that point on the resolution now before the committee.


Edmund Davie Fulton: On the point of the capitalization of breeding herds, it seems to me that this whole question comes down to whether a breeding herd or basic herd is capital. The point behind the submissions advanced by those who want the basic herd regarded as capital is that the breeding herd is as much one of the tools of production as land and buildings or the tools used in a factory. I made this point last year when this matter was up for discussion, and I do not think anything is to be gained by repeating what I said then, but I wish to point out in addition that the United States Department of Finance does recognize the breeding herd as capital. The Canadian Department of Agriculture in its brief, in appendix 2, referred to the special treatment allowed in the United States and quoted the following extracts from the US. Inland Revenue Bulletin No. 11 of June 12, 1944:
Live stock used for draft, breeding or dairy purposes, irrespective of whether such stock was raised or otherwise acquired, is property used in the trade or business, of a character which is subject to the allowance for depreciation.
And further this extract is given from the United States Department of Agriculture, publication 554, dealing with farm bookkeeping and the federal income tax:
Depreciable capital goods-
Capital is the word used:
Depreciable capital goods includes all buildings and land improvements (except the owner's dwelling), machinery, equipment, work animals, breeding and dairy stock.
In the United States the breeding herd is regarded as capital. When this question was raised last year the Minister of National Revenue advanced certain arguments against such a view, which are to be found at page 3743 of Hansard of December 18 last. The minister made this point:
Again, it had to be pointed out that the cost of raising or purchasing that stock had been allowed as an expense of previous years . . .
The answer to that is that there are many allowances which are made for capital outlay. Reduction from income is allowed for capital acquisition, and yet when the asset is subsequently sold it is not claimed that the proceeds are income simply because the original allowance was made. All we wish to do is to draw the same parallel between these capital assets and capital assets represented by breeding herds.


Mr. ISNOR:: Would the hon. member give an example of capital increase, as far as business is concerned, where the income tax department allows it?


Edmund Davie Fulton: Yes. Where a doctor lays out money to enlarge his library he is acquiring something which he uses in the course of his profession, and he is allowed a reduction in taxable income for the purpose. But if subsequently he sells his library, the proceeds of that sale are not regarded as income but as a realization of capital.


Gordon Benjamin Isnor: But that is a professional investment.


Edmund Davie Fulton: I think I know what the hon. gentleman has in mind, and I shall deal with the point in a moment, when I trace the parallel between allowance for depreciation and allowance for acquisition or replacement of breeding stock. That point was dealt with by the Minister of National Revenue at page 3744:
Questions have been raised as to the taxation of the proceeds of breeding animals. Inasmuch as the cost of purchasing or raising such animals has been allowed as an expense, the proceeds of sale represent taxable income.
As regards depreciation in business, a business is allowed to set aside a certain amount for the purpose before taxation; yet when the asset is sold the proceeds are not regarded as income simply because a deduction has been allowed for depreciation. In the same way, if you have to replace a breeding herd-because animals deteriorate over a passage of years; after a time an animal is no longer useful for breeding purposes-the fact that you have been allowed to make a
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deduction for replacement or to buy a new animal, which corresponds to depreciation, is no argument that when you sell your stock the proceeds of sale constitute income and not capital. The Department of Agriculture recognized that point in its brief, in which it stated:
Prices of pure-bred breeding stock are subject to extremes beyond reason, caused by influences outside of Canada and outside the agricultural industry proper and are the result of buying by wealthy men or hobby farmers; yet the bona fide breeder must pay such prices if he is to remain in business, although well aware that he is likely to experience a heavy loss.
That is an incontrovertible fact and, if taken into consideration, is a strong argument in support of the contention that breeding herds are capital. If that position is once recognized-and it is the true position; it is the basis of the argument-there can be no justification for any further delay in giving due recognition to the fact in the tax system. It is true the Minister of Finance pointed out, at page 2918, as referred to by the acting minister, that the general adoption of the three-year forward averaging system should be of great assistance, but he referred to the "more normal cases where a live stock herd is being maintained". That in itself shows that it is not applicable where the herd is being sold, because the moment you sell the herd your operation is completed. You cannot average forward, because you will not have sales in the succeeding year, although if the three-year system is adopted you can average back for two years. But the only effect of that will be that your tax in the two preceding years will be considerably raised, and the net effect is that no relief will be given the taxpayer at all.
Further support of this contention will be found in the second of the recommendations given in the brief of the Department of Agriculture, where it is urged that breeding herds be recognized as capital assets. The hon. member for Battle River, the hon.-member for Souris, the hon. member for Wentworth, and nearly all other hon. members who have spoken on this side, have given illustrations of how the failure to recognize this principle works injustice to the farmer. I know of numerous examples myself. The reason this point is important now is that farmers, and particularly cattle ranchers operating their business as a going concern, are paying taxes. Many of them are getting old and wish to retire but are prevented from doing so or, if they do retire, they are taxed 
on the proceeds of the sale of the whole herd, so that instead of having a fairly substantial amount on which to retire, they have little left and have to look about for some small business or other in which to engage.
The thing is a problem now and I suggest to the minister very earnestly that he lose no time in finding a solution. He should not content himself with saying that the matter is receiving active consideration by the department. If there is any basis of truth in the contention put forward, I submit to the minister that the time to make adjustments is now.


Mr. McLURE:: A short time ago an hon.
member asked the minister to define "farmer," and I understood the minister to say that he would give a definition later. I want to make this suggestion to him when he is having these definitions drawn up. To-day there is what is known as the aquafarmer, that is to say, the oyster farmer. That class of farmer comes under all the regulations of the fisheries department. Again there are fur farmers throughout Canada, and they all come under the regulations of the Department of Agriculture. I offer this suggestion to the minister in the hope that it will help him in the definition of " farmer."


Douglas Charles Abbott: Thank you.


Mr. McCULLOUGH (Assiniboia):: Some
time ago the Minister of Justice referred to the proposal that the farmer, at his option, be allowed to compute his income tax over a period of three years, and he said that the three-year period would really be covering a period of five years. That is so, but it does not meet the point that has been made by the member for Battle River. The important thing to the farmer is that he be allowed to compute his income tax over a period of five years, which is the recommendation of the Canadian federation of agriculture. Taking the three years 1947, 1948 and 1949, in 1947 the farmer would make his computation on the basis of 1947, 1948 and 1949. The point to be established in conformity with the amendment which the member for Battle River moved is that the farmer wants to be able to compute his tax over the average of five separate years.


Robert Fair: Before we leave this point I wish to associate myself with the remarks of the hon. members for Souris, Selkirk, Wentworth, Kamloops and many others who have spoken with reference to the placing of herds in the capital assets class. We all realize that

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before a person can make any profits out of a herd he has to invest money in it, the same as in his farm buildings. In connection with the remarks made by the Minister of Justice, the hon. member who has just taken his seat has pointed out something that should be taken into consideration. You deal with 1946, 1947 and 1948. You get the average of these years and immediately you go on to the year 1949. You dispense entirely with the year 1946 and use the years 1947, 1948 and 1949, so that you are still on a three-year average.
One question has been asked of me on numerous occasions, namely, if the farmer is on the three-year average and uses it for a certain number of years, can he go back to the annual?


Douglas Charles Abbott: Yes.
Mr. TOWNLEY-SMITH: On that particular point, can a farmer or fisherman duck around? Can he take three years on his option and then take one year, and then return to the three-year system and pick out the years which suit him best? Let me say a word on the five-year average which has been referred to by a number of speakers. When universities are considering their experimental work they invariably take a five-year average, or longer if possible. They feel that they can get closer to the truth by taking not less than five years, and more than that if at all possible. In five years you do actually come closer to the actual situation.


Douglas Charles Abbott: The five-year question is
under discussion at the moment, but I think it is evident to hon. members of the committee that once a farmer has elected to average his income, it is bound to be to his interest to continue on that basis. It cannot-be otherwise.


Mr. HARKNESS:: I should) like to say a word about the basic herd principle. We discussed it at some length on the budget resolutions last year, and hon. members gave numerous reasons why it should be adopted. At that time the minister said that it was being given and would be given active consideration. We have discussed it again to-day, and once more the minister has said that it is being given active consideration. Apparently no progress has been made; we are in exactly the same position now as we were last year. Has the government adopted the basic herd principle, and is it prepared- to put it into its taxation system?


Douglas Charles Abbott: The answer to that question is no.


Douglas Scott Harkness: Then my second question does not apply; I was going to ask, when. If the answer to the question is no, then the information given to us by the minister last year and this year is misleading. It was stated that the matter was being given active consideration. I say it is misleading particularly in view of the statement on page 2918 of Hansard, which the minister read this afternoon, and which certainly gave me the impression that the government was prepared to adopt the principle.


Douglas Charles Abbott: No; what I intended to convey, and what the minister intended to convey, was that the question was and still is under consideration. It is a difficult question, and if I must answer categorically the question whether the government adopted what my hon. friend refers to as the basic herd principle, I must answer him by saying no.
Mr. ZAPL1TNY: I wish to support all that has been said about the matter of breeding herds. I appreciate what the minister says about the difficulty of working out the details in that regard. However, I have something here which I think is simple and easy to understand, and which will provide relief for farmers wbo raise live stock and live stock products. It has been sent to me by the cooperative live stock marketing association of Dauphin, an association which keeps me up to date on live stock matters. If I may I should like to read it for the consideration of the minister. It is as follows:
Whereas there has been a serious decline in the production of live stock and dairy products; and
Whereas Canada is in desperate need of these agricultural products to help feed the starving masses of Europe;
Therefore be it resolved that for the purpose of encouraging production of live stock and live stock products, amounts up to $1,000 gross income from the sale of live stock and live stock products be exempt from income tax.
It is based on a slightly different principle from that suggested in the discussion which has been going on, but there can be no question that it would be a simple and direct way to bring relief to those engaged in the live stock business.
Before I resume my seat I should like to refer to the mathematics which have been drawn up with regard to the five-year period. It is a fascinating subject, but I am afraid that the impression which was left by the Minister of Justice that this will mean a five-year average in the long run is not correct, at least, in my opinion it is not. I have
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worked it out on paper, and as I understand it this is the way it would work out. At the end of 1948 you would take the three years, 1916, 1947 and 1948, but in 1949, at the end of the taxation year, you would take the years 1947, 1948 and 1949. In 1950 you would take the years 1948, 1949 and 1950; in 1951, you would take the years 1949, 1950 and 1951, and in 1952 the years 1950, 1951 and 1952. That takes in five years, and if you examine the figures you will find that in no year does one year occur more than three times. If it does - not occur more than three times then automatically we must understand that the average is the three-year average. You could go on for a thousand years if you wanted to, but each year would occur only three times, and the average would be a three-year average. I think that should be clearly understood.


Mr. QUELCH:: I had to be absent from the chamber and I do not know what took place in my absence. I should like to say that the suggestion to extend the period from three to five years for taxation purposes is a sound one. Every major farm organization has made submissions asking that this be done, which I think proves conclusively that the farmer believes it would be to his advantage.
There is another question that I should like to raise at this time; the hon. member for Bow River referred to it the other day. As the government knows, quota deliveries were established for the years 1941, 1942 and 1943. In 1944 the quotas were lifted, with the result that farmers were able to sell wheat which they had not been able to sell because of the quota in the years 1941, 1942 and 1943. A circular was sent around at that time and in addition was printed in the newspapers; I shall refer only to the first paragraph:
Where grain raised in one year is carried over, due to quota restrictions but for no other reason, and is sold in subsequent years, the proceeds of such sale may be treated as-
(1)	income of the year in which the sale took place, or
(2)	income of the year in which the grain was raised.
Farmers acted on that declaration in good faith. However, it was cancelled in 1945, but in view of the fact that the circular was sent out, the farmers were under the impression that grain raised in 1941, 1942 or 1943 and held back because of the quota and then sold in 1944 could be changed back into the year in which it was grown. Further, I have a letter sent me the other day by a man in the small town of Morrin who had been filling out returns for farmers. This is what the letter said:

I am herewith enclosing a letter received from the income tax department at Calgary, which is a vital issue regarding all farmers, as they were forced to hold this grain until 1944 from previous years owing to the quota set by the dominion government, also this is absolutely contrary to their promise of allowing the farmer to transfer his grain back to the year it was grown, and not have to include it in the year it was sold.
They mention cash wheat in this letter. Now all grain sold in 1944 was practically cash grain, as the farmer collected his money as soon as delivered. Also mainly all grain is sold on this basis and not on an instalment plan. So I cannot see that this statement has any bearing in this case.
The letter the farmer had received from the department stated that this could no longer be done. Here is the letter from the inspector of income tax:
Your letter of June 14 has been received, and in reply it may be stated that the reversion of cash wheat sales to apply in the year in which the wheat was grown is not allowable under provisions of the Income War Tax Act, where cash returns are filed.
I wonder if the minister could explain why, after issuing a statement such as I read, later they should refuse to allow the farmers to pay taxes on that basis. Certainly it does seem to be a breach of faith on the part of the government.


Douglas Charles Abbott: I understand the answer to my hon. friend's question is that an incorrect ruling was given to one taxpayer and was circularized by that taxpayer.


Victor Quelch: Would the minister repeat that?


Douglas Charles Abbott: I say an incorrect ruling was given to one taxpayer, and1 I understand it was circularized by that taxpayer. I am informed that is what happened.


Victor Quelch: This is not sent out by the taxpayer but by the government, and it refers to the Canadian wheat board producer certificates. This is n.ot circularized by the taxpayer but by the department.


Douglas Charles Abbott: I am sorry; I thought my hon. friend was referring to a letter. I wonder if I could have a look at the circular he mentions. Now that my hon. friend has given it to me I see it does not indicate .who issued it, but perhaps if my hon. friend would let me have this I can look into it at the dinner recess and see if I can give him a more detailed explanation, later.


Edmund Davie Fulton: Following up the question asked by the hon. member for Calgary East and the reply thereto of the minister, which as I understand it was that the department does not accept the basic herd principle, let

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me ask this question. Is the department of the view that if a farmer sells his herd of cattle, which has been operated as a going concern for perhaps ten years, the proceeds of every animal sold should be regarded as income? Is that the view of the department?


Douglas Charles Abbott: I am advised that the answer to that question is yes, because the cost of each of the cattle raised has been treated as an expense by the taxpayer in previous years.


Edmund Davie Fulton: Does the minister or the department not admit any similarity or parallel between allowing expenses for purchases and operation in this case and allowing depreciation before taxation and deductions for other capital outlays in other businesses?


Douglas Charles Abbott: I thought I answered that question before by saying that the herd is part of the inventory of the taxpayer. If a trader or merchant increases his inventory out of earnings-well, I must confess I cannot see the parallel between depreciation of fixed assets and a herd of cattle, which is something that is growing from year to year.


Edmund Davie Fulton: But the point is that it is not growing. If it is operated as a going concern it remains stationary from year to year. A basic herd might be two hundred; the average increase might be fifty, and it is the average increase which is sold, while the basic herd remains the same. The minister said they were purchased out of income. Suppose a man inherits a ranch from his father. He did not get it out of income; it came to him as a capital asset. The breeding herd was there; the thing was a going concern. Certainly it was not purchased out of income. Or take the case of a man going into the business. He leaves some other form of activity; he cashes in on his capital assets there, sells his business and acquires perhaps
850,000	which he puts into a ranch and a herd. That is not bought out of income; it is capital. Yet if he sells the herd two years later he is taxed on it-that is, according to the principle enunciated by the minister. If he went on the inventory basis he might be safe; but on the principle enunciated by the minister he would be taxed.


Douglas Charles Abbott: I am afraid I am not competent to discuss details. Of course every taxpayer in that business is free to operate on an inventory basis. In my recollection this question has been discussed on the budget resolutions for the last two or three years. The same points, some of which may be very good, have been brought forward; and, as the minister said in his budget speech, the question is still being considered by the Department of National Revenue in consultation with the Department of Agriculture. Rightly or wrongly, they have not yet been able to find a solution, but they will continue to consult and I can assure my hon. friend that, the points which he and others have made to-day will not be overlooked.


Edmund Davie Fulton: May I just emphasize that this is done in the United States.


Douglas Charles Abbott: We shall have a look at the United States practice and see.


James Arthur Ross: When the hon. member for Kamloops was speaking a while ago I believe the hon. member for Halifax asked what other business could be allowed an expense and a write-off, and then sell their equipment or whatever it was as capital. I think that is done in almost every business.


Gordon Benjamin Isnor: Which would increase their capital surplus.


James Arthur Ross: If a man sets up a manufacturing concern he is allowed to write off his equipment over a period of years. During the war it was three years; in other cases it is four or five years. Then if he sells that business and his equipment, he sells it as capital; there is no argument about that.


Douglas Charles Abbott: If there is anything left to-sell.


James Arthur Ross: Yes; and there generally is. I know where a farmer buys a new power tractor he is allowed to write it off over five years. If he is a good operator and keeps it in good shape, it may last considerably longer than that. One of the reasons given f by the Minister of Finance for allowing the 12J per cent increase in the prices of farm implements was that these used tractors were selling for more, at farm sales to-day, than they cost when new. That was the minister's own argument; yet the operator was permitted to depreciate them over five years, after which they were allowed as capital. I am prepared to admit that this is a difficult problem, to be quite fair about it, but I certainly do think some arrangement should be arrived at under which it would be acknowledged that a breeding herd is capital rather than inventory, as the acting minister says. If you put up a building you are allowed your depreciation; when you sell it it is acknowledged to be capital. About a year ago I understood that following consultation between the Department of Finance and the Department of Justice, based upon the recommendations of the federation of agriculture, some solution
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was practically arrived at under which certain basic years were to be taken for the basic herd, as is done for this averaging period now. I should think you could have a basic year when a man had actually purchased his breeding stock, and develop it from that time on.
I am really quite serious about this matter. I believe the man who is raising live stock as Ihis chief means of income should have his basic herd recognized by the department as capital. The whole trouble is a question of definition by the Department of Finance alone as to wlhat should be considered inventory and what should be considered capital. Certainly, as the minister says this matter has been debated ever since I came here in 1940, and as I say, I understood some solution had been agreed upon by negotiation between the. Department of Agriculture and the Department of Finance. I trust that may be so in fact before too long.


James MacKerras Macdonnell: May I make one comment on this, merely to reinforce what has been said by the hon. member for Souris? I do feel that this is a high priority question for the department. I believe I realize the difficulty, because I have had some acquaintance with a couple of cases where the matter was under consideration in a somewhat important way. What struck me-and this is not offered by way of criticism, or with any intent to criticize-was that so far as I could make out there was still a great lack of precision and definiteness in the method, which was used. That was the impression I got from the two cases which came to my attention. I do suggest that this matter ought to be. given high priority.


Douglas Charles Abbott: As the hon. member realizes, one cause of difficulty is, to use his words, lack of appreciation in the method of accounting of taxpayers.


Gordon Benjamin Isnor: So as to correct an impression created by a statement by the hon, member for Souris with respect to depreciation, may I point out that the average commercial firm doing business sets up its balance sheet, its profit and loss statement. Further, it must show its assets and liabilities. From liabilities deducted from assets it will Show its surplus. That must indicate each year, to the satisfaction of the income tax branch, what its earning power is. It is true there is an opportunity for the man in business to write off a certain depreciation. For a brick building it is 2i per cent; for a wooden building 5 per cent, and for fixtures 10 per cent, covering a period of ten years. So far as I know, except in special cases during the period of fMr. J. A. Ross.]
the war, there is no such thing as a writeoff of the entire amount in three years. I think hon members should understand that clearly. The largest amount in the average commercial business-is 10 per cent on fixtures, whereas in respect of property it is 2| per cent and 5 per cent. If an individual piece of machinery is purchased, that would be capital expenditure. There is no allowance made for expenditures in that connection. During the war, by order in council, those who had fuel oil equipment for heating their buildings were ordered to do away with that and to instal coal equipment. They were not permitted immediately to write off the cost of the coal equipment which they were obliged to put in in order to cany out the regulations.


James Arthur Ross: It could be depreciated over a number of years.


Gordon Benjamin Isnor: But not in anything like two or three years, That change did not go the full five years; it was something like two or three years. One had to take out the equipment and lay it aside, and he had less than thirty cents on the dollar on his investment. Thus there was a distinct loss to the average business man.


Gordon Graydon: You have no biological increases in your business.


Gordon Benjamin Isnor: In regard to merchandise, the market price was often used in connection with the increased price of goods. The minute one began to write down, an income tax inspector would check up very closely. I do say to the income tax branch officials, however, that in the change-over from oil to coal the branch should have been much more generous in the matter of depreciation.


Mr. PEARKES:: I would underline the urgency of this matter, because it was only a few weeks ago that the hon. member for Stanstead drew attention to the large number of dairy cattle that were being exported. Depreciation in the herds results in part from the ceiling price on butter. The same condition exists in British Columbia, where dairy cattle are being sent out of the country, and where heifer calves are being killed off because of the ceiling price on butter. If breeding herds cannot be regarded as capital, it means that another handicap is added to the farmer.


Douglas Scott Harkness: The matter of introducing depreciation into the question whether a basic herd is capital, or whether it is not just beclouds the issue. The simplest way to look at it is this. Two men, we will say, came to Alberta twenty-five years ago. Each of whom had $2,000. One bought 100 acres

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of land at $20 an acre; the other bought 100 cows at $20 a head. Each man spent $2,000 of capital. Assuming that neither increased his holdings, twenty-five years later both are reasonably old men and wish to retire. Because of the appreciation in land values the man with 100 acres may sell at S100 an acre, and will have no income tax to pay on it. The man with the 100 cows will sell them at $100 each, along with the rest of his herd, and must pay an income tax on his return. If he sells the rest of his herd at the same time, it means that the total amount he receives in one year is large, and the tax rate is high. What actually happened was that most men of that kind increased their holdings. To return to the example I have mentioned, one would end up with a'thousand acres of land and the other with a thousand head of breeding stock. As the amount increases, the injustice increases in ratio to the amount each man receives. I believe this example states the condition about as simply as it can be stated. The matter is most urgent, because large numbers of men want to retire, and if they do so they are at a disadvantage. They find that the herds they have built up over a lifetime are of no great advantage, because if in one year they sell out their herds, a large amount of their life savings is wiped out in income tax. This is an injustice against the cattle producer, who should not be at a disadvantage as compared with the grain farmer or anybody else. As I said earlier, instead of simply considering the matter the government should forthwith make a definite decision.


Thomas Langton Church: This provision dealing with earned income was extended a few years ago to farmers and fishermen. In my opinion there should be equality of the general principles of taxation among all classes of our population. I remember when the principle behind this resolution was introduced, whereby farmers and fishermen could take an average. That principle of taxation had its beginning in what was known as the Farmers' Creditors Arrangement Act, introduced by my former leader for farmers and extended afterwards to fishermen. I pointed out at that time that if the principle of -that legislation was extended to fishermen it should also be extended to industrial workers who might have jobs today but not to-morrow, especially in depression years such as we had in the thirties. The time [DOT]has come when the whole system of taxation should be revised, because, as is well known, down to a year ago farmers and fishermen were practically exempt from income tax.
I can tell you this, that the time has come when income tax should be restored to where it was from 1867 down to 1917. At that time it was still the prerogative and function of the municipality. What has been the result? In 1917 Sir Thomas White said that for one year in order to finish the war there would be a federal duplicate income tax, but the government has held on to the whole principle ever since that date. The time is coming when the principle should be changed and income tax restored to the municipalities.
If you are going to permit by this resolution farmers and fishermen to divide up their income and average it over a number of years, 1946, 1947 and 1948, the same privilege should be extended to other classes in the community, to civil servants, industrial workers and white-collar workers who may not be sure of their jobs and who will not be sure of their jobs if the small business men are continually taxed to death. The tax has to be collected by somebody; but there should be equality of treatment, otherwise the principle is all wrong. It amounts now to confiscation of property. These small retailers and wholesalers cannot pay a tax of 22 per cent, 32 per cent, 42 per cent-the rate goes up every year. If we pass resolution 17, what are we going to do next year? You are actually suggesting a principle that will never be applied because you are going to have to change the whole thing as to what the fishermen and farmers will pay in 1947 and 1948.


William Irvine: I have had many letters from stockmen in the Cariboo objecting to the matter that is being discussed. If a merchant were to sell his stock and go out of business, would he have to pay income tax on the entire amount received?


Douglas Charles Abbott: That is a question which I have attempted four or five times to answer this afternoon. As the law now stands, he would pay a tax on the entire proceeds of the sale on the ground that it is a sale of inventor)'. The discussion this afternoon has been instructive and informative. To some extent it is a repetition of the discussion which took place in previous years, but among other things it has served to bring out the great difficulty which is inherent to this question and which some of the hon. members who have spoken have admitted. I am advised that no longer than a week before the resolutions were brought in, a meeting took place between officials of the Department of Agriculture and the Department of Finance with the idea of still further working out the problem. I cannot add to what I have said
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to-day and to what the minister said in his budget speech. The question has not yet been solved, but we have not given up hope.


William Irvine: In view of the fact that there is some shade of admission on the part of the minister that there is a real difficulty here and also that there is a sort of undercurrent of suggestion that possibly there is some measure of injustice to farmers wiho desire to sell off their stock, would it not be wise to hold up this particular method of taxation for this year? It would be better for the state to suffer a little loss than to impose what seems to me a serious loss upon the individual farmer or cattle man.
While I am on my feet may I say I recognize the improvement the government is making in respect to spreading the tax on farmers over a three-year period. However, I must confess that it is not as good as it might be. I understand that this afternoon we are discussing resolution 17 in the hope that the government will give it further consideration and possibly bring in, to-morrow or some other day, some modification of the present policy. If that is the understanding I do not think much good can be served by saying anything more on the matter.
I think all points have, been pretty well brought out, but I wish to emphasize these two points. The man who wants to give up his cattle business and sells his stock should not be taxed on the entire amount he receives. Next, taxation on farmers generally should be spread over a five-year period. I hope the Acting Minister of Finance will accede to the wishes of the committee and give this matter a little more consideration. If he does that I am hopeful that there will be some modification in connection with these two points.


Douglas Scott Harkness: The minister said a few minutes ago that a discussion had been going on between officials of the Department of Agriculture and the Department of Finance in connection with this question of basic herds.


Douglas Charles Abbott: With the Department of National Revenue.


Douglas Scott Harkness: I suggest to the acting minister and to the government that before any more conferences are held the government make up its mind whether it is going to adopt the principle. If the government accepts the principle that a basic herd is capital, then I suggest that there will not be a great deal of difficulty in working out some practical means of putting it into effect.
[*Mr. Abbott.]


Douglas Charles Abbott: The stock breeder's herd would fee built up out of income. It would be very simple if we accepted initially the herds as they exist to-day, but I think that would be unfair to other taxpayers.	.


Douglas Scott Harkness: Certain breeding herds were built up out of income, but largely at times when the income tax was not applied so heavily. That is why the matter has become so important. The income tax is now quite high and something should be done about the matter. When I used the illustration a little while ago of 100 cows and 100 acres of land I had hopes that when I sat down the minister would either agree or disagree that the cows were capital. I should like to have his view on that matter.


Douglas Charles Abbott: That is a difficult hypothetical question. Of course, from one point of view they could be considered as capital. My hon. friend went back a long way and cited the case of a man who bought 100 cows and the other man who bought 100 acres of land. I presume the man who bought the 100 cows has lived off the fruits of those cows ever since, but my hon. friend did not indicate what the man who bought 100 acres of land has been living on. The question is not very simple. The matter of dispersal sales is not directly involved in this resolution, but I think it was proper to discuss it and I so indicated. In my memory this subject has been discussed for the last four or five years. As I said a moment ago, the discussion has been very full and most informative. It has been carried on by hon. members who have personal knowledge of what they are speaking about, and may I say at once that I do not include myself in that group because I have had very little experience with breeding herds, although some years ago I did learn how to milk a cow. I do not know that much more can be added to what I have already said. The government will continue to give the most careful consideration to the representations which have been put forward and will carry on with their efforts to see if some acceptable solution can be found for this admittedly difficult problem.


Frank Exton Lennard: I bought a farm a year ago, and two months afterwards I was offered twenty-five per cent more than I paid for it. I did not sell it because I did not buy it for that purpose. But if I had I would have gained because I would not have been taxed for it. If I had bought cattle and sold them I would have been taxed.


Mr. McCANN:: Are you in the farming business or in real estate?


Frank Exton Lennard: In the farming business.

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Mr. WARREN:: I am not sure that this angle has been fully considered. Suppose a farmer has been building up over a number of years a dairy herd and eventually finds himself in a position where he has to change his methods of farming. Perhaps he is not able to go on milking cows because of lack of help or for some other reason, so that he sells his herd and pastures cattle on his land. Surely in a case of that kind his herd ought to be considered as capital. He has to use the money he got for his herd to buy cattle to put on his pasture. To me it does not seem right that the farmer should be taxed on everything he gets from the dispersal of ms dairy herd.


Mr. WHITE (Hastings-Peterborough):: The minister has the Minister of National Revenue beside him and the deputy minister. I would ask him two questions about this blue form which the farmer has to use in making his income tax return. First, would the minister please explain how the income tax department computes the amount to be inserted in the form for produce raised on the farm and consumed on the farm? Second, would the minister explain why sales of wood, stone, lumber, trees, sand and soil off a farm are regarded as income? That comes under the heading of miscellaneous sales.
Mr. MoCANN: The farmer himself in making his return usually computes the value of the produce raised and consumed on the farm. With regard to the sale of gravel, sand or any other commodity from the farm, he puts that down as income when making his return. It is a source of revenue to the farm and as such is returnable as income.


George Stanley White: Surely the minister does not pretend that once a sand or gravel pit on the farm is exhausted the farmer could grow another one. A contractor will come in and take perhaps
20,000	yards of gravel from the pit and then the pit may be exhausted. I do not think that could be classed as income.


Douglas Charles Abbott: In that case we are out of farming and into mining.


George Stanley White: No. The sales have to be entered on this special form for the farmer. I am sure the minister will not contend that soil or sand or gravel sold off a farm should be classed as income.


Mr. HACKETT:: He is allowed depletion for it.


Douglas Charles Abbott: My remark about out of farming and into mining was semi-facetious. The farmer must account for the gravel sold
as part of his gross income; but, as the hon. member for Stanstead has pointed out, he can claim depletion, and if the depletion operates in the ordinary way he will in due course write off the entire value of his gravel or sand pit and pay no more tax with respect to it.


George Stanley White: I do not regard as satisfactory the answer of the Minister of National Revenue as to the value to be inserted in the form of the produce raised and consumed on the farm. My experience has been that the local inspector tells the farmer what he has to put down there, so' much for the farmer, his wife and one child, let us say. Is that correct, or is it left to the farmer to compute the amount of produce consumed by him and his family at, say S100? My experience is that that is not accepted by the inspector, who says: We will put down $300 for that. And that is what the farmer has to pay. Has the farmer the right to say how much it is and put that down on his return?


James Joseph McCann: The farmer is supposed to make his own return. If we find that his return is not in keeping with the average return made by other farmers in that district, the department can raise the amount put down for that item.


George Stanley White: What is the average amount inserted for that item in an average farming community where they are carrying on mixed farming?


James Joseph McCann: One cannot say that a certain figure would be constant for all communities. The figure used in the particular instance my hon. friend mentions would be the figure which is generally given and accepted in a return from that district.


George Stanley White: What figure does the minister refer to, $100 or $150?


James Joseph McCann: Did not the hon. member mention $300 for three people?


George Stanley White: No; I said $150. If the minister contends that his department charges $150 for the produce raised and consumed on the farm he does not know very much about how the farmer lives to-day. Why charge up eggs, milk, butter or anything like that when there are hundreds of people who keep the odd cow or a few chickens, and they do not have to account for what they raise in that way? To-day practically all that a farmer buys in the way of food is meat, and if you charge him $100 for that, that is far too much. I say that the
Income War Tax

arbitrary attitude adopted by the local inspectors is hardly consistent with the remarks of the minister.


James Arthur Ross: I am sure there is no place on that form for the farmer to make a claim for depletion. I have a splendid wood lot on my farm and a gravel pit at the other end. Anything I receive from the wood or gravel sold has to be shown as income, and there is no place on the form for claiming depletion. If I sold the whole farm, including the wood lot and the gravel pit, the whole would show as capital, but the wood or gravel I sell has to be shown as income.


Douglas Charles Abbott: Technically the question* of wood is a little difficult. Strictly speaking, I think a man would be allowed to deduct depletion for wood sold from off his farm, and I am positive that he would be able to claim depletion on gravel sold from his gravel pit. As the hon. member for Stanstead has said, the farmer can claim depletion. I am not familiar with the particular form the farmer uses and do not know whether it contains a space for that, nevertheless the farmer is entitled to claim depletion.


John Thomas Hackett: In the study that has been made of this problem, has what is being done in other agricultural countries been considered? For instance, I understand that in Norway and Sweden the timber cut is com sidered as a crop. It is not an annual crop but is cut periodically and constitutes revenue. In those countries, is it charged up as income to the farmer? In great farming countries like the United States, have they found a solution for this particularly involved and annoying problem?


Douglas Charles Abbott: I cannot answer my hon. friend from personal knowledge. The officials of the Department of Finance especially charged with the investigation of these tax questions have the taxing systems of all other countries under constant review. As the committee knows, the farming community as a class are not large income tax payers and have not been in the past. Until very recent years, only a limited number was taxable or at any rate filed returns. The problem ha$ perhaps become more acute in recent years because of the greater number of farmers *who are in the income tax category. However, I will see that the point my hon. friend has raised is taken into consideration. This section, as he appreciates, does not directly involve the basis on which farmers are taxed. It has to do merely with the question of averaging, but under this head, we have been having a general discussion of taxation of farmers, which is probably in order.


John Thomas Hackett: lit has raised a great deal of unrest-possibly that is too sweeping a term-or at any rate considerable anxiety among farmers. I do not wish to intimate that great numbers have asked me about it, but several have done so. Last week 1 received a letter from a gentleman stating that the only crop he raised on his farm that did not seem so far to be subject to taxation -and he thanked God that it was a bountiful one-was children. He asked me what provision had been made about the taxation of the proceeds of the sale of herds. I submit to the minister that a definite statement on the subject should be made as early as possible because at the present time, there are a great many uncertainties in the life of a farming community, and this new one is a problem which is creating considerable anxiety and curiosity. A definite statement of policy should be made at as early a date as possible.


William Alexander McMaster: As a city resident, I think city people would be quite content if a great deal of leniency were exercised in charging to the farmer what he uses from the farm. If you carried the principle to the extreme limit, I would say that as a professional man, if I did certain work in my own home I would be saving money and should be charged for it, or if I raised some chickens and used the products of those chickens I should be charged. I suggest that the unrest and bad' feeling caused by these little charges against the farmers, who work long hours and need a certain amount of protection, far outweighs any benefit that is derived. You have only to look at the returns from the farmers to realize that you do not get anything valuable, while these charges cause unrest.


Robert Fair: I had a letter from my wife this afternoon-


An hon. MEMBER:: Good.
Some lion. MEMBERS: Hear, hear.


Stanley Howard Knowles: Put it on the record.


Robert Fair: I am glad that my hon. friends appreciate my getting a letter as well as I do myself. I would put part of it on the record, but it would not make them any happier than it makes me. My wife tells me that on Monday morning there was quite a sheet of ice on the water tank, which is quite close to the garden. That means that the garden is gone and we shall have to go and buy what we need. I am -wondering what income tax we shall have to pay this year in respect of the value of that.


Douglas Charles Abbott: Not much, I should think.

Income War Tax


Robert Fair: We have had several discussions in the house about the returns that fanners receive. The fanner's wife and his family look after the garden and receive no wages. His family get no consideration whatever for their labour, and what the farmer uses out of the garden should not be taken into consideration in making up income tax returns. Is there any justification in the world for taking account of the potatoes and other vegetables used out of the garden? If there is, then I suggest that the minister and his colleagues should grow stub beards and have the hammer and sickle flag over their desks, because there is no reason why these things should be confiscated from the farmers. Part of the farmer's income is confiscated in the form of the prices he receives-or does not receive- for what he sells and it is time we got down to common sense in dealing with these matters.


Lewis Elston Cardiff: How long does the department feel justified in holding taxes that have been overpaid?


James Joseph McCann: The refunds are made as quickly as possible.


Lewis Elston Cardiff: The case to which I have reference goes 'back to 4943 and the money has not yet been paid back. I do not know how many hundreds of thousands of cases there are-


James Joseph McCann: It does not run into
hundreds of thousands. The complaints with reference to refunds are very few, and if the hon. gentleman will bring that particular case to my attention I will have it looked into immediately.


Mr. MATTHEWS (Brandon):: There is
one observation which I dhould like to make in a spirit of fairness, and it might as well be made under this heading as any other. Several months ago I received, as other members probably receivedi, a great many complaints as to the demeanour of local inspectors checking up on farm returns. I received a few letters that incensed me a good deal, so much so that I prepared a questionnaire and sent out fifty-ifive copies to various persons, not all in my constituency, inquiring as to rVhat grounds there were for these complaints. Most of them replied, and I wish to report in a word or two the gist of the replies. About half of them praised the attitude of the assessors; about a quarter of them said they had no complaints at all to make; only one man complained, and he complained bitterly. I knew that man; in fact I had known him for years. I knew also the inspector who made the inspection. They
are both very fine men and I regretted that there was any feeling between two men of that. type. I believe they came together at a time when they were both considerably irritated about other matters and there was a bit of explosion. Apart from that individual case, I had not one complaint of the attitude of these assessors. Had there, been many, I would have expressed myself fairly critically on the floor of the house, and I would have had a right to. But since there is only one, I thought, as I said in the beginning, that as a matter of fairness I should report to the Minister of National Revenue and to the committee the calibre of the men so far as I have been able to learn who were in my constituency and near it, and I have much pleasure in. doing so at this time.


Mr. ZAPLITNY:: A little while ago the minister said he was sure that a depletion allowance was available, but I do not think he replied to the question as to what space there is on the form for applying for such allowance. Probably the Minister of National Revenue can answer that question, which is an important one. It has to do with woodlots and gravel pits.


Douglas Charles Abbott: I do not know about wood-lots. There may be no place on the form-* I have not the form before me-but the deputy minister tells me the rate is small, about a cent on a ton of gravel. The point I am making is that the taxpayer is entitled to claim depletion. As I say, the amount received is very small but the depletion can be claimed.	.


Frederick Samuel Zaplitny: That does not answer the question I asked.


Douglas Charles Abbott: Let me answer it this way. There may be no place on the form- I shall have to have the form looked up to see-but even if there is not a place, the taxpayer is still entitled to claim depletion. It may not be worth his while to do so, but he is entitled under law to claim it.


Frederick Samuel Zaplitny: Is there such a form? Can the Minister of National Revenue tell us what the form is? I imagine it would be in his department.


Douglas Charles Abbott: I do not know what kind of form my hon. friend means. There does not have to be any special form for claiming depletion. There may be a place on the regular income tax form in which it is indicated to the taxpayer that he may claim depletion. Nevertheless it does not have to be on the form as a matter of law, and it is perfectly open to the taxpayer to claim that
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depletion and to claim it at any place on the form. He can put it under the heading of "other deductions." The deputy minister informs me that there is a place on the form for other deductions; it could be put under that.


Frederick Samuel Zaplitny: That is the answer I was seeking.
Resolution stands.
18. That for the 1946 and subsequent taxation years, the service pay and allowances, other than travelling allowances or separation allowances in place of travelling allowances, of a member of the permanent Canadian naval, military or air forces paid at the new rates of pay and allowances established for the said permanent forces be taxable income of a member irrespective of
(a)	whether he is serving within or outside of Canada; or
(b)	whether he receives the pay and allowances during the first six months after his return to Canada.
Mr. MACDONNELL (Muskoka-Ontario); May I ask the minister a question on resolution 18?


Douglas Charles Abbott: I was going to give my usual preliminary statement.
Mr. MACDONNELL (Muskoka-Ontario); I was going to ask the question because it is inconsistent with that. Will the minister be good enough to let resolutions 18, 19 and 20 stand until this evening, because the hon. member for Vancouver South, who would like to speak on them, has to attend the committee on veterans affairs?


Douglas Charles Abbott: I shall be glad to do that.
Resolutions 18, 19 and 20 stand.
21.	That, where an elected member of a provincial legislature is, under an act of the provincial legislature, paid an allowance _ for expenses incidental to the discharge of his duties as a member, the allowance received in the ,1946 or a subsequent taxation year be deemed, to the extent of not more than one-third of the aggregate of his normal sessional indemnity as a member and the said allowance, not to he salary or taxable as income.
Resolution 21 agreed to.
22.	That where the author or joint author of a literary, dramatic, musical or artistic work on which he was engaged for a period of more than twelve months assigns the copyright therein wholly or partially and has in the 1946 or a subsequent taxation year received within one year of the assignment in consideration therefor an amount, the whole of which would otherwise be included in computing his income during the taxation year a specified part or parts of the consideration may, at his option, be attributed to his income during certain previous taxation years.
Mr. ABBOTT; Perhaps I had better make a brief explanation of this resolution. The

legislation to be founded on this resolution is intended to afford relief to authors of literary, dramatic, musical or artistic works who receive in one year a sum of money for the sale of a work on which they have been engaged for more than twelve months. The amendment to the act will allow the taxpayer to elect to have the payment from such a sale taxied in the following manner; one, if the period in which he was engaged on the work exceeds twelve months but is less than twenty-four months, one-half the payment to be taxed in the year of receipt and one-half in the previous year. Second, if the period in which he was engaged on the work exceeds twenty-four months, one-third of the payment taxed in the year of receipt and one-third in each of the two previous years.


James MacKerras Macdonnell: That seems more specific than the delightfully vague language of the resolution, but I take it that it is not inconsistent with what is in the resolution. The resolution says:
. . . a specified part or parts of the consideration may, at his option, be attributed to his income during certain previous taxation years.
What the minister has read is making it more specific than this.


Douglas Charles Abbott: That is correct. My hon. friend appreciates that these resolutions are invariably drawn in fairly general terms, and that the specific part is set out in the legislation. As a rule, the government indicates what it is intended the legislation should be, and that is what I have done.


James MacKerras Macdonnell: The only reason I commented is that I found the resolution drawn in 6uch delightful vagueness.


Douglas Charles Abbott: I shall pass on the hon. member's remarks to the draftsman.


John Ritchie MacNicol: If the former member for Kootenay West were here I imagine that he would ask the question I will ask in his absence. Will the authors who receive returns for such writings as are protected by the performing right society, songs and so forth, pay on the dividends received from the performing right society?


Douglas Charles Abbott: The answer is yes.


William Alexander McMaster: Is three years a fair period of time? I am almost afraid to bring in a similar case, but in England in the case of the sale of patents they are spread over a period of six years. I suppose it would all depend on what they receive.

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Douglas Charles Abbott: After consideration this was felt to be fair. As the committee will appreciate, it extends a substantial measure of relief to artists and authors.


James MacKerras Macdonnell: Has there been any representation from the association representing the authors, and does this meet their views?


Douglas Charles Abbott: I am advised that representations have been made by the Canadian authors' association and that this does meet their views.


[Stage Direction]
Resolution agreed to.
23.	That the special rates provided for nonresident-owned investment corporations be reduced for the 1947 and subsequent taxation years from 224 per cent to 15 per cent but that such corporations be taxable on all income received in Canada subject to deductions from the said income in respect of interest and dividends received from such other corporations and foreign taxes paid by the corporation.
Harry Rutherford Jackman: May I ask the minister a simple question? I do not think he needs to read his statement. Some of these companies do have fiscal years ending not with the fiscal year, and with the change in the legislation made applicable to the calendar year it would apply to only part of their fiscal year. It was changed some years ago to accord this equity. I think it would be acceptable if the minister would agree.


Douglas Charles Abbott: I am advised that the present intention Is that it should apply to fiscal years ending in the calendar year 1947.


Harry Rutherford Jackman: The minister says that it will apply to fiscal years ending in 1947. The relief granted here commences on January 1 of next year.


Douglas Charles Abbott: That is correct.


Harry Rutherford Jackman: Therefore a company which had a year ending in September would go for nine months on the present schedule of rates; is that not right?


Douglas Charles Abbott: No, it would get twelve months. I am not quite clear whether this will answer my hon. friend's question; but taking the case which he has cited, a company whose year ends on September 30 would file returns on September 30, 1946, and would pay on the present rate of twenty-two per cent. It would file its next return in September or October, 1947, for the full year ending September 30, 1947, and would pay for that twelve months' period, but it would be taxed at the rate indicated, fifteen per cent.


Harry Rutherford Jackman: I think this plea for equity-I may call it that-was granted some years ago, when another change was made
in connection with these companies. I may say that I am not very familiar with them.
Therefore I am always willing to stand corrected. What is requested is that the new .rate of taxation be made to apply to a company during the calendar year. The rate changes on December 31 of this year. I take it that if a company has its fiscal year ending at some other time in the calendar year it would pay the present rate until December 31, 1946. For that part of its fiscal year which is in the calendar year 1947, however, it would have the new rate applicable to that portion of its income. I think it should work both ways.


Douglas Charles Abbott: It is a complicated situation, and perhaps it might assist if I were to read the brief explanation I have here, which covers, at any rate in part, the point my hon. friend has in mind.
The purpose of the proposed legislation is to simplify and place on a more equitable basis the tax applying to non-resident owned investment corporations. Incidental to the proposed changes, there may be very minor tax abatement, depending on the type of securities held in the portfolio of the investment company. That is because, under the law as it stands at present, in the case of Canadian dividends from Canadian companies the effective tax is 15 per cent. In the case of certain interest on interest-bearing securities, it is 224 per cent. The possible change in the incidence of this tax is incidental to the overhauling of the section and has no important revenue significance. The provisions of the law are complicated, and unless members of the committee wish to go completely into the intricacies of this item I suggest it might stand until the bill is before the committee, when I shall be prepared to give a fuller explanation. As I say, those who are particularly interested in this type of company will be able to follow the proposed changes when the amendments to the Income War Tax Act are before the committee.


Harry Rutherford Jackman: I only asked the minister to see if he would agree that a company of this kind would not be discriminated against if it happened to have its fiscal year end at other than the end of the calendar year.


Douglas Charles Abbott: I can agree that it will
not be discriminated against.


[Stage Direction]
Resolution agreed to.
24.	That for the 1947 and subsequent taxation years investment corporations whose profits are now exempt from tax under paragraph (f) of section seven of the Excess Profits Tax Act, 1940, be exempt from tax upon income and
[Stage Direction]
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that such corporations that would be so exempt except that they have outstanding bonds, debentures or other securities evidencing bonded indebtedness pay tax upon income at one-half the rate for corporations.
Douglas Charles Abbott: Perhaps I had better make a brief explanatory statement. This resolution deals with the tax position of investment corporations. For the purpose of tax treatment, investment corporations are divided into two groups; that is, those with funded indebtedness and those without funded indebtedness. The latter group, those without funded indebtedness, are at present exempt completely from the excess profits tax, and the present proposal is that they shall be exempt in future from corporation income tax. It is believed that investment trusts of the sort being considered represent in effect merely collective investment by individuals, and it is considered that the mere funnelling of income through the company to individuals should not bring on an extra tax. Provision is made, of course, that substantially all the income received by the investment trust must be distributed to the shareholders.
With regard to investment trusts which have funded indebtedness the situation is slightly different.- In this case the corporation has issued fixed interest bearing securities to the public. The funds secured from the bondholders are then invested along with the funds received from the shareholders. It will be clear, I think, that any return obtained by the company in investing the funds received from the bondholders, in excess Of the fixed rate of interest paid to the bondholders, goes to the equity holders. In this sense, then, the corporation can be said to have made a profit for the equity holders in addition to having invested their funds advantageously. It seems therefore, that a half rate rather than full exemption would be fair and reasonable in the case of this kind of investment trust.


Stanley Howard Knowles: The only comment I have to offer is that when resolutions 12 to 16 are called the minister must not be surprised if we give back to him some of the things he is now saying. It seems to me the argument is used that here you have a collective effort which should not be penalized by taxation, and the same argument will be used with respect to cooperatives.


Douglas Charles Abbott: I do not believe that principle applies here. However, if my hon. friend wishes to draw an analogy when we are on the other sections I would have no objection to his doing so.


[Stage Direction]
Resolution agreed to.
£Mr. Abbott.]
25.	That for taxation years ending after June 30, 1947, a corporation be permitted to deduct from income amounts paid to charitable organizations not exceeding 5 per cent of the income of the corporation subject to taxation without the limitation presently thereon.
Douglas Charles Abbott: Under the present law the tax savings of a corporation making charitable donations is limited to 40 per cent in the case of any excess of its donations over a standard which is defined in the law and which I have always thought is complicated. That restriction was imposed when the 100 per cent excess profits tax was enforced; and with the lower rates proposed for 1947 it is deemed unnecessary to continue this limitation. It will be withdrawn in respect of companies with fiscal years ending after June 30, 1947, and the original provision under which charitable donations were allowed as a deduction up to five per cent of a corporation's income will be the only limitation imposed.


Thomas Langton Church: I am sure the department has received large numbers of letters from charities, hospitals and universities to which under this section corporations used to pay, re donations and aid to these charitable objects, so much a year over a period of three years, five years or in some cases ten years. Last session, when this matter was under discussion, I pointed out that, as a result of the change made, many universities, many hospitals and many charities looking after poor people, are suffering, and as a result some have refused to continue this work. Last year I read a letter to the Minister of Finance from Archbishop Seager, the head of a college in London, as well as letters from other universities, and I had hoped that some protection, or more than five per cent, might be given them by making payments under these contracts, because that is what they are, charitable grants free from taxation. During the war, these institutions were starved for new buildings, and in some of them the situation is difficult at the present time. The university of Toronto has some five thousand students out at Ajax. Because of the limited operation of the five per cent limitation some people have ceased to make these contributions. In my opinion, the government should consider the whole problem during the recess, if they cannot do anything now, because certainly some relief should be given. Perhaps the minister will be able to make a further statement later.


Douglas Charles Abbott: As I indicated, the proposal here is to restore the provisions of the law as they were before the amendment of 1945, which, as I say, was made to meet special conditions arising out of the imposition of the 100 per cent excess profits tax.

Income War Tax


Stanley Howard Knowles: That is, the rates are no longer such that a corporation can save taxes by making these donations?


Douglas Charles Abbott: That is right. We feel that the proportion of the corporation income which comes into its own coffers, if I might put it in that way, is sufficient to provide a real deterrent to unnecessary and extravagant donations.


Mr. McKAY:: Is a corporation required to file receipts for charitable donations, as private individuals are?


Douglas Charles Abbott: Yes.


Thomas Langton Church: I wonder if I could ask a question with regard to resolution 21?


Douglas Charles Abbott: If the committee has no objection I have none.


Thomas Langton Church: I thank the minister and the committee for the courtesy; I happened to be out when the resolution was called. In many provinces the capital city has an income from, taxes larger than the province and in two or three cases a turnover greater than the province in capital and maintenance from civic taxes. I noticed at a meeting of municipalities that there was a request that in respect of large municipalities some allowance should be made to bodies like boards of control in large cities. This was discussed by the municipal convention I have in mind, and I think it is a matter which the minister might consider in his next budget, namely, of an, allowance, as in resolution 21 to provincial legislatures, to the larger municipalities.


[Stage Direction]
Resolution agreed to.
26.	That persons entitled to a payment out of an employee's superannuation or pension fund or plan, the investment income of which has been exempt from taxation by reason of an election for such exemption by the trustees or corporation administering the fund or plan, be allowed in the 1946 and subsequent taxation years as an alternative to the present deduction from the pension or superannuation payment, an amount computed on the basis of the amounts paid Dy the employee together with simple interest on such amounts at 3 per cent per annum.
Douglas Charles Abbott: This is complicated, and I believe I should make an. explanation. The effect of the legislation to be founded on this resolution is to offer an alternative method of determining the taxable portion of pensions received from funds, the income of which has been exempt from tax by reason of an election of the trustees of the fund. The section of the law which authorized this election was introduced in 1928 and was repealed in 1945.
During the period that a fund has been kept under this section, contributions made by the employee to the fund were not allowed as deductions from income, but the pension derived by the employee is subject to tax only in the proportion that contributions for which he was given deduction-that is, contributions made prior to 1928 or following 11945-bore to his total contribution to the fund. If all the contributions, for instance, were made between 1(928 and 1945, then the pension is totally exempt. Or, to take another example, if one-fifth of the contributions were made before 1928 and one-fifth after 1945, and the other three-fifths between 1928 and 1945, then two-fifths of the pension would be taxable and three-fifths of the pension would be tax exempt.
Representations have been made that this formula took no account of the portion of the final pension which arose from interest accumulations on the employee's contribution to the fund. If, for example, interest accumulations were added to the contributions made during the 1928 to 1945 period, the portion of the final pension actually attributable to these contributions would be larger, and the tax exempt proportion would be correspondingly increased. The effect of adding interest accumulation is mixed, however, depending upon the period in which the greater proportionate amount of the contributions were made.
If the greater part of the contributions were made before 1928, since these contributions determine the taxable proportion of the pension the accumulation of interest on these contributions would give less favourable treatment than that now provided in the law.
On the other (hand, if no contributions were made prior to 1928, a substantial proportion made in the period 1928 to 1945, and a lesser proportion made after 1945, the accumulation of interest would be more favourable than the present formula. Since the accumulation of interest is only of benefit under certain circumstances, it will be offered as an alternative which the taxpayer may take at his option.
The method now provided in law will be preserved, however, for pensioners who find it of greater benefit than the proposed alternative. In other words, this is another case Where an option is being given to the taxpayer to take one of two alternatives, whichever may be the more favourable.


James MacKerras Macdonnell: This is some little alleviation of what it was felt last autumn would be a hardship. This,

Income War Tax

as I understand it, is in no sense taking away any existing right, but purely an additional option.


Douglas Charles Abbott: That is absolutely correct.


George Randolph Pearkes: Would that apply to pensioners of the permanent force?


Douglas Charles Abbott: They were contributory
pensions, and I should think that contributions made would apply. However, I would not want to be held to that statement.


George Randolph Pearkes: Can we have a definite
answer ?


Douglas Charles Abbott: On second, thought, I would question whether this would apply.


George Randolph Pearkes: I will not press for an answer at this time.


Douglas Charles Abbott: I shall be glad to look into the matter; but I do not think it would apply, because I do not think there is any possibility of election of the trustees.


James MacKerras Macdonnell: I should like to ask a question which may not be very intelligent, because I am not a gocd enough mathematician to figure it out. But I want to know this: Is it possible that a person might wish to opt for one of these, and later on circumstances might change so that he might wish to opt for the other. If so, does the election bind him permanently? I am speaking of resolution 26.


Douglas Charles Abbott: I am told that it would not change, that he is able to decide at the time which option will continue to be more favourable.


Stanley Howard Knowles: May I ask if the whole question of taxation of both payments into and payments out of pension funds, or deductions for amounts paid in and taxation on payments out, is still under consideration? Does this end the matter? It seems to me that there are other factors in addition to the varying interest rates which would have a bearing, and which would cause a taxpayer to elect one way or the other. There is also the question of rates of income tax in force at the time a person is paying into a pension fund as compared with what might be the rate when the person is receiving the pension.
It seems to me that this makes a strong case for still greater simplification of this whole question as to whether or not payments into superannuation funds should be exempt from taxation, and as to whether or not in the final analysis pension payments should be taxed at all, in either instance.
rivlr. Macdonnell.]


Douglas Charles Abbott: As my hon. friend will recall, that whole question was considered by the Ives commission, and legislation was introduced last year following the recommendations of that commission. I had thought we were pretty well at the end of that road. However, that does not mean that there cannot be further improvement, if such is possible.


[Stage Direction]
Resolution agreed to.
27.	That the special provisions with regard to,
(a)	payments out of a superannuation or pension fund plan upon the death, withdrawal or retirement from employment of an employee or former employee in full satisfaction of all his rights in the fund or plan,
(b)	payments by an employer to an employee upon retirement in recognition of long service, and
tc) payments by a person to a former employee in respect of loss of office or employment be replaced by a provision for the taxation of amounts so received after June 27, 1946, at the option of the taxpayer either as income for the year in which he received the amounts or at a rate equal to the percentage which the tax upon the taxpayer's income during his last full year in the employment is that of income.
Douglas Charles Abbott: The effect of the legislation to be based upon this resolution is to revise and make uniform the various provisions of the present law regarding the taxation of lump sum payments received from a superannuation or pension fund and from an employer on the occasion of retirement or loss of office. Under the existing law a lump sum payment from a superannuation or pension plan is taxable only to the extent of one-third, while lump sum payments on retirement or in respect of loss of office are taxable to the extent of one-fifth in the year of receipt and one-fifth in each of the following four years.
These provisions were introduced during the war to moderate the effect of very high tax rates when applied to a lump sum of money the whole of which is taxable income. In the case of payments out of a superannuation fund contributions to the fund would have been deductible when tax rates were much lower and the one-third rule had regard to this fact. In the meantime contributions have been deductible under high wartime tax rates, while lump sum payments out of the fund will be taxed at substantially reduced rates. It is proposed, therefore, to alter the provisions. All lump sum payments of the kind I have mentioned will be taxable at the option of the taxpayer either as income in the year of receipt or at a rate equal to the percentage which his total tax in the last full year of employment bears to his income in that year.
One alternative will be more favourable under certain circumstances than the other, depending upon the amount received in the

Income War Tax
lump sum payment and the amount of the taxpayer's other income. The taxpayer will be allowed to elect which of the alternatives is to his greatest advantage. This amount will apply to lump sum payments received after June 27, 1946.


James MacKerras Macdonnell: Could we be given an illustration of a case where it might be more favourable to tax on a lump sum? It would have to be a very small lump sum, would it not?


Douglas Charles Abbott: I think that is right. It would have to be a small lump sum and the taxpayer would have to have no other income.


James MacKerras Macdonnell: I am wondering if I understand what you mean by a lump sum. Am I correct in thinking that it means a single payment?


Douglas Charles Abbott: A single payment.


James MacKerras Macdonnell: Is this a real option and are there cases where the lump sum option is taken?


Douglas Charles Abbott: I am advised that there are cases and that there is a real option here.
Mr. MclMASTER: What is the other case where it is added on?


Harry Rutherford Jackman: The ship must come in in the meantime.


Douglas Charles Abbott: 
James MacKerras Macdonnell: If I understand correctly, the only case in which the first option could apply would be where the lump sum payment was less than the income received in the last year of employment.


Douglas Charles Abbott: I think that is probably correct.


John Thomas Hackett: I have an idea that some discretion is exercised by the department when an amount is received as compensation for loss of employment. I think the minister has enough imagination to know what I am asking about.


Douglas Charles Abbott: That is provided for in section 3, subsection 8 of the Income War Tax Act which reads:
Where the minister is satisfied that a payment or payments made on or after the thirteenth day of October, nineteen hundred and forty-five by a person to a former employee is in respect of loss of office or employment, one-fifth only of the payment or the aggregate of the payments made in any year shall be deemed, for the purposes of this act, to be income of the taxpayer in the year it is received and one-fifth thereof shall be so deemed to be income of the taxpayer in each of the four succeeding years in which he is living.
That section is being amended by the legislation which will follow this resolution. As I indicated in my statement that was inserted in tire law at a time when the wartime rate of taxation were so high that it was felt that that was equitable under the circumstances.


John Thomas Hackett: I wonder why an arbitrary rule of that kind was resorted to. I think it would be more equitable to take the life expectancy of the individual and divide the payment into the number of years of expectancy. A man ceases to be employed and is paid a certain sum in lieu of salary for all time. If his expectancy were found to be ten years, why would it not be better to give him an income of one-tenth the total payment for each of the remaining ten years of his life? It seems to me that the present amendment will discourage payments to people who have rendered useful service. These payments will be considered to be futile because such a substantial portion will be going to the tax collector. Frequently it will make the income for the year greater than the taxpayer has ever earned during his earning years.


Douglas Charles Abbott: The proposed amendment will correct that. It was considered not only impracticable but most undesirable to take the life expectancy basis. Payments for loss of office cover men of a variety of ages, from the very young to the quite elderly, and they vary
Income War Tax

greatly in amount. A man who has a contract with an employer may have his contract terminated and be paid a certain sum of money as compensation. I do not think it would be proper to treat that as an annual payment to him for the rest of his life, based on his life expectancy. I think by and large the rule which was adopted under the section which I read of averaging it over five annual periods was about as close as one could come to a correct solution. Taking into account the fact that wartime rates of taxation were then high and that we are now coming into a period of reduced taxation, it is considered that the proposed rule provided for in this resolution is more equitable.


John Thomas Hackett: Would it not be better to wait until we get into the period of reduced taxation? I appreciate that there will be a reduction of sixteen per cent in income tax in 1946, but the tax is still a very burdensome one. It might easily mean that twenty-five or thirty per cent of the contribution which the employer wishes to make for the comfort and well-being of a faithful employee would go to the tax gatherer. It seems to me that that is unduly harsh, because in most cases the earning power of the individual has been terminated when these benefits accrue to him.


James MacKerras Macdonnell: I take it that these payments in resolution 27 are in cases where a man on leaving gets one lump sum?


Douglas Charles Abbott: Right.


James MacKerras Macdonnell: Of course, as the hon. member for Stanstead has pointed out, it is very unfortunate that the benefit should come in that way; it is not as good as a pension arrangement. Nothing is done, I take it, by way of anticipation to take care of the taxing situation such as is done in a pension plan. Is that true?


Douglas Charles Abbott: I am advised that in a superannuation fund exemptions have been allowed to the taxpayer for the contributions he had made.


James MacKerras Macdonnell: I come now to a matter of wording. The resolution says that the special provisions with regard to these payments shall:
... be replaced by a provision for the taxation of amounts so received after June 27, 1946, at the option of the taxpayer either as income for the year in which he received the amounts-
What amounts are those? We have been talking about one amount.


Douglas Charles Abbott: It probably should be in the singular. The resolution, as my hon. friend will notice, is drawn to cover three types of payments, payments out of a superannuation or pension fund, and payments by an employer to an employee upon retirement or loss of office, being payments of a lump sum but of a different nature. That may account for the use of the plural in the last paragraph. We shall be careful in the wording of the legislation.


James MacKerras Macdonnell: The minister does not think we can successfully suggest that it is intended to refer to a series of amounts?


Douglas Charles Abbott: I do not think so.


William Alexander McMaster: We spent some time last year in fixing this at five years to overcome the effect of the option, and now we are going back to the same old provision as before. Could it be that the present provision has been taken advantage of, or what is the reason?


Douglas Charles Abbott: This will not affect pending
cases.


William Alexander McMaster: I do not know whether there are any. I am wondering why, after changing to the five-year period, we are now going back to the earlier provision. We are reversing what we did last year.


Douglas Charles Abbott: We are entering on a period of reducing rather than increasing taxation.


William Alexander McMaster: That is an optimistic statement but hardly justifies this reduction from five years to one year. I am wondering if the existing clause has been taken advantage of to evade taxation?


Douglas Charles Abbott: No.


Harry Rutherford Jackman: Why is the administration not willing to accept what seems the most logical principle, namely, life expectancy? Or, if that it too complicated, why do they not give ten years or a stated number of years during which to write-off the gratuity or superannuation payment? We have had this matter up in previous years. It creates a great hardship when the whole amount is taxed in the year in which it is received. So that last year we made it five years, and I was hoping that now we would make it ten years. While there is an option in the proposed change, it seems to me that it will work a greater tax on the individual than the existing provision, which provides for a five-year spread of the capital payment. It is quite possible, indeed almost inevitable, that

Income War Tax
the tax on the capital sum at the rate of the man's last year of annual earnings will be at a great deal higher rate than the yearly spread over the next five years, and certainly over the next ten years. In other words, the man is retired and he has not much income in the great majority of cases that we are considering, and you are taxing him at higher rates than the ordinary individual who gets the same amount of money. When employers are trying to do the right thing by their employees by giving them a capital sum on leaving their service, the state should not step in and take away a little more than it takes from another individual who is getting the same amount of money. That is why I believe that life expectancy is the proper principle. If that is too complicated to work out, perhaps a ten-year period should be granted.


John Thomas Hackett: Why would it be too
complicated?


Douglas Charles Abbott: I do not take the stand
that it would be too complicated. I think it would be unfair to the general mass of taxpayers. Let me give an example. The employer gives his employee a lump sum on leaving his employ. The employer has no pension fund and so he gives his employee the equivalent, we will say, of six months' salary when he retires. $2,000 or $2,500 or something of that sort. That is a gratuity. It is income within the meaning of the act. But under the provisions of the existing law that could be spread over five years because the tax rates were then high. Under*the proposed amendment an option is given to the taxpayer. He can either take it as income for the year in which it is received and pay the tax on it at whatever the rates may be, or he may exclude it from his income if he has other income and have it taxed at a rate equal to the percentage which the tax upon the taxpayer's total income during his last full year of employment bore to his income in that year.


John Thomas Hackett: I understand quite well what the minister has said, but I am baffled a little by the basis he gives for his decision, that of fairness. I am sure it will be conceded that in the great majority of cases the man's usefulness as an earning and competitive entity is at an end. So why should we take any other basis for computing the gratuity than the number of years which he is going to live? He is getting that total amount in lieu of annual earnings for the rest of his life.


Douglas Charles Abbott: Not necessarily. These payments may have no particular relation to future earning power. His employer may retire him
at sixty. He is still active, and he retires with a lump sum because his employer does not have a pension fund. Then, being still active, he gets another position or earns money in other ways. His earning power is far from over. This provides that the payment does not have to be included in income for the year in which it is paid. I think that is fair. It may apply to any man from twenty-five to seventy-five years of age.


John Thomas Hackett: I admit that there may be exceptions, but cannot we agree that in most cases these lump sum payments are made to men who, in the appreciation of their employers, have reached the termination of their earning power? I am sure that if the minister goes over a very short category of his own acquaintances he will recall the names of many men who, while still active and in good health, cannot go out and get jobs. They were able to during the war because there was a great shortage of men. But the fact remains that in normal times the ordinary man whose services are dispensed with, whether it be by an insurance company, a brokerage house or an industrial concern, has reached the end of his competitive usefulness.


Douglas Charles Abbott: A payment of this kind is not supposed to keep a man all his life. It is the equivalent of a few months' salary, a gratuity on retirement. It is not intended to keep him for the rest of his life; otherwise the equity as between different recipients would provide no connection at all. It would depend on age. A young man would have a big edge on the older man.


William Alexander McMaster: If he got $10,000 in one year and paid $3,500 income tax, and got
S10,000	gratuities, he would pay $3,500 on the same basis. Perhaps when we get an example we can understand it..


[Stage Direction]
Resolution agreed to.
At six o'clock the committee took recess.
.	After Recess
The committee resumed at eight o'clock.
Douglas Charles Abbott: I believe, Mr. Chairman, that section 27 was carried at six o'clock. We might now revert to sections 18, 19 and 20, which were held in suspense.
18.	That for the 1946 and subsequent taxation years, the service pay and allowances, other than travelling allowances or separation allowances in place of travelling allowances, of a member of the permanent Canadian naval, military or air forces paid at the new rates of pay and allowances established for the said permanent forces be taxable income of a member irrespective of
Income War Tax

(a)	whether he is serving within or outside of Canada; or
(b)	whether he receives the pay and allowances during the first six months after his return to Canada.
19.	That for the 1917 and subsequent taxation years the pay and allowances of a member of the non-permanent Canadian naval, military or air forces other than the pay and allowances received by a member serving outside of the western hemisphere or within six months of his return thereto be taxable income of the said member and that the provisions for
(a)	a tax credit in respect of pay and allowances exceeding $1,600 as provided by rule 2 of section 3 of paragraph A of the first schedule; and for
(b)	taxation of a member serving outside of Canada in the western hemisphere at one-half the effective rate of tax applicable to his total income
be repealed.
20.	That the exemption of amounts received by members of the merchant marine as war risk bonuses in respect of service in a war risk zone and of the value of board and lodging received on shipboard, while performing service in respect of which such bonuses are payable be repealed for 1947 and subsequent taxation years.


Douglas Charles Abbott: I might make the usual
preliminary statement with reference to section 18 and the two following sections. These resolutions withdraw for the most part, from January 1, 1947, the special tax exemptions now granted members of the armed forces and the merchant marine. The present position regarding taxation of the armed forces may be summarized briefly as follows: 1. All personnel overseas are now entirely tax exempt. 2. Personnel in Canada are tax exempt on pay and allowance up to $1,600 a year if single and to higher amounts if married. As pay and allowances exceed these exempt amounts, they are made subject only gradually to the civilian tax rates through the operation of a diminishing tax credit. 3. Personnel in the western hemisphere but outside Canada pay only one-half the tax payable by forces stationed in Canada. 4. Pay and allowances of a member of the armed forces who returns from overseas and remains in the services are exempt for a period of six months. 5. Subsistence allowances up to $1.70 a day and travelling allowances are also exempt from tax under the present law.
The effect of the proposed change will be to make all permanent force personnel subject to ordinary income tax on their pay and allowances at the new permanent force rates, whe tllier in Canada or overseas, commencing from the inauguration of the new rates of pa}' in 1946, which will probably be somewhere about September or October. All other service personnel in Canada and in the western hemisphere outside Canada will be subject 
to full civilian tax from the beginning of 1947, while the overseas exemption will be continued only for the non-permanent force, a group rapidly diminishing in numbers. Exemption for six months after return to Canada will not be applicable to personnel receiving the new permanent force pay prior to their return to Canada, and tire exemption now given for subsistence allowance up to $1.70 a day will be repealed from the beginning of 1947. All other allowances paid under the new permanent force rates will be taxable income with the exception of separation allowances paid in place of travelling allowances. The latter are now exempt under the law and will continue to be exempt. In keeping with this revision of the income tax as it applies to the armed services, resolution 20 provides for repeal, effective in 1947, of the special exemption granted the merchant marine in respect of war risk bonus and the value of board and lodging.


Mr. GREEN:: May I ask two questions in
connection with that statement? Am I to understand that from the time the permanent rates of pay come into effect there will be no such thing as income tax exemption for any of the men in the permanent force?


Douglas Charles Abbott: In respect of these rates of pay; that is correct.
Mr. GREE'N: What about the men who will not be in the permanent force but will still be on service? Are they to lose the exemptions they have at the present time?


Douglas Charles Abbott: The position there wilL be this. All the overseas personnel other than the permanent force will continue to enjoy the exemption which is now granted them under the law. In other words, we shall observe our contract in that respect. Interim force personnel who are over there were given an assurance when they joined the interim force that there would be no change in their tax status during the two-year period, which will expire September 30, 1947. That will be respected. In the case of men who apply for entry into the permanent force and are accepted for that force, and who receive the new rates of pay provided for that force, they are looked upon as having entered a permanent post-war career and should be subject to the ordinary rules with respect to the payment of tax. Broadly speaking, it was felt that from January 1, 1947, the special wartime exemptions from income tax for overseas service, or qualified exemption for service in Canada, should be discontinued, and it should be considered that from that day on. those serving in the armed forces

Income War Tax
would be serving like those in other occupations and there should be no special income tax exemptions.


Howard Charles Green: Apparently there will be some serving in Canada and elsewhere, in the western hemisphere, after the first of January.
In other words, for them war service has not yet ended. Why deprive them of their present exemption? I presume they will be all out of the forces by the end of 1947. Why should that exemption not carry on while they are in the forces? They are required. apparently, to perform certain duties in connection with the cleaning up of the aftermath of war. W hy not continue to them the exemption they now enjoy?


Douglas Charles Abbott: I do not contemplate that after January 1, 1947 there will be anyone in the forces, either in Canada or overseas, who is not a member of either the permanent force or the interim force. If there are such persons overseas they will continue to enjoy the income tax exemption which is now provided. whether they are interim force or hostilities-only personnel. Should there be cases of hostilities-only personnel who are still retained in the service after January 1, 1947-


Howard Charles Green: In Canada or in the western hemisphere?


Douglas Charles Abbott: There are none except in Canada now; we have them away from all other parts of the western hemisphere. Under the legislation as it is proposed, they would lose the qualified income tax exemption which now exists. But I frankly do not anticipate that there will be any of that class. If there are, and there is any hardship, we shall be prepared to consider it on a special basis, but I do not anticipate that there will be any in the armed forces after January 1, 1947, who will be deprived of any benefit they now enjoy. The position will be preserved for those who enlisted in the interim: force on the understanding that their tax position would not be changed during the period of enlistment and who had the option of serving for that period, or of applying to go into the permanent force.


Howard Charles Green: Perhaps when the minister is going over the bill he will insert something to protect the men who enlisted, who are on what is called hostilities service; is that it?


Douglas Charles Abbott: Hostilities-only. I use that phrase because it is convenient.


Howard Charles Green: Hostilities-only service. The minister says now that he does not think there will be any of them, and therefore there
will not be any tax. But just in case there are some I suggest that the section be drawn accordingly.


Douglas Charles Abbott: I shall be glad to give consideration to that when the bill comes before the house. I can point out that rare cases of that kind can be dealt with by remissions under the Consolidated Revenue and Audit Act, but I shall give consideration to my hon. friend's point.


Howard Charles Green: Has any consideration
been given to the policy in the future in the event that Canadian forces should be serving outside Canada. For example, if Canada is required to supply some units of the air force or of the army under agreement with the united nations and they have to go abroad either across the Atlantic or across the Pacific, is it the policy of the government that they will receive no consideration by way of tax exemptions?


Douglas Charles Abbott: I can give my hon. friend onlv my personal opinion. No consideration has been given to the matter by the government, but my personal opinion is this, and it has always been this, that there should be no special income tax exemption for those serving in the armed forces. There is none in the British force. This is only my own personal opinion, but I believe that there should be no income tax exemptions for those serving in the armed forces.


Howard Charles Green: Is the minister against
granting income tax exemptions such as those that were granted in the last war?


Douglas Charles Abbott: I had no opportunity of exercising any views in regard to the exemptions, but since my hon. friend has asked me the question directly I would say, yes. I believe that the system which is followed in the British army is correct, and 'that there should be no special income tax exemption.	I grant that every consideration
should be given to those in the armed forces, but it should be by means of the .pay scale and not by income tax exemption. That is my personal belief. Since my hon. friend has asked me the question as to what the policy will be in the future, I must say that I cannot say what it will be, but in so far as my own views would have any weight I would urge that the British system be followed and that we not have an income tax exemption.


Howard Charles Green: There is one other question that I should like to raise on this resolution, namely, the taxation of men in the auxiliary services and the corps of fire-fighters who served during the war. Probably some of them are still serving. On the 23rd of July
Income War Tax

a recommendation was made to the house by the special committee on veterans affairs which reads as follows:
That the supervisors of the auxiliary services and fire-fighters of the corps of Canadian Fire Fighters dispatched overseas, and members of the Canadian Red Cross Society and the St. John ambulance brigade who served in an actual theatre of war. be accorded all benefits, pensions, rehabilitation rights and income tax exemption as members of the armed forces.
Unfortunately the men of the auxiliary services and perhaps the men of the fire-fighters- I am not sure what percentage 'they were exempt, but in any event the men of the auxiliary services were allowed only a one-fifth exemption.


Douglas Charles Abbott: That is correct.


Howard Charles Green: In previous years we pointed out to the government the ihequity of the arrangement, and I suggest that this is the time to remedy the situation. The income tax payments which have been taken from these men should be refunded to them. As an example, take the men in the auxiliary services. They included the men in the legion war services-


Douglas Charles Abbott: The Y.M.C.A.


Howard Charles Green: The Knights of Columbus, the Y.M.C.A., and the Salvation Army. The men from these forces served with the troops. In Hong Kong the only two men in the whole force who had to pay income tax were the Y.M.C.A. man and the Knights of Columbus man. They came back to Canada and found that they owed the government several hundred dollars. I think it ran over 81,000 or perhaps into the thousands for income tax-


Douglas Charles Abbott: They must have had a big income.


Howard Charles Green: -and these amounts were taken from them. That situation is unfair. Other men serving under fire with the troops in Italy had to pay income tax. They were allowed only one-fifth exemption. This matter was thoroughly discussed in the veterans affairs committee. Evidence was given there which, I think, clinches the matter. I would refer hon. members to page 206 of the committee proceedings.


William Henry Golding: Order.


Howard Charles Green: These proceedings have been reported back to the house. General Bums, who is in charge of rehabilitation, was a corps commander in Italy. In the committee he said:

We have Colonel Philpott here to-day. He was deputy director of auxiliary services for the Canadian army overseas, and he could possibly answer the question for you.
The question asked was as to the status of those men of the auxiliary service. Colonel Philpott was then called on, and said:
Mr. Chairman, I think the answer you are trying to get is this: first of all the supervisor, in my opinion, was definitely a member of the forces. His services, and the conditions under which he served, were exactly the same as those of other members of the forces.
Then at page 207 the chairman said:
With regard to one point you mentioned. I agree with what you say in a large measure that to most intents and purposes these supervisors were members of the armed services, but they could not be ordered into combat or anything like that?
Colonel Philpott:	They were non-combatants,
but they were right up with the troops in the fighting. They were looking after our troops' welfare right in the front line. I can vouch for them because it was my job to direct them. I was with them on the continent and I was with them with the troops, and they suffered the same hardships and privations and had the same discipline.
I could go on at considerable length, but there is the whole story. I am not going to try to pile any further arguments on top of the statement that was made by Colonel Philpott who was actually in the government service.
With regard to the corps of fire-fighters, hon. members will bear in mind that, at the time these men were recruited, fire-fighting in Great Britain was considered even more dangerous than being in the forces. That was at the time when the Germans were bombing English cities. These men were enlisted to undergo these hardships and they actually did so. Further than that, we had an affidavit produced before us in the committee, sworn to by thirty-eight members of this corps of fire-fighters, which reads as follows:
We, the undersigned, hereby jointly and severally swear that we were present at'Parliament hill. Ottawa, on the occasions when Major-General LaFleche, deputy minister of national war services, made statements to contingents of the corps of Canadian fire-fighters, on their leaving for overseas, as follows:
He stated that we would be looked after in the same manner as the armed forces, that our families would receive the same protection and benefits that were accorded the army, and that we were to be known as the fourth arm of the services. (A term that the governor general used while addressing us.)
This affidavit will be found at page 317 of the proceedings of the committee. Evidence was given by Mr. Magill, one of the executives of their association, who was asked this question by the hon. member for Lanark:
Yes, what were your services?

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The answer was:
When we volunteered for this job, we did not ask any questions as to what we were going to get or what we were not going to get. We volunteered to go over, and when we joined the corps we knew that we were going over; in two months, every man from the time he enlisted, was overseas. When we got there we were attached to the national fire service. The membership of the national fire service was obtained on a compulsory basis.
That was in Great Britain.
The men in England could either go into the army, navy, the air force, or the fire service. They had no option. It was considered a branch of the services there. When we got there we were attached to the national fire service. They in turn gave us vital points to protect from fire. We went to Southampton, Portsmouth, Plymouth and Bristol. Those cities were receiving at that time the greatest brunt of the bombing. We worked in conjunction with them all through. We maintained our own station, with our own officers and our own men, equipment supplied by the national fire service. We were trained over there by them and attended their colleges and also took courses over there with them.
Then he was asked:
Go ahead. Tell us what you actually did; for instance when there was an air raid, what did you do?
One of the other members asked:
Was not a detachment ready to go to France on D-day?
The answer was yes; then the witness went on:
In the event of a raid we immediately went outside in the street and took up our positions at our stations. We could not take cover. Our job was outside, not inside, when the raid was on. We had to stand outside. A station would perhaps have five or six pumps in it. Immediately on the warning being given they would be dispersed to certain points in the city and the men would have to stand there until they received instructions where the raid was and what they were to do. There was no chance for us to take cover.
Then the hon. member for Lanark asked:
Q. In the event of a fire during the raid, what did you do?
A. During the raid we immediately went to the fire.
Q. In spite of the fact that bombs might be falling?
A. It did not make any difference. We answered the call.
Q. You would -work practically all through a raid?
A. Yes, outside. That was our job. We did have 100 men trained and attached to the 21st army group ready to leave for France on D-day, and they got on the boat. They actually took their training and got on the landing barges, and then were taken off. We trained for that and had army personnel attached to us in a liaison capacity, so that when we went over there we knew where we were going and what we were going to do. But fortunately, the raids in France did not develop to anything like what was expected. Therefore we were not needed. But we were prepared to leave and ready to leave at a moment's notice.
Several of these men were killed; others were seriously wounded and others were injured, and I do suggest to the acting finance minister that before the bill based upon this resolution is brought down consideration should be given to providing exemption from income tax for these groups for whom the committee has put in a recommendation. All these questions have been carefully considered by the veterans affairs committee, and its recommendations should be given great weight. I do not think anyone can question the justice of the claims of these particular groups.


Douglas Charles Abbott: Perhaps I might deal at once with some of the points raised by my hon. friend. I am thoroughly familiar with the questions he has brought forward; I lived with them for four or five months when I was parliamentary assistant to the Minister of Finance. Under the law as it stands, complete income tax exemption has been granted only to those who were members of the armed forces; and the policy has consistently been that it was not considered appropriate to grant complete income tax exemption to civilian groups, no matter what the risk involved in the particular work they were doing.
To give the committee an idea of the civilian groups involved, there are the auxiliary services, to which my hon. friend has referred, such as the Knights of Columbus, the Y.M.C.A. and the like; the fire-fighters, to which he has also referred; those who served in the merchant marine; the pilots who served in the ferry command; the test pilots and the civilian instructors in the flying schools. All these groups have claimed income tax exemption. The policy has been consistently that complete income tax exemption should be granted only to those serving in the armed forces. May I interject here that this illustrates, if I may say so, the desirability of not granting complete income tax exemption to any group in the community, because it leads to more or less well founded claims by other groups who feel that they have an equal right to exemption?
Take the case of the auxiliary services. For reasons which no doubt were well founded, the members of these services preferred to serve under the auspices of their various organizations rather than as members of the armed services.


Howard Charles Green: That story was gone into by the committee, and the facts are just the opposite.


Douglas Charles Abbott: If my hon. friend will permit me to finish what I have to say-


Howard Charles Green: But the minister must not make an incorrect statement.

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Douglas Charles Abbott: My hon. friend had his turn, and I did not interrupt him. I met a committee of the auxiliary services two years ago and discussed this question of tax exemption for the auxiliary services. In that committee I raised this point, and discussed it at length with them. It was agreed by the members of that committee that this was the case; that, not necessarily for reasons of their own, I do not suggest, but for good and sufficient reasons they preferred to serve under their own auspices. In the United States army by contrast, the auxiliary services were provided by the armed forces themselves. The men who served in them were army personnel, subject to army discipline, receiving army rates of pay and so on.
The auxiliary services are in law civilians, and they were such because their organizations so desired. The same thing applies, of course, to the merchant marine, ferry command pilots, test pilots and civilian instructors. It was felt that in the case of these groups some income tax consideration should be given; and in the case of the auxiliary services, after the discussion with this committee to which I have refer-, red, legislation was introduced by order in council granting an exemption of one-fifth of the supervisor's pay, which was treated as exempt from income tax. That was roughly comparable to the treatment accorded merchant seamen, where their war risk bonus was considered as exempt from income tax. In the case of the ferry command, if I remember correctly, it was one-third. There, of course, the scale of remuneration was fairly high, and that was looked upon as the war risk element of their pay. Offhand I cannot remember what was done, if anything, in the case of test pilots or civilian instructors; but I am advised that it is now under consideration, if it is not already passed, that the fire-lighters will receive treatment similar to that accorded the auxiliary services and the merchant seamen.


John Ritchie MacNicol: What rate is that?


Douglas Charles Abbott: In the case of the merchant seamen it was the war risk bonus, and in the case of the auxiliary services it was one-fifth of the pay, which would be roughly comparable for those categories. In addition, these groups have been given the further benefits, pension benefits and the like, accorded to members of the armed forces.


Howard Charles Green: No, not yet.


Douglas Charles Abbott: That has been recommended, and I believe it is to be done. However, the point I want to emphasize here is that the principle has never been recognized that any civilian group in Canada will be-granted complete income tax exemption.

That has been considered a fundamental principle of government policy, and it is one, I may say, to which I thoroughly subscribe, in the light of the views I have expressed in respect to income tax exemptions to any groups generally.
Broadly speaking, that is the position with respect to these various civilian groups. I want the committee to understand that I do not wish in any way to be considered as casting any reflection on the value of the services performed by these groups or the risks which may have been involved in performing those services. On the contrary, I have only the greatest admiration for the work they performed; but I say we cannot recognize the principle that any civilian group is to be completely exempt from income tax.


Howard Charles Green: There is just one thing I
want to say in that connection in regard to the point on which the minister's whole argument is based. He says that these men had this status at their own request. The evidence before the committee was just the opposite, namely that the status they had was at the insistence of the army.


Douglas Charles Abbott: I am in a position-


Howard Charles Green: The minister did not want
me to interrupt him. Let him just sit down until I have finished. The army insisted that while they were in-


Douglas Charles Abbott: Who gave that evidence?


Howard Charles Green: Different people gave it, and it was not questioned by the army authorities. It was the army that made them serve in the way that they did. In the first war they carried rank badges; in this last war they did the same -work but there was a ruling by the army that they must be treated in the way that they were treated-not, strictly speaking, considered as members of the army. They are now deprived of income tax exemption, although many of them were actually under fire, and yet others who were never under fire are getting it.


Douglas Charles Abbott: I was not at the meeting of the veterans committee to which the hon. member referred, but I was present at a meeting at national defence headquarters two years ago which was presided over by Brigadier Mess, and at which were present senior representatives of the auxiliary services. Representatives of all these services were there, including my friend Jack Beaton of the Y.M.C.A.
The question was raised at that time as to what the status of the auxiliary services was, and we had a considerable discussion on that

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matter. The point was clearly brought out, and it was brought out by Brigadier Mess and brought out by myself, that the condition under which they were serving was not because the army wished it that way but because the auxiliary services wished it that way.
I was not present at the veterans affairs committee; but I know what was said at the meeting two years ago; I know who the representatives were, and I know who presided at the meeting.


Howard Charles Green: Does Jack Beaton know?


Douglas Charles Abbott: He will, because he was in on that meeting and he will recall what took place. There was one other meeting.


Howard Charles Green: You ask him.


Frank Exton Lennard: Further to what the hon. member for Vancouver South had to say about Canadian overseas fire-fighters, I wish to reiterate what he said about promises that were made to the corps before proceeding overseas. They were promised definitely by Major-General LaFleche, as representative of the government at that time, that they would receive all privileges which would be granted to the armed services.


James Joseph McCann: Would you permit a
question?


Frank Exton Lennard: When I am through you can make your speech.
Mr. -ABBOTT: May he put a question-


James Joseph McCann: Yes, may I put a question?


Frank Exton Lennard: Yes.


James Joseph McCann: What is your foundation for your statement that General LaFleche made a promise to the auxiliary services?


Howard Charles Green: I read the affidavit a minute ago.


Frank Exton Lennard: There is the sworn statement- as to the overseas fire-fighters.


James Joseph McCann: I challenge that.


Frank Exton Lennard: Well, that will be your responsibility. But the affidavit was made to say definitely that the Canadian overseas firefighters would be given the privilege of having income tax exemptions. It was only after they came back that they received notice of this back income tax which they were forced to pay. But I should like to ask the minister, who is responsible for not taxing these overseas fire-fighters at the source? It was done in every other case where there was a payment of income tax.


Douglas Charles Abbott: I cannot say why they were not, but I will look into that situation.


Mr. BLACK MO RE:: Would the Minister of National Revenue answer that?


John Ritchie MacNicol: I wish to support as strongly as I can the remarks imade by my deskmate, the hon. member for Vancouver South, particularly those remarks in regard to the fire-fighters, because I am more familiar with their case than with other cases of the other services mentioned. I knew quite a number of fire-fighters who left Toronto. Several of the leading members of the overseas brigade came from my riding, and I have learned from them and have had communications from their association in Toronto outlining what they went through.
If, as my colleague has pointed out, they were made promises-and that I do not know, but I listened to the affidavit read by my colleague-I am sure the minister and certainly all hon. members in the house would want that agreement carried out-. A number were killed and a number badly injured. They went into action when the buzz bombs were at their worst. They were in the thick of what took place which, at times, was as bad as anything that took place on the continent itself. So I just wish to add my support to what has been said as to relieving them from what has been imposed upon them.


Mr. MUTCH:: While we are on this question, I would point out that the minister said it was a matter of policy not to grant complete tax exemption to any other than those who served in the armed forces. Then he went on to say that certain groups did receive consideration and that claims of other groups were put forward at a meeting at which he was present.


Douglas Charles Abbott: The meeting to which I referred was the auxiliary services only.


Leslie Alexander Mutch: The question I would ask him is whether or not consideration has been given, or whether representatives have been made on behalf of a small group of Canadians, only twelve or fourteen in number, who served with the Canadian forces from Sicily through to Germany, on whose behalf, so far as I know, no benefits have been extended. I refer to the Canadian war correspondents. Has any application been made or any consideration given to income tax relief for them during that period?


Douglas Charles Abbott: I am advised that certain representations were made to the Minister of Finance on behalf of certain war correspondents, but I am not in a position to give any more particulars than that at the present time.
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Leslie Alexander Mutch: I am informed that they are some twelve or fourteen in number, and I believe the total amount involved would be less than $10,000.


Douglas Charles Abbott: May I point out that this, again, just bears out my point. I am not so much interested in the amount of money involved, but I am arguing strongly the question of principle, that if you extend this exemption to one civilian group, then I can think of a lot more to whom I think it might with equal justice be extended.


Leslie Alexander Mutch: I am not going to add to the minister's list extensively. But I say that whether or not you accept the minister's idea, that in principle it is wrong, the practice was accepted. Perhaps the time to change a principle is between wars, not during one or at the end of one. Perhaps when the minister is considering these applications he would look into this small group.


Mr. SKEY:: Before we leave the question of fire-fighters, I should like to say that I shall be glad to supply the Minister of National Revenue with proof that this promise was made to them by a minister of the government.


Douglas Charles Abbott: He was deputy minister, was he not?


Lawrence Wilton Skey: I shall be glad to supply it to you; I have it in my file.


Douglas Charles Abbott: I think he was deputy minister at the time.


Lawrence Wilton Skey: Deputy minister. While the Acting Minister of Finance refers to the principle, I feel that here is one place where the opposition is truly trying to help out the government with its principles. A promise was made to these men and there are signed statements in witness of that promise being made. I know it is with great regret that many of therm have brought the matter into public affairs to-day. I feel that if any group should receive consideration it is this particular group because a promise was made to them.


Douglas Charles Abbott: I do not know7 whether a promise was made or not; but, assuming for the sake of argument that it was, I would point out that no civil servant, no matter what position he occupied, would have any authority to make such a promise. That would be contrary to the income tax law as it stands.


Mr. KNIGHT:: 
Douglas Charles Abbott: I think I said that was under consideration. I do not know that I am in position to make a statement.


Robert Ross (Roy) Knight: The minister is not prepared to go even that far. If I were to enter into a debate as to whether or not these firefighters should receive the same privileges as the men who served in uniform I would need to mention only one statement made by the minister, shall I say in his proper capacity as Minister of National Defence, and I am not saying that he cannot handle the position

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he is now in quite efficiently. But he did make this statement, and very heatedly as I remember, one day in reply to a member of the official opposition. He said that so far as he was concerned, wherever the bombs were falling, whether it be in England or any place else, that was the front line.


Douglas Charles Abbott: I do not remember making such a statement, although I may have. It does not sound like my type of oratory, but it may be correct.


Mr. MERRITT:: I shall not cite any of the promises or anything of that kind, but I think I can meet the minister on his own terms of high principle. I like the minister for advancing the idea that we should deal with these matters on terms of high principle.


Douglas Charles Abbott: Principle, anyway.


Charles Cecil Ingersoll Merritt: I like his idea that there should be general taxation and relief by means of higher pay to the armed forces. We must deal with this matter on practical terms and not in terms of the future. The high principle the minister speaks of is that advanced by this government that no civilian group which served overseas shall have the same exemption from taxation as was granted to the members of the armed forces.


Douglas Charles Abbott: Not necessarily overseas; no civilian group anywhere.


Charles Cecil Ingersoll Merritt: I agree with that high principle; but let. me say that in the case of the auxiliary services and the fire-fighters the acting minister, unwittingly I am sure, is descending from that high principle to a verbal technicality in the way he is applying it to these two classes. Evidence has been given by the member for Vancouver South that a statement was made by the officer responsible for administering the auxiliary services to the effect that they were undistinguishable from soldiers in their service, in the discipline that was imposed on them, in the places they had to go and in the various duties they carried out. Technically and because of mere verbiage, these mem are treated as civilians when in actual fact they were just as much soldiers as any one in the forces. The auxiliary services are in a class by themselves.
The fire-fighters were serving in England and they were considered as being on all fours with the armed forces. I remember speaking to one man who was called up, and he told me that he had been permitted to elect between the army and the fire-fighters when he received his call-up. They were
just as glad to get fire-fighters as they were to get soldiers. The military need for that class of men was just as great as it was for soldiers, and they were glad to have these men go over at a time when, goodness knows, soldiers were needed. That is absolute proof to my mind that in high principle they were soldiers, and it is only begging the point to say that they were not.


Frank Exton Lennard: Following what the hon. member for Vancouver-Burrard has said in connection with the fire-fighters, I would point out that they received the same rates of pay as those in the armed forces. In answer to the Minister of National Revenue I would say that these fire-fighters proceeded overseas in detachments of fifty or so. The promise was made by Major-General LaFleche to each detachment in the same terms; it was not made on only one occasion; it was made on several occasions. They were told that they would receive the same consideration as those in the armed forces.


James Joseph McCann: The only reason I asked
the hon. gentleman a question was to find out whether that assurance had been made verbally or in writing. This matter came before me as Minister of National War Services. I had the officers of the department make a complete search, and I made one personally, of all the records and correspondence, and nowhere could we find that a commitment had been made to the fire-fighters with reference to exemption from income tax.
The hon. member for Vancouver South brought up a point with reference to pay, that it should be such that the paying of income tax would not be a hardship. The chief of the fire-fighting services was receiving in his occupation in this country before he left for overseas $2,400 a year, and as chief of the fire-fighting services he received, a salary of $5,000 a year, so that in that instance at least the rate of pay was such that he could, I think, have met the requirements which my hon. friend says should be met with reference to pay.


Howard Charles Green: What about the firemen?


James Joseph McCann: I think the hon. member for Wentworth is correct when he says that their rates of pay were the same as in the armed services. I am not detracting one iota from the service this force rendered. I am merely asking anyone to indicate to me if he can that there was any assurance to the fire-fighters they would be exempt from income tax?
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Frank Exton Lennard: Certainly it was a verbal promise, and given on more than one occasion. But it was never denied by any member of the government, and the fire-fighters were most certainly led to believe that they would receive all the privileges of the armed services. I said in this house in 1937, I think it was, when the estimates of the Department of Pensions and National Health were up for discussion, that every government since the last great war had chiseled on the returned men, and I meant every government, both Liberal and Conservative. .


Douglas Charles Abbott: This one has not. It is giving the returned men the most generous deal of any country in the world.


Frank Exton Lennard: I am speaking of 1937. But most certainly this government is not living up to its obligations in regard to the fire-fighters.


Douglas Charles Abbott: I am not prepared to concede that this government entered into any obligation to the fire-fighters with respect to income tax. I have made that clear already, but I must reiterate it in view of my hon. friend's statement.


Mr. BLACKMORE:: It would be interesting to know if the Minister of National Revenue ever went to General LaFleche and asked him if he ever made that promise.


James Joseph McCann: When the matter came before me personally, General LaFleche had left the country to serve as ambassador to Greece. What my hon. friend asks was done, and General LaFleche could not recall having made any commitment.


Howard Charles Green: Did he deny that he made it?


James Joseph McCann: He did not recall having made any commitment.


Howard Charles Green: But he did not deny it?


George Randolph Pearkes: Regarding the supervisors of the auxilary services, in world war I, they wore the rank and were recognized as being in the army. I also have attended conferences. The Minister of National Defence, who is conducting this legislation through the committee, mentioned having attended a conference in 1942, where he said-


Douglas Charles Abbott: About 1943 or 1944.


George Randolph Pearkes: It is immaterial. He attended a conference where he said that the heads of the organization at that time expressed a desire that their personnel should remain as civilians and not be incorporated in the army.


Douglas Charles Abbott: I know that my hon. friend wants to be correct. They acknowledged at that meeting that the status which the auxiliary services occupied as civilians under their own control and direction was at their own desire and request and not at the request of the armed forces.


George Randolph Pearkes: At their own desire and request. I should like to say that I have also attended conferences. I attended conferences in 1939 on board a ship going over to England, and I know the commander of the first Canadian division at that time was firm in his opinion that he did not want the auxiliary services as part of the army. I think that should be on the record in order that hon. members may see that the army as well as the organizations were not anxious that the personnel should be considered part of the army.


Douglas Charles Abbott: It may have been mutual. I do not deny that.


George Randolph Pearkes: I should like to point this out, that there was an interchange between the army and these services. Sometimes an individual was in the auxiliary services and later was transferred into the army, and vice versa, some of the personnel who were in the army were at times transferred into the auxiliary services. During 1939, 1940 and 1941 there were staff officers on the headquarters of formations whose special duty it was to supervise the supervisors of the auxiliary services. They were with the headquarters of formations, while the supervisors themselves were with the units. Those officers would be exempt from income tax, whereas the supervisors who were in the more advanced units were not exempt. It does not seem to me to add up and be fair that you should give one class of men exemption when another class of men doing exactly similar work were not exempt.


John Ritchie MacNicol: Just one further word, and I am compelled to say it because of the remark made by the Minister of National Revenue that the fire-fighters were paid merely the same rate of pay as a private in the army. Of course, the majority of the firefighters overseas would be in the lower ranks. I am personally acquainted with many of them who were in the Toronto fire department, where they received the Toronto fire department remuneration. Quite a number of them were lieutenants or of higher rank when serving with the Toronto fire department, but they took a lower rank in the fire-fighting service overseas because of their patriotic desire to serve their country "over there". I know that in a number of cases while they

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were overseas their wives and families had a struggle to get along. I did not know before that their pay while overseas was so low. In view of that low pay, I should like to see the government give them any consideration which cam be given. It does seem to me that five per cent is a pretty small allowance. I hope the Acting Minister of Finance will reconsider their case. He shakes his head. He is pretty determined, and I have no fault to find with that because I like to see a man stick up for his opinions. But I would urge him to give consideration to the strong recommendation which has been made by the hon. member for Vancouver South, who is always on the job when anything pertaining to the armed forces or the auxiliary services comes up. I hope the minister will reconsider the case of the fire-fighters.


Mr. ADAMSON:: This question has -been covered fairly extensively, but I want to bring one point to the attention of the minister. These men who had been given this promise by General LaFleche could not have just imagined that they had been given this promise. Groups of these men have come to see me from various parts of Canada, and each of them have told me individually and collectively that they had received a definite and specific promise, verbally I grant you, that they would be exempted from income tax. It seems to me that if we are talking about high principles, the verbal assurance of a minister of the crown-


Douglas Charles Abbott: I must correct that. He was not a minister of the crown at the time.


Agar Rodney Adamson: Well, a deputy minister of the crown and subsequently a minister.


Douglas Charles Abbott: Right.


Agar Rodney Adamson: I say that his verbal assurance, his word, should be as good as his bond. Many of these men have come to me and said, "We joined the fire-fighters because, had we joined the army and declared our occupation, we would immediately have been sent to some fire-fighting unit and put on fire-fighting duty at some permanent camp in Canada." I know that is what happened, because trained firemen, like other trained persons were at a high premium during the war, and many of these men definitely joined the fire-fighters because that was their only opportunity to get overseas. They feel, and is it a justifiable feeling on their part, that they are being badly treated, scandalously treated, because certainly in their own minds, there is the belief that a promise was given them by General LaFleche.
They also feel another grievance. It has nothing directly to do with this question, but the minister is also Minister of National Defence and he should know about it. I understand that they did not get the service decorations that the armed personnel were given, the reason being that they were civilians. Here we have the case of a man who joined the armed forces, who perhaps was a member of a fire brigade, who went to Cam-p Borden and did duty there as a firefighter. He is in his unit as a fire-fighter and gets three decorations or two perhaps, whereas the fellow that went overseas and actually put out incendiary fires has no decorations- has he? An hon. member says he has. I understand that was one of their grievances, but perhaps that has been corrected.
At any rate, in the m-atter of income tax, these men were unquestionably given an assurance, even though perhaps it cannot be found on the minister's files. There were only a few of these men. Surely, from the principle that we have heard enunciated, the high principle that the government should make its deputy minister's word as good as its own, the minister should take the representations of these men into consideration. It is not a m-atter involving a great amount of money; it is not a matter of extravagance; it is a matter of simple justice. I ask, therefore, that this case be reconsidered, in the hope that these men will receive the benefit that was at least verbally promised them. There is in another room in this building a committee which has twice recommended that.


Thomas John Bentley: I support the views expressed by the hon. member who has just spoken. I suppose that the minister and also the Minister of National Revenue mean what they say when they assert that no commitment was given, or that General LaFleche cannot recall having made a promise. I have talked to some of these men who were fire-fighters. They do not lie in other matters and they honestly believe that the promise was made. Many of them have signed their names to a document to the effect that it is their conviction that the promise in question was given, and others are prepared to sign their names to the same thing. In other words, they went into this particular service on the strength of their belief that the promise was made. What earthly principle can- now be invoked for denying to these men the fulfilment of that promise, to which they are willing to swear in an affidavit, because the assurance was given by a government official? This must have been known to the cabinet ministers at the time.
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Douglas Charles Abbott: It was not.


Thomas John Bentley: The minister says it was not and I shall have to take his word for that.


Douglas Charles Abbott: I am only saying that on hearsay.


Thomas John Bentley: But when so many people in the country fully believe that the promise was made and when so many of these men have themselves told me that they believed the promise was given, the cabinet must have known about it. Nearly everyone who follows the papers in the country knows it. It is not something that has just recently come up. If I have heard the discussion rightly to-night, both ministers who spoke said that there were no deductions from the payments to the firefighters overseas. Well, how does the Department of National Revenue propose to collect now from those from whom collections were not made at the source? Is the department going to go into the courts and sue these people and take their knives and forks and their frying-pans from them? How will they get the money if they have not collected it? In view of the belief that these men entertain, that the promise was made, what high principle can be invoked to afford the government any excuse to take the attitude which the minister is taking?


Douglas Charles Abbott: Fairness as between classes of taxpayers. It is perfectly clear, I am assured by the officials, that there was never any agreement on the part of the responsible minister, the Minister of Finance, that such an exemption would be given. I am not denying that these men may have believed that they were to receive income tax exemption; but if they are to receive it, then there are a number of other groups who have an equal if not a greater claim. These men performed a most useful service under great risks. The casualties were two out of four hundred odd-I am only told that. But let us assume-


Frank Exton Lennard: I believe three were killed and others were wounded.


Douglas Charles Abbott: That may be so. In any event, there were about one-third of the ferry pilots lost. If this treatment were extended to the fire-fighters, a civilian group, in my opinion it would have to be extended to the ferry pilots and other equally deserving groups. I can only reiterate what I have previously said, that no civilian as such has been recognized as being entitled to complete income tax exemption, and no responsible minister of the crown ever gave an undertaking that they would be. I do not think that principle can now be recognized.


Thomas John Bentley: I still do not believe the minister is taking the right attitude.


Douglas Charles Abbott: That is a matter of opinion.


Thomas John Bentley: I believe there are other civilians who have as good a claim or perhaps better, but no other civilian group who engaged in any type of war service comparable with that of the fire-fighters believe that they were given such a promise. They were not brought into the service in which they were engaged under any promise of the kind. But these people believe that they were given that promise, because it was given by a high government official who enjoyed considerable popularity in the country. If any other group came forward with similar evidence and the same conviction on their part of a promise that had been made to them to join a certain service, I would say that they had as much right to consideration. But this was distinctly the understanding that these men had.


Douglas Charles Abbott: I cannot believe that these men joined the service because they thought they would get income tax exemption.


Frank Exton Lennard: Certainly not, but that does not say that they were not given the promise.


Stanley Howard Knowles: I suggest that, whether or not the undertaking was given on that point, which seems to be debated across the floor, the matter should be settled on the basis of the principle which the minister himself has stated, namely, fairness as between taxpayers. The argument that if these people are entitled to this exemption others would have to be considered as well is not an argument against these people being given it. That might only mean the others should receive it as well. In that connection, I felt that the Minister of National Revenue got away from the point when he referred to one of the members of the corps of fire-fighters receiving greater pay for his services in the corps than his remuneration in civil life. The hon. member for Vancouver South suggests that was only one case out of hundreds so far as fire-fighters are concerned; but the point I wish to make is that is not a proper comparison to make. If one is to make that comparison it will certainly upset a good many calculations so far as the armed services are concerned. The comparison should be with similar war service. On that basis, I suggest that these men should be treated in a manner similar to that of those in the armed services.
The very fact that there are items Nos. 7 and 8 on the order paper under government orders, to which I believe the minister has already referred, represents to me an admia-

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sion that these men have been discriminated against unfairly and that certain wrongs must be righted. The fact that these other wrongs have to be righted lends strength to our argument that this wrong should be righted as well.	[DOT]
I should like to bring to the attention of the minister one other point which relates to the effort in which some of us were engaged for a considerable period with reference to the Canadian soldiers who went to Kiska. When they went the income tax regulations did not recognize the fact that Kiska was outside the western hemisphere, and they were taxed at once and paid the tax through deductions at the source as though they were serving within the western hemisphere. After considerable effort on the part of some of us in the house, the government, by order in council, changed the regulations. That was some months after the deductions had been made, but once the justice of the claim had been recognized it was found possible to make the change retroactive. I am sorry to say it took the department a long time to take care of the matter, but at any rate, the justice of the principle being recognized later with respect to these men and retroactive action being taken, I submit that it should also be done in this case.


Douglas Charles Abbott: That was due, I take it, to a mistaken understanding of facts. These men were in the army; they were soldiers, and at that time it was merely a question of where they were serving.
There is one other thing I should like to say with respect to these fire-fighters. It has been brought to my attention that this alleged promise was given as the men were leaving for overseas. None of them alleged that it was given at the time they joined.


Thomas Langton Church: Speaking as a civilian from a soldier city, I wish the government under resolution 18 would give these men who were combatant soldiers, who served overseas in different theatres of the war, at least three years to reestablish themselves before starting in to tax them. The government should start in on some of the higher-ups before taxing soldiers so soon. Judging by the way the security councils are blowing up in Europe, I can tell the committee that we shall not have security for very long, and we may need these men a little later on. I believe that the money could be provided in some other way and that we should wait for at least three years before we start taxing soldiers who were at the front.


Mr. BROOKS:: I do not wish to repeat
the arguments which have been used. This matter was discussed in the veterans committee for a good many hours and almost all points were brought out. While these men were not recruited as soldiers, they were recruited to do practically soldier's work. They were assigned difficult and dangerous tasks. At the time they enlisted and after enlistment they were treated practically as soldiers; they were under the same as military discipline all the time that they were away. Their pay was practically the same as the soldier's pay, if not the same. As far as their duties were concerned, in England we all know that for the first two years of the war the soldiers who were overseas had very little to do except training. These men were looking after fires in all the devastated areas in England. Anyone who has been to London and the different cities and has seen the destruction in those cities realizes the dangers which these men have gone through and will realize that their work was practically the same as the work that was carried on by soldiers in France.
I should also like to point out to the minister that many thousands of men who were recruited and acted as soldiers got this exemption. These men were on the staffs in England. They spent all their time in England doing necessary work so far as the army was concerned, but so far as the dangers they encountered are concerned as compared with the dangers encountered by these men, there was no comparison at all.
I understood that these men were asked to go to England after the Prime Minister had been to that country and had seen the devastation there. He came back and realized that it was necessary that we send some of the men over. There was also a request from the British government. From personal interview with some of these men, I know it was their intention to join the armed forces and go overseas; but they were told that they could do better work if they went over as fire-fighters and assisted in the putting out of fires, and helped in the devastated area of the different cities. It is not necessary to press this point any farther.
So far as the justice of the claim is concerned, it was recognized in our veterans committee that these men should receive consideration. There were less than three hundred of them-


Douglas Charles Abbott: Four hundred.


Alfred Johnson Brooks: I think 378 or something like that. In any event, the number is not large. It would be only a matter of justice if the minister and the government would reconsider the attitude they have taken and
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exempt these men from income tax. They were away from their families just as the soldiers were.


Douglas Charles Abbott: There were a number of civilians in London who rendered devoted service on the same basis.


Alfred Johnson Brooks: Who were they? The
minister has already mentioned the pilots. Our committee recommended that these pilots should receive consideration. They are receiving some consideration but they are not getting exemption in taxes. One of the arguments used in our committee was that these men received much larger pay than the firemen and other benefits which these gentlemen did not receive at all. So far as the pay of the pilot is concerned, there is no comparison with the pay of the fire-fighters. I do not wish to labour the point any farther, but I think it would be just a matter of justice for the government to reconsider their attitude and exempt these men from income tax.


Mr. RICHARD (Ottawa East):: I would not want the committee to think that all the sympathy for the fire-fighters and the justice of their claim is on the other side of the house. I have had a great number of representations made to me by members of the fire-fighters. I also believe in the justice of their claim, but I believe sincerely that the Acting Minister of Finance has made a true statement when he says that the government had no agreement with the fire-fighters. It is tine that they are under the impression or they were under the impression that they would receive treatment similar to that to be received by members of the armed services. As I see it, we are only carrying on a long discussion, each repeating what the other said, and all stating that we believe in the justice of their claim. I believe the Acting Minister of Finance should consider allowing this item to stand. I think the fire-fighters are perhaps the most important organized, civilian group with a claim to be considered for exemption in regard to income tax. If other groups are organized and have similar claims, they Should also be considered on their merits. In these circumstances I would ask the minister whether he should not let the item stand.


Leslie Alexander Mutch: There is, I believe, a resolution on the order paper giving notice of legislation respecting benefits to both supervisors and fire-fighters, and I had not anticipated that a debate of the general nature we have heard to-night would come up on the budget resolutions. Since it has developed, however, I want to say a word or two with 
respect to both the auxiliary services and the fire-fighters, only, however, in relation to the matter of income tax, which is germane to this resolution.
I was one of those who urged in the committee, and I am one of those who urge now in this committee of the whole, that as far as the auxiliary services are concerned they should receive the benefits which members of the armed forces received in the matter of income tax exemption. I am quite well aware that, at the time the order in council conferred upon the auxiliary services all the other benefits enjoyed by the armed forces, it specifically excluded income tax considerations. But a great deal has happened since that time. The committee believed,, as I believe, and now urge again upon the minister, that in regard to income tax they should be granted, in the terms of the recommendation of the committee, all the benefits which accrued to tihe armed forces, because to all intents and purposes they were members of the armed forces. It is perhaps fortunate that the Acting Minister of Finance is also Minister of National Defence and is himself a soldier, because, if he hears it, I think he will accept the validity of what I am about to say. The test of whether or not a man is serving as a member of the armed forces is the question of discipline: and we were informed on tihe authority of the officer commanding the corps at the time, and the officer who commanded the auxiliary services overseas, that they were amenable to all discipline and subject to court martial.
That being the case, it is difficult to distinguish between those in the armed forces and a group who follow the armed forces in all their operations, who are subject to exactly the same discipline and who receive the same rates of pay. They were in fact, Whether or not they were in theory, in the uniform of His Majesty's forces, though they did not wear the insignia of rank. I am well aware of the fact that technically it can be said they were not, but we recognized their position When in the beginning we granted them by order in council all other benefits except that in connection with the income tax.


Douglas Charles Abbott: We did not do it in the beginning.


Leslie Alexander Mutch: Well, it was very near the beginning.


Douglas Charles Abbott: It was after this conference I mentioned, with the heads of the organizations.

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Leslie Alexander Mutch: I do not have the exact dates. I have been through this so often I could almost recite it from memory, with the exception of the dates. In any event, the principle has been established, and there does not seem to be any great division of opinion.
I am perfectly well aware of the argument the minister has advanced to-night, that if you concede this treatment to one group which is, technically at least, civilian, you are opening the door to other groups.


Alfred Johnson Brooks: The veterans committee did not recommend any other civilian groups except the supervisors and the fire-fighters.


Leslie Alexander Mutch: I know that, but I have not yet reached the fire-fighters.


Mr. MACDONALD (Halifax):: I think there was a recommendation that merchant seamen who became prisoners of war should receive income tax remission.


Howard Charles Green: That is a different matter.


Leslie Alexander Mutch: I do not propose to go through all twenty-four reports that were tabled^-


Douglas Charles Abbott: Thank goodness for that.


Leslie Alexander Mutch: I would do so if I thought it necessary to bring the facts to the attention of hon. members.


Douglas Charles Abbott: I think my hon. friend was right, and this discussion would be more appropriate under the resolution to which he referred.


Leslie Alexander Mutch: Quite, and I propose, therefore, to confine my remarks to those aspects which touch on the income tax matter. I say again that I was and am one of those who urge that, having gone as far as we have by agreement with these auxiliary services, based particularly on the fact that they were completely amenable to military discipline including court martial, and based on the experience of the men at Hong Kong, we should concede this point.
Then we come to the second group which has been under discussion to-night, the firefighters. Again the veterans committee, both the main committee and the subcommittee of which I was a member, recommended with respect to income tax that the fire-fighters be granted not less favourable terms than those granted to any group that was specified. When the report of the subcommittee came in. the main committee amended' it to make it read "identical". It is the same thing, because, having recommended everything to one. if you give no less to another you give everything to both.
I rose primarily not to make my own position clear, because by now I think that is abundantly clear, but to point out to the committee and to those who may be following this debate that those who have been urging the claims of these two groups with respect to income tax are not speaking as a bloc or as a group but are, I think, representative of the majority of veteran opinion in this house.


Douglas Charles Abbott: After listening to the hon. members who have spoken, I can say only ont thing. If I may paraphrase the words of Gilbert and Sullivan, it is evident that the lot of a minister of finance is not a happy one. He would like to be a good fellow, but he cannot be.


John Bracken: Would the Acting Minister of Finance tell us how many of these fire-fightets have paid this tax and how many have not paid it, out of the four hundred?


Douglas Charles Abbott: I am afraid I would have to obtain that information. Those are figures, of course, coming within the department of my colleague the Minister of National Revenue, but perhaps they could be obtained.


Frank Exton Lennard: I do not think any have paid.


Agar Rodney Adamson: I understand that last year they received back assessments for three years, and it was a shock to them. I do not believe any of them have paid. If you insist on this going through I believe that a great many of them will find themselves in definite financial difficulties.
There is just one more thing I should like to ask the minister. What other civilian groups who served overseas might become eligible if we recognized the claim of the fire-fighters?


Douglas Charles Abbott: I gave that information earlier; perhaps my hon. friend was out. He will find it in Hansard; there are five or six groups.


Agar Rodney Adamson: Could the minister give the aggregate number?


Douglas Charles Abbott: I can run over them again; I think I remember. There are the fire-fighters, the auxiliary services, the merchant marine, the ferry command, the test pilots, the civilian instructors in the flying schools; and other groups have put forward claims, including the deep sea fishermen. I think there were also some war correspondents who claimed they should have this status as well.


Agar Rodney Adamson: Who actually served in a theatre of war?
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Douglas Charles Abbott: Or who claimed they were in danger areas, such as the deep sea fishermen who were in submarine infested waters off the eastern coast of Canada.


Eric Bowness McKay: It seems to me that this is a matter which should be seriously investigated. I have been listening carefully-


Douglas Charles Abbott: We have taken an hour and a half on it, as we have every year to my knowledge _


Eric Bowness McKay: I am not satisfied that what we are doing here is sufficient investigation. It has been said from the other side of the house that this item should be allowed to stand, and I am convinced that it should stand until we look into the matter further.


Douglas Charles Abbott: My hon. friend realizes it does not come under this resolution we are considering. Strictly speaking, it is hardly in order.


Howard Charles Green: Yes it does.


Eric Bowness McKay: The allegation has been made that Major-General LaFleche made a certain statement-not once, but several times. He was a military man with some prestige. The statement is made that he does not recall having made those remarks. I have more faith in affidavits than has the Minister of National Revenue. There was submitted to the committee on veterans affairs an affidavit signed by thirty-eight persons to the effect that he did say it. An important principle is involved here. One cannot lightly pass it to one side. I am not satisfied, after a perusal of the affidavit, that it was a concoction. As a matter of fact it looks to me as if it was a bona fide attempt to tell the truth.


Douglas Charles Abbott: That has not been disputed.


Eric Bowness McKay: Yes, it was disputed to-night. I believe the Minister of National Revenue said that he repudiated it, or words to that effect.


Douglas Charles Abbott: No, he never said that.


Eric Bowness McKay: He said he challenged it, and Hansard will reveal that remark. There was a promise made. Either these men are not telling the truth, or Major-General LaFleche is guilty of false pretences. I cannot see it in any other way. It is a matter for serious reflection, and should be investigated. A man of his prominence and prestige should not make a statement like that unless he had some authority to make it. These men went overseas, and some of them did not come back. A few were wounded, and the families of some are to-day getting pensions. It seems 
to me that we pass too lightly over these things, and I suggest that we should investigate this matter and settle it for all time.


John Bracken: When did these firefighters leave for service overseas? Were they assessed for these taxes when they were overseas? If not, when were they assessed? I understand that the minister is not now in a position to say how many of them have paid.


Douglas Charles Abbott: A comparatively small
number.


John Bracken: How long were they in the service of the government without this assepment having been made? Perhaps the minister could give us some idea as to what the payments would be, after their having been in the service of the government for years, and the assessment having come only in recent months.


Douglas Charles Abbott: I shall have to get that information. It is not available here. I know, however, it would be only a comparatively small number who would be liable to tax, because those who were married with dependents would probably have bigger exemptions. It involves a very small group of men who would be liable to tax. But I will get the information the leader of the opposition has asked for, and try to give it to him to-morrow, or, at any rate, not later than w'hen we bring in the bill.


Howard Charles Green: I endorse the suggestion made by the hon. member for Ottawa East, that this resolution be allowed to stand, and that the Acting Minister of Finance give it further consideration. It is not a question of asking him to make a good fellow of himself; nobody is asking that. It is a question of having an injustice remedied. The minister has said that if he lets one group in he is obliged to let them all in, and that it w'ould not be possible to pick and choose. May I point out to him, as I did in opening the discussion on the resolution, that the committee on veterans affairs have made that choice for him. Here we have a committee of sixty members of the house, everyone of whom served in one or other of the two great wars, and some in both.


Douglas Charles Abbott: I did, myself.


Howard Charles Green: They have gone into this question thoroughly and at great length, with the result that the day before yesterday they brought in this recommendation which I shall read to the minister again.


Douglas Charles Abbott: I am familiar with it.


Howard Charles Green: They recommend:

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That the supervisors of the auxiliary service and fire-fighters of the Corps of Canadian Firefighters dispatched overseas, and members of the Canadian Red Cross Society and the St. John ambulance brigade who served in an actual theatre of war, be accorded all benefits, pensions. rehabilitation rights and income tax exemption as members of the armed forces.
I would ask that the minister allow the resolution to stand.


Douglas Charles Abbott: I shall gladly allow it to stand, and give it consideration. But I do not want to hold out any false hopes to the committee that it is likely the decision will be changed. Certainly, so far as I personally am concerned, I think it is more than doubtful. But we gladly allow the section to stand, because I do not want anyone to think I have a completely closed mind on the subject. I will consider it. May I say, however, that I have given this question the most earnest consideration for a matter of two or three years. It is not a new question to me, because I have previously given it most earnest and careful consideration.


Howard Charles Green: Probably you made your
mind/ up two years ago; that is the trouble.


Douglas Charles Abbott: That is possible. But I
have made my mind up on other matters, and while I have sometimes changed it, I have not always done so.


Eric Bowness McKay: Would the minister like to put it to a free vote of the committee?


Douglas Charles Abbott: I am afraid the responsibility of deciding what tax exemptions will and what will not be granted, under the British system must remain the responsibility of the government of the day. My hon. friend knows that as well as I do. That is one way in which our system differs from other systems, including that of the United States. In Canada, the government must take the responsibility in matters of this kind. It is not an easy responsibility. A government could popularize itself with these various groups; but I have endeavoured to state the principle upon which this question of total exemption has been viewed. We have occupied an hour and forty minutes in discussing this question of firefighters, and I think the suggestion that we allow the resolution to stand is a good one.


John Horne Blackmore: Before the minister
allows it to stand-


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


John Horne Blackmore: We are still in a
British country, and in such a country a minister of the crown is responsible to parliament. If a majority of members of parliament desire that a matter be changed, even though it be income tax it should be changed.


Douglas Charles Abbott: That is correct.


John Horne Blackmore: If it once becomes
thoroughly embedded in the minds of hon. members in the opposition that the government is determined to pay no attention to their desires, then members of the opposition will have to consider ways and means.
I wish to say a word or two respecting these fire-fighters, and would associate myself with *hon. members who have already spoken concerning them. I have been in contact with members of the fire-fighters, and I know positively that they were assured by General LaFleche, before they left this side, that they would be accorded all the rights and privileges of members of the armed services. I know that for certain. Then we proceed to collect arrears in taxes which the men did not know they owed! When a government calls upon a man to pay two or three years' arrears in taxes, or even one year's when he did not know he owed it, I believe that is worse than fining a man. It is as bad as the old capital levy for which they beheaded at least one king of England.
That matter is worthy of consideration. No government has any right to call upon a man for payment of arrears in taxes, when he did not know he was taxable.
Resolution stands.


The CHAIRMAN:: Resolution 19.


Douglas Charles Abbott: Might I point out that
resolutions 18, 19 and 20 are together, and perhaps we had better consider them in that way. I had them stand before the dinner recess, and perhaps we should let them stand again, unless we are going to pass all three.


William Ross Macdonald: Resolutions 19 and 20 stand.
28. That for 1946 and subsequent taxation years the provision under which the minister may allow double depreciation in respect of plant or equipment built or acquired as a new investment in a period to be fixed by the governor in council be amended to provide that the allowance be made only in respect of such classes of plant or equipment as may be determined by the governor in council.


Stanley Howard Knowles: Would the minister explain this resolution, and also state where in the act is to be found the provision that is being changed? Will he also give the committee some idea as to what classes of plant are no longer to get double depreciation and what classes of plant are to continue to get double depreciation?
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Douglas Charles Abbott: The legislation which will be based on resolution 28 will bring into the law authority to define by order in council the classes of assets in respect of which double depreciation is granted under section 6 (1) (n) (ii) of the act, which reads:
(1) in computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of
(n) depreciation, except such amount as the minister in his discretion may allow, including
(ii) depreciation at not more than double the rates normally allowed in respect of plant or equipment built or acquired in a period to be fixed by the governor in council for the purposes of this paragraph, if the taxpayer is, in the opinion of the minister, making a new investment by building or acquiring the plant or equipment.
Hitherto the classes of assets have been defined by order in council under the authority of the War Measures Act, or, on its expiration, of the transitional powers act, and it is necessary to have continuing authority under the act itself. There will be no change in policy as a result of this amendment, since it merely provides authority for the continuation of the present practice. I am sorry that I have not a copy of the order in council, but the general classes excluded are commercial and business establishments as distinct from manufacturing and industrial establishments.
My hon. friend will recall that the purpose of the section was to encourage the building of new productive facilities during the reconstruction period. On the advice of the minister of reconstruction, it was narrowed down to the classes of assets of manufacturing plants to which I referred. My hon. friend will recall that the minister of reconstruction had to give a certificate to the Department of National Revenue. It might be more satisfactory if I were to have available a copy of the order in council as it now stands so that I could answer questions in detail.
If the committee would care to pass the resolution I would have the order in council available when the bill is brought in. In essence there is no change in the law. We are simply taking the law as it is, which was administered in part^by statute and in part by order in council under the War Measures Act which will lapse shortly after the commencement of the next session of parliament.


John Thomas Hackett: I think the matter is one of considerable importance. My recollection is that the measure has been both extended and restricted. I believe that it has been extended to shipbuilding.


Douglas Charles Abbott: That is correct.


John Thomas Hackett: That it applies to ships, the approval for the construction of which has been given before December 1, 1947, and which will have been launched by March 31, 1948.


Douglas Charles Abbott: The approval must be given before March 31, 1947, and the work completed by March 31, 1948.


John Thomas Hackett: I understand there is some provision that if the work be not completed, priority is allowed on the work accomplished, provided that it has been authorized in the first place.


Douglas Charles Abbott: I believe that is right.


John Thomas Hackett: That has to do with extension but I think there have been some restrictions. In so far as I am acquainted with the matter, I am not critical of them, but I believe there is a lack of definition. There is still a vast field of discretion which I imagine will have to be restricted and defined by the statute. One of the questions which arises is whether new investment means new construction. In these days people are buying from War Assets Corporation plants which are costing huge sums of money and which undoubtedly are to be devoted to new purposes. They were used for the purpose of making munitions of war and in the future they will undoubtedly be devoted to the manufacture of peacetime commodities. Is such an investment one which would fall within the resolution, and would such a building, being a new investment, be subject to this double depreciation should the owner so optate?


Douglas Charles Abbott: If the asset is within the order. I understand that the restrictions imposed by the order in council on the type of assets which are eligible for double depreciation represent a number of exclusions of assets used in service, distribution, communications and other non-manufacturing industries and also the exclusion of certain assets universally used, such as automobiles and trucks. In general, the double depreciation is granted on fixed assets employed in manufacturing industries. When I have before me a copy of the order in council I shall probably be able to deal more satisfactorily with the inquiries of the hon. member for Stanstead and the hon. member for Winnipeg North Centre.


John Thomas Hackett: If I had not encountered a slight mishap I would have been able to let the minister have a copy of the order in council. My filing system has failed because I changed my coat before coming into the chamber. Would it not be well to let the resolution stand because it is one of considerable importance?

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Douglas Charles Abbott: Would my hon. friend allow the resolution to pass, and then he could bring up any changes which he might consider desirable to be incorporated when the bill is before us? All we are doing with_ this resolution is substituting statutory authority for the authority which now exists by virtue of an order in council under the War Measures Act. I do not want to press the point, but I do not believe the position of the house would be prejudiced by allowing the resolution to pass and discussing the matter in detail on the bill itself.


John Thomas Hackett: Would machinery and equipment which had been used for war purposes but which is being converted to peacetime uses be subject to this type of depreciation?


Douglas Charles Abbott: I am advised by the deputy minister that, subject to verification by looking at the order, the answer is yes.


James MacKerras Macdonnell: The resolution refers to classes of plant or equipment as may be determined by the governor in council. Will that discretion be still reserved by the bill?


Douglas Charles Abbott: I understand that will still be reserved. This, as the committee will appreciate, is special incentive legislation, and I think it is the type of legislation in which some discretion is desirable in the Minister of Reconstruction and Supply or the governor in council. Questions of shortages of material and of labour are involved.


John Thomas Hackett: I should like to get some information, because the minister will recall that there 'have been serious clashes, shall I say, betvyeen different members of the ministry and great disappointment has resulted to people who thought they were beneficiaries of this principle. I think it is to the knowledge of some members opposite that the certificate of the Minister of Reconstruction and Supply was not always honoured by another minister whose duty it was to see that abundant revenue was collected, and I should like to know if the principle has been refined to such an extent that these clashes of jurisdiction and the disappointment resulting therefrom will be precluded.


Douglas Charles Abbott: I do not know whether it would be correct to say that there has been a clash; but the ultimate authority, as my hon. friend knows, and will see by looking at the clause, rests with the Minister of National Revenue.


John Thomas Hackett: There was no doubt
where it rested. I think the gentleman who sits before the minister, never had any doubt
as to where it rested, but I was thinking of the unfortunate gentlemen who thought when they had the certificate of the Minister of Reconstruction and Supply that they had something more than an illusion.


Douglas Charles Abbott: I think every effort should be made to make the order in council as explicit as possible so that the possibility of clash will be minimized.


James MacKerras Macdonnell: If the minister is still suggesting that this resolution should pass, I must say that I am not quite satisfied. Are we now to shift over from a situation where it was publicly known what classes were included to having a discretion exercised?


Douglas Charles Abbott: We are not shifting over.
The. classes will be determined by order in council, that is true; but that order in council will be published. The only change which is being made here is a change in authority. The authority to pass the order in council to-day is conferred by the War Measures Act, but, if this resolution passes, the authority will be conferred by the Income War Tax Act. That is the only difference. There will be no difference in the way in which the order in council is issued, except in so far as the suggestion of the hon. member for Stanstead were followed. The order in council will be along the lines of the order in council which is issued now under the War Measures Act.


James MacKerras Macdonnell: Let me persist with one question further. Will there in due course be made public the details referred to here, the classes of plant or equipment, so that it will be publicly known in respect of what classes this double depreciation operates?


Douglas Charles Abbott: It is published now and
will be made public under the new order in council.


John Thomas Hackett: I am not sure that the
minister would feel that the present order in council makes it absolutely clear that eligibility depends upon the nature of the investment or upon the use to which the machinery or plant shall be put. That is a matter of some importance. If the minister could answer that question, I will not ask any more at this point.


Douglas Charles Abbott: I find it a little hard to
make the distinction, and so do the officials in front of me.


John Thomas Hackett: That is why I asked the question.
Income War Tax


Douglas Charles Abbott: The nature of the investment will indicate the use to which it is put. If the investment is in a manufacturing plant I do not know that it would make very much difference whether the plant were making hairpins or some other commodity, nails or anything else.


John Ritchie MacNicol: It would make a lot
of difference if it were making nails just now.


John Thomas Hackett: I will not pursue the
question further this evening, but I hope that when the measure is brought down by the minister it will be such as to shed a broad light upon a most important measure which the investing public up to the moment has not had any opportunity of understanding very well.


William Alexander McMaster: We have heard a lot
about discretion in the last few days. I can understand the discretion of the minister in interpreting the act. Once that discretion is exercised, it becomes part of the very act itself. Will the legislation that is to be brought down give discretion to the minister as to who will get the benefit of this double depreciation? Will he have discretion to say that one person will get double depreciation and another person in the same business will not?


Douglas Charles Abbott: No, he cannot discriminate in that way.


William Alexander McMaster: Will the minister say
that wherever this discretion is exercised and somebody gets double depreciation, which is in the nature of a bonus, the facts will be made public? Is this to be kept secret as well as a man's income?


Douglas Charles Abbott: I would not think the names of individual taxpayers would be published, together with the amount of depreciation which - they have been granted. The so-called discretion of the minister is restricted to the question whether in his opinion the taxpayer is making a new investment by building or acquiring plant or equipment. He passes on that.


William Alexander McMaster: And having passed on it, does it become a matter of public knowledge?


Douglas Charles Abbott: The exercise of discretion which is made in the case of any taxpayer does not necessarily mean that the facts shall be made public. I would think that in most cases they would not be. I would think that parliament might ask, as was asked here to-day, how many cases there were in which 
special depreciation of this kind had been granted and how much the depreciation amounted to, but I would not think it proper to disclose the exact investment of the individual taxpayer. I am thinking aloud, but that is the view I take.


John Thomas Hackett: I am going to ask the minister this final question. He may recall that yesterday I became a little bit agitated because I was, as I thought, being coerced into something. Will a person making this type of investment be forced to take the double depreciation if he does not want to?


Douglas Charles Abbott: The answer is no. It may be to his advantage to spread the depreciation forward.


John Thomas Hackett: He still has the option.


Douglas Charles Abbott: Yes.


Stanley Howard Knowles: It seems to me that one of the points the hon. member for Stanstead is making is valid, namely, that the purpose of the plant has some signfieance. As I recall, the Minister of Reconstruction and Supply the other day referred to the decision of the government to continue double depreciation for plants engaged in producing materials required in the construction of homes, which is a matter of considerable social importance at the present time. It is along that line that I suggest that the act itself should contain some of the principles at present in the order in council, which has been in existence for some time. The government has had experience and knows all the facts, and I would hope that it might be more specific in the legislation than appears to be the case at the present time.


Douglas Charles Abbott: I will take into consideration the suggestion which the hon. member and others have made along the same line.


[Stage Direction]
Resolution agreed to.
29. That the deduction in respect of income for a taxation year ending between the last day of December, 1942, and the first day of the year of expenditure in respect of one-half of expenditures made,
(a)	in connection with maintenance or repairs by a taxpayer carrying on a business, or
(b)	on underground development by a taxpayer operating a mine,
in a period to be fixed by the governor in council, be restricted to an amount,
(c)	if the year for deduction is the 1946 taxation year not greater than the taxpayer's excess profit in that year as defined for the purposes of the Excess Profits Tax Act, 1940, or
(d)	if the year for deduction is a taxation year prior to 1946, not greater than the taxpayer's profits in the said year above the point

Income War Tax
at which the tax calculated for the said year under the first part of the second schedule to the Excess Profits Tax Act, 1940, was equal to the tax calculated for the said year under the second part of the second schedule to the said act,
and that no such deduction be allowed in respect of the income for a taxation year commencing after 1946.
Douglas Charles Abbott: This is perhaps a complicated provision. The legislation to be based on this resolution relates to the provisions which were announced in the 1944 budget dealing with deferred maintenance and repairs. It will be recalled that at that time an amendment was enacted to allow one-half the expenditures incurred in a period to be designated by the governor in council to be charged against the income of a previous fiscal period ending in a year not earlier than 1943. As yet the period in which expenditures incurred would be eligible under this provision has not been named, and the purpose of the legislation to be based on the resolution is to restrict the application of this carry-back when it becomes effective to income that was subject to tax at the rate applying to excess profits in the years 1943 to 1946. As the committee will understand, the flat rate of corporation income tax will be reduced by the budget proposals from 40 to 30 per cent and the excess profits tax rate from 20 to 15 per cent, effective January 1, 1947.
It will be immediately apparent, therefore, that any corporation paying only the 30 per cent rate of corporation tax in the future would automatically gain by carrying back an expenditure to a previous year when it paid only the minimum 40 per cent rate of combined tax. I would point out also that this gain would arise solely because the naming of the period in which the expenditures are eligible may be incurred, concerning which I wish to make a statement later on, has been delayed to a time later than was contemplated when this legislation was introduced in 1944.
I would also point out that the case for this measure was argued at a time when the 100 per cent rate of excess profits tax was in effect and that profits subject to this tax were asserted to be artificially high in many businesses because the normal costs for maintenance and repairs, impossible to undertake during war time, were missing.
I believe I am correct in saying that it was . never in the government's mind that companies not subject to the excess profits tax rate would in general benefit from this special carry-back provision; and I may add that
when I used the term "excess profits tax rate" I refer to the 100 per cent rate and the 60 per cent rate of last year.
We are, however, now faced with a situation in which many companies which have never paid the excess profits tax rate would receive a benefit owing to the necessity placed on the government, in fulfilling this obligation under the wartime tax agreements with the provinces, of reducing its corporation tax by ten per cent. Such companies would receive benefits which were never intended at the time the legislation was introduced and which would not arise except for the unforeseen necessity of postponing the period for an indefinite time. In the light of the above circumstances, it is proposed that the benefit of this provision, when it comes into operation, shall be limited to those business concerns which have paid tax under the rate applicable to excess profits.
I should like the committee and the business community at large to appreciate the difficult position in which the government has found itself in regard to the question of naming the period required to give effect to this measure. On the one hand, we have been pressed by businesses which have found it impossible to postpone their rehabilitation programmes any longer, asking us to name the period immediately in order that their expenditures may qualify; and, on the other hand, because of the serious shortage of materials and equipment, we have been pressed to delay the period until more ample supplies will allow business generally to receive the maximum advantage from its operation.
The government itself has also been faced with the responsibility of avoiding as far as possible any action that would place an additional strain on the acute situation with respect to building materials and accentuate shortages which have already seriously interfered with the housing programme in particular.
While the government has realized that in circumstances where it has been impossible further to postpone maintenance and repair expenditures deferred during war years, the fact that the period has not yet been named will mean a loss of benefit which would have been available were the period now in effect, it has not regarded it as in the general public interest to take any step which would place any added strain on the supply situation.
This matter, I may say, has been under review from time to time and will continue to be given constant consideration, but I regret that it is not yet deemed expedient to bring this measure into effect, nor is it pos-
Income War Tax

sible in the present outlook to give any assurance as to when it will be proclaimed, apart from the assurance that it will be delayed no longer than is necessitated by the exigencies of the supply situation.


Agar Rodney Adamson: I understand that this measure, which is splendidly complicated in its language, is not actually in effect and the period has not been named in which it is likely to come into effect. I have a suggestion to make to the minister with regard to mining in particular. Owing to the condition of the structures of the mines in Canada, particularly the workings underground, many mines have during the war done practically no exploration and have been in many ways seriously depleted when there was a tremendous demand for metal for production. The normal processes of mining were not carried on; probably the normal processes of a great many other businesses were in the same condition, and the structures and physical assets of the companies were not kept up in the way in which they should have been under normal business practice. I realize the difficulty the minister has in proclaiming a set period. What would be wrong with having the period optional to each individual concerned? Would that produce a chaotic situation. Some of the companies need the relief probably sooner than others. Some are now facing a critical situation in consequence of their depleted and deteriorated physical structures. Would it not be possible to allow some of the companies to take a period which was optional to them?


Douglas Charles Abbott: I shall look into the question raised by my hon. friend. As he will appreciate, the legislation recognizes the fact that concerns which were earning high profits were unable to make their normal maintenance and repairs. By reason of that fact their profits were greater than they would otherwise be. The thought behind the legislation was that in a period shortly after the war it would be desired to stimulate production, encourage the making of these repairs, and that the government would then fix a period when the supply situation was such as to enable that to be done without interfering with other national activities, and that the benefit could then be taken back into the years referred to in the act. Whether it would be possible to make it optional or not with the individual company, I will not say at the moment, but I think it unlikely. As matters stand at present, I do not need to tell hon. members that materials and labour generally are in short supply and that, therefore, this is not the time when we want to encourage the making of these expenditures.
[Mr. Abbott.1


Agar Rodney Adamson: I realize that this is not the time to encourage the making of these expenditures, but a number of industries are being driven to a more and more deteriorated state, and their efficiency is suffering because of the deteriorated state into which their plant has fallen.
I gather that the resolution affects only concerns or corporations which were paying the excess profits tax when it was 100 per cent. Is that not right?


Douglas Charles Abbott: That is right, or when it was 60 per cent.


Agar Rodney Adamson: But it will not affect concerns which pay the excess profits tax under the present-


Douglas Charles Abbott: Not concerns which paid what I might loosely describe as the normal rate of 40 per cent.


Agar Rodney Adamson: It is difficult to say how many mines will be affected at the present time, some of which definitely went out and practised extremely bad mining practice in which they just took out their high-grade ore, and now find themselves in an extremely bad condition. When production was necessary they mined their high-grade veins and left their low-grade veins behind, and in some cases made really abnormal profits.
If the minister will look at the profits statement of a great many corporations in the last year he will find a considerable decrease in the profits made by many corporations, particularly mining corporations. I am not speaking now of the recent effect of parity; I am speaking of the conditions which accrued even before parity, because some of the mines have been forced to go back and put their properties into shape in order to carry on their business. Profits have fallen considerably, and I point out to the minister that in an operation such as mining these repairs or this rehabilitation of property must go on in order that the mine may continue. I assume that a great number of other concerns must be placed in the same position. Take a concern which has a steam boiler which has been used during the war and is still being used, but perhaps is not as safe as it should be. In a case like that, the concern should be given an opportunity to appeal or make its case optional before the government. There is every possibility that the building situation, the material situation, and the steel situation will get worse rather than better. We have to look at that. Perhaps I realize that better than anybody in the committee because I am trying to build a house at the present time. Therefore I know what the situation with regard to building material

Income War Tax
really is. There are many concerns in Canada to-day which find themselves definitely in a critical situation with regard to their physical plant, and some consideration should be given to making this resolution and the period when it becomes operative optional, and to give these concerns which find themselves, in common parlance, behind the eight ball, an opportunity of getting relief.


Douglas Charles Abbott: As my hon. friend has pointed out, this resolution affects only those concerns which are in the 100 per cent excess profits tax bracket, or which paid excess profits taxes at the rate of 60 per cent. I am told that it would not affect many gold mines, because there rvere almost none in that category, although I have no doubt that there were some base metal mines.
I shall give consideration to the points raised by the hon. member, but I think it would be most undesirable to attempt to put it on a basis of selectivity or to try to give the minister the discretion to decide which company should get it and at which period. However, I shall give consideration to the points which have been raised by the hon. member for York West.


John Thomas Hackett: I have a question that I want to ask, but before asking it may I say that I believe that a number of base metal mines find themselves in a difficult position because they responded, as the hon. member for York West has said, to the great demand for base metals. They took out the ore of the higher grades and did great damage to the mine as a business. There is something comparable to repairs which have to be made before a mine can be operated effectively and economically. I do not see any provision in the resolutions for that damage wThich was done for other than business reasons. The chief and only inspiration to do as the mine owners did. was to increase production, which meant nothing to them, because, as the minister has said, many of them were in the categories wherein 100 per cent of their profits were taxable. Has any provision been made for the rehabilitation of these great sources of employment and wealth?


Douglas Charles Abbott: I agree with what my hon. friend has said, that a great many of these base metal mines did accelerate production, and by doing so did accelerate the depreciation of the plant and equipment. There were a number of cases in which special agreements were made with mines for the crown to grant them accelerated depreciation, but other than that there is no special provision. As I pointed out in my remarks a little earlier, the government realizes there are cases in which
it will be impossible for certain manufacturers or mine operators further to postpone the making of long-deferred maintenance repairs and replacements. As I also said, that will mean a loss of benefit to these firms; but it is still felt that, in the interests of the public generally and the manufacturers generally who would be entitled to avail themselves of this, the time has not yet come when a period can be designated within which expenditures for such deferred maintenance and repairs can be availed of as a charge back to previous years.


John Thomas Hackett: I wanted to ask this
question, dealing with a large class of companies whose operations were almost suspended during the war. They did nothing, or practically nothing; they earned no profits or in any event not sufficient profits to maintain their equipment. Now that business has come back, they find themselves confronted with this difficulty. Either they must not accept work or they must buy new equipment, which is not going to be provided for by depreciation or anything of that kind. I am speaking now of equipment which has stood idle for five or six or seven years. I shall give the minister a typical company of the kind I have in mind, a road building company. They have done nothing; their equipment has rusted and rotted. To-day the work comes in and the equipment has to be renewed. How are they to do it? It will not be a proper charge against earnings, and I do not find anything in the act or in the resolutions to meet that situation. It seems to me that this is a practical question and one of which the deputy has had probably a number of instances placed before him.


Douglas Charles Abbott: That, of course, is perfectly true, as no one knows better than my hon. friend; but depreciation is only of value to a taxpayer if he has profits against which to write off the depreciation. I have no doubt the road building companies are an excellent example of concerns whose plant and equipment depreciated during the war period, when there w'ere no earnings against which depreciation could be written off. But as far as I know there is nothing in the law which would allow them to take depreciation to-day which they could have taken in previous years, and I do not think there is any intention of introducing such a provision. This measure, as my hon. friend knows, and as I indicated earlier, w*as intended to help the man whose profits were svmllen if anything by reason of the fact that he was not able to make normal maintenance and repairs; to enable him to make them at a later date and charge them back into that period of very high taxation.
Income War Tax


John Thomas Hackett: But to promote employment I thought it might be a matter of policy which the government would like to explore. If the replacement of this machinery could be made a first- charge upon profits up to an amount which the government might think reasonable, I am sure it would promote business activity and employment and the general well-being of large sections of the community.


William Alexander McMaster: I was very glad to hear that in the past there were some companies who did not manage to spend considerable sums out. of their excess profits instead of the money going to the government. I did not know that such companies existed. But I cannot see why a company that had excess profits would not write off depreciation. No doubt they did write it off, and they have that depreciation in their hands right now. It is real money.


Douglas Charles Abbott: I had better clear up this point. We did get into a discussion of depreciation, but this section has nothing to do with depreciation. This relates to deferred maintenance, what would have been ordinary operating, expenses of the concern and chargeable as such, but which they were not able to make because of the shortage of materials or shortage of labour or otherwise.


William Alexander McMaster: But I was going to get into the question of depreciation anyway; the hon. member for Stanstead was holding me back.


Douglas Charles Abbott: Having allowed the hon.
member for Stanstead to speak on it, I suppose I must allow my hon. friend to do so, though it is not under this resolution.


William Alexander McMaster: I am not speaking
about mines. I do not know anything about them except that they are things you get money out of and things some people put money into which they never get back. I am speaking of this broad section. As I understand it, you are only going to allow any money they will spend in the future out of the excess profits the government got out of them in the good years, when they had swollen profits. If they did not have profits, then depreciation was not allowed. Depreciation is written off because some day you are going to have to replace the capital structure, or some part of it, and for that you use this depreciation, which is actually money in your hands. Then, what other concession should they have than the privilege of using this money which they kept back from the government and have in their hands to-day? If

you start giving back 100 per cent excess profits I think you should do so in such a way that everyone would get his share. Under the Excess Profits Tax Act a small business was prevented from making any advance at all because of the low base. Those people from whom you took excess profits equal to perhaps five or six times their whole capital structure should receive some consideration. I should like the minister to explain why the companies the government is going to help are the companies that had excess profits and the companies that have in their hands the depreciation with which to make the necessary repairs.


Douglas Charles Abbott: I shall be glad to do what I can to explain to my hon. friend the point he has raised, though, if he will allow me to say so, it has nothing to do with this resolution, which relates to a provision that has been on the statute books since 1944. As I explained in my opening statement, this regulation made provision for the case of the concern which during the war years was not able to make its normal, ordinary maintenance expenditures. Companies of that kind, who thereby had their profits increased beyond what they would have been under ordinary normal business practice, can do that later. Take the case of a concern-


Harry Rutherford Jackman: The railways.


Douglas Charles Abbott: I shall take a smaller
example. Take a concern which normally would earn 850,000 a year and which normally would spend $10,000 in regular, proper repairs and maintenance.	During the war years,
because of shortage of materials and labour shortage, it was not able to spend that $10,000. What was the effect? Its profits were increased from 850,000 to S60.000. Ordinarily, if it could have obtained the materials or the men it would have made those everyday, regular, normal repairs. It could not do that, so that its profits were artificially increased, if I may so describe it, by reason of those circumstances. It was recognized that there was a hardship there, and we said to those companies, "If you make those deferred maintenance and repairs after the period of scarcity is over, in a period which is designated by the government, we will allow you to charge them, to the extent of one half, back into those years, from 1943 to 1946 when you would normally have made them." That is all.
Under the proposed resolution we restrict that privilege, if I may call it that, to taxpayers that were big profit earners during the period of the war, companies which, as I said, were in the 100 per cent bracket, or who paid the 60 per cent rate. The only difficulty wre

Income War Tax
are in at the present time is that, because of the shortage of materials and of labour which still exists, we cannot designate a period yet within which those who are eligible may avail themselves of that right. It has nothing whatever to do with depreciation.
Mr. MeMASTER: I do not see how it can be dissociated from depreciation. The income tax branch will disallow everything that is not ordinary repairs. The cost of other than ordinary repairs is taken out of depreciation account. If they7 do not spend it there, there will be the usual allowance for depreciation. They get the same benefit by depreciation that they would have got by spending the money on what are capital repairs, and the money allowed for depreciation is still in their hands.


Douglas Charles Abbott: The answer is no. My hon. friend should appreciate that one cannot take out of depreciation reserve expenditures for maintenance and repairs. Expenditures for maintenance and repairs are current operating charges. Amounts which are set aside in depreciation reserve are a capital charge. They are a charge against profit, it is true, but they are set up in a depreciation reserve in order to provide a return of capital to the taxpayer. On the other hand, expenditures for maintenance and repairs are current day-to-day, week-to-week, month-to-month, year-to-year operating expenses.
Mr. MeMASTER:	Even machinery is
lepreciated on a basis allowed by the department. They cannot go and buy new machinery or repair it, except through this depreciation fund; at least the income tax officials never allowed my clients to do so.


James MacKerras Macdonnell: What bothers me is that it seems to me- and I am going back to the suggestion made by the hon. member for York West-that it might be done at a time to be chosen by the company; because as the minister has indicated, the relief they propose to give is limited to a certain time, and it is by no means certain that a company will be able to take advantage of it in that time. That will depend, as I see it, upon the circumstances of each particular company. If, as pointed out by the minister, this is advantageous, I am not clear as to why it need necessarily be confined wholly to the 100 per cent or 60 per cent excess profits tax company.


Douglas Charles Abbott: Because, as I said in my preliminary statement, it was never intended to benefit any other taxpayer. The justification for it, as my hon. friend will see if he looks at the debates, was that the companies
in question were in effect having taken away from them 100 per cent of amounts which otherwise they would have expended on maintenance and repairs.
Mr. MeMASTER: Would the minister give us the section of the act where that is indicated?


Douglas Charles Abbott: Yes, it is section 5 (v) which says:
In respect of income for a taxation year ending between the last day of December, one thousand nine hundred and forty-two and the first day of the year of expenditure, not more than one-half of expenditures made
(i)	in connection with maintenance and repairs by a taxpayer carrying on a business, or
(ii)	on underground development by a taxpayer operating a mine, in a period to be fixed by the governor in council for the purposes of this paragraph but the taxpayer may not deduct from his income for the year of expenditure, in respect of maintenance and repairs or underground development, more than the amount by which the expenditures made with respect thereto in that year exceed the amount deducted in a previous year or years in respect thereof under this paragraph.
That is to be amended in the way indicated in the resolution now before the committee.


Agar Rodney Adamson: One thing more. Our hypothetical company makes $50,000 a year and puts $10,000 into normal operating repairs. Now it makes $60,000. The $10,000 is 100 per cent gone; the government has got it. Now their machinery is depleted, and they are in a mess. I am not clear as to how exactly they will take the recoup for the expenditure of the $10,000 for three or four years-and incidentally it will perhaps be more than that, because of present increased prices. How do they get it back? What is the machinery for getting that back?


Douglas Charles Abbott: I would say that $5,000 of the $10,000 could be carried back into 1943, and charged there. In other words, the company's return would be reopened for 1943, and it would get an appropriate refund of taxes.


Agar Rodney Adamson: But not in 1942.


Douglas Charles Abbott: No, not in 1942.


Agar Rodney Adamson: But in 1943, 1944 and 1945?


Douglas Charles Abbott: And 1946.


Agar Rodney Adamson: Only 60 per cent in 1946, though?


Douglas Charles Abbott: Yes, it could be deducted from income in 1946. The rate in 1946 is only 60 per cent.
Income War Tax


Agar Rodney Adamson: But in their income tax, they can take their income tax and excess profits tax statement for 1943, go to the deputy minister and say, "I want 50 per cent of this back, because I have to repair my machinery"?


Douglas Charles Abbott: That is correct, provided that they make the repairs within the period which will ultimately be designated.


Agar Rodney Adamson: And which has not yet been named?


Douglas Charles Abbott: Correct.


William Alexander McMaster: In the bill which will eventually come forward will there be some means of designating those who are entitled to this, or will it be another case of the discretion of the minister?


Douglas Charles Abbott: Everybody will be entitled to it who was in that tax bracket during those years. There is no question of discretion there.


Frederick Samuel Zaplitny: I understand that provisions in legislation arising out of this will be restricted to a certain select group of companies. That is the impression I got from what the minister said. I want to know upon what criterion that will be measured. What rules will apply as to who shall or who shall not be eligible, or is there a list of companies to which we can refer.


Douglas Charles Abbott: They are all listed in the resolution. The class is clearly designated. The expenditure must be in connection with maintenance or repairs by a taxpayer carrying on a business, or on underground development by a taxpayer operating a mine; and they must be companies which-speaking as I did colloquially-were in the 100 per cent excess profits tax bracket in the years 1943. 1944, or 1945, or the 60 per cent excess profits tax in 1946. I have explained once or twice why it is restricted to that class. It is restrictive. If it were extended to other companies, say. which paid only at the 40 per cent rate, it would be a benefit extended to those companies which it was never intended they should have. But there is no discretion in the minister as to who will get the benefit and who will not.


Frederick Samuel Zaplitny: But it is restricted to companies or businesses as designated in this resolution?


Douglas Charles Abbott: Yes.


Frederick Samuel Zaplitny: What I should like to know is why it was restricted to that? For instance, farmers are in the same position as some of these companies.


Douglas Charles Abbott: It is not restricted to an industrial enterprise. It extends to agriculture, too. If an agriculturist was in the 100 per cent excess profits tax bracket, and paid excess profits tax and was not able to make the normal maintenance and repairs-or even if he did-he could take benefit of the section. I am glad the hon. member brought that up, because it is not restricted. It is the taxpayers who are subject to the provisions of the Excess Profits Tax Act. I understand there were some farmers who came within that act.


[Stage Direction]
Resolution agreed to.
Douglas Charles Abbott: 
Douglas Charles Abbott: The effect of this resolution is to provide that where no assessment has been made in respect of a taxation year at the end of a period of twenty months following the date for filing returns for that year interest on any unpaid taxes will cease to accumulate after the end of the twentieth month and will not commence to accrue until one month after an assessment has been made.


Stanley Howard Knowles: I gather that this change is being proposed in view of protests which have accumulated during the last few years. As hon. members will know, the department has had so much work to dio that the time taken to assess returns has extended considerably. A taxpayer who inadvertently may not have made out his return correctly has not liked having to pay interest for a long period of time because of the time taken by the department to assess the return. It seems to me that the department has admitted the validity of the protests that have been made by fixing an arbitrary period beyond which such interest would not be paid. In other words, the government is saying that the department should make assessments within at least a year and eight months after the filing date. It seems to me that, that admission having been made, it strengthens our case for suggesting that the period should be shorter.
I know the other argument presented by the Minister of Finance, namely, that people should make out their returns correctly and that it should not be possible to save interest at the expense of the government. Surely a

Income War Tax
period of something less than twenty months should be sufficient penalty for a taxpayer who is doing this sort of thing deliberately, and in the interest of the average taxpayer who tries to make out his return correctly 1 suggest that the period should be shorter than twenty months.


[Stage Direction]
Resolution agreed to.
37. That the provision for payment of interest by corporations on the amount of taxes unpaid after payment of instalments of estimated tax commencing six months after the end of the taxation year be amended to require payment of interest on the said unpaid amount from the end of the taxation year.
Resolution agreed to.

[Stage Direction]
Resolved, that it is expedient to amend the Excess Profits Tax Act, 1940, and to provide:
1.	That the provision for taxation of excess profits of every person residing or ordinarily resident in Canada be amended to exclude tnere-irom in respect of excess profits earned after December 31. 1946, persons other than corporations nr joint stock companies and to reduce the rate of tax on excess profits earned after December 31, 1946. from 20 per cent to 15 per cent.
2.	That with respect to profits earned after December 31, 1946, the provision for taxation of profits of every corporation or joint stock company be repealed.
3.	That for the 1947 and subsequent taxation years investment corporations that have outstanding bonds, debentures or other securities evidencing funded indebtedness be exempt from excess profits tax.
Douglas Charles Abbott: The first resolution proposes two things, first, that the rate of tax on excess profits earned after December 31, 1946 be reduced from 20 per cent to 15 per cent and, second, it exempts completely from the excess profits tax the profits of partnerships and sole proprietors as from January 1. 1947.
The second resolution repeals the flat rate tax on total profits as distinct from the rate of tax on excess profits with respect to earnings of 1947. At present the tax on total profits under the Excess Profits Tax Act is 22 per cent which, together with the IS per cent under the Income War Tax Act, makes the 40 per cent fiat rate. Concurrent with the repeal of this 22 per cent rate, the 18 per cent rate is being increased to 30 per cent. These two amendments taken together give effect to the undertaking under the provincial wartime agreements that the dominion would reduce the tax on corporate incomes by ten per cent of such income.
The third resolution provides for a minor amendment dealing with investment trusts and is in line with the amendments in connection with the Income War Tax Act. It
giants exemption from excess profits tax to all investment trusts, regardless of whether or not they have bonds outstanding. At present the exemption is limited to those who do not have bonds outstanding, and this is to give comparable treatment to the two classes of trust.


James MacKerras Macdonnell: My understanding is that it remains indefinite; in other words, it continues from the end of 1946, the only difference being that it is 15 per cent instead of 20 per cent?


Douglas Charles Abbott: That is correct.


James MacKerras Macdonnell: I should like to draw attention to one or two things.


Douglas Charles Abbott: Sole proprietors and partnerships are out.


Mr.   M A CD O XN ELL@Muskoka-Ontario: I want to refei to just one or two things said by the minister last October and again this year. I am referring to this matter purely as an employment measure. The Minister of Finance said that we should not rely too much on employment remaining as it is now, that we should think of everything that would possibly stimulate employment. I think that is generally recognized, and I wish to quote the minister on the point that the great objection to the 100 per cent excess was that it put no premium on efficiency. In fact, it almost put a premium on inefficiency. The Minister of Finance is reported on page 1004 of Hansard of October 12, 1945, as follows:
The Excess Profits Tax Act is a war measure which has commanded overwhelming support as an important and necesary instrument of war finance. Unmodified, it seriously weakens the stimulus toward the investment of capital and the efficient operation of enterprises. In this period of reconstruction it is becoming a barrier to expanding employment.
As reported later on the same page, the minister said:
There is widespread evidence that incentive is being stifled and that ordinary prudence in the making of business expenditures has been seriously weakened.
Speaking on June 17 of this year, as reported on page 2919 of Hansard, the minister said this:
I had hoped to be able to announce in this budget the repeal of the Excess Profits Tax Act in its entirety, effective as of January 1, 1947. As I explained last year, this tax was designed as a war measure and has received overwhelming support as a necessary instrument of war finance, but it has distinct weaknesses and limitations in normal times and is not to be accepted as a permanent part of our tax structure.
Excess Profits Tax

Then the minister went on to give as his reason for not dealing with it, which to me is one of the most unconvincing statements I have ever heard from the Minister of Finance:
Experience, however, has shown that we are still living in highly abnormal times, the shadow of the war is stfll upon us, and as I have shown the financial burdens on the dominion budget arising out of the war are still of huge proportions. After careful consideration the government has reached the conclusion that the act should stay on the statute books for another year unless provision is made at the next session of parliament for its earlier repeal.
I want to emphasize that I am talking about this as an employment measure. I know I am running the risk of some saying, "Oh, you are thinking of the corporations." I am just using the minister's words which, I think, are wise and sound1. I contend that the conclusion which the government has arrived at is entirely contrary to all the argument made by the minister, and I think it is a great mistake.


Douglas Charles Abbott: I am glad my hon.
friend very properly emphasized the word "unmodified" when he quoted the minister's speech.


Stanley Howard Knowles: There are two comments I should like to make. First, despite what the hon. member for Muskoka-Ontario has just said. I cannot but recall how rapidly the Excess Profits Tax Act has been modified since the end of the war as compared with the deaf ear we get when we try to plead the cause of personal income taxpayers in the lower brackets.


Donald Methuen Fleming: I think the committee would value the hon. member's opinion on the fact that the United Kingdom abolished their Excess Profits Tax Act entirely with a view to stimulating employment.


Stanley Howard Knowles: We have gone over that before, but we can go over it again if it is thought desirable. One has to take the total economy into consideration. One has to consider the entire tax set-up; the situation in Britain, the shortages they have because of what they went through in the war, and the social security measures that have been brought down in that country. I am suggesting that we do what my hon. friends have proposed time and again, namely, make comparisons within our own country and on the basis of what is possible here. And what does seem obvious here is that this government in the_space of two years is able to bring about drastic modifications in the excess profits tax as compared with the modifications we have had in the personal income tax.

The other thing I would suggest is this. The Minister of Finance in his budget speech made reference in his closing paragraph to the general belief that we as Canadians can do just as great things in time of peace as we did in time of war. I suggest that there is a sense in which our objectives are parallel, namely, high production, and part of the way to achieve high production is to make sure that the results of production are put to social use. That comes about, not by facilitating the piling up of huge profits, but by using such instruments as are at our command to distribute properly wealth. On that basis the government has already gone far enough, if not too far, in the reductions it has made in this particular tax.


Harry Rutherford Jackman: The minister, in making his reply in the budget debate, mentioned that some on this side-and I think he had reference to myself among others-had said that the retention of this excess profits tax, even though it is lowered slightly, was a great discouragement to production. He attacked that contention; and after reviewing the situation in Canada, where we have 30 per cent normal tax, and 5 per cent likely to be added by the provinces, and then 15 per cent excess profits tax, giving 50 per cent altogether-


Douglas Charles Abbott: No; 15 per cent on the excess over 116% of standard, not on all profits. That is an important difference. It is not 50
per cent on all profits.


Harry Rutherford Jackman: The basic rate is-


Douglas Charles Abbott: Where the province imposes a tax the tax is 35 per cent on profits up to 116% of standard and 15 per cent on the excess. In most cases that would work out at
an average rate of about 38 per cent.


Harry Rutherford Jackman: That is the mistake which I believe the Minister and his advisers have fallen into. What I am suggesting is that on the excess profits-define them as you like, 100 per cent or 116%-the effective tax rate will be 50 per cent. Is that correct?


Douglas Charles Abbott: That is correct, but only on the excess. On 116% of standard the tax will be 30 or 35 per cent.


Harry Rutherford Jackman: In this country it will be 50 per cent as against 38 per cent in the United States, and a still smaller rate on the smaller corporations, which fact the minister did not mention. The two examples I gave the minister were these. A company in the United States having a branch plant in Canada can arrange to do its export business from the parent plant across the line, or it can do its export business from its branch in Canada. If it does

Privilege-Mr. Coldwell
so much business, we will call it X, in the United States, and it also does X business in Canada, there is still its foreign trade business, which is additional to the ordinary business carried on domestically in both countries. If that company finds that the tax rate in the United States is 38 per cent on the foreign end of the business, and that the tax rate in Canada is 50 per cent, it is quite obvious where the business is going to be done.


Douglas Charles Abbott: It cannot be 50 per cent in Canada.


Harry Rutherford Jackman: It can be and you have just admitted it.


Douglas Charles Abbott: Only on a relatively small proportion of the profits.


Harry Rutherford Jackman: That is where the minister and his advisers make their cardinal mistake. I am not suggesting what the general rate of taxation is. All I am interested in is in getting the additional business. I am not think-about the average business but about the additional business, and the rate of taxation on that additional business is 50 per cent in Canada, whereas in the United States the rate remains at the flat corporation rate, which we will take as 38 per cent. So that there is no question where the additional business is going to be done. If, not the average business, but the additional business is produced in the United States the rate of taxation is 38 per cent. If the additional business is done here the rate is 50 per cent. It seems to me clear that the minister and his advisers have fallen into a complete lack of business foresight in not grasping that the average rate is of no consequence in regard to the extra foreign business we are trying to get. It is the rate on the last unit of business which counts, the rate here in Canada as against the rate in the United States, and I am saying that there is a twelve per cent differential, that the retained profit is twelve per cent higher in the United States and therefore the additional business is certainly going to be done there.
I mentioned also the example of a Canadian company', a great friend of the government, which was endeavouring to do some export business to Newfoundland and had the trade pretty well lined up. Then an American competitor came in and, because he had a larger retained profit, he was able to quote a closer price and get the business. We are not interested in the average tax rate on all the business of a Canadian company. That is all right for theorists to be interested in, but not practical business men who, if they have an opportunity to do additional business through a United States plant or a Canadian plant and the rate in the case of the United 63260-246
States plant is 38 per cent and in the case of the Canadian plant 50 per cent, will certainly have it done in the United States. The result of this retention of the excess profits tax on our Canadian economy, perhaps not so much now when we have employment and are doing fairly well in production, but in the future will be to deprive our manufacturers of just what is required in the way of incentive and providing employment for our people.
Resolution reported, read the second time and concurred in.



THE ROYAL ASSENT

James Horace King: I have the honour to inform the house that I have received the following communication:
Government House,
Ottawa, July 25, 1946.
Sir.-I have the honour to inform you that the Hon. Thibaudeau Rinfret, Chief Justice of Canada, acting as deputy of His Excellency the Governor General, will proceed to the Senate chamber on Friday, July 26 at 3 p.m., for the purpose of giving the royal assent to certain bills.
I have the honour to be,
Sir,
Your obedient servant,
F. L. C. Pereira,
Assistant Secretary to the Governor General.
It being five minutes after eleven o'clock, the house adjourned, without question put, pursuant to standing order.
Friday, July 26, 1946