1946-08-13

PASSPORTS


[Stage Direction]
On the orders of the day:
Mr. J. G. DIEFENBAKER (Lake Centre):: I have before me the morning Gazette. In view of the fact that chapter, verse and line are given respecting the alleged application for passport and naturalization, possibly the minister is now in a position, with that information, to make a statement.


Hon. ERNEST BERTRAND (Postmaster General):: I intended making a statement about this affair to-day, but I have not yet the latest word regarding it. I shall have it in a few minutes, and with the permission of the house I will then make a statement.



PRIVILEGE-MR. BERTRAND (LAURIER)

Ernest Bertrand: Mr. Speaker, I should like to make a short statement on a question of privilege.
Yesterday morning in the Montreal Gazette, page 13, and in this morning's, page 9, appeared reports signed by Lawrence W. Conroy and entitled respectively "Suspicion in false passport ring points to federal cabinet member," and "Spy aided by false credentials was known as William Brandis".
In February, 1938, Corporal Noel of the R.C.M.P. came to my office and asked me if I did remember recommending one Willy Brandes, who had asked for his naturalization in September, 1936. At first I did not remember, but after the officer had described the applicant I said that I did remember a man, corresponding to the description, who had come to me accompanied by two persons, one of whom I knew well. On was Aaron Marco-vitch, and the other was a gentleman whose name I gave to the police, but I do not need to give it here because he had nothing to do with what happened after that. At the time I was not sure which one of the two had been in my office with Brandes to whom I had given the letter shown to me by the R.C.M.P.
Why did I give this letter? During the election period of 1935 Aaron Marcovitch had presented himself to me as a brother of one Marcovitch whom I knew as a perfect gentleman, and who was in charge of Sam Jacobs' central committee in Cartier division. Aaron told me that he knew the Hebrew element of
[Mr. Graydon.l
my district very well, that he was agent for the Hebrew Sick Benefit Association, which I found to be correct. He succeeded in convincing me of his usefulness. He worked in my committee all through the elections under the supervision of my campaign manager.
The R.C.M.P. officers went to Aaron Marcovitch's house and the latter admitted that the photo of Brandes ivas somewhat familiar but that he could not place the man. He denied having had anything to do with the naturalization papers, and to convince the officers he offered them to go through his records with them. They accepted immediately, and found out the name of Brandes, his certificate number 22970 and the certificate number of one Schulem Brandes, number 10164, a man who had been naturalized in 1913 and who had been given as Willy Brandes' father in the papers showm to me and later presented to the authorities.
Later on Marcovitch admitted that Mrs. Schulem Brandes was an aunt of his own wife, Mrs. Marcovitch.
Willy Brandes' profession was given as Hebrew teacher in the Montreal Hebrew school. I remember that he was a gentleman who was well dressed, spoke very good English and very good French.
The officers found that a marriage appeared to have been celebrated between Willy Brandes and Mary Stern by a certain rabbi- I do not need to give his name-before two witnesses whose names appeared but both of them denied having ever witnessed such a marriage.
When I was told of the details of the R.C.M.P.'s inquiry it helped my memory to reconstruct this affair.
The application forms for naturalization were signed as of the 10th of September, and explained the terms of my letter of the 15th, which is as follows:
Officer in charge of naturalization.
Parliament building,
Ottawa, Ontario.
Sir,
I hereby recommend to you Mr. William Brandes, who is filing his papers to obtain Canadian naturalization. Mr. Brandes has been living in Montreal since he entered Canada at the age of eight years old. He is employed as professor by the Hebrew school of Montreal and is absolutely reeommendable from all angles.
Yours very truly,
(Signed) E.B.
These details of my letter, relating to Brandes' stay in Montreal and his profession of school teacher, had been furnished to me by Marcovitch and Brandes himself who accom-

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panied his supposed cousin to my office. These forms showed the number of Brandes' father's naturalization paper obtained in 1913. I had no reason to doubt Marcovitch's words, as he had always acted properly during the time I had known him.
Marcovitch was a very sick man in 1938, when the mounted police made the inquiry, and was restricted in his movements by the said police orders. He died on November 11, 1944.
I never signed anything else but the letter just quoted. Fred Rose's name does not appear in the file. I did not know him until long after September 1936, and to say "that the first signature was that of Rose", which it was necessary to cover by "another signature who would be like Caesar's wife, above suspicion" with all the implications that follow, is malicious and untrue.
I am sorry to have been deceived by Marcovitch and Brandes, whose story was plausible, but there was nothing but absolute good faith in my behaviour. I say again that I have never heard of Fred Rose in this affair.



INCOME WAR TAX ACT

[Stage Direction]
Hon. DOUGLAS ABBOTT (Acting Minister of Finance! moved the second reading of bill No. 368, to amend the Income War Tax Act.
Mr. RODNEY ADAMSON (York West):: I am making this speech at the present time because I consider the income tax bill the most appropriate of the measures going through the house in relation to which to make the present submissions. Part of what I have to say would probably have been more appropriate under the foreign exchange control bill; possibly part of it would come appropriately under justice estimates, and part of it under the department of mines. However, in order to save the time of the house I have endeavoured to condense in one speech what I have to say at the moment and to make that speech at this point. I trust, Mr. Speaker, you will allow me a certain latitude in my remarks if in part the material I give to the house is not strictly relevant to the Income War Tax Act. As I have said, I am endeavouring, for the purpose of saving time, to make three speeches in one.
The first part of my remarks deals with the effect on the Canadian economy; of parity of the Canadian dollar; the second deals with the measures taken by the government to overcome the loss sustained by the
mining industry, while the third offers some recommendations concerning the gold mining industry and the free gold market generally.
When this government, in the wisdom of the experts of the Department of Finance, decided to put the Canadian dollar at parity, certain definite things happened. The first, and probably from the long-time point of view the most serious, was the restriction placed upon our exports. We have recently heard at great length the comparison of Canadian costs with costs elsewhere, particularly in the United States, and it has been strongly impressed upon this country and upon this parliament that Canada must export to live. Canadian manufacturing costs are higher than those in the United States, despite the fact that wages are lower in Canada. The selling price of the finished product is higher in Canada. Therefore Canadian sales aoroad will have to overcome two very serious handicaps imposed upon them by the economy of the country.
The ten per cent discount on Canadian currency was a help to Canadian producers, and to remove it at this critical time was a blow to all industry. I mention in particular at this time the Canadian lumber industry, and I should like to quote one paragraph from United States News of July 26 with reference to that industry. The article deals with what is called currency tinkering. I quote:
A hazard is involved in currency tinkering. Widespread upward valuations of currencies mav promise a temporary buying advantage in the* United States markets, but eventually when foreign business men must sell in United States markets those countries might be left high and dry. Right now, by raising currency values, foreign countries can buy more cheaply and sell more dearly in United States markets; but the time may come when they would like to reverse the situation. Canada can now sell lumber to this country at almost any price, but ivhen the present abnormal demand subsides Canadian timber may cost too much for United States buyers simply because United States dollars cost too much.
That, Mr. Speaker, is the condition of one of our primary industries and I suggest that it is not uncommon in many other primary industries. Certain industries have been able to raise their selling prices in the United States but many of them find it difficult to do so for reasons of our internal economy and for reasons that are basic because of our higher unit costs.
If the pattern of the industrial market is at all similar to the pattern of the previous cycles, we are approaching the end of a boom market. There is a distinct possibility that we may be going into a period of declining markets and production, with the usual dis-
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location of employment and the troubles that it always brings. I ray this because of the study I have recently made of the world markets, and particularly the markets on this continent. The graph shows an unmistakably similar pattern to that of both the 1920 crash and the one subsequent to that, just prior to the war. Therefore I say to the government that it is vitally important that they should not throw away at this time any possibility of strengthening our trading position.
There is one thing more I should like to say on parity of the Canadian dollar with the United States dollar. It is but a dream; it is not in fact in existence. There may be an official quotation of the foreign exchange control board, but in actual fact Canadian funds are selling at anywhere from 3^ per cent to per cent discount at this hour. That is not in a small way; it is not in the small banks. I wish to quote the middle of the market as quoted to me by the Chase National bank, the National City bank and the Bankers Trust, three of the largest banks certainly in New York, and probably in the .entire United States, if not in the world. These are the quotations of the middle market in recent United States dollar terms: August 5, T619-that is what they would pay for a Canadian dollar; August 6, T637; August 7, -9662; August 8, -9650; August 9, -9656. and August 11, yesterday, the quoting is the other way. Our currency was selling at a discount of over 3J per cent.
Furthermore, Mr. Speaker, I received a letter from Chicago the other day which showed that a man whom I knew slightly was able to buy a very large sum of Canadian currency from one of the Canadian banks at over a three per cent discount rate. Therefore parity does not in fact exist, and the government will have to take recognition of it, because from time to time the pressure on the Canadian dollar will be greater and greater owing to the fact that normal trade between the countries is no longer in existence. I mention this particularly because, except in the tourist season, our normal trade with United States, which is largely agricultural, has been considerably curtailed since the period of the war. That has been brought about because we are sending most of our agricultural produce to the countries of Europe and. the United Kingdom. Therefore it is reasonable to expect that even after the 3| per cent discount the Canadian currency will only be-


Mr. SPEAKER:: Order. I regret to interrupt the hon. member, but I have given him some latitude, thinking that he was about to close TMr. Adamson.]
his remarks. I should like to remind him that the remarks he is making are not relevant to the bill before the house. If I give this latitude to the hon. member I shall be obliged to do the same for other hon. members. Therefore I would ask him to be kind enough to confine his remarks to the bill under discussion.


Agar Rodney Adamson: Thank you, Mr. Speaker. I am endeavouring to do that. I want to point out why I consider that the taxation proposed by this measure is a severe blow on the mining companies, and that the relief suggested by this government is in fact of little value. I want to show the house, and I hope the country, that the blow suffered not only by mining but by the whole Canadian economy is brought about by the move which the government has taken and that parity is in itself a taxation of Canadian production.
At the beginning of my remarks I said that I was doing this in order to save the time of the house. I could have made this speech on the Foreign Exchange Control Act, but I refrained from doing it because I spoke to the minister about it and he suggested that I make one speech at this time. However, 1 shall endeavour to obey your ruling.
I have just one more word on this business of parity. Canadian currency is selling at widely separated ooints in the United States to-day at as much as seventeen and twenty per cent discount. I understand that even the Trans-Canada Air Lines agents are charging as much as six per cent discount. I refer to the agents to whom Trans-Canada Air Lines sends people in New York.
So much for parity; now let us see what this has meant to the rest of the Canadian economy, particularly mining. In Canada we were the first to boost our currency. Several other countries followed suit, Sweden and Brazil being the last. We did that along with Sweden, Brazil and other countries because we wished to buy in the only market-where goods were plentiful and at as cheap a rate as possible. In other words we tried to put our buying position high and paid little attention to our selling position; but we shall have to take recognition of that, and very soon.
Now I come to the question of taxation. Putting the currency at par has meant a loss to the Canadian gold producer and the Canadian producer of base metals with a large gold content, of ten per cent of the gross value of his product. In other words he did not lose ten per cent of his profit; he lost far more than that. He lost ten per cent of the gross value, and in some cases

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that means the entire profit. That should be very clearly understood by this house. It was a percentage of the gross value that was taken away, not the net value. The government has brought in some small measure of relief, and in a moment or two I am going to give figures to show how extremely negligible that relief is, but first I want to speak briefly about the situation in South Africa and Australia.
In South Africa the Union government under the minister of finance, Mr. Hofmeyr, realized the importance of producing every ounce of gold they could. So they arranged a method of differential taxation for low grade ore. In other words, if 1 can explain it to you, Mr. Speaker, and to the house, this is what they do. There is a rate of taxation on the mine; but for the low grade ore the depletion allowance is increased as the grade decreases. In other words the depletion allowance goes up in inverse ratio 'to the grade of the ore. That means that as your grade goes down, so does your taxation go down, so eventually on ore which is definitely marginal and where the cost of milling and mining is very little less than the gold recovered is worth, the depletion allowance approaches one hundred per cent. I have not seen the most recent figures, but I understand that the rate goes very high, and I have heard that in some cases there is actually a bonus on the production of low-grade ore.
What does this do? It assists a mine with a large body of low grade ore to take out that ore body almost without taxation, and that is a tremendous gain to the economy of any country; for it means that instead of so many thousand tons of rock lying under the ground you have so many hundred ounces of gold. For years the mining industry have pledged with this government and with the Department of Finance to increase the depletion allowance to fifty per cent for both shareholder and mining corporation, but nothing has been done. I want to suggest to you, Mr. Speaker, that careful study should be given by this government, if they are sincere in wanting to help the mines, to the South African method of taxation as I have endeavoured to explain it.
In Australia a situation existed similar to that which exists in Canada to-day. A government not particularly helpful to the mines was in power-I think it was during the Lang regime-and a heavy taxation was put on Australian gold mining. This effectively killed all the mines in eastern Australia, that is in New South Wales and Victoria, and those mines have never reopened. They were small producers, but they were very helpful in the development of the country in that agriculture followed the mines into the hinterland of those two states, where now a thriving agricultural economy exists. We have a close parallel to that right here in Quebec, where we have low grade mines just getting by, making profits of a few cents a ton. For 1944 the average profit of all western Quebec gold producers was 62 cents a ton. Those mines will do everything they can'to keep in production, but if they are forced to close it will be found impossible to continue agricultural development along that northern Quebec clay belt, because the mines provide the market in that area. If that market is taken away from agriculture it will find itself badly off, because other markets are too far away. So to have the mines close would be a definite hindrance to colonization in that part of Quebec. Just the other day, in connection with a railway bill, we saw the difficulties that exist in connection with colonization and the important part played by the mines.
Now, Mr. Speaker, I come to what the government's proposals mean to a group of individual mines. Putting the Canadian dollar at parity reduced the gross value of the product of our gold mines by ten per cent. Now let us see what the proposals of the Department of Finance mean to a group of low grade mines; and I have the figures here for twelve low grade mines in Ontario. With the consent of the house, Mr. Speaker, I should like to put this table on the record. If I have that permission I need only read the name of the mine, the grade in ounces per ton, the net profit per ton and what the new proposals of the Department of Finance mean per ton to each of these producers


Mr. ABBOTT:: Who prepared the table?


Agar Rodney Adamson: The Ontario Department o'f Mines. If I could have the permission of the house I should like to place the entire table on record;


James Horace King: Has the hon. member unanimous consent to place the table on the record?


Mr. IRVINE:: We do not know what the hon. member is talking about, because we cannot hear him.


Douglas Charles Abbott: Did I understand the hon.
member to say that the table he proposes to put on record was prepared by the Ontario Department of Mines?


Agar Rodney Adamson: The Ontario Mining
Association. The table is as follows:

Effect of Depletion Allowance at $2 per oz. and Decrease in Mint Charges from 35 cents to 20 cents per oz. on 12 Ontario Gold Mines whose Net Profits was less than $2 per ton
Mine	Year	Grade oz. per ton	Net Profit per ton $	Depletion at 33J per cent $Broulan	. 1945	0.19	0.44	18,285Buffalo Ankerite. . .	. 1944	0.17	0.15	19,303Hasaga	. 1944	0.12	0.11	5,746Little Long Lac.. .	. 1944	0.34	1.83	52,192Madsen	. 1945	0-26	0.96	44,679Matachewan Cons. .	. 1945	0.10	0.41	22,643McKenzie R. Lake.	.1944	0.24	1.51	53,920Pamour	. 1945	0.09	0.63	117,757Paymaster	. 1944	0.22	1.06	63,105Preston East Dome.	. 1945	0.25	1.11	114,574Toburn	. 1945	0.32	0.55	17,378Young Davidson.. .,	. 1944	0.09	0.59	41,148Depletion at $2 per oz.	Additional Income* due to decrease in Mint charges $	Estimated Net Profits per ton after applying new depletion allowance and decreased Mint charges $	Estimated Increase in Net Profits per ton $33,932	2,545	0.53	0.0982,132	6,160	0.27	0.1233,578	2,518	0.14	0.0345.564*	3,417	1.89	0.0650,876	3,816	1.04	0.0831,186	2,339	0.42	0.0138,126*	2,859	1.54	0.0379,216*	5,941	0.64	0.0154,538*	4,090	1.07	0.01112,656*	8,449	1.13	0.0225.362	1,902	0.74	0.1929,220*	2,192	0.60	0.01
s
o
m
* 33J per cent Depletion allowance will apply instead of $2 per oz.
Of the 38 producing Gold Mines-
17 made Net Profit of over $2 per ton and were unaffected by Depletion allowance change 9 made a Loss
12 Mines listed above made Net Profit of less than $2 per ton.
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Now, let us look at the figures for two mines in Quebec, namely Canadian Malartic and East Malartic. The figures in the daily press for Canadian Malartic show the grade at about $3.80 a ton; and therefore on parity Canadian Malartic will lose at the rate of 38 cents per ton. The proposals by the minister have been worked out by the mines to show a magnificent saving of $SOO a year in this mine. The 1945 figures for East Malartic show a saving of precisely nothing. We have heard these figures brought into the house and the statement that they give assistance to the Canadian mining economy. The figures I have just read for two provinces show that they mean nothing. In fact, I wondered at the minister, who is a sensible man, reading them into the record. Surely the department must have been putting one over on him on that score.
One more quotation about mining costs. Mr. Drummond-Hay of Winnipeg who, I believe, is the managing director of San Antonio and God's Lake, speaking recently in Winnipeg said that the concessions are of infinitesimal value.
I say this situation is extremely critical for the mining industry, because once a mine closes, particularly a low-grade mine, it does not open again. Once a mine closes-and hundreds of mines have closed across Canada- Mr. ABBOTT: Hundreds which should never have been opened, perhaps, too.


Agar Rodney Adamson: Oh, no.


Douglas Charles Abbott: I am not referring to producing mines.


Agar Rodney Adamson: And there are hundreds of producing mines which have closed. The figures given the house a few weeks ago by the hon. member for York South showed twenty or. thirty mines which opened, produced and closed without paying anything to their shareholders. But those mines paid a considerable amount in taxation to the economy of this country, to say nothing about the gold they produced. I believe it was in the neighbourhood of $30 million or $40 million in gold they produced, and yet not me cent was returned to the shareholders.
The government's proposals are negligible. Now we are faced with two things, the first of which is that Canadian currency is selling at a discount to-day in New York. If the government are adamant in maintaining parity -and I do not know whether they can change their minds again-the Canadian gold producers must be given the benefit of the open market buying rate in the principal American banks.


Douglas Charles Abbott: The hon. member said he did not know whether the government would change its mind. Is he in favour of putting the Canadian dollar back to a discount?
' Mr. ADAMSON: Not at the present time, because you cannot continuously juggle currency.


Douglas Charles Abbott: I was wondering about that, because the hon. member implied that the government might change its mind again to help the gold miners.


Agar Rodney Adamson: I see no reason for the government's having taken this action, namely, that of putting the dollar at parity. But once it is done, it cannot continuously play around with currency. The government in its wisdom has followed a course which I consider a wrong one. It has taken a step which will seriously affect the entire Canadian economy, an effect which the government cannot make stick. The government cannot maintain Canadian currency at par with the United States dollar. The fact that the buying rate to-day is 3i per cent discount and is increasing, shows that it cannot do so. Therefore the first thing I ask the government to do to assist the mines is to see to it that they get the benefit of the discount on Canadian currency. At the present time it amounts to 3i per cent, or over a dollar per ounce of gold.
The second thing I ask the government to do is to increase the depletion allowance, particularly on low-grade mines. What they liave done amounts to nothing. I suggest the system which originated in Africa, whereby depletion allowance could be worked out as an inverse ratio with the value of the ore treated.
The next thing-and I have no time to discuss it in detail now-is that the mining companies should be allowed to sell on an established free market for gold in Canada, or do their own marketing of their own bullion in markets elsewhere. I say this because there is no doubt that the market is able to absorb our production. Since 1939, according to the American bureau of metal statistics-[DOT] and this is the last quotation I want to make -the world production of gold has been
240,019,000	fine ounces. This figure includes estimates of 29,000,000 for Russia and Siberia, and 12,700,000 for Korea and Japan. All other figures are from official sources. Presumably, figures for the seven year period from September 1, 1939 to September 1, 1946 would be comparable in amount. In other words, since the outbreak of war the world has produced $8,400,000,000 worth of gold at $35 per ounce, and at the same time gold holdings of the
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United States government have been reduced, according to official reports by some $2,500,000,000. It is evident, therefore, that the world ex-United States has absorbed some $11,000,000,000 worth of gold since September 1, 1939. . It seems reasonable to suppose that many of the present owners of this metal paid a premium for it in terms of currencies including United States dollars. If they had thought that gold was not worth more than $35 United States dollars per ounce, many of them would have bought dollars instead of the metal. The United States government has made it impossible for their citizens to acquire gold as a means of preserving value in the face of a depreciating dollar, which the rest of the world has recognized by outbidding the United States government for some 300,000,000 ounces.
Now, Mr. Speaker, our maximum production of gold is in the neighbourhood of $200,000.000 a year. Since the war the United States alone have lost more gold than our total production. For anybody to say that we could not market our total gold production is, in view of these figures, nonsense. Therefore I say, if you are serious in seeking to maintain the gold industry in Canada, provide an opportunity for the operating mines to market their bullion how and where they wish, increase the depletion allowance to at least fifty per cent and possibly more on marginal producers, and immediately allow the Canadian producer to obtain the benefit of the discount already in existence on Canadian currency in the United States.
Mr. JOSEPH A. BRADETTE (Cochrane): Mr. Speaker, I am sorry in a way to have to take the time of the house at this stage of the session, but I believe it is my implicit duty to present the situation as I see it of the gold mining industry. I happen to represent a constituency where for the past thirty-five years there has been the greatest development in gold mining, and as this bill deals with and may bring some relief to the industry, I believe it is my duty to say a few words.
I am voicing the sentiments of every one of my constituents when I state that we were not merely satisfied but proud when the government brought the Canadian dollar on a parity with the United States dollar. We produce gold, pulp-wood, wood pulp, sulphite and newsprint in northern Ontario. At least ninety per cent of our production goes to the United States, and so we were benefiting when the United States dollar was at a ten per cent premium over the Canadian dollar. But we always thought in terms of the
fMr. Adamson.]
national economy, of what was good for Canada as a whole. We are proud of the fact that the Canadian dollar to-day is the soundest monetary unit in the world, and I say that without fear of contradiction.
But one industry, gold mining was hit when the Canadian dollar was placed on a parity with the United States dollar. This industry was hit an unexpected blow; it was a bolt from the blue. For the last four or five years our gold mining industry has been getting a price of $38.50 an ounce for gold, not $35,00, and we must never lose sight of that fact in discussing this important question. But because of the ten per cent premium on the United States dollar our gold mining industry has been able to build up and expand on that price for gold. They have been developing new mines and putting them, into operation. The Minister of Finance (Mr. Ilsley) so well realized the position of the gold mining industry that when he made his announcement in the House of Commons that the Canadian dollar was on a parity with the United' States dollar he singled out the gold mining industry as one that would be hit by that policy. The very night he made his announcement I received telegrams from some of the industrialists of Kapuskasing, Smooth Rock Falls, and Iroquois Falls. They were worried over what it meant to the industry. However, the price for newsprint, lumber and pulpwood is not set by Washington; it is not a standard price, and I told these industrialists that I was positive that the price situation was so resilient that they would get an increased price for their production. A few days later the price of newsprint was raised to $6.50 per ton, and the wartime prices and trade board also raised the price of lumber for export to the United States.
I want to deal with an industry that has played a great role in our Canadian national economy. Under war conditions the gold mining industry is one of the first victims, because immediately there is a shortage of man-power and of the necessary materials for continuing their operations as in peace time. This applied just as forcibly in world war II as in world war I. if not more so. Very soon after the outbreak of war in 1939, and more particularly.in 1940, the gold mining industry felt a great shortage of man-power because a large number of the men engaged in the industry enlisted voluntarily in world war II just as they did in world war I, and in a very short time there was also a great shortage of the materials required in the industry. Under those* conditions the production of gold decreased to some extent.

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In 1941, if I remember right, the Minister of Finance appealed to the gold mining industry for intensive production so as to help our Canadian credit position, more particularly in the United States market. [DOT] There was an immediate response to that appeal from the gold mining industry. They delved deeply into their ore reserves, so that to-day many of the big producers find their ore reserves greatly depleted-and if there is one thing that causes the management of a mine to worry it is the depletion of their ore reserve. No matter what some members of parliament may think, no one is more concerned in lengthening the life of a mine than the mine owners themselves. It is true that mining is a wasting process, that eventually you are left with a hole in the ground with no more ore or work to be done. At present in Canada there are many abandoned towns which in the past were thriving communities. But that does not mean that there has been waste in the development of these mines. I hold no brief for the mine owners, but I have seen the mines in operation and I know that the mine owners have spent all their energies in producing all the gold they could possibly find.
There was great rejoicing when a few years ago the price of gold was increased to S35 an ounce. The reason for that rejoicing was that it meant that a mine like Hollinger, in the town of Timmins, had its life lengthened by at least thirty years. I want the house to be seized of this fact, that no mine operators and no mine owners that I know of are deliberately wasting the resources and natural assets of their mines.
Having established that point I would like hon. members to realize what the gold mining industry means to our section of the country. I am divulging no secret when I say that only a few days ago the leader of the Social Credit party, after visiting northern Quebec, said that he was astonished to find what the gold mining industry of northern Quebec and northern Ontario meant to those sections of the country and also to the whole of Canada. Around these gold mines have grown up centres of population such as Kirkland Lake, Timmins, Schumacher, South Porcupine and many olhers, which enjoy public utility services and social services which have been permanently established because the people expect to remain there for a long period of time, in fact all their life. Again I repeat that management and labour are working together in the closest co-operation possible to produce every ton of ore and by that process to extend the life of the mines, and that not a single ton of it is
being wasted. I would not fight for one moment for any so-called gold mine in which the grades of ore were so low that it would not be economical to exploit them. Yesterday I was speaking to a young member of parliament from Amos, Quebec. He spoke of a particular mine in that section in which the cost of operations is $40 an ounce, and I told him that he could not expect anyone to fight for such a mine, because after all we cannot afford to bonus mines that are not self-supporting on the basis of the prices that are being received at the present time.
Owing to the increased price we were getting, by reason of the difference between United States and Canadian currency, we have permitted the construction and operation of a large number of low-grade mines, operating on the basis of a price of $38.50 an ounce, and these mines were barely existing, making very little profit. Those are the mines now in. operation which we want to see maintained. We do not want to see hundreds if not thousands of men who are at present gainfully employed thrown out of employment.
There is more involved in gold mining than the bare extraction of the gold. In the clay belt of northern Ontario gold mining has made a considerable difference to the Canadian economy from the point of view of agriculture. Without gold mining we would not have gone ahead to the extent that we have done in colonization and agriculture, and it might be a revelation to members of parliament to learn that in the last thirty-two years in northern Ontario, in that part of the country I represent, there has been a greater advance and a greater influx of new population engaging in agricultural activities than in any other section of Canada, including the west. Not only do these conditions give employment to farmers in providing them with a local market for all their production, but there has also been a remarkable development in our forest industries as well. These factors alone will cause everyone to realize how necessary it is to maintain at capacity the gold mining industry of Canada. The industry means so much to our national economy. In my opinion the situation that has been created by the parity of the Canadian dollar is in one way a good thing, because it will make members of parliament more conscious of our gold mining industry and of some of its problems.
I remember in 1934 when the prime minister of that day. Right Hon. R. B. Bennett, in his budget speech, made the announcement of the bullion taxation on gold, and I was the only member to rise immediately and assure him that, knowing the situation as I did, it
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would be impossible to apply that tax. But I got little applause at the time. I have no wish to be critical, but I suggest that there are very few members of parliament who know the exact situation and fully realize what it means to our national life to have a prosperous gold mining industry.
I would not, of course, say that the proposals brought forward by the government are entirely satisfactory.


Agar Rodney Adamson: The same officials were in the Department of Finance then as now, and I am afraid they are responsible for both these bad things.


Mr. BRADETTE:: Even if they are, I must say to the hon. member-


Agar Rodney Adamson: I fought against the bullion tax too.


Joseph-Arthur Bradette: I am sure that those same gentlemen, knowing the situation as well as they do, were the first to realize that a mistake had been made. We must realize that we are dealing with people who are completely open-minded. I for one do not believe that an official of the government, with the wide experience that these men have had and the admirable work they have done since the beginning of the war-work that has been a revelation to the entire world-would deliberately do anything that would hamper the gold mining industry, or for that matter any other industry.
There is another important thing about gold mining which I would draw to the attention of the house. I would point out, by the way, how important it is that the men at the head of the industry have been so practical. I deplore some of the criticism that has appeared in the press, and I have in mind one newspaper in particular. I will not mention its name, but I will say that most of its arguments are far-fetched, and it goes too far. I say that because gold mining, I believe, has a good case, and for that reason we do not need to overdo it in its presentation. I know that the big mining men will not be severely critical but will be constructive in this instance as they have been in the past. I should like to quote one or two statements that have appeared in the press, and I do so to corroborate what I have been saying. Let me first quote something that was said in Winnipeg, as taken from the Ottawa Journal:
Winnipeg, July 29-(CP). The proposed dominion relief to gold mines to compensate for the loss suffered when Canadian dollars were brought to parity with the United States has been approved by mining men and Manitoba mines department officials, but it is not enough.

This is fair criticism, and at the same time it is constructive. It shows a realization that the government has been taking a step in the right direction. I quote again:
J. P. de Wet, secretary of the Manitoba chamber of mines, said any relief would be welcome but present relief does not come up to expectations. Provincial director of mines Doctor G. M. Furnival said although no Manitoba mine was in danger of having to shut down due to exchange loss, the relief would encourage some prospective mining operations.
This again is constructive. May I now quote one paragraph from an article that appeared in Saturday Night of August 10. This is just a few lines to give hon. members an idea of the situation:
One of the much talked of recessions in the recent mining market which suffered devastating losses following the placing of the Canadian dollar on par with the U.S. dollar, was that in the shares of Giant Yellowknife Gold Mines. It was a market in which for weeks a terrific beating W'as taken, particularly in the shares of prospects, the newer mines, or those where production could be visualized and Giant-one of Canada's potentially big gold mines-declined close to the $5 mark, less than half of the high attained by the shares in 1945.
When the announcement was made in the house by the Acting Minister of Finance (Mr. Abbott) a few days ago, the Globe and Mail made a statement that suggests that there must have been a leak somewhere, because mining stocks sky-rocketed. I do not know what figure they received, but the first information I had was that there was a bonus of $2 an ounce on all our gold production. I was wrong on that point. I have no sympathy with the stock market, because if inquiry is made under certain conditions, when it becomes bearish, it is evident that somebody is holding the bag for the speculators, and I have no sympathy with speculators. My sympathy is for the producers, the promoters, the prospectors and those who do the actual work, but I have none for those who try to make money without taking any of the risks. I quote again:
The price of the shares at time of writing had improved and this was partly due to the federal government's new ruling authorizing exemption from taxation for new mines for a three-year period.
There is a mine that is developing low-grade ore, and these people are satisfied that the government has tried to help them.
I wish now to say a few words about a world market for gold. Personally I do not believe in it, because under present conditions I do not think it is practical. I will go further than that. If the mining industry as a body will come to the federal government and say, "IVe are willing to take all the risks

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of selling in the open market. We are paid by the federal treasury at the standard price set by Washington, but to-day we believe there are other markets where we can get more for our gold, and we want to take the risks involved in that market", then I suggest that the government might act. But unless those engaged in the industry are organized and willing and ready to do this, I do not support that principle.
We talk about prices being paid by Mexico. I wish to tell hon. members that the price which the producer would get from Mexico would be less than $35 an ounce. I know whereof I speak. The same thing applies to Argentina. There again, although the price seems to be a big one from here, when you study the situation and get the proper information you will realize that the producer would get less than S34 for an ounce for gold.
We talk about outside markets like India or Egypt, which are in the sterling area. Should our producers take a chance of disturbing their markets by entering the sterling area? I just leave these thoughts for the consideration of hon. members. I do not know of any big producers who are in favour of that. I did not hear Mr. Bickell or Mr. Longmoire or the men who are well versed in gold mining and in the marketing of gold come out very strongly for an open market for our production. If they were asking for a guarantee, or rather governmental protection, to have access to the world market, then its effect would be destroyed by this demand. At the moment there are guarantees of a standard price for gold on which we can implicitly rely, and that is an important factor in any kind of an industry and in any kind of a mine. Again I leave that to the consideration of the House of Commons.
So far as I am personally concerned I am not convinced that an open market for our gold would be the proper thing to have. Are we going to try to bootleg or black-market one of the things which has set the monetary standard of the world? Are we to take the risk with Washington, for instance, after finding out that we were able to improve our production? The attitude of Washington has been a stabilizing factor for the past four or five years, in fact for a long period of time; and at times we have got a premium of $3.50 an ounce on the gold produced. Are we going to throw that overboard, practically destroy that security of marketing, and try out what appears green from a distance but on close examination proves to be nothing but shallows so far as our production is concerned?
I shall now say a word about depletion allowance. A lot could be said on this subject, 63260-297
but I know that hon. members have read the fine report and the recommendations made by the senate committee on natural resources. Depletion allowance has been the bone of contention for a number of years, and even if it were increased to fifty per cent it would not be the solution of all these problems. But no matter what may be said, the offer of the government to allow the option of accepting as depletion either 33^ per cent of net profits or $2 per ounce of gold produced is a step in the right direction, and it is going to help a lot of low grade ore mines. However, I wish to make a special request of the government. I do not believe that $2 an ounce as an option is sufficient. I believe that the amount should be $2.50 at least. In placing the amount at $2.50 you are not going to help the big producers; generally speaking they look after themselves. They have shown in the past that they can do it, and they are showing it at the present time. It is the marginal producer, the one on the borderline, that I am worrying about-the one I mentioned a few moments ago. These mines exist to a great extent in northern Ontario and more particularly in northern Quebec.
I repeat that the option of $2 an ounce is helping at the present time, regardless of what the previous speaker may have said. I could quote all kinds of statistics tb corroborate my statement, but I make this sincere appeal to the treasury and to the Minister of Finance. The amount should be $2.50 instead of $2. I speak with experience, and I believe that my word should be listened to. I am speaking not in the name of the gold mining industry only; they do not want self-pity. They have always come back on their feet and they will do it in the present crisis; at all times they showed a great deal of self reliance. But this is almost a crisis for them. Let us place ourselves in the position of the gold mining industry so far as parity of the Canadian dollar is concerned, and we shall see the reasons for their uneasiness and why they are not feeling so happy, why they are afraid that the expansion which they have in mind during the rehabilitation and post-war era will be stultified.
I do not wish to enlarge on this subject because I realize the impatience of the house after so many months of arduous work; however, I am speaking with all the sincerity I possess. I should be the last one to fight for any organization which did not deserve it, but I have seen with my own eyes and I know what it means, not only regionally but also nationally, to maintain in its integrity the gold mining institutions of our country. It

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was a marvellous thing for me during the depression years when everyone of us suffered so grievously. There is not a member of parliament, or a Canadian worthy of the name, who did not try to help during those five or six horrible years when we had so many people come to us with their tale of woe. Even in the agricultural centres there were depressions. But when you went to the gold mining centres you found the people fully employed. People came there from every section of Canada. To the credit of the gold mining industry of this country there was no decrease in wages, although there was an oversaturated labour supply and thousands of men who wanted to work in the mines. But more than that, during those years the companies found it possible to improve the working conditions of their workers and to some extent to increase their wages.
It is my good privilege to know a number of mine owners, and I have seen them in action. There is one thing I have against the mine management and the mine owners, namely, that they have not told their fine records, achievements and story to the Canadian people. For instance, they have not told what they have done for the treatment and the cure of silicosis. Owing to the work carried on by the mine owners, in a few short years silicosis will be non-existent in this country. The mine owners have improved the working conditions, and have done all they possibly could for the workers generally. There is not a mine manager or a superintendent in my section of the country that a man when he leaves his shift or the level on which he works could not go and speak to. I am not saying that everything has been perfect but I am asking that due consideration be given to an industry which means so much to all walks of life-to agriculture, to manufacturers, to our labourers and also to our national economy. They have always played the game. They do not ask anything that is unfair or unpracticable. I know that the department is fully seized of the situation. The remedies which have been brought forward will help, and no doubt something more can and will be done. If that help is given I can assure the house that the districts for whom I speak and the fine population that is involved will highly appreciate it, as will every other section of our country.


Mr. T. J. BENTLEY (Swift Current):: Speaking for this group at this particular time, on second reading of the bill, I shall be just as brief as possible. We do not agree with the principle of this bill. Of course the minister -[DOT]id not expect us to agree with it, and he 
knows the sections with which we disagree. I hope that he can understand some of the provisions with which we disagree. I do not think there is a lawyer in this chamber to-day who can interpret what the government means by some of them.
The minister told me at one time that I had no legal training. I have none, but I am sure I could put down what I meant in better words than are contained in the bill, even if I wanted to cover up my meaning. They have successfully covered up everything that they intended to mean. They have made it possible to interpret this bill in any way they wish. In my opinion this bill is for no other purpose than to liquidate and prevent the development of this working class organization, the cooperative movement, the best free enterprise organization in Canada to-day. I have set out emphatically our opinions and what we think of this bill. I do not suppose there is the slightest hope of convincing the acting minister, the minister himself or their sharp advisers in the department about these things, but I want to try to convince the house, and I am sorry that the two hon. members who gave the particular illustration that I am going to use are not in their places.
The hon. member for Calgary West (Mr. Smith) is over in the industrial relations committee; the hon. member for Halifax was in the chamber but went out. I am going to use the illustration given by the hon. member for Calgary West to indicate what we mean when we say there is no profit in a cooperative enterprise.
The illustration given by the hon. gentleman was that of a stranger driving along a road, who decides he needs some supplies. He comes to a little settlement on the road, and stops. There is a store over here belonging, we will say, to Mr. A, and a store on the other side of the road belonging to the local cooperative association. He looks at both stores. They appear exactly the same; to the stranger there is no apparent difference. Both sell the same goods, and both have the same window display. But bear this in mind: those stores were not put there for the benefit of that stranger. They were put there by Mr. A and the cooperative association primarily to serve the people of that community. The stranger travelling over the road is only a casual customer, who may never come that way again, while those stores were put there to give service to the community.
When Mr. A runs his store, everything he has left over and above the cost is profit for his pocket, and he uses that profit for his living. That is quite legitimate; there is nothing wrong with it.

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Douglas Charles Abbott: Except the taxes he has to pay.


Thomas John Bentley: All right; I shall get to that. He is an individual; so am I as a member of the cooperative. Do not forget that members of cooperative associations as individuals will pay taxes with just as good or bad grace as anyone else, according to their nature. I do not like paying my taxes. I pay them with a kind of brassy smile, as when I lose at poker, but I pay them.


Douglas Charles Abbott: Poker? You mean cribbage.


Thomas John Bentley: Right. Now I want to point out that this individual, Mr. A, to supply his own household, buys his groceries or clothing or hardware from his store, but he does not put money in the till for that. Neither do his clerks, if he has any. They take what stuff they buy at the wholesale price, as a general practice, or with a very little added to cover the cost of moving it over the counter, but without paying any profit. So Mr. A makes no profit on Mr. A's personal business. Get that point, please. Over on the other side of the road is the store owned by the cooperative association of which I am a member. A hundred other people in that community, farmers and workers of one kind or another, are my partners. We felt we could save ourselves some money; our incomes were not large and we wanted to make them go as far as possible in the purchase of supplies. So we decided that while no one of us could build a store of his own, all of us together could build one which would belong to all of us, and that we did. To that extent the one hundred partners in this cooperative association became one entity as far as the ownership of the store was concerned. When we go in to buy our stuff we are in exactly the same position as Mr. A. We can make no profit on our own business.
I want to make that point clear, because we are distinctly dissatisfied with this bill on that account. No distinction is made in the bill between a cooperative association and a private concern. There is no place in the bill under which a cooperative association can feel safe in going ahead with the particular kind of enterprise or industry in which it is engaged. The whole thing is an endeavour to put the cooperative association in exactly the same position as everybody else. Do not forget the illustration. No man can make profit from his own purchases in his own place of business, whether he be a gold miner -and we heard a g*od deal of talk about gold this morning-or a storekeeper or an elevator operator or anything else. He cannof make 63260-297J
money supplying himself from his own stocks. He makes his profit when he supplies other people who pay him more than he has had to pay for the goods or services he supplies. That is his income. It is a legitimate income, and I am not complaining about it. I am pointing out that as far as we in a cooperative are concerned, we make no profit for ourselves.
When I rose I said I would not take any more of the time of the house than was necessary. We are not going to let this bill pass in committee without questioning a number of sections, but as far as this particular stage is concerned all I have tried to make clear is that we do not agree with this legislation.


Mr. ALAN COCKE  RAM@York South: Speaking on the foreign exchange bill on Friday last the acting Minister of Finance (Mr. Abbott) had this to say, at page 4530 of Hansard:
If we were part of the United States of course we would not be faced with all these difficulties; we would all have the same currency. But on balance we are a debtor nation, and to a very considerable extent. If we are to retain our national integrity and the integrity of our dollar, we have to adopt appropriate measures to see that our exchange position is protected.
I can think of nothing that will protect our exchange position and protect the Canadian economy more than the encouragement of the gold mining industry of this country. During the last few days the minister may have noticed in the press that in spite of the urgency of the situation and the desire for gold on the part of the government, there has been a decrease in the production, which decrease is rapidly becoming more pronounced because of high costs of production. Since 1910, Canada has developed perhaps the most efficient mining industry in the world, with the result that much ore which ordinarily would be waste rock has become of economic value and can be treated at a profit, even though the profit be small. If this industry is to continue to play a part in the economic life of the country, the government must give some encouragement to keep Canadian gold mines in production. The acting minister and his departmental officials must know that once it is necessary to close a mine down because of the grade of the ore or because conditions do not warrant carrying on, the cost of reopening that mine is so great that few mines ever reopen.
During the depression the mining industry, as I have stated before in this house, was the [DOT] one industry able to carry the country through. Again in the early days of the war, when the government wanted United States exchange rather than to go on lend-lease, they appealed
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to the mining companies to increase production, which the mining companies were only too glad to do in spite of the fact that they had to pay much heavier taxes. During the last two years there has been intense activity in this country in connection with gold mining. There has been a great deal of diamond drilling, and many new prospects have been lined up for development in the days to come. A great many of these prospects are in the province of Quebec and in the northern part of Ontario. I am afraid the policy which has been announced by the minister is going to have the result that many of these prospects, because of their location, and the grade of their ore, will not be brought into production- not because the mining people have no faith in their industry, but because the expense of bringing a mine into production is so great that there must be some assurance there will be a return of the capital so invested.
The hon. member for York West (Mr. Adamson) pointed out that since the government placed our money on a parity with the United States dollar there has been fluctuation in exchange of about four per cent. It seems to me the minister and his officials are not giving the gold producers even the world price for the gold they produce. They say to the mining industry: We will be very generous with you and give you back this twenty cents an ounce which we have been overcharging you in refining charges for the last few years, but we will refrain from giving you the world price for your product.
I suggest the minister should do what his department did before the war. At that time when a mine sent its bullion to the mint it received the mean of exchange for the day on which the bullion was received at the mint, the day before and the day after. This would result in a mine receiving at least a portion of the $3.50 which was taken away from it when the government decided to place our money on a parity with that of the United States. If departmental officials have checked thoroughly into the relief they are giving, by way of either the 33J per cent depletion or the $2 an ounce, they will have realized that very few mines in Canada benefit to any extent.
I would make particular reference to one mine with which I am connected, where we received back $400 a month or about $5,000 a year on account of the reduction in handling charges. The production of the mine is approximately 40.000 ounces of gold a year. This means that $140,000 is taken away from the mine at $3.50 per ounce and $5,000 is returned by way of mint charges.

I suggest to the minister that the manner in which he explained' this question of relief to the people of Canada gave the impression that the government was giving relief to extent of $2 an ounce on gold produced. The feeling has got around that the mines are being penalized only to the extent of $1.50 an ounce, whereas actually the mines are being penalized to the extent of the whole of the $3 50.
I suggest to the minister that in a near marginal mine, where costs equalled $35 per ounce prior to the reduction of $3.50 per ounce of gold, the operations now become marginal, the net profit is nil, and as a result no depletion of any kind applies. Hence the $2 an ounce alternative depletion is an empty gesture. As the hon. member for York West pointed out, in some cases it amounts only to one cent per ton of ore passing through the mill. I think it would be a tragic thing for this country, and I am sure the minister and his officials agree with me, if the industry which has meant so much to Canada in the past, and which will mean just as much in the future, is allowed to deteriorate to the point where many mines have to close up. Because as sure as we sit in this House of Commons to-day, the cycle of trade and commerce moves. Days of depression will, unfortunately arise; and when those days come the government of Canada once again will want every ounce of gold produced that the industry can possibly produce.
I believe the government should allow the base metal mines to market all their products at the world price. I see no reason why Canadian mines should be penalized as they are now. I would point out that in the early days of the war, Canadian metal mines made contracts with the British and Canadian governments to sell their total production at the price level which then existed. Those contracts the mines faithfully carried out, with the result that the British and Canadian governments saved vast sums of money at the expense of the metal mines of Canada. These prices were maintained in spite of the fact that there were tremendous increases in costs. I was glad to hear the hon. member for Cochrane (Mr. Bradette) say that the mining industry was determined to carry on, because I am positive that that is a fact. But in spite of that determination I feel sure there will be many casualties along the road, and that many mines will have to close down if the present intention of the government is carired through.
That is not the only factor. I feel that many operations will never come into existence. I know of two properties where decisions have been made to hold the development over for

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another year. One has to remember that the mining industry employs many men behind the lines to keep the mines in operation. If the minister and his officials cannot see their way clear to remedy this situation to-day, then I fear that many men employed in industry throughout Canada will be put out of employment.
I appeal to the acting minister and his officials to do something forthwith to remedy this situation. Only the other day I was speaking to the president of some low-grade mines in Quebec, and he told me that he was going to attempt to carry on, but just how long he could do so under existing circumstances he did not know, because his profit, which stood around forty cents before the government decided on parity, had disappeared. Only one of his mines makes any profit to-day.
I appeal to the minister to study this whole question, and to give relief. I suggest he do what has been requested by mining associations throughout Canada-give back to the mines that fifty per cent depletion allowance, both to the operating companies and to the shareholders.
The dominion government takes tremendous taxation from the mines, and puts nothing into them. In one district of which I have knowledge, the Pickle Crow area, the dominion government has taken almost $4 million in taxes and has put nothing into the area, despite the fact that requests have been made for assistance in transportation and in other ways.
I suggest that the acting minister or his officials should have a talk with Mr. Justice Davis, the High Commissioner for Australia. In Australia they believe that gold mines should be encouraged one hundred per cent. If my information is correct, they do not tax them, although I am not making that suggestion here. I do suggest however that some assistance be given.
I should like to say something about the apparent leak to which reference was made by the hon. member for Cochrane. If one studies the graphs of the Toronto stock exchange and the Montreal stock exchange for five days prior to the minister's announcement, he will notice that on the Monday prior to the minister's statement, selling started and continued during the whole week. On the afternoon prior to the announcement, which was made at eight o'clock at night, an avalanche of selling came in. I suggest that there must have been some leak in the information. The acting minister should make an investigation to see if such was the case, and if so, disciplinary action should be taken. It would be taken anywhere else.
^ Mr. G. H. CASTLEDEN (Yorkton): Speaking in opposition to this bill, because of the fact that it taxes cooperatives, removing, by the repeal of section 4(p), the protection previously enjoyed by cooperatives across Canada, I want to say first that I think this is a distinct departure from Liberal policy. Ever since 1930 cooperative organizations have enjoyed that protection. The legislation which provided it was placed there, I believe, because the government at that time recognized that true cooperatives are not profit making institutions; and by subjecting them to taxation the government is attacking the basic principles upon which cooperatives are bui'llt, and the Liberal party is ranging itself alongside those who have found that their privileged position, their rights to exploit the people, are being attacked by the growth of the cooperative movement in this country.
In 1,930 the cooperative movement had not become a very serious menace to monopolistic organizations. To-day, I think, cooperatives stand on the threshold of taking their proper place in the economy of the country. Wherever capitalism operates and controls an economy, big business comes to the fore and restricts supply, with the natural consequence that prices go up, profits increase, and the people who cannot afford to purchase have to go without. This is particularly true when the commodity they control is an absolute necessity, such as food, clothing, housing, medicine, health supplies, and, in the case of the farmer, machinery and oil and the other things he requires with which to make his living. Those who support the present system say, "Oh, competition will take care of that", but if you make a study of the situation you will find that the last thing that big business wants or will tolerate is competition. If a little fellow starts in 'business, big business will soon cut his throat, and any means that they can use will certainly go. The result has been that in self-protection the people have banded themselves into organizations which can carry on their business not to make profit for themselves but to supply their members with the services they require, about the only resource left to the common man to-day to protect himself against that exploitation is-


Mr. JACKMAN:: Politics.


Mr. CASTLEDEN:: -to get busy and form himself into cooperatives. The hon. member can talk about his gold; he is very well versed in that, I think, but let him leave this to me and make his speech about gold afterwards. My life has been spent out on the western
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prairies. Throughout the years I have seen the farmer bring his produce into the market to sell it. At one time he used to be able to sell his cattle and hogs privately to butchers, but now he sells them to the packers. At one time, too, he brought his loads of grain to the local elevators where he had the advantage of a certain amount of competition. But gradually the control of these elevators got into the hands of fewer and fewer companies, until finally there was only one market in which the farmer could sell his produce. The big boys got control, and could charge the farmer anything they liked for handling his grain. In those days, as I well remember, the farmer might come to town and go from one elevator to the other, only to find that they were all together on the price, and he had to take whatever price they told him. Their costs of taking in grain and loading it they kept to themselves, but they charged six cents or eight cents a bushel, or whatever they wanted to charge. The farmer found it impossible to break into that market alone, and at last a few of them said, "How about a bunch of us getting together and building a loading platform at the side of the railroad?" You remember the fight these people had years ago to get the right to build loading platforms where they could load their own grain on their own cars-a course to which they were forced because-the costs of handling were so tremendously high. Gradually out of these activities there grew the grain growers' organization and the wheat pools. To-day the farmers own their own elevators; they can set their own handling charges; they own their own output; they can sell their grain. Handling charges have gone down, and dockage can be better controlled. They have some say about the price; and the pool has gradually attained to a position where, as far as Saskatchewan is concerned, it handles fifty per cent of the grain grown in the province. To-day we see a fight between these cooperative organizations and the grain exchange monopolies which are opposed to the growth of these people's movements. But because of the growth of the pools the farmer has received a larger income, he has some control of his own economic destiny, he has acquired a certain measure of freedom, and the people resent very seriously anything which would curtail or destroy their opportunities to fight for their rights in a democratic way.
Some years ago I visited parts of Cape Breton Island, Nova Scotia, and talked with the lobster fishermen. They had had much the same experience. When they brought in their lobsters for sale they were told. "This is the price you are going to get." Gradually the

lobster fishermen got together, subscribed a little capital, and agreed to sell and handle their own products, with the result that the price return to them increased three or four hundred per cent. That is the story of cooperation:	where the people themselves
have taken hold they have been able to improve their means of livelihood and raise their standards of living. In my own province' the farmers built a big cooperative refinery because they objected to the prices the big boys were charging for oil. Now we see a two million dollar concern owned by the farmers and engaged in oil refining, and the price at which they are able to produce and sell to their customers and to themselves is a revelation to those who remember what they had to pay for their tractor gasoline in the days before the operation of that organization. More recently we have seen an effort made by the people to establish a factory wherein they can produce their own farm machinery and reveal the actual cost of production, since the selling price of this machinery seemed to bear no relation to the cost price, the costs of repairs and handling were exorbitant, competition was wiped out, and there was nothing they could do about it. Exactly the same principle operates when men have nothing to sell but tihe sweat of their brow. They cannot go individually and talk to the boss; they cannot sell to him, so they band together and form a union. What the cooperative is to the farmer the trade union is to the worker and the labouring man: it is a grouping together of the people to protect themselves and put up a fight for their rights as citizens to life, liberty and the pursuit of happiness.
There are those who try to drive a wedge between labour and the farmer and who blame labour for everything that happens. But actually the people who produce the food and the people who produce the goods, the real wealth of the country, are in principle the same. It is interesting to note that the people who fight the cooperatives are the same people who fight and oppose the trade unions, democratically operated and democratically controlled. The unions and the cooperatives give men an opportunity to have some say in the running of their own affairs. They may make mistakes. That is quite natural, because they are only human. Nevertheless they represent the effort of the common people to advance themselves and overcome obstacles that appear almost insurmountable. After years of toil they have built up these organizations,

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and now the government says to the cooperatives: You are to declare three per cent of your capital investment on which you are liable for taxation. It is on that principle that we oppose the whole bill, because of what it contains with regard to the cooperatives, and we are opposed to it all the way through.


Hon. J. G. GARDINER (Minister of Agriculture) :: Mr. Speaker, there was a point made by the hon. member who has just taken his seat (Mr. Castleden) on which I should like to say a few words. The suggestion was made that the Liberal party is aligning itself on the side of those who are in favour of big business, capitalism and so on, as opposed to the interests of the great masses of the people, and particularly the farmer. This bald statement was followed by the suggestion that some body formed the cooperatives without indicating in any way whatsoever just who was responsible for the formation of the cooperatives which have been spoken of during the last few moments.
There is some advantage in being young. Some of us realize that. But when one who is much younger speaks from memory perhaps he may be excused for his memory not being quite long enough. It is true that we have the largest cooperatives in the dominion operating in the province of Saskatchewan and handling more than fifty per cent of the grain produced in that province. But when my hon. friend gets up and tries to give credit to anyone other than the Liberal party for the establishment and development of the cooperatives, he is assuming something which history does not bear out.


George Hugh Castleden: On a point of privilege, Mr. Speaker-


James Garfield Gardiner: You have made your speech. Let me make mine. It is nearly one o'clock.


George Hugh Castleden: On a point of privilege, Mr. Speaker, I did not imply anything about the Liberal party. It was the people themselves that built up these cooperatives.


James Garfield Gardiner: There is no point of privilege in that. I will indicate who was responsible for the development.
Back in 1906 the first cooperative branch of any department of government in Canada, so far as I am aware, was established in Saskatchewan, and one has only to look at the record to know which government was in power at that time. The minister who established that branch to deal with cooperatives in the Department of Agriculture in the province of Saskatchewan afterwards became minister of agriculture in the federal government, but
while he was minister of agriculture in Saskatchewan he appointed Mr. Booth as the head of the cooperative organization in Saskatchewan. Mr. Booth was afterwards taken to Washington by the United States government to take part in the development of cooperatives there. Then when Mr. Motherwell became minister of agriculture at Ottawa he brought Mr. Booth back and placed him at the head of the agricultural economics division of the Department of Agriculture for the dominion to deal with cooperatives.
Back in the early days there were other advocates of state socialism besides those who now call themselves the C.C.F. party. The grain growers of Saskatchewan and Manitoba in 1908 advocated government ownership of elevators. The Conservative party in the province of Manitoba advocated government ownership of elevators. The Liberal party in the province of Saskatchewan said that both the Conservative party and the farm organizations were wrong. They said that the proper way to meet the situation described by the member for Yorkton (Mr. Castleden), presented by the big organization of elevator companies, was for the farmers themselves to organize their own cooperatives. That question was battled out on the floor of the grain growers' association as far back as 1908, 1909 and 1910, and in 1911 the Saskatchewan legislature passed an act establishing cooperative elevators. That was done by a Liberal government in Saskatchewan. It was not the farmers who advocated establishment of the cooperatives in Saskatchewan. It was the Liberal party, in battle with the farm organization.


George Hugh Castleden: Why do you try to kill them now?


James Garfield Gardiner: My hon. friend says, why do we try to kill them? We are not trying to kill them. The Liberal party in the province of Saskatchewan at that time established those cooperatives. Those cooperatives were afterwards turned into what today is known as the pool elevator company. I myself was premier of Saskatchewan at the time this took place, and as my hon. friend knows, I went out into the province at the time and supported the organization of the pool. I not only did that, but opposed those previously connected with the old organization selling the shares of the farmers to their own advantage. As a result of that I met with considerable opposition from some of those who had been previously in that organization. All that is a matter of history.
In Saskatchewan to-day we have great cooperatives, not because anyone else took the initiative but because the Liberal party of
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that day in Saskatchewan took the initiative and established the cooperatives there.
Now I come to the question of taxation. My hon. friend has said there was something done back in 1930. Who was here in 1930 when that was done?


George Hugh Castleden: Mr. Dunning.


James Garfield Gardiner: Yes, and something was also done in the late thirties. Who was here at that time? Again Mr. Dunning. Mr. Dunning was a Liberal. He was a past premier of Saskatchewan, in which these cooperatives had been established. He was the first manager of the Cooperative Elevator company in Saskatchewan. The whole history of cooperatives is written around Liberalism and members of the Liberal party.
The suggestion is made that, there is something wrong with the present legislation. That goes back to the fact that a commission was established to inquire into the cooperatives, and one of the most important members of that commission was the deputy minister who is in charge of cooperatives in Saskatchewan to-day under the C.C.F. government there. The matters complained of by some members of the house were unanimously recommended by that commission. On some of the points raised here there was a unanimous report by the commission, which included the support of the gentleman who is deputy minister in charge of cooperatives in Saskatchewan now, and who I admit was trained under the Liberals during the time they were in power in Saskatchewan. But he was still retained by the C.C.F. government as one of the best informed and most active promoters of cooperatives in the Dominion of Canada. On that commission he recommended some of the very things that are being opposed by the members of the C.C.F. here to-day. The recommendations of that commission were taken largely as they were presented to the government, and presented to the house. But the house is not being asked to accept them holus-bolus as presented. Changes have been made as a result of the discussions that have taken place here and throughout the country.
All I wish to say now is that the whole record indicates that the real founders of the cooperative movement in the Dominion of Canada were the members of the Liberal party. Their policies have been behind the cooperative movement; they are still behind it, and when this legislation gets through it will have the support of the very people who my friends of the C.C.F. party are trying to lead us to believe are opposed to it in the province of Saskatchewan.
At one o'clock the house took recess.

The house resumed at three o'clock.


William Irvine: Mr. Speaker, I recognize we are all anxious to further the business of the house and bring the session to an end as speedily as possible; nevertheless I feel it is important for me to follow up the remarks of the member for Swift Current (Mr. Bentley) and the member for Yorkton (Mr. Castleden) in their protests against the provisions of the bill now before parliament for the taxation of cooperatives.
I do not believe that the government can feel ha.ppy about the sections of the bill providing for taxation of cooperatives, but however much we may censure it for having brought this legislation in, I want to express gratitude for the modifications of the original intentions as they were expressed in the budget resolutions. Still, these modifications are not enough.- The fact is that cooperatives are still being taxed.
Just before the house rose, the Minister of Agriculture (Mr. Gardiner) endeavoured to persuade parliament that the cooperative movement in Canada had been built by the Liberal party. I do not feel like arguing that point at present, because there are other things more important to talk about, but I would say that perhaps no movement in the history of this country has been so free from any source of political partisanship as the cooperative movement. The cooperative movement, in Canada as in other countries, was born out of the economic necessity of the common people. It was an effort to supplement their meagre incomes or at least to extend them so that they could buy more goods. That was the primary moving force of the cooperative movement, and if the Liberal party can claim any credit for the building of the cooperatives in Canada it must be because that economic need which forced the common people to work together for ameliorative action was more intense under the Liberal government than -under any other. If that is the reasoning of the Minister of Agriculture, then of course there is no argument about it; we will allow him to go off with the prize in that connection. But if the Liberal party is the father of the cooperative movement, it is hard for us to understand why it should now wish to kill the child which so far is has nurtured. This legislation, harmless as it may appear to some, and almost insignificant in its understandable declaration, definitely points in the direction of the destruction of the cooperative movement.
I wish to register my objections to the sections of this bill which provide for the

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taxation of cooperatives, and I shall mention each particular feature and make a brief comment upon it.
I object to this measure in the first place because it does not define a cooperative, and, failing to define a cooperative, the legislation proceeds to twist the cooperative movement into the distinctive features of a capitalist and profit-seeking movement in order that it may be taxable. That is the actual situation as I see it; for the bill under discussion provides for the taxation of income and profits; since there are no profits in a cooperative it cannot be taxed, and if "cooperative" had been properly defined, that definition would have brought the cooperatives outside the bounds of the taxation scheme of the budget. This being the situation, no attempt is made to define cooperatives at all, but an attempt is made to compel cooperatives to adopt certain definite characteristics of a private profit-making institution in order to bring the movement within the ambit of the taxation scheme. That is the first thing I object to.
The second objection is that the twelve months within which all patronage devidends which have not been paid out to the customers will become taxable is not a great improvement on six months; for it is obvious that any cooperative might very well desire to have much longer use of its unpaid patronage dividends than that, and the necessity might be so great, in the development of the movement and even for the protection of the institution itself, that the use of such patronage dividends might be imperative. But if this legislation passes it will have to be paid out within the twelve months or else become taxable, and that is equivalent of course to taxing the capital of the organization and not income at all.
All the tax which may be imposed under this measure is in my view a tax on capital, because all the so-called income of cooperatives which may be taxable is composed of patronage dividends which in the first place have come out of the pockets of the people in wrhose name those patronage dividends stand and are therefore not taxable in the real sense of the word. But if they are left in and used in the operations of the business they become capital, and if they are left in for over twelve months they become taxable. Therefore this is taxation of capital and not taxation of profits of any cooperative.
I object to the measure also because, while it provides that new cooperatives shall not be taxed for three years, it makes no provision for cooperatives which may have been organized six months ago, one year ago, eighteen 63260-298
months ago or two years ago. They will be immediately taxable when this bill becomes law; therefore they do not get the three years, and the taxation of such small cooperatives might be crushing to them at this stage of their development.
I object to the retaining or the compulsion to retain an amount equal to three per cent of the working capital. This is the basis of the taxation scheme. This is the principle by which cooperatives are compelled to assume the characteristics of an ordinary private enterprise seeking profit as an objective. This is the means by which cooperatives are being forced to assume the characteristics of a capitalist institution in order that the government may be justified in imposing taxes upon them. These are the main points which I and my associates object to in this legislation.
I should like to say that I appreciate the fact that the government has been under tremendous pressure from the private interests of the country which feel that they cannot do business as economically arid give the same service to the public as the cooperatives. They are not prepared to meet the competition of cooperatives. They feel that if cooperation keeps on developing and becomes federated to carry on the business of the people on a nonprofit basis, ultimately it will be a decided challenge to some of the greatest industries or the greatest businesses of Canada. That is a possibility. The private interests have seen that possibility, and perhaps never before has there been so extensive and expensive campaigning to influence the government and parliament to interfere with the development of cooperatives and to lay hands upon it in such a way as to retard its growth. I have never seen such a campaign in my memory.
I understand that the government has been under great pressure, and as I said at the beginning, I feel that the government is not happy about the legislation. It has tried to tax cooperatives without taxing them; it has tried to please the other side by imposing taxation on cooperatives, and therefore there is a dilemma. In the last analysis it has turned out that the government apparently could not draw all the sections without some teeth in them, and there are teeth in them. Such teeth as are there will tend to bite off the head of the cooperatives. If it is not enough this year, they will add a little more next year, and the year following a little more still, until eventually they will limit the operation of the cooperatives and ultimately destroy the movement.
Therefore I would appeal first of all to the hon. gentleman who claims that his party is the father of the cooperative movement in

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Mr. VICTOR QUELCH (Acadia):: Mr. Speaker I just wish to say that the members of this group are opposed to the principle of the bill because we regard the underlying principle as being that governments must be dependent upon taxation for their revenue. We have always maintained that the real purpose of taxation should be to remove redundant purchasing power from circulation -that is, that portion of the purchasing power of the people which may create an effective demand against production in excess of the ability of industry to satisfy it. Furthermore, we feel that the purpose of taxation should be to bring about a fairer distribution of the production of the country until such time as production has expanded to meet the needs of the people. To the extent that that type of taxation fails to meet government expenditures, we believe that the government should use national money. Until we do that, we can take it for granted that in the future the national debt will continue to expand as it has in the past, and also that our debt charges will expand, thereby requiring an increase in taxation to meet them, resulting of course in still greater discontent amongst the workers of the country, thereby bringing about a reduction in or a retarding of production.
Hon. members on the government side and in other parts of the house are continually warning of the danger of socialism, communism and every other form of "ism." But I should like to point out that so long as the government continues in the future as they have in the past to use a deflationary policy we are breeding a condition that brings about communism and socialism.
I should also like to suggest to the government that they might very well take heed of the suggestion of the national resources plan-

ning board of the United States. I quote from page 105 of a book entitled "Where's the Money Coming From?" by Mr. Stuart Chase, who has this to say:
If the government borrowed solely from its own central bank without interest, there need be no interest burden at all. There would be amortization of the principal, and the fundamental prohibition not to pump too many new dollars into the system would still stand.' The national resources planning board has said: "Should the day arrive when the carrying charge on the federal debt becomes oppressive, serious thought should be given to the creation by our modern banking and treasury institutions of non-interest-bearing debt.
I hope the government will not wait until the situation becomes so chronic that our production will have already started to fall and unemployment will have started to increase. The war is over, and no longer is it necessary for fifty per cent of our production to go for the purposes of war. Therefore it is only natural that the people of the country should have expected to find in the budget a substantial reduction in income tax of people in the low income brackets. They also expected that exemptions for the people in the low income brackets would be raised in the year
1946.	Unfortunately, as we now know, that is not the case; there will be no alleviation until
1947,	and then it will be far less than th-people had anticipated.
On this question of cooperatives I should like to say that I agree entirely with the comment of the hon. member for Swift Current, that the wording of various clauses is vague and ambiguous. Certainly I am not going to insult the intelligence of those responsible for drafting these measures by suggesting that they could not clarify them. I believe the confusion which exists in this bill is deliberate, because it makes it so much easier for a number of different interpretations to be made.


Douglas Charles Abbott: Oh, it is not deliberate.


Victor Quelch: Well, I certainly cannot believe that the Department of Finance is so lacking in men of ability that they could not draft something a great deal clearer than we find in this bill. Even lawyers disagree as to what it really means.


Douglas Charles Abbott: This w"as drafted by the Department of Justice, the Department of Finance, the Department of National Revenue and to some extent by your humble servant.


Victor Quelch: And the result is confusion. As I say, I am not going to insult the various departments by suggesting that they could not have clarified the situation to a greater extent than they have done. So naturally we feel that the intent is to curtail the growth of cooperatives in this country.

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Douglas Charles Abbott: Just the reverse.


Victor Quelch: The hon. member for Swift Current reminds me that the acting minister said the department was not run by experts, but I think even a layman could have drafted something with a great deal more clarity than we find in these clauses.
I should like to place before this house the definite stand of this group in regard to cooperatives. Our definite stand is that there should be no taxation on cooperatives except on patronage dividends of non-members that are not distributed; and provided that patronage dividends are only withheld by cooperatives with the consent of their members. I cannot see any possible justification for the provision in this bill which places a tax upon an amount of capital equivalent to three per cent. I am not going to deal further with that point now; I shall wait until the bill reaches the committee stage.
This morning several hon. members commented upon the need for expansion of production by the gold mines of this country. During the war the members of this group consistently attacked the production of gold in war time, because we felt that production of that sort was bound to impede our war effort. We needed production elsewhere, and we required all the labour and all the materials that could be made available. Therefore we felt that using labour and materials for the production of gold was not helping the war effort at all. To-day of course the situation is somewhat different, but nevertheless throughout the world there is a great shortage of food, clothing, and housing, and I fail to see how the production of gold can help in any shape or form to alleviate that sort of want. However. I would agree that so long as other nations are willing and perhaps anxious to give us $35 worth of goods for an ounce of gold there is a good argument for continuing the production of gold; but on the other hand I do not think there is any justification whatsoever for subsidizing the production of gold for export by low grade ore mines, any more than there would be justification for subsidizing other kinds of production that was uneconomic. As long as our labour and capital can be utilized for production that will bring more wealth to the country, low grade mines should not be subsidized.
I am not going to say more at this stage, but we shall have a few words to say on various sections of the bill when we get into committee.


Mr. J. M. MACDONNELL (Muskoka-Ontario):: Mr. Speaker, I wish to make a
very few observations on the topic discussed 63260-298J
this morning by the hon. member for York West (Mr. Adamson), the hon. member for Cochrane (Mr. Bradette) and the hon. member for York South (Mr. Cockeram); that is, the gold industry.
Notwithstanding the remarks made by the hon. gentleman who has just resumed his seat (Mr. Quelch)-and indeed to some extent he conceded this-I think there is general agreement in the house as to the importance of the industry. As the last speaker said, whether or not you approve the whole underlying principle, nevertheless at the present time we do get valuable goods and services from other people for every ounce of gold we produce. Belief in gold is deep rooted in human nature, and has been for many centuries. It is not going to disappear overnight. I think everyone in the house will agree that in the last few years the gold industry has been, you might almost say, a cornerstone of our economy, and has come to the assistance of that economy in times when it was very greatly in need of that assistance.
The next point I want to make is that I think we will all agree, as I believe the Minister of Finance (Mr. Usley) himself agreed when he made the statement, that the change to parity did in fact greatly embarrass the gold industry. I am not going to make any comment on that, other than to indicate the fact, on which every one agrees; and the best proof of that lies in the action of the government itself coming along and endeavouring to give assistance to the industry so that it could continue to provide employment, continue to bring to this country valuable goods and services in return for the export of the gold. As I say, the government came forward with this measure. I think there will be wide agreement that it was a wise step to take; but the question which now arises and which I think is in the minds of everyone is whether or not that relief was well conceived. When I heard the figures read in this house by the Acting Minister of Finance I was not sufficiently familiar with the situation to appreciate whether or not the assistance was practical; but as I listened this morning to the figures given by the hon. member for York West, prepared by the Ontario Mining association, if I remember aright, a serious body, figures which have not been questioned in any way, they seemed to me in the highest degree trivial. I thought the hon. member was fully warranted in asking whether or not they indicated a really serious desire on the part of the government to assist the industry. The hon. member for York West said it was a gesture. Well, Mr. Speaker
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it seems to me I would be well within the limits of the truth in saying that if it was a gesture it was not even a polite gesture; and I am sure if I attempted to illustrate the kind of gesture I think it really was you would rebuke me sharply and say I was insulting the dignity and decorum of this house.
Finally, it seemed to me the hon. member for York West did indicate a reasonable, practical and proved method of increasing this assistance, and I see no reason why assistance on the lines he recommended would not be reasonable. As I say, it has been tested by practice and experience. There is only one thing further I want to say. I am sure we all realize that this is a serious matter. I realized it more than ever the other day, when I heard a man from the north country, a man who I think knew fully what he was talking about, remark to another man in the mining industry that if things continue as they are now that northern, mining country, which depends on gold, will be a desert within ten years. I am not asking the house to accept that statement. Predictions are often made which are exaggerated, and1 there may be other adjustments that can be made under which the industry will be able to continue. Nevertheless I think there is a measure of agreement on this, that it is an important matter, and the government has given an indication that it regards it as an important matter by actually proffering a measure of assistance, though if the figures which have been given are corect, and they have not been challenged, that assistance is of a trivial nature. So I am suggesting to the minister that the government might very well review its decision to see whether, instead of this trivial gesture, it cannot come forward with a really substantial measure of help.


James Horace King: Is it the pleasure of the house t<? adopt the motion? Carried!. Second reading of this bill.


Some hon. MEMBERS:: No.


Mr. FAIR:: Mr. Speaker, before you leave the chair, this motion was not carried. There are a number of us here who were not satisfied with it. We protest against it, and want the question for and against placed before the house. The question was not put.


James Horace King: I did not understand what the hon. member has said.


Robert Fair: I just wish to have the question put, whether or not it is carried-those in favour, and those against. That has not been done.


James Horace King: I must say to the hon. member that I put the question as usual, and as no hon. member rose I said that it carried.


George Hugh Castleden: I Was on my feet at the time, objecting to it.


James Horace King: Carried on division.


Robert Fair: No; question.


Some hon. MEMBERS:: Question.


Robert Fair: You asked for those in favour, but not against. There are plenty of us on this side of the house who oppose it. We want to make that clear.


James Horace King: I put the motion before the house and asked if it was the pleasure of the house to adopt the motion.


Robert Fair: And we said, no.


James Horace King: I must repeat what I have said to the hon. member, that I did ask if it was the pleasure of the house to adopt the motion.


An hon. MEMBER:: And we said, no.


James Horace King: I did not see any member on his feet, and I did not hear any member asking to speak, so I said, "Adopte, carried." That is the proper procedure. Now the other motion before the house is that the speaker do leave the chair for the house to resolve itself * into committee of the whole. That motion is not yet carried.


George Hugh Castleden: With all due deference, Mr. Speaker, I wish to point out that when Your Honour said, "Is the motion carried", at least two members in this corner were on their feet, and said, no.


Mr. OASSELMAN:: Two is not enough.


George Hugh Castleden: They were on their feet. We wish to voice our objection to second reading, but no notice has been taken of the fact that we are objecting to it. Your Honour did not look in this corner to see whether we objected. You just said, "Those in favour; carried; adopte", and it was passed that way.


James Horace King: I cannot permit any more discussion on it.


Victor Quelch: You never called for the yeas and nays. If you had' called for the yeas and nays we would then have stood. We have a right to have the yeas and nays called.


James Horace King: Order. I will not permit any confusion in the house.


Victor Quelch: There is confusion.

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James Horace King: It is not necessary to call for the yeas and nays unless some member says, no.


Victor Quelch: We said, no.


James Horace King: When I put the motion before the house I heard no protest.


An hon. MEMBER:: Many of us said, no.


James Horace King: Mr. Abbott moves, seconded by Mr. McCann, that I do now leave the chair for the house to resolve itself into committee of the whole. Is it the pleasure of the house to adopt the motion?


Some hon. MEMBERS:: No.


Some hon. MEMBERS:: Carried.


Mr. LALONDE:: I was paired with the hon. member for Royal (Mr. Brooks). Had I voted I would have voted for the motion.


Mr. BREITHAUPT:: I was paired with the hon. member for Danforth (Mr. Harris). Had I voted I would have voted for the motion.


Douglas Charles Abbott: I was paired with the hon. member for Stanstead (Mr. Hackett). Had I voted I would have voted for the motion.


Mr. TREMBLAY:: I was paired with the hon. member for Vancouver South (Mr. Income War Tax

Green). Had I voted I would have voted for the motion.


Mr. SMITH (York North):: I was paired with the hon. member for Victoria-Ontario (Mr. Hodgson). Had I voted I would have voted for the motion.


Mr. MALONEY:: I was paired with the hon. member for Northumberland, Ont. (Mr. Drope). Had I voted I would have voted for the motion.


Mr. NIXON:: I was paired with the hon. member for York East (Mr. McGregor). Had I voted I would, have voted for the motion.


Mr. LEGER:: I was paired with the hon. member for Haldimand (Mr. Senn). Had I voted I would have voted for the motion.


Mr. HEALY:: I was paired with the hon. member for Brant (Mr. Charlton). Had I voted I would have voted for the motion.


Mr. BRACKEN:: I was paired with the right hon. the Prime Minister (Mr. Mackenzie King). Had I voted I would have voted against the motion.


Agar Rodney Adamson: I was paired with the hon. member for St. James (Mr. Beaudry). Had I voted I would have voted against the motion.


Mr. ROSS (St. Paul's):: I was paired with the hon. member for York-Sunbury (Mr. Bridges). Had I voted I would have voted against the motion.


Harry Rutherford Jackman: I was paired with the hon. member for Bellechasse (Mr. Picard). Had I voted I would have voted against the motion.
Mr. TUSTI'N: I was paired with the Minister of National Health and Welfare (Mr. Claxton). Had I voted I would have voted against the motion.


Mr. GILLIS:: I was paired with the ion. member for Inverness-Richmond (Mr. McGarry). Had I voted I would have voted igainst the motion.


Mr. GRAYDON:: I was paired with the Minister of Finance (Mr. Ilsley). Had I voted I would have voted against the motion.
The house went into committee, on the bill, Mr. Macdonald (Brantford City) in the chair.
Section 1 agreed to.
On section 2-Superannuation or pension fund payments.


John George Diefenbaker: Will section 2,
paragraph (a) of (4) mean that the extra
12,000	paid to members of the senate will not be considered as taxable income? As it
is worded, and apparently this was drafted by the law officers of the crown, by Justice and Finance, with the Acting Minister of Finance participating in the drafting-


Douglas Charles Abbott: Only to a very minor extent.


John George Diefenbaker: Nevertheless, only to a minor extent would be most material. As this is worded I submit that it would have the effect of actually repealing the legislation passed at the last session.


Douglas Charles Abbott: I am informed that the legislation which we passed last session-I have not the act before me-stated in express terms that the amount received by members of the senate would be considered as income and therefore would be subject to tax. This section will not have the effect of making it tax exempt.


John George Diefenbaker: I should like to think that that actually is the effect. Lawyers disagree on occasions.


Douglas Charles Abbott: This is not new law. It is just reenacting paragraph (a). The new part is paragraph (b).


John George Diefenbaker: I appreciate that. Nevertheless this is being reenacted and will become the law as of this date.


Douglas Charles Abbott: Will continue to be the law. We are reenacting the whole section. We could have left it alone and simply enacted paragraph (b).


John George Diefenbaker: The fact remains that, from this date on, this section will be an amendment as of 1946. If it were being enacted now for the first time I submit that the effect would be, regardless of anything appearing in the act passed in 1945 at the time of the increase in indemnities, that the amount of $2,000 would be free from tax. Subsection 9 on page 2 of the bill says:
Where an elected member of a provincial legislative assembly is, under an act of the provincial legislature, paid an allowance for expenses incidental to the discharge of his duties as a member-
We are going to have a very strange position of affairs in this country under these two sections. I am not at the moment a protagonist of the senate, if I may refer to it as such, but I am advancing the argument that we are placing its members in a very-invidious position. They to-day are discharging responsibilities with unusual ability.


Mr. MACKENZIE:: That is quite true.
[Mr. Tremblay.!

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John George Diefenbaker: Some of my hon. friends to my left laugh. The members of the senate did a great job for Canada with its committee on taxation.


Ian Alistair Mackenzie: In several other directions too. The hon. gentleman's statement is quite true.


John George Diefenbaker: They are staying here long periods of time now and are denied any expenses, and they are the only legislative body in Canada that will be placed in that position. I simply want to know whether, by the provisions of 4 (a) the effect is in fact that the extra $2,000 is not subject to taxation.


Douglas Charles Abbott: I am advised that the effect of reenacting this section, which is as it now stands in the law, will not be to exempt from taxation the additional $2,000 paid to members of the senate in virtue of the legislation passed last year. I have sent for the statute, and in the meanwhile that is my advice.


Mr. MacNICOL:: Will the indemnities of members of the legislative council of Quebec be exempt from taxation?


Douglas Charles Abbott: My hon. friend will notice that the word is "elected", an elected member of a provincial legislature. They will not be exempt.


Harry Rutherford Jackman: Is this section based on resolution No. 27?


Douglas Charles Abbott: ' It is based on several resolutions.


Harry Rutherford Jackman: Was there not in the resolution an alternative that a person who left employment and received a lump sum could have that lump sum taxed at the rate of taxation for the last year?


Douglas Charles Abbott: That is correct. There are several sections in the bill which relate to that resolution covering lump sum payments. They are included here in the order in which the different sections appear in the bill, and the hon. member will see, as we go through the bill clause by clause, that all the various cases are covered. In this section the proviso to paragraph (c) of subsection 1 is incidental to one of these amendments respecting lump sum payments.


Harry Rutherford Jackman: So that in some subsequent section I shall find that part of the resolution which provided that a man receiving money could elect to be taxed at the rate of taxation of the last year.


Douglas Charles Abbott: My hon. friend is correct.


John George Diefenbaker: With reference to subsection 6 of section 3 being repealed and the following being substituted therefor:
"Where the minister is satisfied that a single payment" and so on, and again with reference to subsection 8 of section 3, am I correct in saying that there can be no reversal by the appeal board of any decision made by the minister to whom the application is made under these sections? If I am correct in that, and I think I am, having regard to section 69(e) I wish to raise this point. One of the recommendations of the senate committee was that decisions made by the minister, in other words discretionary decisions, should be subject to appeal. I am going to deal with that when I come to the section in question. I feel that even at this stage some mention should be made of the power that rests in the minister under a provision such as this. I will not refer to the evidence that was taken or to the recommendations of the senate, but this and other sections run counter to the recommendation of the senate committee, which was that there should be a board of taxation appeals with power to review all matters of assessment and all matters of fact and of law. The evidence taken before that committee was representative of more than twenty organizations across the country, and there was no objection. I know that in my own province of Saskatchewan farmers are approached by inspectors. The farmers have not kept books, and an arbitrary fixation is made against which they have no appeal-a decision of some office holder, made without regard to law or fact. When this matter was before the senate committee there was only one person who objected, and that was Mr. Fraser Elliott, who said that there should be no appeal on discretionary matters. In the senate report the statement is made that Mr. Elliott made a recommendation that there be no appeal, and that was contrary to every other recommendation that had been made.
In my opinion the granting of discretionary powers to the minister, and allowing him to determine, without regard to law or fact, but relying on his own conception of justice, what persons shall come within the purview of subsection 6 of section 3 or subsection 8 of section 3, is a dangerous principle for parliament to reenact. I should like to hear from the minister what justification there is for taking away from the courts or from the board of appeals the right to decide this matter on the law and the facts, on appeal from a decision made by some office holder or the discretionary order of the minister, which after all is the order of the officials. This is just one more example of a trend which is greatly accelerating. After all, the senate is an integral part of parliament, representing all parts of Canada. They heard the evidence of many groups across
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the country and decided to recommend a certain course of action. That course was not followed because of the fact that what can almost be said to be a hierarchy of civil servants outside are able to determine what is good for the people, regardless of the views of parliament.
Some may say that that is not the position. While I may not refer to another debate of the present session, I may say that when veterans affairs were under discussion, as is reported at page 4483 of Hansard of August 8, the parliamentary assistant to the minister, explaining why the unanimous recommendation of the committee on veterans affairs had not been followed, said that two officials of his department thought that they knew more than a committee of parliament, and the government followed the recommendation of the two civil servants rather than the unanimous recommendation of the committee.


Harry Rutherford Jackman: Shocking.


John George Diefenbaker: At this stage I should like to hear from the minister what is the view of the government with regard to the recommendation that there should be a right of appeal in respect of ministerial decisions. Why is this great power still to be vested in the minister, subject to no appeal even to the board of tax appeals? After all, while on the face of it the right of appeal is being granted, it means very little, because approximately eighty per cent of all the decisions made by the income tax department will be and are construed as discretionary matters. Fearing that someone may consider that in taking this view I am partisan I need only refer the minister to an editorial in the Winnipeg Free Press of August 9, where the whole question of discretionary powers is reviewed under the heading "Discretion Unlimited." The editorial goes on to say:
After the approval of its budget in parliament the Canadian government presumably will proceed without delay to set up two new faxing boards which are designed to assure a larger measure of justice for the taxpayer. These boards should improve our existing taxation system but. on analysis, their powers fall far short of what our taxpayer deserves. Though they are based on the recent studies of a senate committee they fail to carry out the committee's report at its most vital point.
Then further on:
The most important principle of the senate report-the power of the appeal board to consider how tax officials use their discretion and to revoke their discretionary decisions-is thus destroyed by the government's plan.
No matter what the walk of life may be, taxpayers in every section of this dominion have found themselves subject to orders based on the discretionary principle and denied the

right of appeal. I suggest to the minister that if we are to remake the War Income Tax Act, which apparently is the intention, having regard to the number of amendments that are brought down, something more than a brief explanation is due to the committee as to why these discretionary powers are to be perpetuated. In excepting some twenty per cent of the cases, the decision of office holders in the civil service or of the minister by way of final appeal in all discretionary matters will still continue to be supreme.
I would ask the minister to make a statement in the matter, because it is one which deserves the serious attention of the committee and is of interest to people all over the country.


Douglas Charles Abbott: I shall be very glad to do that. I had assumed that we should have a considerable discussion on the matter of the exercise of discretionary powers when we were dealing with the sections relating to the appellate board and the advisory board. I really think it might be more convenient to the committee if we did it then.
As my hon. friend appreciates as well as or better than most other hon. members of the committee, these numerous discretionary powers fall under various heads. Some are the exercise of powers with respect to the refusal to grant exemptions or allowances, as was pointed out in the senate committee report. Others involve administrative or punitive powers. Some involve constituting the minister a judge of reasonableness or equity, and so on. When we reach these sections I shall be prepared to discuss the various categories in some detail and give the reasons why it was felt that most of these discretions should be reviewed by the advisory board rather than the appeal board.
As my hon. friend appreciates, this section is in effect the reenactment of an existing section with the following words added: "between the first day of January and the 27th day of June." The discretion which is contained in this section is not a new one conferred by this amending bill. The subsection is the reenacting of an existing one with the addition of certain words. Therefore unless my hon. friend insists, I should prefer to deal with them when we are dealing with the sections relating to the appeal board and the advisory board.


John George Diefenbaker: I bring it up now because all the way along until we get to section 69 we shall be enacting discretionary powers. Finally when we come to section 69 we shall have established all these matters,

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and then we shall discuss the why and the wherefore.


Douglas Charles Abbott: So far as I know we are not establishing by this bill many new discretionary powers. We are reenacting sections. There may be one or two which are necessary, but I think I am safe in saying there are not many more than that. The new powers which we would have to consider are the ones which have been in .the act or added to the act over a period of years. I should prefer to discuss them when we are discussing the details of these provisions.


Mr. McMASTER:: Is the minister willing to add a clause to the effect that the discretion of the minister is appealable? As I understand it, in the past the discretion has been a little broader, and the exchequer court has refused to interfere with it. We are setting up two appellate divisions, and if there were an appeal from the minister's discretion I think we would all be satisfied.


Douglas Charles Abbott: I am sure some people would be satisfied, but that strikes at the principle of ministerial discretion and responsibility. In Great Britain, where the same principle of conferring ministerial discretion is followed, there is an appeal to the courts, but the courts have always dealt with it in this way, that if the discretion, as I have said several times before in the house, has been exercised in a bona fide way they do not review the exercise of that discretion.. In its very nature it implies the exercise of judgment on the part of someone; that is what discretion means. It is an opinion. I shall discuss some of these reasons a little more fully when we get to the advisory board sections, but my hon. friend's suggestion strikes at the very root of the granting of ministerial discretion. It is easy to .talk in broad general terms about the undesirability of conferring discretionary powers under an act of this kind, but I say to this committee that from a practical point of view it is impossible to draft a workable income tax aOt of this kind without putting in such discretions, and that it is impracticable to give an appeal to the courts from the exercise of such discretion. That responsibility must be assumed by the minister of the crown upon whom parliament confers it, and for the life of me I do not see how we could properly ask the courts to review a discretion properly exercised by a responsible minister of the crown. It is all very well to say that it is exercised by bureaucrats and civil servants and so on, but the final responsibility is upon the minister, and under the new procedure we are providing under this act there is a very real opportunity for review and consideration
by the minister himself. However, I shall discuss that when we come to the section in question.


John George Diefenbaker: The minister has made the categorical statement that it would be impracticable to give an appeal on discretionary matters. He said there was an appeal to the exchequer court in the event that the discretion had not really been exercised, or had not been exercised honestly or fairly, or that the person exercising the discretion was influenced by extraneous and irrelevant facts; that is the law to-day. Hemmed in by those considerations, there is really no appeal; but my hon. friend makes the categorical statement that an appeal on questions of judgment, as he says, or discretion, would! be impracticable.
Let me tell my hon. friend that before this senate committee, composed of outstanding members of that body, appeared, representatives of the Canadian federation of agriculture, the trades and labour congress of Canada, life insurance companies, the income tax payers' association, the Canadian federation of labour, the Edmonton and Regina chambers of commerce, the dominion association of chartered accountants, the Canadian bar association, stock exchanges, the Toronto board of trade, the Canadian electrical association, the Federation Canadienne et Catholique du Travail-[DOT]and the Montreal chamber of commerce. All these bodies, representative of agriculture and business, came before this committee and were ail of the opinion that an appeal was proper. The only one who took the opposite view was Mr. Elliott. The report of the special committee states:
Mr. Elliott indicated, however, that the findings of the board or committee should in essence be advisory only and that should the Minister of National Revenue desire to adhere to a conclusion differing with the findings of the board, no further review or appeal should be provided but that, as is the case under the presently enacted legislation, the decision of the minister in respect thereto should be final and conclusive.
That is the same argument made by the minister to-day, but this is w-hat the committee of the senate unanimously report:
Your committee has given consideration to these submissions of the deputy minister and has concluded that they represent a direct conflict of opinion with the suggestion advanced brother witnesses in briefs and examinations, with which suggestions your committee agrees in principle as will be hereafter shown.
I point out that while the minister gives a categorical answer that the right of appeal from a decision of the minister on matters of discretion is impracticable except within the limited purview of the authorities, one of the most recent of which is Nicholson v Minister

mi
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of National Revenue, on the other hand practically all business organizations and bodies representing agriculture in this country stated that it was practicable, and that there should be a right of appeal. While I accept the minister's suggestion that further discussion take place later, I do want to point out that while he takes one view, the only person supporting that view is Mr. Elliott, and against that view is the view of all these other organizations representing all the provinces.


Douglas Charles Abbott: I thank my hon. friend for deferring further discussion until we reach the sections dealing with the tax boards. I point out, of course, that these various organizations he listed made other submissions to the senate committee than those relating to these discretionary powers. I read a good many of their briefs, which I remember covered many points; in fact- some did not make much reference to discretionary powers. However, I think the issues at this preliminary stage have been made fairly clear as between the view put forward by my, hon. friend and the view I have voiced, and perhaps that should suffice for the question of principle when we consider the various discretionary powers in the subsequent sections.
Section 2 agreed! to.


The CHAIRMAN:: The suggestion has
been made that section 3 should be considered paragraph by paragraph.


Douglas Charles Abbott: I believe that would be wise. I think it would1 make for more orderly discussion.


William Ross Macdonald: Then I shall call section 3.


Douglas Charles Abbott: I have an amendment here which I am going to ask one of my colleagues to move, but it relates to paragraph (3), so I shall take it up when we come to that paragraph.
On section 3, subsection 1-Mutual corporation.


Louis Orville Breithaupt: I should like to make a few remarks on this section, as it affects a good many cash mutual companies in my part of the country, North Waterloo, Perth and South Waterloo. These cash mutuals, as I interpret this section of the act, are very adversely affected. In the past they have been paying three per cent tax on premiums, and now are also to be taxed on income. Originally the companies I refer to carried on the fire insurance business only, but while the bulk of their business continues to be fire
fMr. Diefenbaker.]
insurance, some of the companies write auto- [DOT] mobile and casualty lines. A large proportion of their business is in Ontario, Quebec and the western provinces.
The cash mutuals began as premium note mutuals insuring farms, village and local risks in southwestern Ontario in the same manner as the many farm mutuals which have served the farming community in the absence, until recently and now only to a limited extent, of any general farm insurance service from the stock companies. It is estimated that over $500,000,000 in farm fire insurance in Ontario, aside from Quebec, which is over eighty per cent of the total, is carried in mutual companies such as the ones I have described, and that over 197,000 Ontario farmers are insured in mutuals. The cash mutuals insure at least 16,000 farm risks, as well as a large number of village, town and other risks which are not protected by municipal or other fire fighting organizations. Many of the stock companies will not insure these unprotected risks, and if they do they are usually at higher rates.
The cash mutuals operate on a cash premium system as well as on the premium note basis. This development of the cash premium is a departure from the original scheme, which relied on the premium note for the large part of the policyholder's premium. Mutuals always demanded some payment in advance, as was required under the terms of the earliest legislation. It has been required in legislation since. As early as 1868 the legislature recognized the need of permitting business on a cash-mutual basis and authorized assessments for purposes of establishing reserves.
This brings me to my point, that under the new plan, as I understand it-and probably the minister will clear up this point-the premiums are taxed and the profits are taxed. No one objects to paying taxes, because what is fair for one is fair for another. But in cases such as this, where double taxation is now proposed, it places in a very unfavourable position these companies whose policy in the past has been to create reserves to protect the insured. Either one tax or the other should be eliminated.


Douglas Charles Abbott: I am aware of the situation my hon. friend has outlined with respect to mutual insurance companies. As he knows, they were dealt with by the McDougall report, and the proposed section in large measure implements the recommendations contained in that report. It is true that up to the present time mutual insurance companies have been completely exempt from any form of income tax. The McDougall commission

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recommended that that should not continue. The principal tax on the mutual insurance companies is the premium tax, to which my hon. friend made reference. Under the Special War Revenue Act, which was passed yesterday, the rate has been reduced from three per cent to two per cent for the deposit premium mutuals.
It is true that for the future mutual insurance companies will not be permitted to build up reserves out of undistributed taxable income. But any refunds which they make to policyholders, which are the equivalent of patronage dividends by cooperatives, are deductible from the gross income for purposes of taxation. So that I do not feel the new provision will be a serious interference with the operations of the mutual insurance companies. They will in fact be on exactly the same basis as the cooperatives, and on the basis recommended by the McDougall commission.


William Alexander McMaster: I spoke on this matter when we were discussing the resolutions, and since that time I have been able to obtain certain figures, which are too lengthy to place on Hansard. There are sixty-seven small farmers' mutuals in Ontario. I believe there are only one or two of them with reserves of more than $100,000. Many of them have reserves of $10,000, $15,000, or $16,000. I have been told by so many people that I believe it is true, without looking it up, that the Ontario government has insisted these mutuals have a reserve equal to two per cent of their insurance in force. It would seem that the smaller companies have from $8 million to $10 million of insurance in force, and therefore eventually they must build up to a reserve of around $100,000. That would apply to even the smallest of them.
This mutual fire insurance business is entirely different from the business of the cooperatives. A cooperative is an organization which buys something and sells it. At the end of the year it has certain moneys on hand which can be distributed as patronage dividends, if so desired. But the mutual fire insurance companies, which are operating in a comparatively small area and are able to protect themselves only by re-insurance, must build up good reserves. I have picked at random a small company operating in West Middlesex, the Caradoc mutual, which had losses in a particular year which left them no profits, or at least profits which were less than $1,000. But in nearly every case they have to build up reserves for bad years. Let us suppose that they build up $4,000 or $5,000
of profits in one year. As I understand it, they will come under the corporation tax of 30 per cent.


Douglas Charles Abbott: I think that is correct. In common with other organizations they cannot build up reserves out of taxable income. They can build up reserves up after the tax has been paid.


William Alexander McMaster: But everything is not the same. I am speaking about the small farmers' mutuals. I say these farmers' mutual fire insurance companies are different from cooperatives. There is no use in saying they are the same. There are always exceptions; indeed if there were no exceptions there would not be the discretion vested in the minister, to which we are objecting, and the possibility that a different discretion would be exercised in respect of some other organization.
Let me follow this through to its logical conclusion. I have in mind a small farmers' mutual which may have an income in one year of $10,000. I am thinking of many of them in that position. Perhaps they will pay out for management and losses the sum of $7,000, and they would have only $3,000 left to meet any future losses. The government will take $900 of that. Perhaps next year that company will have many losses and no income. I do not suppose the government will come along and give the $900 back to them. I suggest we should understand fully the work that these farmers' mutuals do. It is entirely different from buying and selling. They must protect one another against large losses which may be suffered by their members, and in that way give reimbursement which arises from that unfortunate position. They are doing the work that larger companies do not want. I am not in the insurance business, but I know enough about insurance to know that the large companies do not want to insure isolated farm houses or bams, because they have no fire protection. No one is near them. They are bound to suffer loss. Some of the insurance these mutuals carry would be in the form of risks in connection with lightning striking farm animals. I was astonished when I learned the amount of damage done to horses and cattle by lightning.


Gordon Graydon: And wind damage, too.


William Alexander McMaster: Yes, there is also weather damage. It would be a tremendous tax, and one which we could very well do without.


Douglas Charles Abbott: I agree that farm mutuals do perform a service and have a type of insurance which most of the stock and other companies are not anxious to take. But there
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is no real difference in principle or practice between the service they are rendering to their members and that found in a cooperative organization. I do not agree with the hon. member when he says that the tax here is a serious matter. The heavy and the important tax in connection with all these mutuals is the premium tax; there is no doubt about that. If these mutuals have already built up a reserve, then of course it is there, and that is all there is to it.
Mr/ GRAYDON: There to-day but gone to-morrow.


Douglas Charles Abbott: But that is true of any other capital. No other group or organization can replace its capital out of current earnings, if it is lost, except out of earnings after tax. I should have pointed out that their losses are carried forward. They have all the privileges that other taxpayers have.


William Alexander McMaster: I did not realize that these mutual companies had the opportunity of distribution over several years. Have they? If they have a fortunate year, where they have no loss in ordinary income they will pay the tax on the large amount of surplus, and the next year if they have a heavy loss they will pay nothing, because they will not be in a position to pay anything.


Douglas Charles Abbott: The hon. member will recall that under the act passed a year ago losses can be carried one year back and three years forward.


William Alexander McMaster: For mutual companies?


Douglas Charles Abbott: For any companies, any businesses.


Mr. BRADSHAW:: The minister has said that this was recommended by the McDougall commission. In the recommendations at page 65 of the report we find this:
We are of the opinion that mutuals can and do have income which is subject to tax. This income results from investments and operating pains which are free from claims of policyholders. At the same time we consider that mutuals in certain specialized fields are rendering a service which is not provided by other organizations, notably, in insuring farm and other unprotected rural risks. These mutuals tend to keep their rates as low as is consistent with the risk involved. We consider that it would not be in the public interest to impose income tax upon those insurers whose activities are primarily in these fields.
Considering the situation as a whole, we are of the opinion that the income tax should not be imposed on mutuals 'without a review of the varying rates of existing premium tax under the Special War Revenue Act.
Then in the summary of recommendations, under section 5:

That the income of any insurer, mutual or otherwise, shall not be liable to taxation when in any year the net premium income in Canada is derived, to the extent of not less than 50 per cent thereof, from the insurance of farm property and other property not protected by municipal or other fire fighting organizations.
As the president of a mutual insurance company in my own riding, I would ask the minister to explain that.


Douglas Charles Abbott: I said a moment ago that the legislation was largely implementing the provisions of the McDougall commission report. It is quite true, as my hon. friend points out, that in the case of mutual insurance companies doing more than fifty per cent of their business on farm property on the conditions mentioned, it was recommended that they should be exempted. That recommendation was considered by the minister and officials of this department, and it was felt that it was not desirable to set up a special class of mutual insurance company which would be completely exempt from tax. That is the reason why it was not felt that that particular recommendation could be implemented. Perhaps I should have pointed out that this class of mutual does enjoy complete exemption from payment of the premium tax if more than fifty per cent of their business is derived from insurance of farm property. I pointed that out in answer to the hon. member for Haldimand the other day. They have now a special exemption from premium tax.


Albert James Bradshaw: If I may be permitted' to cite my own case, we have an insurance company with $5,000,000 worth of insurance policies. We are running at the rate of twenty cents per S100, from which we derive premiums of some $10,000. Our losses last year were $6,000; our expenses were $2,000, or a total of $8,000. Our earned surplus would then be around $2,000. Is the tax on that surplus?


Douglas Charles Abbott: Yes; there would be $60 tax there if it is not distributed. Of course, if it is distributed to policy holders, there would' be no tax.


Albert James Bradshaw: Since we are compelled by the provincial act to keep a surplus we have $45,000 of a surplus on hand, and we are required to keep that up to a certain limit.


Douglas Charles Abbott: If you have the $45,000, and it did not need the $2,000 that my hon. friend has mentioned in order to hold the $45,000 at $45,000, it could be turned back to the policy holders and, of course, would not be subject to tax.


Albert James Bradshaw: As refund of premiums?'

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Douglas Charles Abbott: As refund of premiums, and then it is deductible and would not be subject to tax. I think the mutuals will find in practice that there is very little, if any, tax involved to them in this provision.


Albert James Bradshaw: I think there is a tendency for the farm mutuals to lower their rate to get away from the income tax and then place themselves in a hazardous position if they incur a heavy loss.


Douglas Charles Abbott: They must exercise proper business judgment. Their managers and directors must follow the principles of ordinary business prudence,


Mr. CARDIFF:: 
Gordon Graydon: I suppose that all of us from rural sections are interested in farm mutual insurance. I know that our own buildings years ago were insured in two different mutual companies; and on one occasion, some twenty or twenty-five years ago, the premium note with one company, which always forms part of the policy agreement, had to be paid in part by all those who had a policy with that particular mutual insurance company. I hope the minister is not forgetting that this is in an entirely different position from the ordinary premium paid to the ordinary insurance company, because, once you pay your premium to the ordinary commercial company, tariff or non-tariff, that is the end of it; but when you pay your premium to a mutual that is not necessarily the end of it, because, if a big storm comes, inflicting a tremendous amount of damage, be it by fire or whatever other cause, if that damage is concentrated in one particular area every farmer who is insured knows that he may
have to put up some part or all of the premium note which he has signed at the time he took the policy. That seems to me to put the mutual companies in a very different position from that of the others. When the hon. member for Perth speaks of $2,000 being left as a surplus on one year's business, to my mind that is the type of thing which shows good management and a desire to provide against loss in the future, and, more than that, to alleviate the possibility of some farmers having to put up money on the premium note in the future. This matter of the premium note, which is a liability existing on paper against every farmer holding a policy in a mutual company-at least, in the one we deal with-indicates an important and complete distinction affecting the question of taxation of these mutual companies. It may be that the minister is right when he says that not a great deal of taxation is likely to be levied against the company. But I think that if the principle is bad for $100 it is bad for $1,000 and it is bad for $100,000. I think the principle is an important one, and I should like the minister to reconsider this matter and see to it that these mutual companies do not have to pay this tax. I do not think it is a fair tax; it is one for which the farmers are going to have to foot the bill, and I think the farmers have already footed about enough bills in all the agricultural communities that I know of.


James MacKerras Macdonnell: Before the minister replies, may I make one observation? Under the old act, by paragraph (g) the mutuals were exempted. We now have this section, which I must say I find difficulty in reading because there are two negatives, and I agree with the hon. member who said he found the drafting anything but clear, although it may have been difficult to do it in any other way. But what we find now is that the only mutuals that will get exemptions are those which deal wholly, apparently, with charitable institutions ; but you go on and still have the exemption as it was on life insurance companies except such as is credited to shareholders! account. The point I want to make is one with regard to which, it seemed to me, the minister gave a very by-and-large interpretation of the McDougall report, because in reading the section it seemed to me that the McDougall report goes completely in the face of what is now being done. "We consider", they say "it would not be in the public interest to impose income tax upon those insurers whose activities are primarily in these fields."


Douglas Charles Abbott: What section is my hon. friend reading?
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James MacKerras Macdonnell: I am reading now from page 65 of the report. I suggest that in changing the act you have made it worse than it was before, and in so doing, have gone flatly in the face of the recommendations of the commission.


Douglas Charles Abbott: The McDougall commission reported that these mutuals should be put on the same basis as other cooperatives. They did suggest, in the case of farm mutuals more than fifty per cent of whose business was insuring farm property, exemption from taxation. The commission says on page 65:
We are of the opinion that mutuals can and do have income which is subject to tax. This income results from investments and operating gains which are free from claims of policy holders. At the same time we consider that mutuals in certain specialized fields are rendering a service which is not provided by other organizations, notably, in insuring farm and other unprotected rural risks. These mutuals tend to keep their rates as low as is consistent wuth the risk involved. We consider that it would not be in the public interest to impose income tax upon those insurers whose activities are primarily in these fields.
They recommended that if more than fifty per cent of the business was in insuring farm property they should be exempt. That was considered by the minister and his advisers, and it was felt that we should not single out a special class of insurance company for complete exemption. This particular class already receives special treatment by exemption from the premium tax, which is the important tax in this field. That is the tax on the fellow who pays the insurance premiums, for in the final analysis that is where -the tax has to go.
The hon. member for Peel said that there should not be any difference between $1,000 and $1,000,000.


Gordon Graydon: I said the principle was the same.


Douglas Charles Abbott: I turn his statement around and say that the principle is exactly the same whether it is small or big. That was the reasoning which prompted the decision to treat all mutual corporations as being the same type of enterprise, but giving special consideration to the farm mutuals in connection with the premium tax which is imposed under the Special War Revenue Act.


James MacKerras Macdonnell: I suggest that when you exempt the income of life insurance companies except such amount as is credited to shareholders' account you are in effect exempting life insurance business to the extent that the mutual feature is present in their enterprise, and therefore an inconsistency arises there.


Douglas Charles Abbott: Yes, but my hon. friend knows that the principles which govern life

insurance underwriting are completely different from those which govern the underwriting of property and that the portion of the premium which goes into life insurance represents the savings of the people less certain amounts for the actuarial- risks involved. That has been in the act for years and I think is sound. But the mutual fire insurance companys are providing a community service through cooperative effort. They are not accumulating savings or buying protection against death. They are operating a mutual organization for mutual protection against certain risks, and average the costs of these risks. The principles which underlie that type of risk are completely different from those underlying life insurance. The principle which has been adopted in connection with the life insurance companies is that the shareholders' portion is, of course, taxed; the other part is not. Again, in the case of the life insurance companies there is a premium -tax.


William Alexander McMaster: The worst feature is that these companies can avoid taxation simply by sending cheques back at the end of the year to the people who are insured.


Douglas Charles Abbott: So can any other cooperative.


William Alexander McMaster: That is starting them on the downward path of trying to evade taxation, which should be fixed and fair. Cheques will be sent back at the end of the year to the policy holders in order to avoid taxation. So that the government will not be any further ahead and a great deal of bother will be given to these mutual companies. That will be the only result.


Mr. McLURE:: We have in our province the Prince Edward Island Mutual Fire Insurance Company. It does business only with farm property. Ninety-five per cent of its insurance business is with farmers, the remainder with schools and churches. As I understand the McDougall report, a company of that kind would be exempt because practically all its premiums come from farm insurance. Is that type of company exempt?


Douglas Charles Abbott: That is what the McDougall report recommended.


Winfield Chester Scott McLure: And that is what is in the act?


Douglas Charles Abbott: No, that is not what is in the act.


Winfield Chester Scott McLure: That is what we want in the act. This is purely a farmers' mutual insurance company. It differs from most mutuals in that it has just a set rate. The farmers do not sign a note when they pay a premium for any liability that may occur. The company carries

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the entire risk, and the premium is very small, about one-third of what the tariff premium is.
In this case-and there may be similar companies in the other provinces-I think the McDougall recommendation must apply. Surely the minister will make it apply in this case.


Douglas Charles Abbott: Does my hon. friend know whether the company refunds premiums to its policy holders at the end of the year? I presume it does.


[Stage Direction]
Subsection agreed to.
Subsection 2 agreed to.
On section 3, subsection 3-Cooperative companies and associations.
Douglas Charles Abbott: I have a minor amendment which I will ask one of my colleagues to move to correct a flaw in the drafting.
Paragraph (i) reads:
The statute under which the corporation is incorporated or its charter or its contracts . . .
And so forth. I wish to insert after the word "charter" the words "articles of association or by-laws." Then in (iii) delete the words "and customers," so that it will read, "all its members are individuals." These are technical amendments.


Ian Alistair Mackenzie: I move accordingly, Mr. Chairman.


[Stage Direction]
Amendments agreed to.
Douglas Charles Abbott: The committee may recall that when we were discussing the resolution I indicated that I would give sympathetic consideration to the suggestions put forward that the section we are now considering should be made to apply not only to new cooperatives which started off without any previously acquired assets but to cooperatives which acquired an existing business. The Minister of Finance in his budget speech had indicated that it was the intention to restrict the operation of the section to a newly formed cooperative which had not acquired an . already existing business. That was prompted by the fear that the provision might be utilized to operate what was really a private business under the cloak of a cooperative organization. But after the matter was considered it was felt that provisions could be inserted in the law to guard against that, and that has been done. Hon. members will see that there is a provision that there must be at least twenty members in the cooperative and that each member must have an equal share. Members will see that paragraph (vii) provides that the business must not be a continuation of a previous business in which, in the opinion of the minister, a substantial number of members of the corporation had
a substantial interest, either as shareholders of a corporation carrying on the previous business or otherwise. So that with these protective clauses it is felt that the contingency of fraud is guarded against, and therefore the section is of general application to both a brand new business and one already existing.


Thomas John Bentley: I appreciate what the minister has said, and I am glad that, on appropriate advice, he has made these changes, which are important. There is, however, one other change which he has not yet seen the need of. I honestly believe that the minister wishes to do the right thing as far as possible, and I have not said any harsh things in this connection; but if he could see the point which I shall endeavour to make, I believe he would be willing to make the necessary changes. What I have to say comes under paragraph (p). That is the provision to which I wish particularly to speak. I have advised the minister why we feel it is necessary to strike out the date line there so as to allow this to apply to a cooperative that may have started in the last two years or two years and eleven months.
Let me give one illustration that will have application to many other situations. When I spoke before, I used this illustration in connection with the cooperative horse-marketing association. It may be funny to talk about horse meat here, but I can assure the committee that it is not funny to those people who eat horse meat, nor is it by any means funny to those who own horses that are running at large, consuming grass that should be eaten by cattle and sheep at a time when we need such meat. I am going to tell a brief story and if I leave the track, Mr. Chairman, or if you think I am leaving the track, I will come back to it at once. I can assure you I will not be riding horseback or bullback while telling this story.
The minister, I am sure, wishes to remedy the situation that exists at the moment, because he told us frankly one day that the country was not being run by experts, and I was glad to hear that, because experts make expert mistakes. Experts make expert mistakes, whereas simple people make simple mistakes that require only simple correction in order to bring matters back to where they were before. It is for that reason I am telling this story.
For many years, as hon. members no doubt know, horses were our main source of power, and therefore the raising of horses was a business indulged in by a great many people and to a large extent by those who had ranges which could accommodate horses. Id the last
Income War Tax

number of years, and particularly in the period of the depression, when costs of production had to be lowered, and during the war years when man-power was at a premium and machine power had to be introduced, it developed that horse owners, large anl small, found that they had unwanted horses. They discovered that only a few types were required. Light horses, general-purpose horses and some of the big types were no longer required, for the reasons I have mentioned. The result is that numbers of these horses are running over the country, eating grass that is needed now for cattle and sheep to produce beef and mutton. Everyone here knows how sorely we need beef and mutton in this country, and indeed how sorely the world at large needs such meat. It is therefore foolish to have horses grazing where you can raise cattle and sheep and produce beef and mutton.
The stockmen were faced with two alternatives. They could hunt down and destroy the horses or make them available either as feed for the fur farmers or as food for human consumption. Let us consider for a moment the first suggestion. If you hunt down and destroy the horses there is an expense involved in the process, while the only return yoii could get would be the hides and bones, and that would not pay. So far as making the horses available to the fur farmers was concerned, there was no possible chance of the fur farms' in this country ever using up the supply. The next thing, therefore, was to find some market for the horses, to sell them to those who would use them as human food. That was done. A survey was made, and hon. members will appreciate that it takes quite a while to do all these things. Even the Department of Agriculture here was called in to assist, and after the survey was made it was found that the Belgians would use horses as food. They are fed on short grass, and there is no better meat if you can make up your mind to eat it. I have not tried it, but * it is used to a large extent.
Here was an opportunity to get rid of the horses, replace them on these ranges by cattle and sheep, and still obtain something in return for the horses. Is that not good business? Is not every private enterprise man here willing to admit that it is only the part of wisdom for men who have produced horses for some time, and gone to the expense involved in their production, to seek to get some return for them? Well, money was required for the necessary processing of the meat. No one man could afford the cost of equipment, processing and so on. No one man could finance the whole undertaking from this country to [Mr. Bentley.1
Belgium. The result was that these people organized a cooperative, and that requires a good deal of work.
These horses were scattered all over western Saskatchewan and a great part of Alberta. The producers had to procure the necessary plant and equipment. The first thing they did was to interview the various horse owners and inquire what they thought of the idea, whether they would like to be members of the cooperative, and then get them to join and to supply capital and ship the horses to the plant. I think hon. members will appreciate how much organizational work would be called for there, the expense involved and the time necessary to make all the preparations. Of course much of the work was not paid for but some had to be paid for. I do not wish to labour the point as regards the work that was done, but my hon. friends who come from Ontario or Quebec can well imagine the amount of travelling that would be necessary in order to interview everyone who might possibly be interested in a similar project in either of those provinces.
They did it. That is the point. They did it and finally they got things going. The plant was set up, and the government of Saskatchewan underwrote the original debt to the extent of $50,000 and gave another guarantee on top of that. The buying commission acting on behalf of the Belgian people made arrangements with the Department of Trade and Commerce and made an advance, but the great bulk of the money was subscribed by the producers in actual cash or in the form of promissory notes. Actual cash, however, was necessary to pay wages and procure machinery. That has been done through the bank, and the amount involved has to be paid back either from earnings of the plant, from the proceeds, or from the pockets of these men.
That has all been taken care of and the plant is still going. Deliveries are being made. The Belgian government takes what it requires as long as the product is packaged as the people there want it. Small cuts are put into cans and sent to UNRRA, and a great deal goes to Poland.
I suggest that it is only just not to tax that cooperative but to treat it as one coming under the provisions set out here, except for the date line to which I have referred. Whenever it suits the purpose of the minister, and he wishes to support an argument he is making, he has recourse to the McDougall report.
I would refer him to page 43 where the following paragraph appears:
It has been pointed out to us on numerous occasions that cooperative associations are difficult to organize-

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I have told you how to organize one.
-and that their rate of mortality is high, especially in their earlier years. They are not in a position to attract capital for investment purposes,-
My investing friends will understand that. -except in small amounts. Moreover, they are apt to find it difficult to finance the employment of the necessary managerial personnel.
That is quite true.
In addition, there is a pronounced tendency to organize cooperatives in times of economic stress. We are, therefore, of the opinion that in the public interest, cooperative associations, upon consent of the minister, should be exempt entirely from income tax during the first few years of their operation.
That is the recommendation by the royal commission, which I think-


Douglas Charles Abbott: You notice the words there, "upon consent of the minister"?


Thomas John Bentley: Exactly, and that is what I am trying to get. I am trying to get the consent of the minister.


Douglas Charles Abbott: That implies one of these discretionary powers to which so much exception has been taken, and we have eliminated that.


Thomas John Bentley: I would remind the minister that I did not voice those objections. I am trying to "sell" the minister a bill of goods which I think he will like after he gets it, and which the cooperative associations will appreciate.
Let me come back to my illustration. This is what this horse marketing cooperative association does. First, it helps to feed the hungry people overseas. Everyone who gets some of this horse meat would otherwise go hungry. Whether we like it or not, they like it. It removes horses from range and pasture required by sheep and cattle. That is something every man in this country can understand. We require these things because to-day meat is rationed.
The cooperative was financed and equipped in the face of great difficulty. You need only to ask the people who undertook it and they will tell you of the difficulty. It has provided long-term employment for over a hundred additional people in that place. I believe that 125 people are employed there. It is a well-established plant. It is so well laid out that tiny nave a pretty little nurse to take care of cut fingers and so forth.


Some hon. MEMBERS:: Oh, oh.


Thomas John Bentley: The plant is well equipped. I shall not try to sell the nurse to the minister. The employment provided there is to the advantage not only of the city but of the
country generally. These men are working; they are building houses for themselves. They are taking advantage of all housing plans. A great many of them are returned men because they get a preference, provided that they will take the job and are in physical condition to do the work, which, of course, requires men who are physically fit.
The cooperative stands to make no profit. It hopes only to reimburse to a limited extent owners of surplus horses whose previous reasonable expectation was to get an average price of S50 to $75 per horse, and who realize not more than an average of $25 a horse. I can tell the committee why that is. The horses are brought into the plant by the owners. They are graded according to the kind of flesh that is on them and to the best of the ability of the men who understand how to grade horses. It is not an extensive proposition but they do a pretty good job. For the best horses they can get only two cents a pound, A-reasonably fat horse weighing 1,500 pounds at two cents a pound would bring in $30. Many of them will not bring in that much; the average is around $25. I am being rather generous. From the amount each owner receives is deducted the amount that, he had to subscribe to the capital of the outfit, and it is so much per horse. Then, when the accounts are all made up, each one will be reimbursed according to the number of horses and the pounds of meat he has contributed. It will not be a great deal. I dioubt whether it will average more than four or five dollars per horse, so that in the final analysis it will amount to $30 a horse. Surely no one will say that the men who own these horses are getting too much for the cost of producing the animal before it went to the plant. If we are to tax the outfit and make it much more difficult for them to go on with their work, then all that they have done in the past will be nullified by that three year clause.
When I was speaking on this matter a few days ago the minister said that he did not know much about it. I am going to prove my assertion by making him a little gift of this can of horse meat, just to prove that we have the plant there and are actually operating it. I give it to him with the compliments of the Swift Current horse marketing association. I use it as an illustration, because this is the one of which I know, but there are countless other illustrations all over the country which are in very much the same position. Therefore it should not be too much to expect the government to remove the provision dealing with 1947 and make it the first day of February, 1944, or something along that line
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and thereby remove the fears of these people who have been in this business so long.


Douglas Charles Abbott: After listening to my hon. friend deal with the problems of the cooperatives, I first want to congratulate the Horse Cooperative Marketing Association Limited of Swift Current for their enterprise and initiative in forming this new association, and I thank my hon. friend for his courtesy in presenting me with his compliments, with this tin of horse meat and gravy.


Mr. FRASER:: Are you going to throw a party to-night?


Douglas Charles Abbott: I shall try it out on my family and see what the result may be. In a more serious vein may I deal with the question which the hon, member has raised as to making this exemption apply to cooperatives which are already in existence. The position is that a somewhat similar concession, if I may call it that, wras given some time ago to the mining industry and is still in existence whereby new mines are exempt from income tax for the first three years after they come into production. At the time that provision was introduced it was urged, as it is urged now, that it should apply pro rata to mines which were already in production; for instance, one started a couple of years before that should get one year more. That was refused because the provision was put into the act as being in the nature of incentive legislation to encourage the opening of new mines. The same principle applies here. It is to encourage the formation of new cooperatives. A similar provision has been inserted which was made applicable to mines whereby new cooperatives would not be subject to income tax for the first three years. It is felt that we should offer the same principle here that we did in the other case. If the cooperative is formed, then the members are already persuaded of the desirability of engaging in that form of enterprise. The capital has been put in, or presumably some of it has been put in, and it is felt that the provision should not be made retroactive but should apply to new cooperatives for the three years after their formation. I may say we gave consideration to ths representations which were made by my hon. friend and also by hon. members on this side of the house that what he is suggesting should be introduced into the law, but it was felt that it could not be done.


William Irvine: If the cooperative is formed it cannot come under this act, because the act is on the books. The minister says that the purpose of this is to encourage new cooperatives, but if a new cooperative is [Mr. B.ntley.J
strangled in six months it is not much encouragement for others to be bom. I think the minister should change that.


Douglas Charles Abbott: It will not be strangled as a result of income tax; let me assure my hon. friend of that. It may fail because its customers do not patronize it enough or because it cannot get capital, but no new cooperative will go out of business because of the burden of income tax which is imposed; I can assure my hon. friend of that.


Mr. CAMPBELL:: I hope the minister will not take that can of meat and throw it in the garbage pail when he gets home. Last winter, when the university of Saskatchewan held their stock show they did not realize until after the date had been set that they had chosen a meatless day. They usually serve a lunch, and when they were about to decide what they were going to use in the sandwiches they discovered it was a meatless day and they could not have meat sandwiches. Somebody then had a bright idea, which was that horse meat was not included in meatless days or was not considered as meat. The superintendent of the institution sent to Moose Jaw and got a piece of horse meat, and I might say that we all had horse meat sandwiches that day. If we had not known it was horse meat we would not have been any the wiser. The texture is a little coarser than beef and the colour is redder. I am sure that if the minister tries that meat he will enjoy it.


Douglas Charles Abbott: I am looking forward to it unless my hon. friend wants to take it back.
* Mr. CAMPBELL: No. May we return to the bill? We might be able to change the minister's mind a little further. When the budget was dropped in our laps and the Minister of Finance left for other parts I thought that possibly the acting minister might take a rigid attitude. I thought that, as a result, it would not be possible to have many changes made in these resolutions. I am pleased, however, to see that the minister has not taken that attitude; that he has relaxed to some extent. In a moment I am going to move an amendment which I hope will receive his favourable consideration, but before doing so I want to support the contention of the hon. member for Swift Current that a cooperative should be exempt for three years. The government has accepted that principle, and it was also recommended by the McDougall commission that a cooperative should be exempt for the first three years. You might take a horse meat packing plant, or you might take a cooperative such as we have in a little town close to where I live.

Income War Tax
That cooperative was started last year. Under this section as it stands they are going to be taxed for two years, and we think the government should accept the principle, and support it by legislation, that a cooperative should be exempt from taxation for the first three years. So I am going to move, seconded by the hon. member for Swift Current, that on page 4 of the bill, paragraph (e), line 12, be amended by striking out the words "after commencement of its business" and in lines 13 and 14 by striking out the words "commencing business on or after the first day of January, nineteen hundred and forty-seven".


Douglas Charles Abbott: There is an amendment
already, so that this will have to be a subamendment. I submit, of course, what my hon. friend probably know-s, that this amendment is clearly out of order. If adopted it would diminish the revenue, and as such is an amendment which can be moved only by a member of the government with the approval of His Excellency the Governor General.


Mr. STIRLING:: May I ask a question
with regard to paragraph (iii), which is now the subject of the amendment to which the minister has already referred. I understand that this will now read "all its members are individuals". Is that correct?


Douglas Charles Abbott: Yes.


Grote Stirling: Then what will be the position of a cooperative that receives produce for packing, grading and shipping from a farm which is owned by a partnership, a syndicate or even a company? In these packing houses to which I referred when we were discussing the resolutions the produce of quite a number of farms so owned passes through the hands of the cooperatives. Under this wording, does it mean that in future the new cooperative must not accept produce from a firm which is owned by a company?


Douglas Charles Abbott: They could accept the produce of such a firm, of course, but I suppose that would be non-member business, if it were owned by a corporation. I do not know how these things work. I did not know farms were owned by corporations, but perhaps the president might be a member of the cooperative. In any event, for the purposes of this section a corporation cannot be a member of a cooperative if the cooperative is to qualify for this initial three-year tax exemption.


Grote Stirling: That is where one great difficulty arises in trying to understand these taxation proposals. As far as I know, those twenty or thirty cooperative shipping houses do not have membership. You ship through
them, and in a certain sense a shipper through them is a member of that cooperative outfit. But it does the business of receiving, grading, packing, preparing for shipping and shipping the produce of the orchards and farms all around. The great majority of them are owned by individuals, but certainly there are cases of partnerships. Those are not individuals in the sense of this section.


Douglas Charles Abbott: They would be within the meaning of this section. There is no question about that.


Grote Stirling: Others are owned by syndicates; I am thinking of one such at the present time.


Douglas Charles Abbott: Then all members of the syndicate would be individuals and presumably under those circumstances would be members of the cooperative.


Grote Stirling: If they shipped their
produce through the cooperative?


Douglas Charles Abbott: That is right. This would exclude corporations from becoming members of the cooperative for the purpose of this initial three-year exemption. It is not contemplated that this special treatment for cooperative organizations should be extended to organizations which are mere holding companies for other companies, if I may so describe it.


Mr. FULTON:: I have waited until the bill got into committee, because quite frankly I could not understand the effect of this proposed legislation when it was in the resolution stage. I should now like to ask the minister some questions in order to try to understand the effect of this legislation. First, I want to .put the case of what I regard as a true cooperative; that is, a producers' cooperative where the business is carried on much as described by the hon. member for Yale. Take the case of a fruit growers' cooperative. They bring their produce to the cooperative. They do not receive an initial payment but merely a credit slip for so many boxes of apples. The cooperative then markets the apples; when it receives payment therefor it makes a distribution of the total proceeds, and each individual receives his proportionate share less his proportionate share of the expenses. What I do not understand is how that cooperative can be liable to pay any income tax at all, because I do not see that it has any income. Is that correct?


Douglas Charles Abbott: I agree with my hon. friend; I do not think it has any taxable income at all under the conditions he has outlined. In substance, it is simply accepting the produce
Income War Tax

on consignment, marketing it, deducting the expenses and remitting the balance to its members. I quite agree with my hon. friend that under those circumstances there would be no taxable income whatever.


Edmund Davie Fulton: I do not want to appear to be guilty of trying to catch the minister, because this is important, I think, when we come to the three per cent provision a little later on.


Douglas Charles Abbott: If you want to cover that now, there would be no three per cent payment either, because there would be no taxable income out of which to make it.


Edmund Davie Fulton: That is what I want to understand. This cooperative may have $40,000 or $50,000 worth of plant, to which the members have subscribed initially. In the case I am thinking of, the cooperative has its packing plant and a box factory as well, so I should like to have that clear. If it carries on its business in that way there is no taxable income in the hands of the cooperative; the income is not taxable until it has reached the hands of the individual members?


Douglas Charles Abbott: That is quite correct. On the hypothetical case my hon. friend has put forward the cooperative would have no taxable income and, therefore, there would be no tax. In the same way the three per cent rule could not apply because there would be no income out of which three per cent could be attributed as a return on capital.


Edmund Davie Fulton: But there is capital.


Douglas Charles Abbott: I made that point clear in connection with the resolutions, that a cooperative may have employed capital; but its way of doing business may be such, the contracts it makes with its customers may be such that it ends the year without any taxable income, and if it has no taxable income, then it pays no income tax. There are plenty of other organizations which may have employed capital of $100,000 or S200.000 or $500,000 which pay no tax unless they earn taxable income.


Edmund Davie Fulton: That is what I thought, and I am glad to have the minister confirm it.


Douglas Charles Abbott: I want to make that perfectly. clear. Mind you, it is only in a case such as my hon. friend suggests, where business is done in that way, that this result would follow; but in the case he has cited there would be no taxable income and the section would not apply.


Grote Stirling: May I remind the minister of the illustration I gave when this matter was before the committee in the resolution stage? Such a cooperative, for the benefit 
of its members, sets up a store in which it sells a great variety of things. At the end of the year the members of that cooperative receive a rebate on the amount of their purchases. That may be a first cousin to the patronage dividend which is used here.
But the public also shops at the store, and the amount of rebate paid back to the customers who are not shippers through the cooperative is a form of profit. That being the case,- and this concern earning a profit on a fraction of its main business, does it get caught under this three per cent provision? It is an organization which, on a small portion of its business, has made a profit. Surely it cannot be mulcted to the extent of three per cent on its capital.


Douglas Charles Abbott: The case which my hon. friend has set out is that of a consumer cooperative. It is a cooperative which provides its members with groceries.


Grote Stirling: It is a small subsidiary of a large producer cooperative.


Douglas Charles Abbott: Yes. On that business which it does, if it returns to its customers a portion of its profits-and for want of a better term I shall call them profits-that is in effect a patronage dividend, and it is deductible from gross income under the bill now before the committee. If the same payment is made to non-members, that is deductible, too. Whatever payment is made to non-members is deductible.
But if I understood correctly the facts as my hon. friend recited them, the three per cent rule would apply there to the extent that the cooperative had employed capital. If the small cooperative which my hon. friend mentions had employed capital of $10,000, within the definition, three per cent on $10,000 would be $300, and it might be taxed $90. That is the extent of the tax, before it could distribute patronage dividends.


Edmund Davie Fulton: Would they be allowed to keep those two businesses separate for taxation purposes-their producer cooperative and packing-plant business on the one hand, and the little store on the other?


Douglas Charles Abbott: It is somewhat difficult to answer that offhand. I should think they would not have any income in the one case, and in the other case they would have comparatively small income, which would be subject to tax.


Grote Stirling: If I followed the minister correctly, I understood him to say that the three per cent would apply only to that portion of the cooperative which is used for that small subsidiary business.

Income Tl'ar Tax


Douglas Charles Abbott: No, I do not think so. I think you would have to look at the cooperative as a whole. If it could so arrange its business that it had no income with respect to its producer operations, but could not so arrange it that it had no income with respect to its consumer operations, it might have to pay a small tax under the three per cent rule. But it is most difficult to give a definite answer on a hypothetical case without having all the circumstances before me.


Grote Stirling: But does the minister not see in my illustration that the only profit is made on a part of the business of the subsidiary, and the subsidiary itself is but a small part of the far larger cooperative organization. There may be half a million dollars in the cooperative organization-the packing house, cold storage plant and that sort of thing. But perhaps there is only about $10,000 of its capital used in this subsidiary that is selling groceries. Only a fraction of that can be called profit on the produce which is sold to non-shippers.
Have I not made plain to the minister that it is contrary to common sense that this organization of half a million dollars should be mulcted of three per cent of that capital because it has made profits on a small part of the business of its subsidiary.


Douglas Charles Abbott: It is mulcted of three per cent of that capital. Three per cent of that capital is considered as taxable income. The whole three per cent is not taken. Three per cent is considered as taxable income, and a tax may be exigible. If the income is not there, there is no tax possible.
We say that three per cent of half a million dollars is $15,000. Let us suppose, on balance, that the little consumer ends up with a net income of $2,000. You could not tax on the
115,000.	It would be three per cent on $2,000, which would be subject to tax.


Grote Stirling: That is clear enough, but it is not the way it reads in the bill.


Douglas Charles Abbott: The section we are now considering is simply the exemption for new companies. But what I have said is a fact.


Mr. HANSELL:: I had no desire to interrupt the continuity of the arguments being made, but I wish to rise to a point of order before a ruling is given on the amendment moved by the hon. member for The Battle-fords. I notice that the Acting Minister of Finance almost declared the motion out of order himself. I have no objection to the minister's speaking to a point of order, but I object to his taking it out of the Chairman's hands, and declaring it to be out of order.


Douglas Charles Abbott: It has not yet been ruled out of order. I just made a comment; that was all.


Ernest George Hansell: I know it has not been ruled out of order, but the way the minister spoke it would have appeared that he was chairman of the committee. I recognize that an amendment which would increase expenditures is out of order, but I say that an amendment which would indicate a decrease in revenue is not the same thing. I wish to protest against the ruling before you make it, Mr. Chairman.


Some hon. MEMBERS:: Oh, oh.


Ernest George Hansell: Otherwise your ruling
becomes a precedent for future generations.


Douglas Charles Abbott: It has been a precedent for generations before this one.


Ernest George Hansell: If a ruling of that kind were made, then I do not see how budget resolutions could be amended in any way. An amendment of those resolutions would either increase expenditures or decrease revenue. If a ruling of that kind were given one could not possibly move an amendment to a tariff item, because the revenue of the country would be affected.
I claim there is a distinct difference between a motion for increased expenditures and one to decrease revenue. If the chairman were to give a ruling in this instance he would be acting in the position of an accountant, and in order to rule correctly he would have to bring in all the accountants In the country and say to them, "I want your report on this, as to whether or not it will decrease revenue."
Again I make my protest, before this becomes a precedent for future generations.


Mr. HERRIDGE:: Before asking the minister the question I wish to ask, I want to arouse his sympathy for the fruit growers of my district by asking him to note that all those who are speaking in support of the fruit cooperatives are very thin and slender people.


An hon. MEMBER:: You do not eat enough horse meat.


Herbert Wilfred Herridge: My question is this: what the hon. member for Yale and the hon. member for Kamloops said regarding fruit cooperative organizations is correct; but in some cases, in addition-and the organization with which I am acquainted in Kootenay is a case in point-the revolving fund, instead of paying the grower all his crop receipts less expenses at the end of the year, may with his consent deduct $100 or $200 and issue shares. Is that money taxable?
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Douglas Charles Abbott: I am advised that it is taxable in. the hands of a member, of course, but not in the hands of the cooperative. It can be deducted for the purposes of the income of the cooperative.


Mr. WRIGHT:: I should like to say a word in support of the amendment of the hon. member for The Battlefords. I do not think the minister was sound when he said that this is incentive legislation, because, as I understand it, under section 4 (p) of the old act any cooperatives that have been organized under a rule such as is suggested in subsection 3 here would have already been exempted from taxation and would not have paid any tax during the time they had been organized.


Douglas Charles Abbott: No, not if the opinion of the Department of Justice is correct.


Percy Ellis Wright: At least, they have attempted to collect taxes in only very few cases.


Douglas Charles Abbott: That is true, because it was only in 1942 or 1943 that the opinion was given that patronage dividends were taxable. Up to that point they had been considered as non-taxable; and the minister pointed out in his speech that the proposals that are being made here are based on the good faith principle, that people believed up to that point that they were exempt, and would be treated as such.


Percy Ellis Wright: That is exactly my point, that these cooperatives which have been formed of recent years and in good faith believed they were not taxable, and were given no notification that they were taxable, have not been paying taxes and yet now find themselves taxable. Any cooperative that was organized in 1945 or 1946 will be taxable, in one case for one year and in the other case for two years. I agree with the minister that this taxation is not of such a nature that it will kill any cooperative; but certainly a principle is involved, and it is a matter in which, I think, the minister should be fair, and should consider that these cooperatives formed in 1945 and 1946 should have the three-year exemption the same as a new cooperative, because certainly they have been exempt up to date under section 4 (p), and now the government is proposing to tax them, whereas a cooperative formed in 1944 and which carried on its business in good faith is not taxable, and one that is formed in 1947 will not be taxable. I think it would be only fair to treat them all alike.


Mr. ISNOR:: If I understood correctly the answer given by the minister to the hon. 
member for Kootenay West, it was to the effect that neither a member of a cooperative nor a cooperative would be charged income on an amount of 1200-which I think was the figure used-if it were reinvested or left in the business.


Douglas Charles Abbott: Oh, no; I said that the member would be subject to tax, of course.


Gordon Benjamin Isnor: I want to get that clear.


Douglas Charles Abbott: It would be taxable income in his hands. I so stated.


Thomas John Bentley: I did not know that when the Minister of Public Works said he was going to improve the acoustics of the house he was going to do it so well. It is a case of practically perfect timing, for I received the following wire just now:
Horse cooperative urge that you endeavour to obtain three-year tax exemption from commencement of business for new cooperatives now in operation. Proposal in new section 4 paragraph (p) to exempt cooperatives organized after January 1, 1947, only a severe hardship on horse cooperative which commenced operations last October ....
Horse cooperative marketing association.


Edmund Davie Fulton: I wonder if I could put this further question to the minister along the lines of my previous question, to clear up the point as to whether or not a cooperative receives an income. I used; the case where they did not make any initial payment but they gave a credit slip. Supposing they make an initial payment of SI a box, then market the fruit and find that they can pay $1.25 a box. Is it to be held they have made a profit and therefore must pay income tax, or if they pay the whole $1.25 out will they still be regarded as not earning an income?


Douglas Charles Abbott: That would depend on the terms of their contract with the individual member. If the contract mentions an obligation to pay. them the dollar or more over and above handling charges, then they would have no income.


William Irvine: Just before the amendment to the amendment is carried I want to make a comment, Mr. Chairman, on a point of order which I expect you will be deciding. The hon. member for Macleod made, I think, a potent argument in favour of the proper ruling. However, although he argues that it should be in oyder not to increase a vote but to decrease it, I am afraid that to decrease it is worse for the government than to increase it, because they will be out that much money. But the point I wish to make is that this debate and all other budget debates arp a complete and absolute farce as long as

Income War Tax
we cannot alter this vote or any other vote according to the will of the parliament of Canada. I am going to suggest that in this particular case, while the committee which attends to the rules of the house gets busy and changes this rule, the hon. gentleman who moved this amendment should add to it that we shall increase the tax on International Nickel and the Aluminum Company of Canada in exactly the amount which is deducted through the moving of the amendment, and that will leave the income and outgo exactly in balance. This ought to be in order, and I hope you will consider it, Mr. Chairman, before you give your ruling.


William Ross Macdonald: I have considered the amendment which 'has been moved by the hon. member for The Battlefords. I would point out that the principle of t'h.e bill is based on the ways and means resolutions, and it would appear that the amendment would decrease the taxation and disturb the balance of ways and means, and it would accordingly not be possible for a member other than a minister of the crown to move such an amendment. I would draw the attention of members of the committee to May, 14th edition, page 758:
When a bill is based on ways and means resolutions all its provisions, not only those which impose taxation, must be covered by the resolutions on which it is brought in.
On those two grounds I must rule the amendment out of order.


Robert Fair: A short time ago the minister told us about two safeguarding clauses. One of them is referred to as paragraph (vii) of subsection 3 of section 3, which is to 'be found at the bottom of page 4 of the bill, in connnec-tion with a business carried on by a corporation which is not in the opinion of the minister a continuation of a previous business, and so on. I wonder if I understand that correctly? Am I to understand from what the minister stated that a group of people living in a town and farmers surrounding that town cannot form themselves into a cooperative organization and buy out any business which is operating in that town?


Douglas Charles Abbott: Oh, they can do that. It is intended that they should. The purpose is to prevent the shareholders of a corporation which is operating as a private corporation from converting themselves into a cooperative.


Thomas John Bentley: Suppose a cooperative
which really was a cooperative found that it could not comply in all respects with the law of the province and found it necessary to reorganize. Would this apply to such a cooperative?


Douglas Charles Abbott: They could not do so because there is a prohibition preventing a cooperative from reorganizing in order to get the benefit of this exemption. They could reorganize but they cannot get the benefit of the exemption.
Subsection 3 as amended agreed to.
On section 3, subsection 4-Credit unions.


Douglas Charles Abbott: I have an amendment which I will ask my colleague to move.


Mr. McCANN:: I move:
That subclause 4 of clause 3 of the bill be amended by striking out paragraph (q) and replacing it by the following:
"(q) The income of a corporation or association incorporated or organized as a credit union or cooperative credit society if
(i)	the corporation or association derives its revenue primarily from loans made to members residing within the territorial limits within the province to which it is restricted for the carrying on of its business, or
(ii)	the members thereof are corporations or associations incorporated or organized as credit unions which derive their revenues primarily from loans made to their members or under provincial cooperative legislation or for religious, educational or charitable purposes or corporations or associations, no part of the income of which enures to the benefit of any member thereof."
The amendment is designed to make the clause less restrictive by adding the words ''or cooperative credit society" and by redrafting paragraphs (i) and (ii).


William Irvine: I notice that emphasis is laid on members being individuals.


Douglas Charles Abbott: The amendment strikes that out, and enables other cooperatives to be members of a credit .union.


William Irvine: I appreciate that, but I want to know whether the same restriction is struck out with respect to any other cooperative apart from credit unions.


Douglas Charles Abbott: The reason it was struck out was that it was pointed out that a number of these credit unions lend money to fishing cooperatives and other cooperatives, and by their charter or by-laws they are prohibited from lending money to other than members. We do not wish unduly to prevent that type of business.


William Irvine: I think it is a fine amendment so far as it goes, but I should like to see it carried through, and I should like to press that point with respect to other branches of cooperatives.


Douglas Charles Abbott: There is no limitation on other cooperatives except with respect to the three-year provision.
Private Bills


Percy Ellis Wright: Will this amendment
include a cooperative credit society in Saskatchewan where the cooperative and the credit union belong jointly to a credit society? Will they be included now?


Douglas Charles Abbott: Under the clause as amended, yes.


[Stage Direction]
Amendment agreed to.
Subsection 4 as amended agreed to.
On section 3, subsection 5-Service pay and allowances.
Mr. PEARKES:: Does this apply to nonpermanent personnel as well as to the regular
forces?


Douglas Charles Abbott: The only effect of this amendment is to exclude permanent force personnel from receiving the new rates of pay from the operation of the wartime tax exemptions other than as indicated in the section.


[Stage Direction]
Subsection agreed to.
Subsections -6 to 8 inclusive agreed to.
Section 3 as amended agreed to.
At six o'clock the Speaker resumed the chair, and the house took recess.
After Recess
The house resumed at eight o'clock.


[Stage Direction]
Bill No. 358, for the relief of Anita Spinner Starr-Mr. Maybank.
Bill No. 359, for the relief of Pay Podolne Litwin-Mr. Maybank.
Bill No. 360, for the relief of Gregoire (Hryhory) Hyss, otherwise known as Harry Hys-iMr. Maybank.
Bill No. 361, for the relief of James Lamb Runciman-iMr. Maybank.
Bill No. 362, for the relief of Joseph Wilfrid Lionel Anecie St. Denis-Mr. Casselman.
Bill No. 363, for the relief of Emily Kathleen Mennie Thissen-Mr. Maybank.
Bill No. 364, for the relief of Robert Frederick Ring-Mr. Maybank.
Bill No. 365, for the relief of Walter Vernon Lewis-Mr. MlacLean.
Bill No. 366, for the relief of Leonard Ferd-inan Raymond'-Mr. Maybank.
Bill No. 374, respecting Workers Benevolent Association of Canada-Mr. Maybank.
Bill No. 375, for the relief of Mildred Cohen Share-Mr. McGregor.
Bill No. 376, for the relief of Muriel Elizabeth Clarke Gagnon-Mr. Maybank.

Bill No. 377, for the relief of Margaret Fern Hobbs Burns-Mr. Maybank.
Bill No. 378, for the relief of Joseph Euclide Beaudoin-Mr. Maybank.
Bill No. 379, for the relief of Mary Rose Ellement Boulet-Air. Maybank.
Bill No. 380, for the relief of Jean Stewart Lavery Martin'-Mr. Maybank.
Bill No. 381, for the relief of Catherine Edith Thompson Williamson-Mr. Maybank.
Bill No. 382, for the relief of Joseph McCaffery-Mr. MacLean.
Bill No. 383, for the relief of Marian Pearl Dunfield-Mir. Maybank.
Bill No. 384, for the relief of Dollard Charest -Mr. Maybank.
Bill No. 385, for the relief of Kerttu Helvi Helen Fascio-Mr. Maybank.
Bill No. 386, for the relief of Anne Shacket Payne-Mr. MacLean.
Bill No. 387, for the relief of Gaston Marcel Chapdelaine-Mr. MacLean.
Bill No. 388, for the relief of Ross David Chartier-Mr. Maybank,
Bill No. 389, for the relief of John Boosamra -Mr. MacLean.
Bill No. 390, for the relief of Daz Sims-Mr. Maybank.

[Stage Direction]
The house resumed consideration in committee on bill No. 368, to amend the Income War Tax Act-Mr. Abbott-Mr. Macdonald (Brantford City) in the chair.
On section 4, subsection 1-Depletion.
Agar Rodney Adamson: The question I have to ask the minister at this stage is based on the last three lines of this section, and that is the power given to the officials of the department. The language is quite specific: "The minister shall have full power to apportion the deduction between them and his determination shall be conclusive." With regard to the exhaustion or depletion of a mine or timber limit, we are by this clause giving, if I may say so, extreme powers to the department, and I suggest to the minister that the appointment of a referee on the question of depletion might be advantageous. I realize, of course, that this is a technical matter, but since, under the wording of the present section, the supreme and absolute verdict is with the minister and his department-	[DOT]


Douglas Charles Abbott: That is only as to apportionment.


Agar Rodney Adamson: Yes, only as to apportionment.

Income War Tax


Douglas Charles Abbott: He acts as a referee if they cannot agree among themselves. Where the lessor and lessee disagree the minister comes in. Somebody has to act as referee.


Agar Rodney Adamson: I suggest that a referee be appointed where they cannot agree. I realize that this is not a question of the minister disagreeing in a case.


Douglas Charles Abbott: This has been in the act for a great many years and there has never been any difficulty. The lessor and lessee, in case of disagreement, have apparently always been willing to accept the minister and so describe him. Somebody gets the full depletion allowance and, where there is a case of lessor and lessee, normally the lessor would get it. But it might, be appropriate that it should be divided between the lessor and the lessee. If they can agree as to how the full depletion allowance is to be apportioned, well and good; that disposes of the matter. If they cannot agree the minister is in effect appointed sole arbitrator. That is the effect of this particular section. That is all it is.


Agar Rodney Adamson: What machinery does the minister use? I can understand that the minister cannot himself sit on these questions. What in effect happens when there is disagreement?


Douglas Charles Abbott: When there is a dispute the deputy minister or an official designated by him hears both parties, as any other arbitrator would do, and then makes a finding. In effect, he is acting as arbitrator. If the parties can agree among themselves there is nothing to do; their agreement makes the law, as it were. But if they cannot agree, then the minister is appointed arbitrator, and in normal circumstances he would act through his deputy minister or some appropriate official. I am advised that it has worked very well on that phase for a great many years. [DOT] It has been in the law for a good many years, and it is safe to say it is pretty generally accepted by those affected as a reasonable provision.


Agar Rodney Adamson: I realize it has worked, I will not say with entire satisfaction. But it has been an old clause in the act.


Douglas Charles Abbott: My hon. friend will no doubt have noticed that in this section we are taking out the provision which gave the minister discretion to determine the amount which may be fixed as depletion and providing that it shall be determined by the governor in council, that is, by order in council. Of course that will be made public to all concerned.


Agar Rodney Adamson: That means the minister.


Douglas Charles Abbott: It means the cabinet. It means that the governor in council will establish rates of depletion, and we believe that is better than leaving it to a single minister. On reflection, I believe my hon. friend will agree that that is desirable. Someone has to fix the rates. It is not desirable to fix them in the statute, because it might be well to vary them from time to time. They will be fixed in future by order in council, and that will be made available to all interested. It will be public property.


Agar Rodney Adamson: But the order in council, once passed, is a final act.


Douglas Charles Abbott: It could be varied a month later if that were desirable.


Agar Rodney Adamson: But my suggestion is that if the order in council is passed the contestants or disputants have no chance.


Douglas Charles Abbott: That just fixes the rate of depletion. Previously the minister fixed the rate. One man fixed the rate, and it has always been urged that it was not fixed by the minister but by the officials. I do not agree with that, but that has been the contention. Under the new procedure the rate will be fixed by the governor in council; then under the discretion clause at the end, if it is a case of lessor and lessee of these mining, oil or timber limits, if the lessor and the lessee cannot agree as to how the twenty or thirty per cent is to be divided, the minister acts as sole arbitrator. That is the effect of the section.


Agar Rodney Adamson: In fact what it really boils down to is that the treasury board decides.
Mr.	ABBOTT:	The	treasury board	has
nothing to do with the matter.


Agar Rodney Adamson: The cabinet.
Mr.	ABBOTT:	The	cabinet is	not	the
treasury board.


Agar Rodney Adamson: But treasury board-
Mr.	ABBOTT:	Is a	committee	of	the
cabinet for certain purposes; it has nothing to do with this at all.


Agar Rodney Adamson: The cabinet decides the rate and passes an order in council instead of the minister deciding on the rate.
Mr.	ABBOTT:	It is	a cabinet	decision
instead of a departmental decision.


William Alexander McMaster: Could you fix a different amount for different mines? Do they vary in each individual case, or is there a general rule?

Income War Tax


Douglas Charles Abbott: A general rule is laid down; but if, for instance in the case of a coal mine, they could show that there is a definite coal deposit for which they paid a definite price, then that could be dealt with as a special case. After all, as the committee knows, the purpose of depletion is to get back the money which has been invested as capital in a wasting asset.


William Alexander McMaster: That is one of the reasons; the other is for the owner to get as much as he can in depreciation.


Douglas Charles Abbott: That is a business argument.


Harry Rutherford Jackman: This section has to do with base metal mines, and inasmuch as the general reasoning behind the price of gold was made a subject matter in this debate I wonder whether the minister could enlighten the committee-because I am sure as many members are in the dark as I am- as to just why the government does not allow producers of base metals, such as copper, lead and zinc to obtain the world price for these commodities and in that wray help not only the old mines but also the new ones.


Douglas Charles Abbott: That hardly comes under this section, and I do not know that I have the information available at the moment. I shall take a note of my hon. friend's question.


Harry Rutherford Jackman: Surely it is as akin because the price of gold was under the various sections we were discussing; in fact, much more so. Obviously I do not want to take up the time of the committee in discussing the matter, but it is strange to many of us that our internal consumption of copper and other base metals is at a much lower price than the world price. We can understand that, because wTe are endeavouring to maintain a domestic price ceiling, but so far as the export of these commodities is concerned-and we are substantial exporters of copper, lead and zinc-it seems strange to the uninformed at least that the price which our producers get should be so much below the world prices.


Mr. CASE:: I have a question or two I should like to ask. We are now dealing with section 4, I understand.


Douglas Charles Abbott: We are on subsection 1 of section 4.
Subsection 1 agreed to.
On section 4, subsection 2-Exemptions and deductions.


Mr. LANGLOIS:: Though I had not intended to take part in the debate on the bill now before the committee, I wish, however, 
to make a few remarks on this subsection to-night. Like the great majority of taxpayers of this country, I should have liked to see in the bill greater exemptions to taxpayers in the lower income tax bracket. I, on the other hand, fully understand and realize the need for this government to raise the necessary funds for the administration of the country during these years immediately following a long and arduous war period with still heavy commitments resulting therefrom. I most heartily welcome the substantial reductions made in this bill, and I most particularly appreciate the fact that these reductions are inversely proportionate to the scale of the various incomes affected.
We are told that the total loss of revenue to the treasury can be safely estimated at an annual amount of approximately $150 million. I take pleasure in thanking the government for having been able to realize this substantial reduction in taxation, and I hope that succeeding budgets will1 gradually increase the rate of this relaxation in the taxation policy of this government. Like other hon. members, I, during the past two months, have received numerous representations asking that all personal income below $3,000' be exempt from taxation. Most of these representations were formulated on the hundreds of post cards of the type which I now hold in my hand, and which every member of the committee easily recognizes. In connection with these postcards, I received last week a letter, the contents of which I consider it my duty to make public at this stage of the discussion. The letter I wush to refer to enclosed one of these cards, and, since the letter was originally written in French, I am giving the committee as close a translation as possible. The letter reads as follows:
Cortereal, July 24, 1946. Mr. L. Langlois, M.P.,
House of Commons,
Ottawa.
Dear Sir,-Last Sunday two men came to our church meeting with these post cards which they were selling five cents apiece .urging us to send these cards to our member of parliament in order to help him obtain the abolition of income tax. They call this organization "L'Union des Eleeteurs" (Union of Electors). It is supposed to help you to obtain from the government what your electors demand. Is this good or not? Would you be kind enough to let me know as soon as possible, please, as these gentlemen will again be here during the month of August and if it is good I would like to work with them. Hoping to receive your reply at your earliest convenience, I thank you and remain,
Yours very truly,
Armand Lacombe,
St. Majorique, Cortereal, County of Gaspe.
The contents of this letter are confirmed in the number of June 1, 1946, of the paper

Income War Tax
Vers Demain, published at Beauceville-Est, Quebec, by "L'Unioa Creditiste des Electeurs de la province de Quebec."
In this number of June 1 of the said paper, I read on page 2 the following advertisement. Pressure Cards.
Your federal member was in receipt of $4,000 a year of which $1,200 was exempt from income tax. He found himself badly paid. In the space of. a few minutes he and his colleagues of Ottawa voted a bill to give themselves an increase of $2,000 entirely exempted from income tax. Your federal member, therefore, now receives $6,000 a year, of which $3,200 is free from income tax. Good for him but he should think of his electors. The electors are as much entitled as the member to live. Your member is selfish and has no heart if he does not claim with all the power and strength he possesses the exemption of income tax for every person whose revenue does not exceed $3,000. This is what you must tell him again and again.
Write now to your member to get your small income free from income tax. The office of Vers Demain has postal cards printed to express this demand. The only thing you have to do is to write the name of ycriir member on one side and sign your name on the other. No postage stamp is required. Order these cards in great number and sell them ai'ound in your neighbourhood. Urge and have others urge your members with these claims for his electors.
Pressure cards, each	$0 05
25 cards for	1 00
Address your order to Union des Electeurs,
C.P. 71 Station Delorimier,
Montreal, P.Q.
This is as nearly as possible a translation of the advertisement published in the said paper, which is the official paper of L'Union des Electeurs. From the letter I read a few moments ago it will be seen that this organization has now placed commercial salesmen on the road to promote the sale of these post cards. In case some hon. members do not know the organization calling itself L'Union des Electeurs, I add that this organization is a cover name for the Social Credit party in the province of Quebec, the head of which is none other than the national vice-president of the Social Credit party, Mr. J. Ernest Gregoire, former mayor of Quebec city. I am informed that the cost of these cards can safely be estimated, if printed in great quantities, at approximately one cent each, including the material. Therefore, if one makes the subtraction from the price at which these cards were sold, one can realize that the net profit made on each card by this organization which is selling them in the province of Quebec to-day, is four cents. I feel it my duty to denounce this scandalous exploitation of the public, and I ask the Minister of National Revenue to tell this committee whether or not the Social Credit party, or L'Union des Electeurs of the province of 63260-299J
Quebec, are making income tax returns, since it would appear that this party is running a profit-making enterprise in that province.


Mr. JAQUES:: Where do you get your slush funds?


J. G. Léopold Langlois: I know that my statement hurts my hon. friend, but he is not through with it yet. Every member of this house can easily see, by the number of cards he has received, how much this party has made by selling these cards to his electors, who in turn address them to him. I must also add that this house and the public in general expect from the leader of the Social Credit party some explanation of such conduct on the part of his followers in Quebec, and, most of all, his national vice-president, Mr. Gregoire. We also expect him to tell this committee whether or not he approves such conduct. As hon. members no doubt have noticed, the last paragraph on the post card to my mind contains a threat to elected members of this house. The paragraph in question reads as follows, and I shall translate. This is addressed to the members of this house:
And please take notice that if you do not proceed with rapidity and tenacity I shall be obliged to refuse to vote for you at the next election.
I beg to refer the committee to paragraph 201, Beauchesne's Parliamentary Rules and Forms, 3rd edition, on page 85, which reads:
In the Commons, on the 12th April, 1733, and. on the 1st June, 1780, it was resolved that it was a high infringement of the privilege of the house, a crime and misdemeanour, to assault,, insult or menace any member of the house, ini his coming or going from the house, or upon the account of his behaviour in parliament; or to endeavour-
I underline this.
-to compel members of declare themselves in favour of or against any proposition then depending, or expected to be brought before the house.
I might add that the electoral instructions also contain a similar disposition. I submit that L'Union des Electeurs, or the Quebec Social Credit party, are guilty of this infringement on the privileges of members of this house. The leader of the Social Credit party cannot pretend that this was done by members of his party who are not in authority, because it was done by the head of L'Union des Electeurs, who now acts as his righthand man, being vice-president of his party for Canada.


William Alexander McMaster: Paragraph (d) refers to allowances under this act, and provides an exemption of $100 for each child in respect to which an allowance under the Family Allowances Act was or might have been paid in
Income War Tax

respect of the last month of the taxation year, and so on. Does that mean that anyone receiving the family allowance can receive it for eleven months and still claim an exemption of $300?


Douglas Charles Abbott: The rule is that you look at the taxpayer's status, as far as children are concerned, at the end of the taxation year. If he has a child which is eligible for family allowance at the end of the taxation year, then this section applies and he gets the exemption of $100. That will work both ways; it is bound to.


William Alexander McMaster: It cannot work both ways. If the child is born on January 2 he will get one month's family allowance and also the $300.


Douglas Charles Abbott: What I meant is that if a child is born in December it becomes eligible for family allowance in that year, and that determines the taxpayer's status for that year. Had the child been born in January he would have had no tax exemption at all for the *child in that previous year.


Harry Rutherford Jackman: Might I ask for an
explanation as to why paragraph (d) says if a child is "wholly dependent" upon the taxpayer for support, while in paragraph (e) the words are "dependent upon the taxpayer". What is the meaning of that phrase, "wholly dependent"? If I can understand the English in which the income tax act is drafted I take it to mean that while the parent will get the family allowance-and by the way, I understand the family allowance is not taxable?


Douglas Charles Abbott: That is correct.


Harry Rutherford Jackman: Then we finally have that straight, because I hear a good many contradictory opinions on it.


Douglas Charles Abbott: The family allowances are not taxable.


Harry Rutherford Jackman: The taxpayer is allowed an exemption of $100 for each child. Then in the other case you have the words "wholly dependent".


Douglas Charles Abbott: Under paragraph (d) it is a statutory exemption for children wholly dependent upon the taxpayer. Under the following paragraph, (e), it is an amount actually expended up to $100, and there the word "dependent" is more appropriate. Of course this does not only cover a child; it includes parents and grandparents.


Harry Rutherford Jackman: What is the purpose of paragraphs (d) and (e) ?


Douglas Charles Abbott: Paragraph (e) covers not *only children of the taxpayer; it includes
(Mr. McMaster.]
children other than those of the taxpayer and collaterals, brothers and sisters, daughter under twenty-one years of age training as a nurse, and so on.


Harry Rutherford Jackman: The exemption provisions are the same with different classifications, different definitions?


Douglas Charles Abbott: Yes, except that under paragraph (e) an amount not exceeding $300 must be expended for the support.


Harry Rutherford Jackman: What happens in the case of a child who under a will is in receipt of a few hundred dollars? First of all, does the child become entitled to family allowances?


Douglas Charles Abbott: Yes; it is the parent who receives the family allowance.


Harry Rutherford Jackman: That would happen in any case.


Douglas Charles Abbott: Yes.


Harry Rutherford Jackman: Under the ruling as it exists a.t the present time, I believe that if a child receives an independent income of $400 or more, there is no allowance to the parent.


Douglas Charles Abbott: I believe that is correct.


Harry Rutherford Jackman: With all these changes one only learns how the law operates when changes are made in a subsequent year. It is difficult to keep up with these changes in detail. What is the situation now of a child who has an independent income? How much must it be before the parent loses $100, or does the parent get the $100 exemption.


Douglas Charles Abbott: There is no change in that respect. The same rule applies, namely that a child with an independent income of, I believe, $400 is not considered as being dependent upon the taxpayer. There is no change in that respect.


Harry Rutherford Jackman: The dividing line is $400; is that correct?


Douglas Charles Abbott: Yes, $400.


William Alexander McMaster: This may work the other way. I have in mind the case of someone who is helping a child that is not his own. If it happens that during the last month of the year this was a child which could have received family allowance, then the adopting parent will receive only $100 exemption, instead of the $300.


Douglas Charles Abbott: Correct.


William Alexander McMaster: It will not be adopted then, until after the first of the year.


Douglas Charles Abbott: That seems reasonable and businesslike.

Income War Tax


William Alexander McMaster: Kind of hard on the child.


Wilfrid Garfield Case: I understood the minister to use the expression "the amount actually expended," but the word "actually" does not appear here. It does refer to an amount not exceeding $100.


Douglas Charles Abbott: That was just my language.


Wilfrid Garfield Case: But by the use of the word "actually" it would mean that the taxpayer must prove that he has expended this money.


Douglas Charles Abbott: That is not the case. I should not have used the word "actually," certainly not to be intepreted in that sense.
Subsection 2 agreed to.
On section 4, subsection 3-Certain pension payments.


James MacKerras Macdonnell: I should like to ask the minister a question on this subsection. I understand it is based on resolution 26.


Douglas Charles Abbott: Yes.


James MacKerras Macdonnell: I am having some difficulty in making it hang together grammatically. Could the minister explain it to me?


Douglas Charles Abbott: I made an explanation on resolution 26. Has the hon. member a specific question ?


James MacKerras Macdonnell: Would the minister just read the thing through?


Douglas Charles Abbott: While I had thought that the word "proportion" in the first line should be "portion", I am advised by my officials that the word "proportion" is the correct one. The paragraph reads:
(h)	that proportion of a payment out of an employees' superannuation or pension fund or plan the investment income of which has been exempt from taxation under this act by reason of an election for such exemption by the trustees or corporation administering the fund or plan
(i)	that the aggregate of the amounts paid by the employee into the fund or plan during the period when its income was exempt by reason of such election is of the aggregate of all amounts paid by him into the fund or plan; or
(ii) that the aggregate of the amounts paid by the employee into the fund or plan during the period when its income was exempt by reason of such election together with simple interest on each amount so paid from the end of the year of payment thereof to the commencement of the superannuation allowance or pension at three per centum per annum is of the aggregate of all amounts paid by him into the fund or plan together with simple interest as aforesaid on each amount so paid, whichever is the greater.
That means whichever proportion is greater. I admit is it complicated, and I find some difficulty in following it. But it was carefully drafted by the officials in the Department of Justice, and I am advised that it gives full effect to the resolution.


James MacKerras Macdonnell: Perhaps it was the minister's excellent reading which has made me understand it better. I understand that it goes right back to the word "proportion".


Douglas Charles Abbott: Yes, that is correct.
Subsection 3 agreed to.
Subsections 4 and 5 agreed to.
* On section 4, subsection 6-Repeal.


William Alexander McMaster: Is there a paragraph (i) still in subsection 5?


Douglas Charles Abbott: Paragraph (i) is no longer in the section.


James MacKerras Macdonnell: We thought three discretions had been taken away, and it is cnly two. Why is there this reversal?


Douglas Charles Abbott: Those are spent provisions. They are no longer of consequence, and they are being repealed.
Subsection 6 agreed to.
On section 4, subsection 7-Unusual medical expenses.


Wilfrid Garfield Case: This subsection would appear to be a complete reversal of what we have been accustomed to in the past.


Douglas Charles Abbott: No.


Wilfrid Garfield Case: If I am interpreting it correctly, I am certainly in favour of the subsection as it now stands. But it would seem that we are going to allow an individual taxpayer exemption up to a certain ceiling for the cost of medical services he can prove by vouchers.


Douglas Charles Abbott: There is no change in the law. We are simply substituting "paragraph (c), (d) or (e) of this subsection" for the words "rule 5 of section 1 of paragraph A of the first schedule to. this act". We do that because we are now incorporating into the act provisions which were formerly included in the rules. There is no substantive change in the law.


Wilfrid Garfield Case: The subsection properly interpreted means that the taxpayer receives an exemption up to $900, if married, and $150 for each dependent child, for medical services, dental services, nursing care, hospitalization and the like. Is that correct?
Income War Tax


Douglas Charles Abbott: The subsection, so far as exemptions are concerned, is exactly the same as it has been for the last year or two, under section 5 (1) (n). That section states that "income" shall be subject to the following exemptions and deductions; and these are the deductions under (n):
That portion of medical expenses in excess of four per centum of the income of the taxpayer incurred and paid either by the taxpayer or his legal representatives-
Within certain periods. Then there is the provision which we have here, stating that if payment is made to a medical practitioner, dentist or nurse, and so on.


Wilfrid Garfield Case: That is where they are wrong. I say the taxpayer should receive consideration' for the amount of medical expenses he actually expends up to a certain ceiling, in order that he would obtain receipts or vouchers for the amount he might pay his doctor, dentist or hospital. This should be given consideration because, as the subsection now stands, there are very few people who will benefit in any sense of the word.
The small income earner will suffer most, the one who probably has a fair-sized family. He does not expend an amount of money which would bring him within the exemption. I do not know why the department could not consider reversing the provision entirely, so that an individual would receive exemptions for medical and dental care, and for hospital, ization, up to a certain ceiling for a married person, with so much for each dependent, and also a certain amount for a single person.


Douglas Charles Abbott: I commented on this at some length a year ago when the provision was first inserted. The hon. member will notice that the wording in the statute is "unusual medical expenses". It was never considered appropriate that a man should deduct from his income the amount of his ordinary medical expenses; that is part of the expense of living. But is was felt that in cases where an individual was put to expenditure entirely beyond the ordinary amount of medical expenses, some relief should be given by permitting that excess to be deducted from income; and it was thought that, broadly speaking, four per cent of a man's income was a not unreasonable amount to treat as normal medical and dental expenses to which one would be put. This provision has been in the law for some time, and I think it is based on sound principles.


Wilfrid Garfield Case: Of course no act is perfect. I do not know that my formula would improve the situation, but I am sure the minister will 
agree that the present act lends itself to considerable fraud. I am speaking from some knowledge when I say that certain fees are settled for certain amounts if no receipt is given. That is. to say that the practitioner who is being paid does not have to show that in his income. I am indicating that if every taxpayer insisted on a receipt, with the thought in mind that he would have consideration up to a certain amount, you would have some method whereby you could verify receipts and expenditures. With this method, as the average person does not expect to reach the allowable amount, he does not get receipts; maybe he should. I am speaking of a means which I think might be employed to the advantage of all and would still result in the same amount of revenue for the government.


Mr. FLEMING:: There are two matters to which I should like to draw the attention of the Acting Minister of Finance. I was bold enough to put them before the Minister ol Finance last fall; I hope the acting ministei will be a little more receptive than the ministei was then. My points relate to unusual medical expenses. That expression "unusual medical expenses" means, not unusual in nature but unusual in amount-


Douglas Charles Abbott: That is right.


Donald Methuen Fleming: -because ordinary medical expenses are naturally included in making up the amount in excess of four per cent of income.
The first of the things which I think ought to be included among medical expenses are drugs prescribed by physicians where the prescription is filled by a druggist. As matters stand at the present time, if the physician himself fills the prescription, supplies the drug or medicine and simply adds it to his bill, the department allows the amount along with the medical service as a medical expense. If, however, the physician writes a prescription and the patient takes the prescription to the drugstore and has it filled there, the amount paid the druggist for the drug or medicine is not allowed. I contend that is an anomaly which ought to be corrected. I cannot see any justification for it in principle. As I understand it, the reason given by the department hitherto is that it is difficult to administer, that you might have frauds perpetrated by taxpayers acting in concert with druggists. Surely the danger is no greater than that of taxpayers working in combination with physicians, for that matter.


Douglas Charles Abbott: There are a lot more drug stores, though.

Income War Tax


Donald Methuen Fleming: Well, more should be considered than the convenience of the department in administration. Regard should be had to the equities, to giving fair play to the taxpayer, and just because a man happens to reside in a city where a physician does not fill his own prescriptions is no reason why he should be deprived of the benefit given by this section as regards his expenditure on drugs and medicine. It might run to substantial sums; yet he gets no consideration for it at all. If he happens to live in a part of the country where the physician fills his own prescriptions he gets the allowance in full. I submit that is an injustice.
The other point I should like to put before the minister is this. At the present time the section as amended in 1945 permits the inclusion in medical expenses of the salary and wages of an attendant of a person who is an invalid, and-
... an amount expended on an artificial limb, a spinal brace, a brace for a limb or an aid to hearing for the taxpayer, his spouse or any such dependent.
I want to urge on the minister that aids to seeing be included just as are aids to hearing. There is no distinction in principle between them. That would include glasses in all forms, and everybody knows they can be very expensive. Why should aids to hearing be allowed and yet aids to sight be disallowed? In that regard I think the department ought to include artificial eyes. Why in the one case should an artificial limb be allowable, whereas an expenditure, which might be quite substantial, on an artificial eye is not allowed? I submit an injustice is done there and it ought to be corrected.


Douglas Charles Abbott: I will take a note of my hon. friend's representations. As he knows, they have been made on a number of occasions by himself and others.


Mr. MacINNIS:: I was wondering whether the minister would give an example of what "unusual medical expenses" are as interpreted in the administration of the act. Would he give me a case of what is considered an ordinary medical expense and what would be considered an unusual medical expense?


Douglas Charles Abbott: As the hon. member for Eglinton has pointed out, what is meant by "unusual" is, unusual in amount. Four per cent of the income is considered ordinary or usual, normal medical expense; but when the medical attention is of such a nature that the expense is in excess of that amount it is considered as being unusual medical expense, beyond what would ordinarily be expended in the normal course of events.


Mr. HACKETT:: Will the minister say if these chairs which are used by paraplegics are included among the equipment for which a deduction is allowed? The minister knows of the work which has been carried on, and how essential this implement is to persons who are afflicted with paralysis below the hips. The use of the chair requires an education of some months, and it really has taken these men from their beds and placed them afoot and enabled them to carry on useful occupations.
At the same time I should like to associate myself with the hon. member for Eglinton in what he has said about an allowance for artificial eyes and aids to sight.


Douglas Charles Abbott: I am advised that no claim has ever been made for this particular type of aid. It sounds as though it were really a type which should be included, and I would hope that it would be specifically included here, but my colleague the Minister of National Revenue and the deputy minister tell me that no claim has ever been made.


John Thomas Hackett: I can readily understand that. The minister knows better than I the work which is being carried on by this society in several of the provinces. It is organizing to do work through all the provinces, and what it is achieving in the way of regeneration is truly remarkable. People who are absolutely bedridden and incapable of even dressing themselves have, with training and the aid of this device, become capable of entering active life again. If the minister will take a note of it, it might be possible to do something.


Douglas Charles Abbott: I will indeed.
Mr. MeKAY: A deduction is allowed from income tax on account of unusual medical expenses paid to a medical practitioner. Does this include expenses for treatment given by chiropractors and osteopaths who are registered under provincial laws? Does it also apply to payments to registered optometrists and opticians?


Douglas Charles Abbott: I understand that it has to be a payment to a qualified medical practitioner or dentist and I think that optometrists, chiropractors and osteopaths are not included.


Mr. ZAPLITNY:: Does it include Christian Science healers?


Douglas Charles Abbott: No.


Donald Methuen Fleming: Referring to the minister's answer regarding optometrists and opticians, as I understand the rulings of the department payment for the services of an optometrist in making an eye examination is allowed as a
Income War Tax

deduction from income but not the fee paid the optician or optometrist for filling the prescription which follows the examination. That again emphasizes the anomalies that exist as the section now stands and perhaps to some extent in the administration as well. Where do you find a distinction in principle between medical expenses for the services of an optometrist in making an eye examination and expenses for services in filling the prescription which follows to correct some error in refraction? Surely we have to have regard for fair play in matters of this kind. Is that not an anomaly that would shock the common sense of the man on the street? I cannot see any distinction in principle there. It may facilitate administration to eliminate expenses of that kind, but to many taxpayers it adds a considerable burden, and surely there is no distinction in the cases I have cited between the fee which is allowed and the fee which is disallowed.


Douglas Charles Abbott: Sometimes it is difficult to draw the line. However, the charges will seldom exceed four per cent of the taxpayer's income. This is to provide relief where a man goes through a long illness or an expensive operation or a long stay in hospital. A man who gets an eye examination by an optometrist, even if it were expensive, could not avail himself of the relief provided under this section.


Donald Methuen Fleming: Does that not emphasize the reasonableness of including optometrists and opticians? The minister admits that it will apply only in cases where a man's medical expenses exceed four per cent of the income. If, in addition to an expensive illness, a man has to pay for the services of an optometrist or optician he should be allowed these expenses. To include them would afford him relief and correct anomalies that are patent.


Mr. McKAY:: Would the minister explain, if he can, why treatment by medical practitioners does not include an osteopath who has had five years' training and is registered under provincial law and a chiropractor who is also registered under the same law?


Douglas Charles Abbott: Let me correct what I said before. I am informed that osteopaths and chiropractors are included if they are qualified under the provincial law.


Gordon Knapman Fraser: And chiropodists if they are registered?


Douglas Charles Abbott: That is correct, if they are entitled to practice under the law of the province.
Subsection 7 agreed to.
{Mr. Fleming.]
On section 4, subsection 8-Subsistence allowances.


Douglas Charles Abbott: The only change here is that in the allowances of permanent Canadian naval, military or air forces receiving the new rates of pay are not exempt under the wartime exemption provisions.


[Stage Direction]
Subsection agreed to.
On section 4, subsection 9-Deferred maintenance and repairs.
Mr. PROBE:: There is a situation which should be drawn to the attention of the minister, which perhaps was not intended when it was first decided to give income tax relief on deferred maintenance account. The fact that corporations are now spending large sums of money in improving plant and equipment because of the relief granted to them in the payment of excess profits tax is creating double bidding for construction supplies and personnel engaged in the construction industry. The minister should seriously consider changing the regulation whereby deferred maintenance must be carried on in the period laid down by the act. Can the minister give the committee some indication of the amounts that have been permitted by way of exemption on deferred maintenance account from 1941 to 1946? I think that is tied up closely with the present scarcity of building materials and skilled craftsmen.


Douglas Charles Abbott: We have no figures on that. The section is not yet operative, because the period in which this deferred maintenance is being carried out and carried back to a previous year has not yet been designated. The committee will recall that the period within which this work must be done is a period to be designated by the governor in council, and because of the very situation to which the hon. member has referred, namely, a shortage of labour and supplies, it has not yet been felt advisable to designate that period. Whether it will be six months or a year from now it is not possible for me to say. The original thought was that after the war there would be need to stimulate building, the making of repairs and so on, that labour and materials would be available and that the work which was necessarily deferred in 1942, 1943 or 1944 could be carried out in 1946, and then a portion of it charged back to the period in which the work might properly have been carried out. But conditions have not yet been such that it has been thought advisable to designate that period.

Income War Tax


John Oliver Probe: Then there is no relationship between this provision and what looks to the casual observer as a large industrial replacement programme?


Douglas Charles Abbott: Any industrialist who feels obliged to do maintenance work now will lose the benefit of this section.


John Oliver Probe: My theory would be absolutely wrong on that basis.


Douglas Charles Abbott: My hon. friend was mistaken as to the fact that it is not yet in operation.	[DOT]


John Oliver Probe: I felt there should be some regulation by which unnecessary deferred maintenance could be further deferred.


Douglas Charles Abbott: That has been accomplished by not yet designating the period.


William Alexander McMaster: I opposed this in the resolution stage, and I recall that the hon. member for Stanstead referred to certain corporations which were operating during the war at a loss.


Douglas Charles Abbott: I believe that was on
double depreciation and not on this section. This is the deferred maintenance section. I am not sure, but my recollection is that the question was put by the hon. member for Stanstead on double depreciation.


William Alexander McMaster: There is another clause dealing with this?


Douglas Charles Abbott: Yes.


William Alexander McMaster: If it means anything, I should think the minister has certain powers to allow deductions from income excess profits tax. Is that not the case where they go on and do something at the present time and allow deductions?


Douglas Charles Abbott: This section cannot operate for any work which is done at the present time. The only benefit which can be obtained from the deferred maintenance and repairs provision here is work done in a period yet to be designated.


William Alexander McMaster: What kind of work?
Maybe I can find out what it means and then discuss it.


Douglas Charles Abbott: It might be reconstructing a brick wall in a plant; it might be putting in new tubing or boilers, or putting in all kinds of equipment which would be the normal repair and maintenance work during the war years, but which, because of shortage of labour and materials, could not be done at that time.


William Alexander McMaster: The minister will recall that at that time I said there was always
a depreciation allowance in their hands in [DOT]actual cash. The corporation that had no excess profits and no profits would have no depreciation.


Douglas Charles Abbott: I have had this same discussion with my hon. friend before. These would have been current operating charges in the year. They were not items which could have been charged to depreciation account. They would have been current maintenance expenses, which are operating charges and are different from replacements and capital expenditure which could have been charged to depreciation account.
Subsection 9 agreed to.
On section 4, subsection 10-Provincial taxes on mining or logging.


Agar Rodney Adamson: As the minister may or may not remember, on the budget resolutions I moved an amendment to resolution 11, which was accepted by himself and by the house. Subsection 10, paragraph (w), which is new, reads, and I will put it on the record for the purpose of clarification:
Subsection 1 of the said section 5 is further amended by adding thereto the following paragraph:
"(w) Such amount as the governor in council may by regulation allow in respect of taxes paid to the government of a province on income derived from mining or logging operations in the province."
I moved an amendment, which was accepted, to include all mining and logging operations whether they were the principal operations of the corporation or not. In other words, my amendment, which was accepted in connection with resolution 11 of the ways and means resolutions, meant that a corporation operating a mine could get a reduction from federal taxation for the taxes paid to the province for the operation of the mine, even though the operation of that mine was not the principal business of the corporation. So far so good. In many provinces' mines are operated on a royalty or fee basis. I wish to clarify the act a little bit in my own mind and, I hope, in the mind of the committee by jumping from here to section 5, subsection 2, paragraph (o) on page 17 of the bill. The marginal note is: "Deduction not allowed except tax on mining or logging operations". Let me read paragraph (o):
Any corporation tax paid to the government of a province except any such tax the deduction of which may be allowed by the minister as a royalty or rental on natural resources in the province.
It seems to me-and I should like to have the minister's opinion on this-that these two clauses conflict. In the clause before us you

Income War Tax

get the reduction, irrespective of whether it is on a royalty basis or a fee basis, irrespective of what tax is paid to the province. But in paragraph (o) on page 17, you are taxed on royalties. I do not want to jump ahead, but it appears to me, on reading the act, that these two clauses conflict.


Douglas Charles Abbott: No; they are not in conflict. Paragraph (w) of subsection 1 of section 5 of the act allows deduction from taxes paid to the government of a province on income derived from mining or logging operations-that is, provincial income tax as such. When we come to paragraph (o) of subsection 1 of section 6 of the act, that relates to corporation tax other than income tax except royalties or rentals on natural resources which are deducted. I assure my hon. friend there is no conflict between the two. Under the first section, provincial income tax on that particular kind of income in the province, which to-day ordinarily is not allowed, will in future be allowed, and royalties and rentals on natural resources which have always been allowed will continue to be allowed under paragraph (w). The new section is paragraph (w), which we are now considering. In the past, provincial income tax was not allowed as a deduction in the case of logging and mining companies. In the future it will be, and royalties and rentals always were. That is preserved.


Agar Rodney Adamson: I wanted' to get that clarified because I was rather worried lest royalties were not going to be considered as direet taxation paid to the province.


Douglas Charles Abbott: It is not the intention to interfere in any way with the revenues derived by provinces from these natural resources. That is the purpose behind these two sections.


[Stage Direction]
Subsection agreed to.
Subsection 11 agreed to.
On section 4, subsection 12-Reduction of deduction.
Gordon Knapman Fraser: During the last week I have come in contact with a number of people who do not seem to understand this subsection. Just to-day I discovered that a married woman in one of the departments of the government told her chief that she would have to quit, owing to the fact that any money she made would be deducted from her husband's income.
I think the minister should explain the subsection. The way I explained it to this woman was that if she had $1,000 income and her husband had $1,500 they would have $2,500 between them and the exemption would be $1,500 altogether. On her income she has a

deduction of $750, whereas she had a deduction of only $660 before. Therefore she is better off now.


Douglas Charles Abbott: My hon. friend is quite correct. Each would file a return and each would claim $750. The woman would pay at the rates of $250 and the husband at the rates of $750.


Gordon Knapman Fraser: People across the country do not seem to understand that.


Douglas Charles Abbott: My hon. friend is quite correct in the statement he has made.


Harry Rutherford Jackman: First of all, I should like to say that this section is one of the worst sections in the present budget and one which will materially affect the amount of labour and services which are likely to be provided during the next year. What I wish to point out is that when the wife's income reaches $750 the husband is treated as a single man and gets a straight exemption of $750 instead of the marital exemption of $1,500. If paragraph
(a)	and not paragraph (b) were carried out, then if the wife earned $750 the husband would have $500 taken from his $1,500, which would give him an exemption of $1,000; whereas under the application of paragraph
(b)	the husband's exemption drops immediately from $1,000 to $750, when the wife earns $750 and not $749.


Douglas Charles Abbott: That is correct.


Harry Rutherford Jackman: It seems to me that that is an unfair law which makes such a difference. I have calculated the tax as follows: If the wife earns $750 instead of $749 there will be a tax of-


Douglas Charles Abbott: It makes a difference in the exemption of $250.


Harry Rutherford Jackman: Yes. Would the minister explain why paragraph (a) is not carried through instead of paragraph (b), which gives this radical step rather than giving a gradual adjustment which takes place under paragraph (a)?


Douglas Charles Abbott: Because it was not practical or desirable to do it dollar by dollar and the $250 unit seemed the appropriate one.


Harry Rutherford Jackman: I find that if the wife earns $1,000 that reduces the husband's exemption to $750 rather than the $1,500 and the wife is also taxed on the $250 additional, The result of the tax operation on the wife's income and on the husband's exemption is that the tax on that $500, which is the difference between $250 which would be free to the wife and the $750 which she earns, bringing her up to the taxable bracket and the husband

Income War Tax
into the single exemption bracket, would be $235, or a rate of 31-3 per cent on the $750 which seems to be extraordinarily high and undoubtedly will result in fewer people working than would otherwise be the case.


Agar Rodney Adamson: I wish to point out to the minister that one of the serious results which will follow from this clause is that a great number of the most efficient members of the stenographic staff of the house may seek employment elsewhere or do nothing, and I assure him that is a serious matter.


Douglas Charles Abbott: That may be. This feature was introduced into our income tax structure as a wartime measure and as a measure to induce women to work in war plants and war activities under the high war-time rates of tax; but now we are going into the peacetime period with reducing rates of tax. It was never intended to be a permanent part of our income tax structure and it is not a permanent part of the income tax structure of other countries. As I pointed out when we were on the resolution stage, if a married man in the United States wants to take the benefit of the married exemptions he must include his wife's income with his own for purposes of filing a return, and that is much less favourable than this provision.


Donald Methuen Fleming: I should like to put two cases before the minister illustrating the way in which this section is going to work out. Take the case of the husband who earns $1,500 and the wife $749. The husband's deduction would be reduced by $449 out of the $749. He would then pay income on $1,001, as I understand it. But if the wife earned $1 more, namely $750, then the husband will lose the benefit of the full $750 deduction. Surely there is an anomaly there. If you are going to make a difference of $251 in the result as respects deductions from the husband's income when the wife earns that $1 more, being the difference between $749 and $750, it does not seem right.


Douglas Charles Abbott: I think the correct interpretation is that the extent to which the wife's income runs over $250 is deducted from the husband's exemption, and that continues to the point where the husband and the wife each, have an exemption of $750, or are treated as single persons for income tax purposes.


Donald Methuen Fleming: The minister has not dealt with my point. Take the case I put. When the wife is earning $749 on this basis the husband is entitled to $251. But when she earns $750 the husband loses the whole de-63260-300i
duction. Because the wife earns one more dollar it costs the husband $251 in deductions.


Douglas Charles Abbott: In the case that my hon. friend has mentioned the husband's original exemption of $1,500 would be reduced by $499.


Donald Methuen Fleming: Yes, but if the wife earns one more dollar it is reduced by $750, not $500.


Douglas Charles Abbott: That is right.


Donald Methuen Fleming: If the wife earns one more dollar in addition to the $749, it costs the husband $250 in deductions.


Douglas Charles Abbott: That is correct.


Donald Methuen Fleming: Surely that is an anomaly and an injustice.


Mr. STUART (Charlotte):: I wish to speak briefly on this item, since I feel that it will adversely affect practically every industry in the county I represent. In the canning industry a great portion of the work has always been done by women, to the extent that one-half of the people employed in the canneries to-day are women, and quite a large proportion are married women. This work cannot be done by men. To-day the production of food is one of the major problems confronting the world, and I believe that this regulation will have a tendency to curtail production at a time when every effort should be made to increase it, particularly canned goods, since they can be shipped to any part of the world where people might be faced with starvation or famine.
If this change would result in taking married women out of jobs that could be filled by war veterans and married men seeking employment I would support it 100 per cent, but that is not the case in the three large industries in the county of Charlotte, all of which will be affected by this measure. I speak particularly of the canning industry, which, as I said before, employes hundreds of married women. I would refer also to Canada Cottons at Milltown, Charlotte county, and Ganong Brothers; and there are many smaller industries engaged in the smoking, skinning and so on of herring, particularly on Grand Manan island, where a great many of the girls and women employed are married.
My argument is that from the point of view of revenue I feel confident this regulation will be responsible for a loss rather than any gain to the government. Take, for example, a married woman employed in the canning industry in which, as I have already said, much of the work can be done only by women. Let us say she is able to make $5 a day,

Income War Tax
which many of these women are earning in the canneries at the present time. I am sure the proposed tax would not be more than S2. Under ordinary conditions this same woman can pack twenty-five cases of sardines a day. The wholesale value of twenty-five cases of Sardines would be not less than $150, on which the sales tax would be $12. Suppose this woman refuses to work owing to the increased taxes. This government, by insisting on the collection of $2 in income tax, will lose the $12 in sales tax. I can assure the minister that this condition will exist in Charlotte county when this regulation goes into force, and it would appear to me to be exactly the same circumstances in which the dog found himself when he reached for the shadow and, in doing so, lost the bone.
Since I do not believe in criticizing without suggesting some solution, and while this is perhaps an unusual case, I would suggest that married women engaged in seasonal work or on piecework be exempt from this regulation. My reason for suggesting this exemption is that married women doing this type of work are in a position to regulate their earnings to coincide with the exemptions set out in the regulations, and without doubt it will be responsible for a great reduction in the production of necessary food and other commodities much needed at the present time.
Another matter was brought to my attention only this evening by a gentleman from my own county whose wife is a schoolteacher. She had agreed with the school board in the town of St. Stephen to teach during the coming term, owing to the scarcity of teachers all over that province. .When thiis regulation was announced in the press she went back to the school board and told them she would not teach. I am told that at the present time they are looking everywhere for schoolteachers. I know the same condition existed in New Brunswick during the war, when we had perforce to get married women to go back into the schools, and I feel that this regulation will have an adverse effect in that direction also, for I am sure that many schoolteachers who are also married women will refuse to work under these conditions.


William Alexander McMaster: I would suggest to the minister, as I intended to do on the resolution but did not, that the exempted $250 be applied only to investment income, and that the exempted income from earnings be increased to $500. I believe that would overcome the abjections raised by the last speaker and would overcome the abjection in the cities where women go out for cleaning and other work which takes only part of their time but which

is absolutely essential. I believe there should be a difference in the treatment given investment income and that given income earned by hard work, and I think if the minister would accept this amendment it would overcame many of the objections to this regulation.


Douglas Charles Abbott: The $250 is to cover any kind of income, whether investment or earned, but over that figure the exemption of the husband is reduced proportionately. I do not believe we would be justified in making a distinction over $250 between an earned income and investment income.


William Alexander McMaster: There is a great deal of distinction in actual life between the person who gets three per cent on $8,000 and the woman who goes out and slaves at cleaning and other manual work.


Gordon Knapman Fraser: Previously the minister said this exemption was introduced during the war in order to encourage women to work. Is the present regulation being put in now to discourage them from working?


Douglas Charles Abbott: No. It was an exceptional provision,- one which would not normally be part of an income tax structure and one which really cannot be justified on the ground of fairness as between different taxpayers. It was put in as a bit of bait, if I may use a somewhat vulgar phrase, but it is not a fair provision as between all taxpayers in this country, and should not be .part of a permanent income tax structure. That is the point I am making.


Gordon Knapman Fraser: Under the set-up in 1947 there will be a difference of only $180; that is how much better off they would be if they were each earning incomes of $750, or $660 as it is at the present time. They would gain $180; but when you apply this $250 clause and the married woman earns just $750, in 1947 she will be away in the hole in comparison with her position at the present time. It makes a big difference. There is a difference of $410 between the $250 and the $660.


Douglas Charles Abbott: It is true there will not be the same tax incentive; there will be more taxes to pay, but the joint exemption under the act in certain cases could go up almost to $2,500.


Gordon Knapman Fraser: How do you get that between the two of them, when the exemption is only $660 each?


Douglas Charles Abbott: Well, I am sorry; it is $1,860.


Harry Rutherford Jackman: I just hope the minister will look at the advertisements put out by his

Income War Tax
colleague the Minister of Labour under the Unemployment Insurance Act. I am sorry I have not a copy of one which I clipped when this item was first announced, showing the number of women who were wanted to fill various positions as compared with the number of men. I think in that small advertisement covering some twelve or fifteen inches there must have been four or five hundred women wanted for various occupations, -whereas the number of men wanted was only two or three hundred.


Douglas Charles Abbott: We have always advertised for women, but we did not give them tax exemption.


Harry Rutherford Jackman: I am saying there is a greater shortage of women to fill various positions than there is a shortage of men, and certainly this clause is an example of nonincentive motives in this budget. The minister has not made this change in the regulations so much from the point of view of income, I believe, as to have what he calls his ideal in fairness. I find many people complaining of this dog-in-the-manger attitude. There are many cases where the wife has no obligations, or her children are grown up, or she has no children, and she is quite prepared to work. But under this change which the minister is proposing the minimum tax on the family unit which will result from the wife's earning over $250 is 25 per cent, and from there it goes on up.


Douglas Charles Abbott: It is 22 per cent.


Harry Rutherford Jackman: It is about 25 per cent, if the minister will look into it.


Douglas Charles Abbott: The starting rate is 22 per cent.


Harry Rutherford Jackman: All right, call it 22 per cent, if you wish. It will rise up to almost
any figure, even up to 80 per cen't, which is unreasonable-as also is the 22 per cent. But
what I am saying is that if we are interested-


Mr. CRUICKSHANK:: We cannot hear the hon. member. Is he holding a party conference?


Harry Rutherford Jackman: Then I shall speak up so that the hon. member for Fraser Valley can hear me. If the government is interested in defeating inflation, surely what it must get is production of more goods and services. This section will eliminate from the labour supply of Canada literally tens of thousands of people who are willing to take either fulltime or part-time work. By accepting this section we are therefore more likely to have inflation and to defeat price control than we would if we did not make the change now
proposed. I therefore suggest to the minister as strongly as I can that consideration be given to leaving the legislation as it is. It was changed in order to bring about war production, and I have not yet heard that we do not need production in this country.
Subsection 12 agreed to.
On section 4, subsection 13-Interest on borrowed moneys.


Douglas Charles Abbott: I have some minor amendments to this subsection.


James Joseph McCann: I move:
That sub-clause 13 of clause 4 be amended:
1.	By inserting the words "or within twelve months thereafter" after the word "year" in line 8 of page 14 of the bill, and after the word "year" in line 27 of page 16 of the bill;
2.	By inserting a comma and the words "articles of association or by-laws" after the word "charter" in line 46 on page 16 of the bill.


Mr. JAENICKE:: I do not think the amendments have much effect on what I was going to say in connection with the new subsection 8, or subsection 13 of the bill. If I interpret the section correctly, I believe I can say that we in this group appreciate the slight concessions made by the government since this piece of legislation was in the resolution stage. However, we do protest that even part of the savings made by a cooperative for its members should be taxable, whether it is paid out or deferred.
I mentioned in my opening sentence that, if I understood the interpretation of this section correctly, we appreciated it. In that connection I may say, however, that while I believe I have a reasonable capacity for the interpretation of a statute, yet I find not only this section but all sections dealing with cooperatives very difficult to interpret. As a matter of fact, I do not know whether I have it right now.


Grote Stirling: Nobody does.


Frank Eric Jaenicke: It is also singular that, although every other subsection has a marginal note, this one has none. It seems to me that the minister is afraid to comment on this section dealing with cooperatives.


Douglas Charles Abbott: All we could have said was that the subsection was new. That is the marginal note used for a number of others.


Frank Eric Jaenicke: Instead of asking the minister questions, I shall read to 'him my interpretation of the section, in my own language. Following that, he can tell me whether or not I am right. This is the way I interpret it: That there may be deducted the aggregate of the payments made to his customers, or
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patronage dividends as we call them, in proportion to the patronage (1) if they are made within the taxation year; (2) if they are made within twelve months after the taxation year, and (3) if they are made within the year or, under the new amendment, within twelve months after that year in respect of a previous year which has not been previously deducted, and upon which the association has paid taxes; but if allocation is not made in proportion to patronage in respect of all his customers at the same rate-in other words, allowing a cooperative to discriminate between members and non-members-then the surplus of business done with non-members is taxable. Is that the correct interpretation?


Douglas Charles Abbott: I think that is quite correct.


William Irvine: Why does it not say that, then?


Grote Stirling: I would draw to the minis-fter's attention at this stage a statement by the secretary of a group of cooperatives, and ask if it is correct:
Again I believe Mr. Ilsley when he introduced The resolutions said they would apply to all organizations ending their fiscal year in 1946.
Two of our producer cooperatives end their fiscal year on January 31, which means they will be liable to taxation on their business done from February 1, 1945.
Is that correct?


Douglas Charles Abbott: Section 4 (p) is not repealed for the 1946 period, and the new section permitting the deduction of patronage dividends comes into effect for the year 1946. If these cooperatives have been acting, as I have no doubt they have, in good faith, on the "good faith" principle enunciated by the minister in his budget speech, they can rely on section 4 (p) as it now stands for the period referred to up to February 1, 1946. From then on they can rely on the new section which permits of patronage dividends distributed in 1946.


Grote Stirling: And on the business done in 1945 the present arrangement will not count?


Douglas Charles Abbott: The new arrangement will not count. They will be protected by the good faith principle on 4 (p) as it now stands.


Grote Stirling: Then may I come to this next question:
The position of consumer cooperatives is rather different-
He has been dealing in his letter with producer cooperatives.
-and I am asked to call to your attention that in their case surplus from trading operations paid or credited to members or non-members is not profit at all, but a saving on cost of the
[Mr. Jaenicke.l
necessities of life and production, which only touches their individual liability to pay income tax in so far as it may in some eases reduce expenses of production and so slightly increase their taxable income. It is very devious thinking which holds that in a saving on purchases purely for consumer use there can be a real profit either to the cooperative or to a member thereof.
What has the minister to say to that?


Douglas Charles Abbott: Well, that is a point which has been discussed by others in the course of this debate. The McDougall commission did not agree with the view which is expressed in that letter, and I do not know that I can add anything to that statement.


Percy Ellis Wright: I should like to ask the minister a question as to what action it is necessary for the cooperatives to take with respect to the allocation of savings to individual accounts before they will be deductible. For instance, if your cooperative have a S10.000 saving during a year, and at their annual meeting at the conclusion of that year they pass a resolution that fifty per cent of that shall be in the form of cash and fifty per cent shall be allocated to the individual in the form of an investment or saving, left there in the revolving door fund to increase the stock or assets of the corporation, will that be considered by the government as sufficient notice?


Douglas Charles Abbott: Well, only if it is paid, or constructively paid. They cannot- rely on a resolution of the cooperative; that is, they cannot rely on a corporate action to authorize that retention. It must be authorized by the member himself. If the member so authorizes the reduction by the cooperative, that is permitted, because there would be then a payment or constructive payment.


Percy Ellis Wright: A resolution at the annual meeting of the members of the corporation or cooperative would not be considered sufficient?


Douglas Charles Abbott: No; a majority resolution of that kind would not be sufficient. I think we discussed this, and I answered some questions on that when we were dealing with the resolution.


Thomas John Bentley: As to "constructively
paid", would that not be allocated but not paid out?


Douglas Charles Abbott: No; that would not be a constructive payment. A constructive payment would be if they allocated the money to the member, he was free to take it, and, instead of taking it, he said, "You keep it and use it, as a loan from me"-or whatever it may be-"in the cooperative".

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Thomas John Bentley: To be constructively paid it must be exigible on the member's demand?


Douglas Charles Abbott: That is right.


George Alexander Cruickshank: We had * certain assurances given to us before in connection with the cooperatives. Do these proposals change the situation in any way?


Douglas Charles Abbott: No; they do not change it in any way. These in fact implement any assurances I may have given.


George Alexander Cruickshank: Then my small town friends across the way are talking for political purposes only.


Mr. BRYCE:: When the resolutions were before the house I told the minister that I objected to this three per cent clause. I still feel the same way about it. I pleaded with the minister to make some concessions in the matter, but evidently I have not a pleading way, because he never listened. I want the minister to know that I do object to that, because you are driving the cooperatives to be a profit-making class, which they are not in. I have said that before, and I know that no one will want me to repeat my arguments, but I have a couple of matters which I want to straighten out. Take a cooperative whose employed capital amounted to $100,000; they would pay three per cent on that, or $3,000; w'ould they be taxed thirty per cent on that $3,000?


Douglas Charles Abbott: Only if they had $3,000 of taxable income. They could have $100,000 of employed capital, but if their affairs were so arranged or the cooperative operated in such a way that they did not have taxable income-


William Scottie Bryce: Well, I wish the minister would let me finish, because I am at a disadvantage; when you get a dirt farmer up against a lawyer you pretty well knock him off his thinking. In that instance we will assume that the cooperative had $10,000 of savings, and we divided $8,000 to the members in patronage dividends and had $2,000 left; would that cooperative pay three p'er cent on the $2,000, or would they pay three per cent on $3,000?


Douglas Charles Abbott: If the $10,000 which my hon. friend mentioned were taxable income within the meaning of the act they would pay on $3,000. They could distribute $7,000 as patronage dividends and deduct that in full, but they would be obliged to pay the tax on $3,000 before distributing the balance as patronage dividends.


William Scottie Bryce: I said $8,000 and $2,000 left.


Douglas Charles Abbott: They could have distributed the extra $1,000, but they would be liable to pay tax on it.


William Scottie Bryce: Take the next year, with this same turnover of business. We distribute $6,000 in patronage dividends and we have $4,000 left. Will we pay three per cent on $4,000 or on the $3,000?


Douglas Charles Abbott: You will pay tax on $4,000 because that would not have been allocated but would have been held in reserve I suppose. The permissible distribution and the deduction which would be allowed on the figures the hon. gentleman has given would be $7,000 distributed as patronage dividends tax free and the $3,000 would be subject to tax.


William Scottie Bryce: That means that if the cooperative made no savings at all, if it suffered a loss, it would still have to pay 3 per cent on its working capital?


Douglas Charles Abbott: No. If it suffers a loss there is no tax on the capital employed. That is the point I made this afternoon in answer to the hon. member for Yale. There is no tax on income if there is no income. That is the test. If a cooperative is earning no income at all or suffers a loss, or if it so arranges its affairs that there is no taxable income, the three per cent does not apply, and that will be the case I am certain with a good many cooperatives.


William Scottie Bryce: I still think it is not right. I have been a cooperator all my life. As I said here, I was born in a cooperative home, and I cannot for the life of me see why you drive the cooperatives into the profit-making class where we never had any right to belong.


Robert Fair: Is this three per cent a baby of the Department of Finance, or is it an illegitimate child sponsored by the Department of Finance and1 fathered by Winnipeg and Toronto organizations? In my opinion this has been brought about by pressure from outside from organizations opposed to the wheat pool and cooperative organizations. If the minister and his colleagues will read the newspapers they will find that there is at present in the prairie provinces at least action being prepared that should make the members here sit up and take notice. I have frequently expressed my opposition to this move. I do not think it is in the interest of the country. As I have pointed out time and again, the farmers have been robbed quite enough by the prices they have been forced to take for their produce, without this robbery or confiscation being extended still farther. I want to make it quite clear that I am definitely opposed to this three per cent tax.
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Douglas Charles Abbott: This provision was not inspired by any outside source.


Mr. MICHAUD:: I should like to ask the minister a question. Taking the figures used by the hon. member for Selkirk of a cooperative with $100,000 employed capital, the minister said that the cooperative would not have to pay income tax if it did not have taxable income. If we assume there was a surplus, say of $6,000 in the course of the year's operations, is there any way in which the cooperative could so arrange its business that there would not be any taxable income?


Douglas Charles Abbott: I used to charge a lot of money for giving advice, but I doubt if there is any way of doing that if it waited until the end1 of the year. Possibly it could so arrange its affairs at the beginning of the year that it would not have a taxable surplus, but I do not think it could wait until the end of the year and then decide to make it nontaxable.


John Bracken: If a cooperative pays three per cent interest to its members on credits the members may have advanced to it or on money borrowed from the members, is such interest treated as an exemption from the taxable income?


Douglas Charles Abbott: Yes. It is applied against the three per cent on employed capital which we have been discussing. In other words, in the case that the hon. member for Selkirk gave, if there were employed capital of $100,000 and the members had furnished $100,000 in three per cent debentures, the three per cent paid to the members would be deducted from the earnings of the cooperative, and the three per cent rule referred to in this subsection would not apply.


John Bracken: Suppose the money had been advanced not in the form of debentures-


Douglas Charles Abbott: It does not matter in what form it was advanced as long as there was an obligation to pay interest on it, except bank loans or credit union loans.


John Bracken: I want to ask another question. Let us assume that there are two cooperative organizations the same in every respect save in the way in which they distribute their earnings or savings or profits, or whatever you choose to call them. One of them says:	"We propose to distribute all
these savings or earnings in the form of patronage dividends." The other one says: "We are going to pay three per cent interest to our members and, after that, we will pay any balance there may be in patronage dividends." 
Do these two cooperatives pay different taxes, or do they pay the same amount to the government?


Douglas Charles Abbott: If they pay it out as dividends the result is exactly the same. If they paid it as interest on debentures, then it is deducted as an expense from gross income before arriving at net income, if any. The result is exactly the same.


John Bracken: Is this correct? The government says to the cooperative which has been paying out its earnings as patronage dividends: "If you pay three per cent of that in the form of interest you will not be taxable but if you pay it all out in the form of patronage dividends you are going to be taxed."


Douglas Charles Abbott: As between the two cooperatives, they are put on pretty much the same basis. In the one case, the members of the cooperative are getting in effect interest on their investment in the corporation in the form of a patronage dividend, which would be nontaxable in the event of this rule not being here. In the case of the other cooperative, its interest would be paid to the members. It would be deducted from operations as an expense; the remainder would be paid as patronage dividends, and it would be income in the hands of the members.


John Bracken: My question is a perfectly fair one-


Douglas Charles Abbott: I am not suggesting it is not.


John Bracken: I think it is a very important one, and I think the committee should understand the government's answer to it. Here is one cooperative which says, "We will pay out all our earnings, savings or profits in the form of patronage dividends". And here is another which says, "We will pay three per cent interest to our members first, and if there is anything left we will pay it in patronage dividends". What the government is saying to these cooperatives is this: "If you pay your earnings in the form of patronage dividends you will be taxed, but if you pay them in the form of interest you will not be taxed." That is what I interpret your new law to be, and if that is to be the law, that policy does not deserve to be supported in this house.


Douglas Charles Abbott: I am afraid I have not been able to follow the example my hon. friend has given. If they pay it in patronage dividends it is deductible and if partly in patronage dividends and partly in interest it is deductible.


John Bracken: But the minister said part of it is not taxable if you pay it all out in patronage dividends. You have to keep enough to pay-

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Douglas Charles Abbott: You do not have to keep any of it. You have to pay tax on a portion of it.
A portion of it is considered as taxable income. It is eminently fair as between the two types of cooperatives. Each has in fact earned a return on capital investment. One has done it by having borrowings on which it has contracted to pay interest; the other has obtained the money in the form of a loan without interest or by the accumulation of reserve capital invested, and in effect the members who receive patronage dividends from the total earnings of the company are receiving part of their patronage dividends as an earning on the investment which they have-not on the business, but on the investment. This, if anything, tends to prevent discrimination as between the two types of cooperatives. A great many do have capital in the form of dividenthpaying shares or in the form of interest-bearing securities of one sort or another.


John Bracken: I did not get up to argue this point but only to get a straight answer to a straightforward question. Is a cooperative which pays out all its earnings or savings or profits in the form of patronage dividends taxable or not?


Douglas Charles Abbott: The law as proposed here is that- a cooperative cannot pay out all its earnings in patronage dividends if it has employed capital.


John Bracken: Then it is taxable.


Douglas Charles Abbott: To the extent of three per cent of employed capital.


John Bracken: It does not matter to what extent, it is taxable.


Douglas Charles Abbott: Yes.


John Bracken: Then here is another cooperative, constructed in the same way, 'but they say, "We will pay our members three per cent interest and, if there is any more to pay out, we will pay that out in patronage dividends". Will that cooperative pay you taxes?


Douglas Charles Abbott: They will not pay us taxes, but they have less to pay in patronage dividends.


John Bracken: You say that in the one case they pay taxes and in the other they do not pay taxes. Ordinarily the purpose of a taxing law is to raise revenue, but what is this government doing? It is bringing in a policy which may not raise revenue at all, because it says to the cooperatives, "If you continue to pay out your earnings as patronage dividends you will be taxed", but it says also, "If you pay it out as interest you will not be taxed". What is the government doing? It is accomplishing nothing but this, the driving of people from cooperative methods into something else. It is obviously not a taxation law at all.


Frederick Samuel Zaplitny: I am glad the leader of the opposition spoke as he did, because I believe he bears out what we have been trying to say in this corner of the house, and that is that the proposed object of the bill seems to be to drive the cooperative movement into the category of profit-making enterprise. I believe this is the pivot of the whole bill, this three per cent argument, and that is why I propose to say something on it.
In the first place, I was interested in listening to-day, on another item, to what the minister said, that we cannot make a distinction between income that is earned and income that is derived from investment. I thought that sounded a little strange coming from a good Liberal, so I sent for Adam Smith's "Wealth of Nations," published in 1776, upon which I understand much of Liberalism is based, because I have always understood, as anyone who studies any economics at all understands, that there is a difference between income earned and income derived from investment. If we refer to Adam Smith's book we shall find a statement which goes back a long way and shows how far Liberalism has strayed from the actual theory on which it is supposed to rest, I quote the following from page 35:
Labour, alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price; money is their nominal price only.
That means that there is only one source of wealth, namely labour. In other words, there is only one source of income in the long run, and that is income which is earned. Income from investment is only secondary and incidental income which is derived from somebody else's labour. That is a fundamental principle that good Liberals should be willing to accept. I am surprised that the acting minister does not accept it, because even one of our good friends of the Progressive Conservative party to-night accepted that theory, when the hon. member for High Park suggested that income derived from work should be treated differently from income derived from investment. I congratulate him on his socialist outlook, and I congratulate also the hon. member for Muskoka-Ontario, for he, too, is coming our way.
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What I wish to refer to particularly is this. The whole three per cent question is based upon capital employed. I have tried on several occasions to find out how we can arrive at what is meant by capital employed and I have not been successful. At the top of page 16 of the bill hon. members will find "capital employed in the business" defined in paragraph (b) as follows:
"capital employed in the business" shall be computed in accordance with the first schedule to the Excess Profits Tax Act, 1940.
If we turn to the first schedule of the Excess Profits Tax Act of 1940 and examine it we shall find that there are four categories of capital employed in the business under this definition: (a) cost of assets, and it states what that means; (b) accounts receivable less reserve for bad debts; (c) value of assets acquired otherwise than by purchase; and (d) amount of money and bank deposits. To the last one I should like to direct the attention of the committee-the amount of money or bank deposits actually used by the taxpayer in the business.
It is well known that in most cases cooperatives do not begin with large capital investment. They try to carry on business with as little capital as possible. It could then be construed, if anyone wished to do so, that every dollar which comes across the counter, in the case of a consumer's cooperative, and which is used to carry on business, to buy goods from the wholesale cooperative, or from any wholesale, is capital employed in accordance with paragraph (d) of this definition. If that were the ease then the amount of capital employed in the business would be a much greater sum than is generally accepted or expected. I hope the minister will clear that up for us.
A great deal has been said' to find out why the government are so adamant in regard to maintaining this three per cent position. They have been willing to withdraw from some of the ground that they have taken before and to acquiesce in some of the amendments presented. The key to the whole thing is to be found in the remarks of the Minister of Finance when he made his budget speech on June 27 of this year and when he said, as reptorted at page 2921 of Hansard:
The principle underlying this rule is that amounts set aside out of taxable income to be distributed in proportion to patronage by a cooperative or company which does not pay at least three per cent on the capital employed in its business contain earnings which arise from the employment of captal and ought not to escape tax entirely.
That brings me back to what I started with, namely, that the government have now come 
to the position where they are going to make the cooperatives say, or are putting the cooperatives in the position where they will have to admit, that money earns money, something which the cooperatives repudiated from the time they were first organized.


Douglas Charles Abbott: Not necessarily that money earns money.


Frederick Samuel Zaplitny: That is practically what the minister said. He said that this money has come out of the employment of capital and ought not to escape, tax.


Douglas Charles Abbott: It may be elevators or it may be warehouses.


Frederick Samuel Zaplitny: Yes, but that is not the way it has been explained to us in the discussion. What- it means is that the cooperative associations which believe in service at cost are to be forced into the position of having to admit that money is the governing factor in these societies. They will have to admit that money makes money, something incidentally which Adam Smith repudiated in 1776 when he pointed out that money does not earn money; that the only source of wealth is labour applied to natural resources. In this day and age we find that the government which only about a year ago blazoned forth in large letters that they were going to bring in a new social order in Canada, have now repudiated the very basis of their own Liberalism and are not bringing in a new social order. They are going back

I do not know whether they are going backward or forward; they do not know either; they are going somewhere, but far from the basis of Liberalism.
I condemn this with the strongest words at my disposal, because I believe that everything that has been said here points to the fact that there were outside influences at work. The Acting Minister of Finance says there were no influences from outside sources.
I have to take his word for it; but I happen to know something about the campaign which has been carried on by the income tax payers' association. I know' that the basic thing which they want to accomplish is not the collection of a few piffling dollars for the public treasury, to use the words of the Minister of Veterans Affairs-


Ian Alistair Mackenzie: In what respect is the government going back?


Frederick Samuel Zaplitny: What they wanted to accomplish was to force the cooperative associations of Canada into the position where they would have to acquiesce in this legislation and agree to or admit or accept the principle that money makes money, something which the cooperatives have been trying to

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get away from all these years. The government are going to destroy the very basis upon which cooperation is based.


Gordon Benjamin Isnor: I should like to say a word on this section. I appreciate that hon. members would like to see this section carried after just one side of the question has been presented.	_
With respect to the government driving the cooperatives into a profit-making organization, may I say that my interpretation is quite different. If anything, the government is leaning backward to assist the cooperatives by allowing them to enjoy exemption from income tax on their profits for the first three years to establish themselves in business. If there is no profit to be made and if the cooperatives are against the principle of using money to make money there is no need for them to show a profit. If they do not show a profit they will have no income tax to pay. That is as concise a statement of the picture as I can present it. It is purely a matter of principle. If the cooperatives and those who are interested in cooperative business say they do not want to make a profit, and if they do not take a profit they do not have to pay tax.
In regard to the question of capital employed, why should they not pay interest on capital employed? May I correct my hon. friend who referred to assets such as merchandise, bills receivable and cash on hand. No doubt he had reference to loans. That is all capital employed. That is the basis of the term "surplus" or "capital employed" as it applies to income tax. That is the recognized base on which you make up your tax returns and also your balance sheet, which you must present if you are borrowing money from a bank, as many of us have to do. The bank asks for your balance sheet. It looks over your assets and liabilities, and the difference between one and the other gives the surplus or capital employed.
The private enterpriser-and I am one of them-is obliged to pay either directly or indirectly on the amount of capital invested in his business from the day he goes into business. What happens to the cooperatives? There are allowed three years' exemption and do not have to face the same situation as the private enterpriser. Therefore I say it is a distinct advantage which the government is offering to the cooperative as against private enterprise.
My hon. friend also referred to the fact that you may consider capital employed in connection with every dollar which goes over the counter. Again I say he shows his lack of
experience. One is a direct exchange, money, the medium of exchange for commodities or goods sold by the merchant whether he is a free enterpriser or a cooperative. That is not capital employed; it is just an exchange medium for the goods. One person is on one side of the counter and the other stands behind the counter. The one behind the counter passes out his goods and the other passes over his money or the medium of exchange, which goes on to the manufacturer. It is not capital employed. My first explanation is the real capital employed, which the cooperative enjoys, while the free enterpriser must pay on the day he goes into business.
I just wished to make these few observations to show that there is a definite difference of opinion in regard to this matter and it is not all one-sided. As a supporter of the government, if I had any criticism to offer, I would say that the government in its offer is leaning too far backwards to satisfy the cooperatives owing to the pressure that has been put on in parliament. It is true that the income tax payers' association have sent out a lot of propaganda, but I do not think the average person took very much stock of it. He did not take any more stock of it than the average person took of the barrage which was put across by the cooperatives. Therefore the benefit derived by either the tax payers' association or those supporting free enterprise or the cooperatives can be discounted. I repeat that the government has gone far in trying to meet the wishes of the cooperatives and has given them an actual handicap with which the free enterpriser has to contend.


Frederick Samuel Zaplitny: I should like to reply to one statement made by the hon. gentleman which I do not think is quite correct. He referred to a barrage by the cooperative associations. In all fairness, I think he should admit that the cooperative associations of this country did not do any lobbying or put any pressure on the members of this house at all-


Some hon. MEMBERS:: Oh, oh.


Frederick Samuel Zaplitny: Before you begin to laugh-


Gordon Benjamin Isnor: It was not necessary in your case, perhaps.


Frederick Samuel Zaplitny: They did not do so until they found it necessary to defend themselves from those who were attacking the very basis of their existence. Then naturally they had to dispel the propaganda being put out against them. Before I sit down, I want to reiterate that I am not criticizing the government for
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not having leaned far enough backward. The way they lean I am afraid that some time they will go back so far they will end with a catastrophe.


Douglas Charles Abbott: No danger.


Frederick Samuel Zaplitny: I am not trying to win any more concessions from the government in connection with this bill. I think we have reached a deadlock and there is no use talking about the matter much longer. But I am making a wholesale condemnation of the motives behind the bill itself. For the benefit of the senior hon. member for Halifax, who seems to be trying to persuade me that there is such a 'thing as earnings on capital, I want to say I repudiate that idea. I go back to Adam Smith again, at page 66. Listen to his words:
In that original state of things, which precedes both the appropriation of land and the accumulation of stock, the whole produce of labour belongs to the labourer. He has neither landlord nor master to share with him.
That ought to be something for the hon. member to think over. If we were to go back to the original basis of things-


Ian Alistair Mackenzie: What is that you are reading from?


Frederick Samuel Zaplitny: The "Wealth of Nations", by Adam Smith; not Adam, but Adam Smith. One of the reasons I enjoy listening to the hon. member for Muskoka-Ontario is that he often makes the statement that we should go back to fundamentals, back to the practical things of life. Certainly here is one place where we should go back to the fundamentals; that is, that the wealth produced by labour belongs to labour in the first place. The only way private enterprise or capitalism or whatever you want to call it could make any claim at all was because they had got themselves into the position where they expect to profit from the labour of others. To-day they are trying to deny to the people who produce the wealth the privilege of retaining that wealth. They say no; three per cent of it must be paid out as earnings on capital, which is a myth and which has no basis in any economics. It is a myth created by capitalism in order to make people feel that money creates wealth, and I repudiate that argument.


Thomas John Bentley: I should like to follow up the question asked by the leader of the opposition, who brought out in a different way some of the things we have been trying to point out. In the first place, I agree that this is bad law. If I correctly understood the replies of the minister to the leader of the opposition, he told the hon. gentleman that if one coopera-

five over here pays all its money in patronage dividends, then the last four lines of this subsection would apply. They must first be taxable on three per cent of the capital employed; but if the other cooperative over there were to pay out the money by way of interest, they would not be taxable. That was the answer, was it not?


Douglas Charles Abbott: Not all out in the way of interest.


Thomas John Bentley: That is the way I understood the reply to the question.	-


Douglas Charles Abbott: Perhaps my hon. friend had better finish what he has to say, and then I shall have my say.


Thomas John Bentley: I shall give an example, taking two cooperatives and bringing them down to plain figures. Each has an employed capital of $1,000. At the end of the j^ear each finds that it has earned three per cent, which means that each has earned $30. The first one says, "We will pay it out in patronage dividends on the basis of the business done with the cooperative during the year." The second one says, "We will pay it out on the basis of three per cent of the capital employed." The first one is not taxable. The second one must first declare three per cent of its employed capital before it can pay out any money. Consequently it cannot pay out anything until it has paid three per cent of that $30.


Douglas Charles Abbott: No. In the case of dividends there is no difference between the two companies. They are treated in exactly the same way. A great many cooperatives do have capital in the form of shares, on which they pay dividends, and some have capital in the form of borrowed money on which they pay interest. The leader of the opposition quite properly and perhaps shrewdly took the case of a cooperative which has interest-bearing indebtedness on which it pays interest, and he compared that with the case of a cooperative which had no capital in the form of shares or interest-bearing indebtedness. The hon. gentleman said that in the one case, the case of the company which had part of its capital or all of it in the form of interest-bearing indebtedness, it can deduct that interest from its gross earnings and pay out the balance in patronage dividends, and it will not pay any corporation income tax. The other cooperative, on the other hand, which earns exactly the same amount and which has employed capital of the same amount-the hon. gentleman used the figure of $100,000-but whose employed capital is in the form of neither shares nor borrowed capital, cannot pay out all its earnings in

Income War Tax
patronage dividends. It must pay corporation income tax of three per cent of its employed capital. That is perfectly true; the leader of the opposition is right in that. The main purpose of this section is to avoid discrimination between various types of cooperatives, some of which finance on the basis of shares and borrowed money and others of which build up revolving funds or reserves or amounts which have been left without interest, and also to introduce some measure of equity in relation to private businesses which have to raise their capital by paying interest or dividends. That is the purpose of this section. It does not involve large sums jn revenue, but it does preserve a measure of equity between different cooperatives and it does preserve a measure of equity between cooperative enterprise and private business carrying on the same type of activities.


William Irvine: Would not the amount equal to three per cent of the working capital which had been retained from the members be regarded as borrowed capital? As a matter of fact it is; it belongs to the memebrs.


Douglas Charles Abbott: It would depend on the contract. It might very well be borrowed capital, and the cooperative might enter into an agreement with its members to pay interest on that borrowed' capital. That would be quite permissible.


William Irvine: In which case they would not have to pay the tax?


Douglas Charles Abbott: That is right.


William Irvine: And in which case the leader of the opposition is right?


Douglas Charles Abbott: That is right. In that case the three per cent would be deducted as an expense of doing business. But remember that the cooperative or any other organization that borrows money undertakes to pay interest on it and to repay it, and it can be put out of business if it does not pay its debts. That is the difference between an enterprise which has no fixed indebtedness and one which has, and that is an important point to bear in mind in considering these questions. That is another reason for making this distinction.
Amendment (Mr. McCann) agreed to.
Subsection as amended agreed to.
Subsection 14 agreed to.
On section 5, subsection 1-Depreciation.


William Alexander McMaster: I believe this is the clause I intended to speak to when I rose before. This has to do with the depreciation
allowance. I would call to the attention of the committee that the previous clause, namely clause 1, allows the minister to give such extra depreciation as the minister in his discretion may allow in the case of plant or equipment built or acquired to fulfil oiders for war purposes. Apparently the present clause is to extend the power of the governor in council to any form of plant or equipment. What I object to in this particular clause is that there is no definition of the different classes. I should think the governor in council could now say on what classes of plant or equipment depreciation would be allowed.
I would point out to the committee that in release No. 14 issued on January 25, 1946, the Department of Reconstruction and Supply
state:
A total of 1,561 applications for "double depreciation" amounting to $244,274,545 have been approved to date by the depreciation committee of the Department of Reconstruction and bupply, Reconstruction Minister Howe said to-day.
The committee was established to considei ap* plications for the depreciation benefits provided by an order in council, P.C. 8640, which grants depreciation to manufacturing industry at from half to double the normal rates for taxation purposes on capital expenditures undertaken in the period from November 10, 1944 to December 31	1946. Such applications must nrst be approved by the committee and by Reconstruction Minister Howe before being passed along to the Donartment of National Revenue.
I should think that the date, December 31, 1946, should read "1945", because this was issued on January 25, 1946. I would, again call attention to the fact that this double depreciation is granted1, notwithstanding the fact that ordinary depreciation must have been taken previously.
Possibly I should have spoken about this matter of depreciation when the other section was before the committee. However, that is passed, and I now say that this is the worst form of paternalism. Some hon. members on this side of the house call it bureaucracy; but I call it paternalism, because the governor in council can actually say, and take the power to say what class should receive this extra benefit. I should think the .minister would hesitate to take upon himself that power- because there will be lots of askers, plenty of people who will ask that they receive double the rates normally allowed.
It has been said that this is done to keep up employment after the war. At the present time there is no lack of employment. Indeed, there is a great lack of all the materials necessary to keep workers employed in build-
Income War Tax

ing. I would say that at this time the measure *is ill-conceived and should not be allowed to operate.


Douglas Charles Abbott: The only change made in the present section is to provide that the classes which are to be eligible will be determined by order in council. That, I think, will meet in part the suggestion of the hon, member for Stanstead, namely that they will be specified in the order in council as they are now under the War Measures Act.
Then, on the point raised by the hon. member for High Park, as to whether this is paternalism, my reply would be that I do not know whether it is or not. It is designed to encourage the construction of wealthproducting facilities. One cannot get depreciation more than once. Depreciation of this or any other kind does no more than permit a man to get his capital back. I think it is desirable legislation.


John Thomas Hackett: Is it quite clear that plant or equipment includes ships?


Douglas Charles Abbott: It has been so ruled-


John Thomas Hackett: I know it has been so ruled.


Douglas Charles Abbott: -under the present order in council, which is passed under the War Measures Act; and the class or classes will be specified in the new one.


John Thomas Hackett: I was wondering if it might not be wise to insert a word which would include ships because, as the minister knows, there have been a number of orders in council passed which apply to ships. It might just be that a great many people would be embarrassed if a court were to determine that the wording did not include ships. If the minister thinks it wise to put in a word to make it clear, it would be helpful.


Douglas Charles Abbott: It has been included in the past; it has been so included in the orders in council. If there is any question of doubt, then I am sure this is a case in which the house would not hesitate to legislate retroactively, if it were thought necessary. But I do not think it is, myself.


John Thomas Hackett: Why not obviate that necessity by adding the word "ships".


Douglas Charles Abbott: I do not like to include one special type of plant or equipment. This is something which has been in the statute from the beginning. I feel reasonably certain that the department is now allowing double depreciation on ships. That being so, w'ho will question it?


John Thomas Hackett: I will just add a word about double depreciation. It has been urged by people who were interested in giving employment, and who also appreciated that costs are extremely 'high at the present time, that it was in the interests of all concerned that this depreciation be granted to encourage the doing now of work which might otherwise be postponed for several years.
Subsection 1 agreed to.
Subsections 2, 3 and 4, agreed to.


[Stage Direction]
Section agreed to.
Sections 6 and 7 agreed to.
Section 8, subsection 1 agreed to.
On section 8, subsection 2-Taxpayers whose chief occupation is farming or fishing.
William Scottie Bryce: The minister promised to give me a definition of "farmer."


Douglas Charles Abbott: That comes a little later in the bill.


William Scottie Bryce: This is important and I want to get to the bottom of it.


Douglas Charles Abbott: We are coming to it; we shall be there in a minute.


Donald Methuen Fleming: In the matter of averaging the income over this triennial period, is account to be taken of the out-of-pocket loss of a taxpayer within this class? Are we to consider only his taxable income, or to permit him to carry into the three-year average the deficit incurred in one year? Take a concrete case.


Douglas Charles Abbott: There would be no tax in that year, but a deficit. You go into the three-year average.


Donald Methuen Fleming: Suppose that by reason of losses with his herd he sustained an actual deficit of $2,000. The following year, we will say, he makes a profit of $2,000 and the third year another profit of $2,000.


Douglas Charles Abbott: The average income for two years is nil.


Donald Methuen Fleming: Will his income for the three years be the average of $4,000 over three years, or will it be the average of $2,000 on two years? In other words, are you going to allow him to set off the deficit of the first year?


Douglas Charles Abbott: The first year he had a loss; [DOT]the second year he had a profit of $2,000, and the third year, another profit of $2,000. The income would be $2,000, averaged over the three years.


Donald Methuen Fleming: I think that is the equitable interpretation, but is that quite what this section says?

Income War Tax


Douglas Charles Abbott: No question about that.


Donald Methuen Fleming: The minister spoke about income in the first year. The department would not call that a deficit; they would just say he earned no income that year.


Lewis Elston Cardiff: I want to know where we start this three-year period. Do you start back and go ahead? Do you start this year and then there is next year and the next year ahead, or do you go back?


Douglas Charles Abbott: We start in 1946; that is the first year in which this will apply. The definitive tax payable for 1946, shall I say, will not be ascertained until he knows what his income is for 1948. In 1948 he will average for his three years. If, as a result of that average, he has paid on his actual income in 1946 too much, he has that credit to apply against the tax for 1947 and 1948.


Lewis Elston Cardiff: I understand that perfectly, but what about the next year after that?


Douglas Charles Abbott: He takes 1947, 1948 and 1949 for his average. It is a moving three-year average. We went into this at some length when we were on the resolution.


Lewis Elston Cardiff: That is what I wanted to know.


Winfield Chester Scott McLure: I tried to reduce it to a set of figures to see if I could get an explanation. In 1946 a farmer has a loss of $4,000; in 1947 he breaks even; in 1948 he has $2,000 taxable income. Then he pays no taxes for those 'hree years?


Douglas Charles Abbott: That is correct.


Winfield Chester Scott McLure: Then we go to the next year. In 1947 he breaks even.


Douglas Charles Abbott: That is right.


Winfield Chester Scott McLure: In 1948 he has shown $2,000. In 1949 he shows $2,500. Then his taxable income is $1,500?


Douglas Charles Abbott: I have not followed the income figures.


Winfield Chester Scott McLure: His income for these three years is $4,500?


Douglas Charles Abbott: That is correct.


Winfield Chester Scott McLure: His taxable income would be $1,500?


Douglas Charles Abbott: That is right.


Winfield Chester Scott McLure: All right. He has not made
any money in those three years, though, if you tax him on the $1,500; he had lost $4,000 in 1946. Can he take that loss of the other $2,000, so that his taxable income would be based on $833 instead of $1,500?


Douglas Charles Abbott: In that case he would be taking the fourth year back for the purpose of his average.


Winfield Chester Scott McLure: You cannot carry that loss?


Douglas Charles Abbott: No; it is a moving average. You take the taxation year and the two preceding years, beginning in 1946, and then it is a moving average. Once it is established, it keeps moving on forward as long as he is in the business.


Winfield Chester Scott McLure: That is where the five-year plan would have been better.


James MacKerras Macdonnell: I want to come back to the question asked by the hon. member for Eglinton. I have not been able to find in this anything which bears out the explanation which the minister gave. It may be that there is something which makes it applicable, but I am not able to spell it out of the words that any loss would enter in at all.


Douglas Charles Abbott: The significant words, I think, are "returns of income during the said two preceding years" in line 33 of the section. It is a technical point, but the interpretation which I have given is, I am assured, correct,


Gordon Benjamin Isnor: Does the income tax return show a deficit? Do you send that in?


Douglas Charles Abbott: Obviously, if you are going to take advantage of the three year averaging you must file a return showing a loss. That will be one of the factors in this new system.


Percy Ellis Wright: I should like to ask the minister w'hat the position will be if in the next year the farmer receives payment on participation certificates for 1944 and 1945; will he have to credit that income to his 1947 income, or will he be allowed to use it in the years in which it was actually earned? The same will apply -where he receives participation certificates on wheat over the next four years; those participation certificates would be paid in the year 1950, and if they are worth as much as we hope they may be it might mean a considerable income during that year which would have been earned over the other years. Just what is the position?


Douglas Charles Abbott: It goes back to the year of sale. In other words, if the wheat was sold in 1943, and the participation certificate issued is paid in 1945, the payment is taken back into the income of 1943 and the tax adjusted accordingly; and under the section which we shall see a little later there is no interest payable on that additional tax, if any.
Income War Tax


Harry Rutherford Jackman: May I ask the minister if this section-which I find it awfully hard to read, containing as it does twenty-three lines without a period, in one sentence-means that the farmer will be able to average his taxes, then average his income and then apply the tax? What is the import of the section?


Douglas Charles Abbott: Average his income.


Harry Rutherford Jackman: If he has a loss in one year of $1,000 will that actually apply against the profits of another two years?


Douglas Charles Abbott: That is correct.


Harry Rutherford Jackman: And he averages the income over the moving three-year period and then applies the tax rate against that?


Douglas Charles Abbott: That is right.


Harry Rutherford Jackman: What is the significance of the first line: "a taxpayer's chief business, occupation, trade or calling"? There are a certain number of people who have other lines of activity.


Douglas Charles Abbott: I think it is intended to exclude what I may euphemistically describe as the gentleman farmer who, say, runs a farm as a side-line to his stock or investment brokerage business.


Harry Rutherford Jackman: He is on the old basis, is he?


Douglas Charles Abbott: He is on the old basis.


William Scottie Bryce: I have got my definition of "farmer", from the note here, but there are a couple of questions I want to get clear in my mind. In Selkirk we have a number of farmer-fishermen; they fish in the winter and farm in the summer. Also we have some farmers who run garages. Will these farmers be able to average their farm incomes over three years?


Douglas Charles Abbott: The taxpayer's chief business must be farming or fishing. If he happens to be running a garage on the side that would not affect his status as a farmer or fisherman.
Mr-. BRYCE: A man may be employed in the city and run a fur ranch outside. We have a lot of them around the Red River Valley.


Douglas Charles Abbott: Farming has to be his chief business, occupation or calling to qualify for this special treatment.


William Scottie Bryce: And the gentleman who runs a farm as a hobby?


Douglas Charles Abbott: I have just answered that question from the hon. member for Rosedale. He does not come under it.


John Bracken: I have one little technical question. I wonder if the answer the minister give a little while ago was correct or what he intended to give. You are going to average the income of the farmer for the preceding three years?


Douglas Charles Abbott: No; the current year and the two preceding years.


John Bracken: But he does not pay his tax in the current year.


Douglas Charles Abbott: We start in 1946. It will first be ascertained what the average is when the operations for 1948 are concluded.


John Bracken: That is neither here nor there, because it is the average for the three years that is taken.


Douglas Charles Abbott: That is right.


John Bracken: The minister said that he paid income tax in the fourth year on the basis of the average of those three years. Are you not going to take into account the income tax he has paid in the past three years and bring that into the calculation?


Douglas Charles Abbott: We are going to take into account the tax paid in the two preceding years when he pays in the third year, and adjust the tax at that time on the basis of the average income for the three years.


John Bracken: If the minister will look up the answer he gave the hon. member for Rosedale he will find that he left a different impression. He said the average income, not the tax.


Douglas Charles Abbott: I said that you average the income for the purpose of ascertaining the tax. Then the tax adjustment is merely a matter of mathematics. The tax in the first year may be $1,000 and, in the second year, $1,500. After the third year, the income is averaged and the tax adjustment made on a simple arithmetical basis.


John Bracken: That was not the impression the minister left.


Douglas Charles Abbott: I am sorry.


Percy Ellis Wright: What is the position of the farmer who is a member of parliament?


Douglas Charles Abbott: I think his principal activity is still that of a farmer. He can average his farm income. Of course his income as a member of parliament is constant.


John Bracken: A member of parliament can use his indemnity to pay his losses on- his farm.
[Mr. Abbott.1

War Assets-Army Supplies


Robert Fair: I asked the minister earlier if he would not extend the three-year average to five years, and he said he would not do that. I would ask him to reconsider, because I have tables here showing the wheat prices from the year 1910 on, and it shows an erratic picture. I have also a chart showing the yields.
I believe that if the minister would take these tables into consideration he would further consider making it a five-year period instead of a three-year. I move, Mr. Chairman, that subsection 5 of section 8 be amended by striking out the words "forty-eight" in line 77 thereof and substituting therefor the word "fifty", and by striking out the word "two" where it appears in lines 3, 5, 15 and 21 and substituting therefor the word "four." That would mean taking the year 1950 instead of 1948 and making it a five-year average instead of a three-year average.


Douglas Charles Abbott: That, in effect, is the same amendment which my hon. friend moved on the resolution, and I must take the stand I took before that it is out of order.


William Ross Macdonald: As I pointed out on an earlier amendment, the principle of the bill is based on the resolution of the committee of ways and means, and the amendment would disturb the balance of ways and means. It would be out of order at the resolution stage and is equally out of order when the bill is before the committee, and I must so rule.


Frederick Samuel Zaplitny: What is meant by "marine animals" in 'the definition of fishing on page 22?


Douglas Charles Abbott: Seals, I suppose, and that sort of thing. I did not draw the definition. It was intended to be as comprehensive as possible to include the fruits of the sea.


Frederick Samuel Zaplitny: I am not so sure that it includes fish. It says:
"Fishing" includes fishing for or catching shell fish, crustaceans and marine animals.
It seems to include everything but fish. It says "fishing for."


Douglas Charles Abbott: It is a legal refinement. The deifinition is intended to expand what might be the ordinary definition of the term "fishing."


George Randolph Pearkes: I have a question with reference to a growing industry on Vancouver island. Is a man who harvests seaweed a farmer or a fisherman?


Douglas Charles Abbott: He gets the benefit in either
case.


Mr. BURTON:: We have suddenly got away from farming to fishing. I was waiting to put one final word with respect to this farming
proposition which has been mentioned many times in the house. The definition of "farming" is this:
"farming" includes all tillage of the soil, live stock raising, raising of poultry, fur farming, dairying, fruit growing and the keeping of bees.
May I point out that this is work that in the great majority of cases is carried on by the farm family. Yet, as our income tax laws are drafted, one person is taxed on the income earned by the whole family. A large part of this work is done by the women and children of the farmer.
Section stands.
Progress reported.



INDUSTRIAL RELATIONS


[Stage Direction]
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs) moved:
That the name of Mr. Raymond ("Wright) be substituted for that of Mr. Lapalme on the standing committee on industrial relations.
Motion agreed to.
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Wednesday, August 14, 1946