1946-07-30

Hon. J. A. MacKINNON (Minister of Trade and Commerce):: Mr. Speaker, as the house has been advised, the government's attention has been directed for some time to the question of wheat policy for western Canada. The
Wheat Policy

United Kingdom-Canada wheat contract, signed on July 24 and announced to the house on July 25, is an important element in the new policy for western wheat producers that I now wish to describe. The contract establishes a market for a considerable proportion of the next four western wheat crops, with underlying price guarantees. This factor, along with the continued shortage of foodstuffs and the high prices of competing wheats, makes it possible to deal more generously with the wheat producer than I indicated in this house on March 20, 1946. At that time, I announced the continuation of the initial price at SI .25 per bushel basis No. 1 Northern in store, Fort William-Port Arthur or Vancouver, for the 1946-47 crop year.
The new policy is based upon an initial price of SI .35 per bushel basis No. 1 Northern in store Fort William-Port Arthur or Vancouver, applicable to ail the wheat delivered to the Canadian wheat board in the five-year period from and including August 1, 1945, and July 31, 1950. The 1945-46 deliveries, based on an initial price of $1.25 will be brought up to a $1.35 basis by payment of a flat ten cents per bushel on all grades.
As the house has been informed, the payment of about 12 cents per bushel as participation on the 1943 crop is now under way. This participation payment will be followed by one on the 1944 crop the sale of which has progressed to a point where I am safe in saying that the participation payment will be upwards of 16 cents per bushel. After the ten cent payment on the 1945 crop has been made-to bring the initial payment up to $1.35 -the plan is to place the remaining surplus from that crop in a five-year pool with the succeeding four crops of 1946, 1947, 1948 and
1949.	Participation certificates will be issued in the visual way, but the payment on these certificates will not be made until after the conclusion of the five-year pool at July 31,
1950.	In other words, the deliveries of all five years will be bulked in one pool, with the same initial price of $1.35 ruling throughout the period and the surplus resulting from the marketing of these crops will constitute the participation payments.
In connection with deliveries, there was, of course, no restriction on 1945-46 deliveries and it is the intention of the government to instruct the Canadian wheat board to accept all the wheat that producers wish to deliver in 1946-47. The best information we can get indicates a continued over-all world shortage of wheat and wheat flour in the coming crop year. Deliveries in the last three years of the pool will depend upon conditions of production and of markets. It will be provided in the new orders that the deliverable quantities will be determined by the governor in council before each new crop

year, but in any event, the deliverable quantity shall not be less than 14 bushels per authorized acre. The latter provision should safeguard wheat producers against an extreme reduction in deliverable amounts, should available markets be smaller than we expect.
I should also mention the provisions for domestic and export prices. In the interests of general price control that benefits the wheat producers along with other Canadians, the domestic price of wheat will be continued at $1.25, with the government assuming carrying costs on the amounts of wheat used domestically. The government will continue to pay a drawback to millers covering the difference between 77# cents and 125 cents per bushel on wheat used in Canada for human consumption. This is, of course, not a direct charge against the producer. With regard to export prices, the supplies for the United Kingdom will obviously be sold within the terms of the contract. In sales to non-contract countries, a serious effort will be made to sell at prices roughly corresponding to those of the other principal supplier-now, the United States. To this end, order in council P.C. 6122 of September 19, 1945, has been revoked. It will be remembered that through this order the government directed the Canadian wheat board for the time being not to exceed a sales price of $1.55 per bushel for No. 1 Northern in store Fort William-Port Arthur or Vancouver in its export sales.
It will be apparent from what I have just said and from the. terms of the United Kingdom-Canada wheat contract that the government considers it wise and advisable to continue the Canadian wheat board as the sole purchaser of western Canadian wheat from the producers. The government believes that the great majority of western producers are satisfied, for the present at least, with this method of marketing. The present powers of the Canadian wheat board will be extended under the National Emergency Transitional Powers Act for the duration of this statute. When it expires, the government will direct its attention to the form and authority under which the board's powers may be further continued.
Other powers of the board, such as delivery quotas, will continue to be employed as in the past. For 1946-47, however, the quotas will not be finally restrictive but employed for the purpose of fairly dividing elevator space and railway cars among all the producers.
The representations that have been made to the government by spokesmen for the organized producers of western Canada stress their great desire for stability, so far as it can be attained by government action, during the post-war years. I think it can be fairly said

Private Bills
that the policy I have outlined helps the producers materially toward that objective. There is no question that the wheat producers have made possible the success of domestic price control by immediate sacrifices in their 194546 and current export prices. These sacrifices have also assisted in overseas rehabilitation. The government is convinced that the outlined policy will give fair and comparatively stable returns to the producers, so far as it is within the power of the government.


Mr. JOHN BRACKEN (Leader of the Opposition):: Mr. Speaker, I wish to commend the minister for certain aspects of the announcement he has just made. I should like to ask one question which has to do with the non-deliverable wheat after this year. As I understand the minister's statement, he made four or five definite announcements. First, the initial price is to be increased from SI.25 to SI .35; second, the participation certificates-are to be increased from 12 cents, to 16. cents,


James Angus MacKinnon: For one year.


John Bracken: Third, the Canadian wheat board is to be continued; fourth, all the wheat from this year's crop is to be accepted under the present terms, and fifth, the dominion is to assume all the cost of carrying the domestically used wheat.


James Angus MacKinnon: Assume the carrying charges.


John Bracken: I understood the minister to say that there is no assurance that more than 14 bushels would be accepted in any one year after this year. Am I correct?


James Angus MacKinnon: Included in the statement is an announcement that the amount of wheat that will be taken from the producers each year will be reviewed each year, but there will be a minimum of 14 bushels per authorized acre.


John Bracken: For each of the four years after this year?


James Angus MacKinnon: Each of the three years. The period for 1945-46 is almost past. For the next year we are taking all the wheat, and for the following year a minimum of 14 bushels per acre.


John Bracken: It would be the next three years after this year?


James Angus MacKinnon: Yes-for 1947-48, 1948-49 and 1949-50.


Mr. WRIGHT:: Is it the intention of the government to continue the wheat board as the marketing agency for coarse grains as well ?


James Angus MacKinnon: Yes, as has been done for several years.



PRIVATE BILLS


[Stage Direction]
Bill No. 311, for the relief of Joseph Alphonse Christen.-Mr. Maybank.
Bill No. 312, for the relief of Edmund Lionel Hurd.-Mr. Baker.
Bill No. 313, for the relief of Gladys Elsie Lariviere Doyle.-Mr. Baker.
Bill No. 314, for the relief of Ernestine Ann Lathrop MacNaughton.-Mr. Baker.
Bill No. 315, for the relief of Irving Ven-groff.-Mr. Maybank.
Bill No. 316, for the relief of Robert Malcolm Dickenson.-Mr. Maybank.
Bill No. 317, for the relief of Gwendolyn Edith Edson.-Mr. Maybank.
Bill No. 318, for the relief of Bernice Mae Skidmore Weale.

Mr. MacLean.
Bill No. 319, for the relief of George Christie Henderson.-Mr. Maybank.
Bill No. 320, for the relief of Marie Lauretta Eliennette (Rita) Vallerand Barraclough.-Mr. Maybank.
Bill No. 321, for the relief of William Thomas Bennett.-Mr. Maybank.
Bill No. 322, for the relief of Edna Marjorie Pitts Wellington-Mr. Maybank.
Bill No. 323, for the relief of Josephine Isabelle Nicholls Broglie Geoffrion.-Mr. Maybank.
Bill No. 324, for the relief of Rose Hannah Colbeek Grant.-Mr. Maybank.

[Stage Direction]
PRISONERS OF WAR IN HARVEST OPERATIONS On the orders of the day:
Mr. H. 0. WHITE (Middlesex East): Mr. Speaker, I should like to direct a question to the Minister of Labour. In view of the urgency of harvest operations, would the minister consider the request of the farmers of western Canada that the hours of work of prisoners of war engaged in harvest operations be from 9.15 a.m. to 5.00 p.m. daylight saving time, instead of from 8.15 a.m. until 4.00 p.m.? Four o'clock daylight saving time is really mid-afternoon.
Hon. HUMPHREY MITCHELL (Minister of.Labour):: I can assure my hon. friend that the matter will be discussed with the Department of National Defence which has jurisdiction over prisoners of war, the Department of Labour being merely the placement agency I am sure that all hon. members, irrespective of the side of the house on which they sit, are anxious to help the farmers in this very difficult time.

Tomahawk Iron Mine



UNITED NATIONS


[Stage Direction]
On the orders of the day:
Mr. JEAN-FRANQOIS POULIOT (Temis-couata): Mr. Speaker, before the orders of the day are called perhaps I may be allowed to trespass upon the exclusive extraterritoriality of the hon. member for Peel (Mr. Graydon). I see in the morning paper that a representative of a British dominion has demanded in Paris that the small nations be allowed greater power. I should like to know if Canada, a sister dominion, is still a small nation or a middle power.
Mr. GLEN:: Mr. Speaker-


Mr. POULIOT:: The question is a reasonable one. I want to know if Canada is a small nation or a middle power, and why and when it occurred.
Right Hon. L. S. ST. LAURENT (Minister of Justice): I think the hon. member knows Canada as well as any of us, and he will have to arrive at his own opinion as to what class she is in.


Jean-François Pouliot: My opinion is that Canada is not a small nation.


EXTERNAL AFFAIRS
[Stage Direction]
On the orders of the day:
Mr. GORDON GRAYDON (Peel):: Mr. Speaker, I desire to direct a question to the Acting Secretary of State for External Affairs. I note that in answer to a question raised in the United Kingdom House of Commons yesterday the Minister of State, Mr. Noel Baker, said that he understood five Canadians were among the British subjects at present held by the Yugoslavian government. I desire to put to the minister the following questions: (1) Does this statement coincide with the information possessed by the Canadian government? (2) What are the names of the Canadians so held? (3) What are the reasons for such detention?(4) What steps'is the government taking to see that they are released?
Right Hon. L. S. ST. LAURENT (Acting Prime Minister): Mr. Speaker, I shall have to take the hon. member's question as a notice and see if there is information available upon which proper answers could be based.



TOMAHAWK IRON MINE


[Stage Direction]
On the orders of the day:
James Allison Glen: Mr. Speaker, the 'hon. member,
for Peel (Mr. Graydon) asked a question of me on Friday last regarding a report in the Canadian Mining Reporter dealing with the Tomahawk Iron Mines Limited. I have a reply here which is very lengthy and with the consent of the house I would ask permission to have it placed on Hansard as an answer to the question.
In the July 26 issue of the Canadian Mining Reporter, serious charges are made against certain officials of the mines and geology branch in connection with work performed and reports made for Tomahawk Iron Mines Limited.
At the request of Mr. C. F. Edwards of that company, the bureau of mines conducted concentration tests on a five-ton sample of their ore to determine if a high grade (99 per cent) metallic iron powder could be prepared on a commercial scale. The results obtained were not encouraging with respect to the production of such a high-grade product and were so reported. It was explained to Mr. Edwards that a commercially acceptable iron powder could be prepared, though this would not command the high price aimed at by him. We have no reason to doubt the ability or good faith of the officers concerned with these tests.
At the request of Tomahawk Iron Mines Limited, Doctor T. L. Tanton, a geologist on the staff of the geological survey, spent several days examining the magnetite occurrences on the Tomahawk property and subsequently submitted a report which he concluded by expressing the opinion that no body of iron ore of economic importance had been revealed. Doctor Tanton has been the geological survey specialist on iron ores for some years and the department has had no reason to question his ability or integrity.
The article in the Mining Reporter lists seven specific questions, and I shall read, for the benefit of the house, these questions and my answers to them:
Answers to questions asked by the Canadian Mining Reporter of the Hon. J. A. Glen in its issue of July 26, 1946, in regard to the mines and geology branch and Tomahawk Iron Mines Limited:
1.	Question: What is Doctor T. L. Tanton's previous experience in the realm of magnetite iron geology?
Answer: Dr. Tanton's experience with iron ores dates back at least twenty years, and has

Immigration
been concerned with deposits of all types, magnetite included, and in different parts of Canada. Much of his field work during this considerable period has been devoted to the examination of iron ore both of productive properties and of various occurrences and prospects. Doctor Tan ton has served on the field staff of the geological survey since 1913. He received his undergraduate education at the university of Toronto, from which he obtained his B.A. degree in 1911 and his M.A. degree in 1912, and continued with postgraduate studies in geology at the university of Wisconsin, under such internationally known iron experts as Professor C. K. Leith, eventually securing his doctorate degree in geology in 1915.
2.	Question: Has the bureau of mines any recognized magnetite iron expert on the staff of its geological survey? If so, what is the name of the expert and what is his experience?
Answer: The geological survey is not part of the bureau of mines but of the bureau of geology and topography. These two bureaus are the main components of the mines and geology branch of this department. The recognized magnetite iron expert on the staff of the geological survey is Doctor Tanton and his experience and qualifications have been given above.
3.	Question: Are the bureau's ore dressing laboratories suitably equipped for the efficient concentration and examination of magnetite?
Answer: Yes.
4.	Question: If so, why did they fail to produce a concentrate purged of impurities in as high degree as was done under Professor Lord's supervision at Queen's?
Answer: We have no information as to Professor Lord's report nor the technique he followed.
5.	Question: If not, why did the bureau's laboratory staff at Ottawa presume to issue the damaging report which they released on this iron concentrate?
Answer: The report issued (No. 1775) was the result of carefully prepared tests on the basis of a tonnage mill operation. The results indicated that a 99 per cent metallic iron powder (which is considered the requirement for a high-grade iron powder) could not be produced, owing to the fact that the magnetite concentrate contained unreducible non-ferrous matter and that 100 per cent reduction is not experienced in an iron reduction process.
The conclusion in 'the report referred only to "high-grade" 99 per cent plus iron powder.
I am advised that no complaint has ever been received from Mr. Edwards or Tomahawk Iron Mines regarding the contents of these reports, but that on the contrary Mr. Edwards wrote as follows in a letter dated February 8, 1945:
"I would like to take this occasion of very sincerely thanking you and all the staff for your work and effort expended on the concentration of our magnetite to such a high degree of purity and for your very comprehensive and complete report on same. I can assure you that our appreciation of the efforts of the bureau of mines in our regard is very deep."
Again on March 31, 1945, Mr. Edwards wrote
in part as follows:
"Thanking you in anticipation of your cooperation in this matter and again extending heartfelt thanks for your invaluable work done on the concentration of our ore."
6.	Question: What person or persons in the bureau of mines "leaked" the damaging aspects of the Tanton and the ore dressing laboratory reports in advance of release to the public to the Northern Miner, enabling that newspaper to publish statements damaging to the company on what they "understood" the report would contain when released?
Answer: The geological examination and report on the property and the ore dressing work on the bulk sample W'ere both done free of charge. In such cases the mines and geology branch reserves the right to make such distribution of reports as it sees fit. In this case copies of the reports were sent to Mr. C. F. Edwards of Tomahawk Iron Mines shortly after their completion and to Ontario government officials, as is our usual practice. Some time later in the spring of 1945 it was found that Tomahawk Iron Mines Limited was issuing what was considered misleading advertising in that it was quoting sections from the bureau of mines report which were favourable to its operations and omitting other parts of a contrary character. Because the manner in which this report was being utilized was unfair to the investing public it was decided that the company had forfeited any claim for confidential treatment of the results and the reports were released on authority of the director of the mines and geology branch. Mr. Edwards was advised of the reason for their release. Subsequently the Ontario securities commission saw fit to make a full investigation of Tomahawrk Iron Mines Limited and to cancel its registration certificate.
7.	Question: If, as stated, by W. B. Timm, director of the mines and geology branch of the bureau, in a recent letter to a director of the company, his office "is organized to assist in the development of the mining and metallurgical industries," vdiat instructions are issued to staff members relating to external dealings in confidential material?
Answer: All members of the staff of the mines and geology branch are required to take the oath of office and allegiance on joining the public service. The first oath deals specifically writh the fact that confidential information shall not be released. Confidential reports are released only on the authority of the chief, bureau of mines, or the director, mines and geology branch.
In concluding, I should like to say that the mines and geology branch is organized to assist in the development of the mining and metallurgical industries of Canada and endeavours to the best of its ability to fulfil that function.



IMMIGRATION


[Stage Direction]
On the orders of the day:
James Allison Glen: Mr. Speaker, yesterday the hon. member for Peterborough West (Mr. Fraser)

Wheat-Harvest Expenses

asked if the transportation to Canada from Holland and Belgium of the wives and fiancees of ex-service men had been held up because the immigration branch had not officers over there, and if these wives and fiancees will now be given priority.
The movement of dependents of service personnel is wholly within the jurisdiction of the Department of National Defence. The immigration officers have nothing to do with their transportation. The fiancees are not entitled to any transportation priority. As a matter of fact there is no transportation at the present time to have them brought here.
As to inspectional facilities on the continent, I am dealing now with the governments of countries where we wish to place our inspee-tional facilities, and, as I stated a little while ago, we expect within a very_ short time to have these inspectional facilities established.


Mr. G. K. FRASER (Peterborough West):: May I ask if these wives and fiancees will not have priority in transportation over the Poles? That is the question I wished particularly to ask.


James Allison Glen: The Acting Prime Minister, in replying to the hon. gentleman's question yesterday, stated that his understanding was that these Poles were being brought here under arrangement with the United Kingdom government. There is no question of priority for the Poles; the wives will continue to have the priority they have always had.


Mr. RODNEY ADAMSON (York West):: The minister said wives and fiancees. That is an enlargement, a good enlargement, is it not, on the rule?


James Allison Glen: I did not say fiancees. The wives and dependents are under the jurisdiction of the Department of National Defence, and the question of their transportation does not fall within this department.



PAYMENT OF PARTICIPATION CHEQUES-HARVEST EXPENSES

[Stage Direction]
On the orders of the day:
Mr. H. R. ARGUE (Wood Mountain):: I should like to direct a question to the Minister of Trade and Commerce. In view of the rapidly approaching harvest in western Canada, will the minister announce when the wheat board cheques will be in the mail? Farmers need this payment to meet harvest expenses.


James Angus MacKinnon: I presume that the
hon. member is referring to participation

cheques for 1943. Many of these cheques are in the mail now, and the others will follow just as quickly as it is physically possible to get them out.



QUESTION AS TO CONTROL BY WHEAT BOARD- CEILINGS ON OATS AND BARLEY'

[Stage Direction]
On the orders of the day:
Mr. WILLIAM BRYCE (Selkirk):: I wish to direct a question to the Minister of Trade and Commerce, of which I have given him notice. As we are nearing the close of the crop year, has the minister considered the advisability of putting rye under the control of the wheat board? If not, why not?


James Angus MacKinnon: Mr. Speaker, the hon. member's notice of his question reached me just as I came into the chamber. Last February or March the leader of his party, the C.C.F., wrote me about this same matter, which is of considerable interest to many members of the house. At that time I made inquiries from my officers and received from them a memorandum which I think I can do no better than give in answer to the hon. member's question.
The hon. member asked whether the minister had considered the advisability of putting rye under the control of the wheat board. A proper appraisal of the rye position requires a number of observations. These are:
During the war the production of certain crops became a matter of national urgency and consequently the principle of established minimum prices was extended to include oats, barley, flaxseed and other oilseed crops. The dominion government felt that when producers were asked to increase the production of certain crops to meet wartime needs, minimum prices should be established in order to give the producer the necessary confidence in the products which were urgently needed. In successive wartime grain programmes rye was never included and at no time was the production of rye a matter of urgency. Producers who grew rye during the war years and since did so entirely on the basis of their own judgment and without direct encouragement on the part of the dominion government.
In the lack of any degree of urgency in the production of rye, it is difficult to find a reason why the dominion government should include rye within the scope of its national grain policies. In establishing measures in respect to wheat, oats and barley, the government was acting on behalf of crops which were produced

Rye Control
by most farmers in the prairie provinces and any policies established in respect to these crops had a broad significance to western agriculture. In contrast, rye is a crop produced on a very limited scale and is without
significance to a very large number of producers in the prairie provinces. This situation may be illustrated by the following table showing the 1945 acreage of rye, wheat, oats and barley for each of the prairie provinces:
Acreage
Rye	Wheat	Oats	BarleyManitoba	
26,000	2,132,000	1,697,000	2,139,000Saskatchewan	
259,000	13,610,000	5.717.000	2,672,000Alberta	
125,000	6,824,000	3,335,000	2,048,000Total	
410,000	22,566,000	10,749,000	6,859,000
It will be noted from this table that in 1945 rye acreage amounted to 410,000 acres as compared with a total of 40,174,000 acres seeded to wheat, oats and barley. These figures indicate that rye production in the prairie provinces is not sufficiently important nor sufficiently widespread to justify inclusion within government policies in the general interest of western agriculture.
For the reasons outlined in paragraphs 1 and 2, rye has not been included in successive grain programmes announced by the dominion government.
The only point at which dominion government policies have impinged upon the rye situation has been in connection with the maximum price regulations. When price ceilings were first published for grains :n January, 1942, a ceiling was placed upon rye. This ceiling was removed in April, 1943, for the following specific reasons:
Maximum price regulations were intended to control price levels in Canada. Canadian consumption of lye is relatively small, the bulk of rye marketings going for export. Consequently, as far as price ceilings were concerned rye had very little significance. The Canadian consumer had practically no interest in the maintenance of a ceiling price for rye which was predominantly an export product.
The price of rye having practically no effect upon domestic price levels in Canada, the government felt that no good purpose could be served by continuing the ceiling price on rye.
The dominion government felt that the producer of rye, not having the protection of minimum prices, was entitled to whatever price could be obtained for lye.
Points 1, 2 and 3 combined led to the decision to remove the ceiling price on rye which represented the only control which the government had exercised-and only for a brief period

in respect to this grain. The question may be reasonably asked as to why a ceiling price was not maintained on rye and domestic ceilings enforced in respect to wheat, oats and 63260-2554
barley. The answer is that the domestic price of wheat has a very definite effect upon living costs in Canada, and prices for oats and barley have both a direct effect and an indirect effect upon price levels in Canada. The major effect of the price of oats and barle3' is in relation to production costs of live stock and live stock products-very important items in the cost of living structure in this country. In short, control of the domestic price of wheat, oats and barley was essential to proper price control in Canada, while on the same basis, the maintenance of a ceiling price on rye was not important.
The rise in the price of rye has taken place on an open market and consequently it is difficult to appraise the validity of price levels as established. The price of rye can find its own level without limitation on the upward trend of prices, and without government support on a falling market. During the past two or three years prices have advanced and producers have been able to secure going market prices for whatever quantities of rye they desired to market.
The question at issue is not whether the price of rye is too high or too low. Fundamentally the question is whether or not the government should have intervened in connection with the marketing of rye in the first instance, and maintained a needless ceiling in the second instance. As pointed out earlier in this letter, it is difficult to find reasons why the dominion government should have included rye within its various grain programmes and should have maintained a ceiling price which had little or no significance in connection with the broad price "policies which the government established in the general interest in Canada. These are the main points to be considered in connection with the rye position up to the present time.


Percy Ellis Wright: I should like to ask a supplementary question of the minister. Has the government given consideration to raising the
404.2
Business of the House

ceilings on oats and barley to bring the prices of these grains into conformity with the new price on wheat?


James Angus MacKinnon: I think that is a matter of government policy. When there is any policy to announce it will be announced.



COMMISSION TO BROKERS ON WHEAT SALES TO UNITED KINGDOM

Mr. ROBERT FAIR (Battle River):: My question to the Minister of Trade and Commerce arises out of the statement he has just made; for that reason it has not been possible for me to give him notice. The question is, wall payment of commission to brokers by the wheat board be continued on sales of wheat to the United Kingdom under the new agreement; and if so, why?


James Angus MacKinnon: That, Mr. Chairman, is also a matter which has been under discussion in the cabinet, but no decision has been arrived at, and it is a matter of government policy which will be announced at the proper time.



NATIONAL HOUSING ACT


[Stage Direction]
Right Hon. C. D. HOWE (Minister of Reconstruction and Supply) moved the third reading of bill No. 306, to amend the National Housing Act, 1944.
Motion agreed to and bill read the third time and passed.

[Stage Direction]
Right Hon. L. S. ST. LAURENT (Acting Prime Minister): May I be permitted to say a word of explanation with respect to the order of business to-day? Hon. members will recall that last night I stated that the Minister of Veterans Affairs would like, if it were agreeable to members of the house, to advance one stage the resolutions dealing with the legislation resulting from the recommendation of the committee on veterans affairs. There are already nine of these resolutions on the order paper-eight in the name of the Minister of Veterans Affairs, and one in the name of the Minister of Finance but dealing with veterans affairs. There are three more of which the text is in the Votes and Proceedings of yesterday, but those Votes and Proceedings have not yet been distributed, so I suggest that this be allowed to stand until three o'clock, when hon. members will have had the Votes and Proceedings and will have seen the other three resolutions which make up the twelve I mentioned last night.
[Mr. Wright.)
Mr. GREEN:: They are out now.


Mr. BROOKS:: The Votes and Proceedings are out now.
Mr. ST. LAURENT: I have not yet had an opportunity to see them, so if hon. members will allow that to stand until three o'clock we will proceed now with the budget resolutions.


Mr. T. L. CHURCH (Broadview):: Mr. Speaker, there is one matter on which I will not take more than two or three minutes, and which has been raised several times in this chamber, about soldiers not being able to get into a house they have purchased. They spend their means and use up their credit and gratuities in buying a house, and then are unable to occupy it. A man's house is his castle; he wants to live in his own house. Will the minister look into it?


Mr. SPEAKER:: Order. I must remind
the hon. member that the bill to which he refers has been given third reading.


Thomas Langton Church: I was on my feet when the motion was called.


James Horace King: We are no longer on that order of business.


Thomas Langton Church: Mr. Speaker, I claim the right to ask a question. No member has a copy of the bill, and if I have not got it I am going to appeal. I was on my feet when the motion was made for third reading.


James Horace King: I must remind the hon. member that the third reading of the bill was adopted by the house; moreover that I put the motion to the house "that the said bill do now pass", and that motion also was adopted. Unfortunately for the hon. member, there can be no debate on a bill which has been passed. The house has proceeded to other business.


Thomas Langton Church: With all due deference,
Mr. Speaker, I was on my feet when the motion was called. I wish to appeal from your ruling, because I wished to put my question on the third reading of the bill.


James Horace King: No point of order is raised by the hon. gentleman.


Thomas Langton Church: I am a member of the House of Commons and I am going to do my duty. I do not intend to be interfered with on any technical interpretation of the rules.


James Horace King: Order. I would say to
the hon. member that on many occasions such as this I have been very polite and

Income War Tax
generous to him and I did not want to tell him that it is sometimes hard for him to hear what is going on in the house; and this is why he does not rise at the proper time.


Thomas Langton Church: The bill was not passed when I rose; the assistant clerk had the bill in his hand, and no copies of it were available.



WAYS AND MEANS

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

[Stage Direction]
12. That for the 1947 and subsequent taxation years, the provision exempting the income of certain cooperative companies and associations be repealed and that for the 1946 and subsequent taxation years provision be made that there may be deducted from a taxpayer's income the aggregate of the payments made,
(a)	in the taxation year or within six months thereafter to his customers of the taxation year; and
(b)	in the taxation year to his customers of a previous taxation year after the 1941 taxation year and not previously deducted under paragraph (a) in respect of specified allocations in proportion to patronage for the said years the prospect of which was held forth;
(c)	by the statute or by-laws under which the taxpayer carries on business or by his contracts with his customers; or
(d)	by the taxpayer in a specified manner prior to the commencement of the taxation year except that portion of such payments as woidd if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business, including therein borowed moneys, the interest paid by the taxpayer on borrowed moneys and deductible as an expense in computing his income.
Mr. BENTLEY:: When the house adjourned on Friday night I had given the minister an example in which I regret I made an error in arithjnetic of half a dollar. However, the illustration I gave him is on the record, and I should be glad if he would reply now to the question.


Hon. DOUGLAS ABBOTT (Acting Minister of Finance):: When we rose on Friday night the hon. member had given an example with respect to the operation of the revolving fund, and he asked me this question: "At what stage does the government's plan say the fund has reached a level from which an increase in the revolving fund is considered to have taken place for taxation purposes?"
I think I can answer the question best in this way. A cooperative, like the one described by my hon. friend, will be permitted to deduct from its income for tax purposes patronage dividends paid to members or customers whether in respect of the current year or
some earlier year. If it can be established that the patronage dividends have been paid, actually or constructively-and I explained what I meant by "constructively"-they are deductible, subject of course to the 3 per cent rule. The balance is the income of the cooperative and taxable in its hands. A cooperative is therefore taxable on any increase in its undistributed earned surplus. That is a simple statement of the proposed law.
One of the reasons for this rule is of course the difficulty of taxing as income in the hands of the recipient a patronage dividend declared by a producers' cooperative but not paid. To be specific, what is the value for tax purposes of a patronage dividend declared by a producers' cooperative but not paid? Is it the discounted value of a payment to be received several years hence? If so, what rate of interest is to be used, and what would happen if the patronage dividend were not paid when intended or were never paid?
I am adding this because I would not want any hon. member to think that the government is being arbitrary in its proposals on this point. There are strong practical reasons for insisting on actual or constructive payment- and, as I say, I explained the other night what is meant- by constructive.


Thomas John Bentley: We can take it. that actual or constructive payment is the key to the whole thing.


Douglas Charles Abbott: I think that is correct,


Mr. McKAY:: It is my conviction that resolution 12 will still have very serious-consequences to cooperative enterprises as it now stands. It seems to me that cooperative-enterprise is so far-reaching in its effect upon the economic life of the Canadian people that anything that is done to limit cooperative activity is most undesirable and will because of its ramifications affect the lives of thousands of people. In the past, cooperatives have received reasonably good treatment at the hands of government. As a matter of fact most provinces have encouraged cooperative enterprise, and that of course is in keeping with the recommendation of the united nations conference on food and agriculture which in 1943 made certain recommendations which appear in the "Canada Year Book". While in convention in the United States, the conference recommended that all countries study the possibilities of further establishing producer and consumer cooperative societies in order to provide necessary production, marketing, purchasing, finance and other services.
Over the years cooperative development has been on a vast scale in this country. According to the "Canada Year Book" in 1942 member-
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ship in the organizations from coast to coast was in the neighbourhood of 561,000 persons, and besides this there were over 600,000 patrons. In that year cooperative associations conducted business on a large scale, totalling in all over a quarter of a billion dollars. These associations embraced consumer cooperatives for the sale of petroleum, food and clothing in some 1,722 different organizations.
In the case of fruit cooperatives, largely located at the Pacific coast, stores were operated which provided fertilizer, barrels, boxes and spray materials for the growers, while on the western plains cooperatives handled fuel for tractors, feed and household needs.
In Saskatchewan a great producer cooperative operates for the marketing of grain, namely, the Saskatchewan wheat pool, which has a membership exceeding 125,000 persons. Other producer cooperatives include poultry, live stock and dairy products marketing. Indeed, cooperatives of this type are found in almost every province of Canada. To meet the needs of farmers for low-cost fuel, a [DOT]cooperative oil refinery operates in the city of Regina and its record to date has been most [DOT]encouraging.
On the coasts of Canada, both west and east, 'fishermen have banded together in some 67 associations. I believe that figure is up considerably now, because my figures are taken from the Canada Year Book for 1942. In these 67 associations there were some 5,000 members banded together for the purpose of processing and marketing their fish.
In the province of Quebec cooperative enterprise takes on a somewhat different form. There the credit unions have been most enterprising and on the whole most successful. Loans have been provided by these unions at interest rates considerably lower than those provided by the small loan companies, and profits are distributed to members in the form of patronage dividends.
Throughout Canada, in 1942, 1137,000,000 in loans was provided by these cooperatives to the people, who in many cases would not have been able to obtain these loans elsewhere. That is the point which I wish to make most emphatically.
In order to provide fire insurance to farmers at low cost, some 150 farmers' mutual fire cooperatives are now functioning. In 1942 these organizations had risks valued at more than a billion dollars.
Finally I should like to refer to cooperative enterprise in the province of Nova Scotia. The hon. member for Cape Breton South is occupied this morning in the industrial relations committee and is unable to participate in
[Mr. McKay.1
this discussion. In Nova Scotia the British Canadian Cooperative Society of Sydney Mines was born because of the great need of the folk of that area during the depression years. It has been an outstanding success. The people have remained loyal to the principles of cooperation. Several stores now handle groceries, dry goods, meats, and men's wear, things the people who work with their *hands must have. The society operates a bakery, a dairy and a tailoring department. Legislation which interferes with such development strikes deep into the lives of these [DOT]people. There are many other hundreds of cooperatives, including group life insurance, which were born during the depression when thousands of people had to relinquish high-priced line company insurance policies. Cooperatives dealing with hospitalization operate in most of our larger cities. Rural people have set up cooperative telephone systems in places where private enterprise failed to provide them with that much needed communication service.
The scope of cooperative enterprise is vast. People in low income brackets were not only forced to group themselves together to sell their products most advantageously, but also to enable them to purchase consumer goods to the very best advantage. And now this resolution is presented to the house. In spite of what the minister says, cooperatives are of the opinion that the adoption of this proposal will restrict their activities and the general effect may well damage the whole cooperative movement.
There is a fundamental difference between a cooperative and a non-cooperative enterprise. Obviously the government does not recognize this difference in the resolution now before this committee. Differences were recognized in section 4p of the Income War Tax Act, and unless they are recognized now it will have a serious effect upon the cooperative development generally. Section 4p has been repealed, and so far as I can determine there is nothing specific to replace it. I am pleased to note, however, that the government is prepared to accept the representations which have been made by cooperatives and members of the house that there should be some differential between the treatment of members and non-members. The extension of the time for the payment of patronage dividends from six to twelve months is also an alteration in the resolution which commends itself to all cooperatives. However, I believe a longer period than twelve months will be much more acceptable. It has been suggested to me that twenty-four months would meet with the approval of all cooperatives.

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If I understand the minister correctly, the revolving fund will be permitted to revolve even though set up subsequent to 1941. But the legislation before us will make it almost impossible for cooperatives to outlive a depression of any length of time. The cooperatives should have power to limit the amount paid out to ten per cent of the total in any one year, and in times of crisis to be able to suspend payments of patronage dividends entirely. If this resolution is adopted, members of cooperatives will not be permitted to use their own money in operating the business unless interest of at least three per cent is paid on the capital, or an alternative tax is paid on an equivalent amount. This, in effect, forces the cooperative into the position of a profit enterprise, and is contrary to the non-profit principle set up by the Rochdale pioneers. If individuals wish to place their money in the cooperative, interest free, they should have that privilege. Interest free loans were not uncommon during the war when the government was in grave need of money. After all it is the people's money, and this restriction on their use of it in cooperative enterprise without expecting interest should be removed.
I wish to place on the record a letter and two telegrams protesting against this proposed legislation. These telegrams and letters were received from cooperatives. One comes from the Saskatchewan Credit Society Limited of Regina. I shall read the resolution which was passed on July 26:
That this board urge most strongly that parliament adopt the recommendations of the royal commission on cooperatives with respect to' the taxation of credit unions, including federations of credit unions whose membership may comprise other credit unions, cooperative associations, parishes, school districts and other similar bodies.
The first telegram comes from the Cooperative Union of Saskatchewan, and reads as follows:
Cooperative Union of Saskatchewan strongly urges first cooperatives be exempt three years from commencement of operations. Hardship to many new cooperatives if three year tax exemption confined to those organized after 1946. Second, exemption of retained patronage dividends if withdrawals subject to discretion of directors to protect cooperative; third, exemption of medical housing rural telephone electricity cooperative desired.
The second telegram comes from the cooperative association of Riceton, Saskatchewan, and reads as follows:
Our cooperative association and credit union urge that all new cooperatives be allowed three year tax exemption; that allocated dividends be exempt if stated reasonable term
for payment announced; that federations of credit unions be included in same category as unions; that hospital, housing and electricity cooperatives be included.
In conclusion may I draw the attention of the committee to resolution 17 on eodpera-tive movements which was passed by the united nations conference on food and agriculture, held in the United States in 1943, and attended by forty-five different nations. Section 3 of resolution 17 reads as follows:
The democratic control and educational programmes, which are features of the cooperative movement, can play a vital part in the training of good democratic citizens, and assist in inducing a sound conception of economic matters.
It is my hope, and I am sure it is the hope of every cooperative, that nothing will be done by this parliament to destroy the movement which plays such an important part in developing sound democratic citizenship, and which has done so much to create a better understanding of the economic life of our nation.


Mr. KNIGHT:: There are two things which I like particularly about cooperation. The first is that it teaches men to help themselves, and the second is that it gives them an interest and a stimulus in helping each other. I am pleased to note that the government is showing a greater disposition to be fair to the cooperative organizations throughout the country. With its finger on the public pulse- and no one will deny it has that-it has sensed a growing resistance throughout this country toward legislation which would be unfair to such institutions. So I believe the minister is to give consideration to our representations, with a view to reviewing the whole situation before .presenting the bill. True, the three per cent provision in respect of capital remains, but such excellent expositions were given on this subject by my colleagues from Dauphin and Cariboo that I shall be content to leave the record as it is.
Perhaps I should apologize for the observation I intend to make to-day, because of the simplicity of the matter which has oome to my mind as a result of the question asked by the hon. member for Calgary West. At page 3960 of Hansard the hon. member said that the minister would first have to define a cooperative, and that then he would have to tell what profits are, and also what patronage dividends are. The committee may be disappointed in what I have to say, because I believe every hon. member could answer those questions, and none more ably than the hon. member for Calgary West. However
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the issue has become so much confused, and the propaganda of the enemies of cooperatives so widespread, that I believe it would be wise to answer the hon. member's questions.
He has said that when he drives along the road in his automobile he comes to two little stores. He sees a sign in the window of one store and another in the window of the other. He goes into the store the sign of which he likes best, and there makes his purchase. He says there seems to be no difference in the operation of the two stores, and I take it he assumes there should be no difference in the treatment they receive at the hands of the taxing powers of the country, fn what I shall say I shall ignore the large cooperatives, including the wheat pools, and shall confine my remarks to the small stores on the corners, as described by the hon. member.
First of all, the little store with the cooperative sign in the window meant nothing to the hon. member. He saw only a sign. Although it meant nothing to him, to me it means years of organization in that district. It means a protest against conditions as they were, and an attempt on the part of the people to do something about it. To me it means people gathering in meetings and, perhaps after repeated failures, electing a board of directors to look after their interests, and appointing a manager to run their store.
One would say that the stores are identical in appearance and in operation. They sell at the same prices. But here is one point I would call to the attention of the committee: The retail store has nothing to fear from the cooperative, as I know it. The enemy of the retail store is the same enemy as confronts the cooperative. Cooperatives have never cut prices. They have sold at the regular rates charged by retail merchants. They get their cut-back in patronage dividends. They do not interfere with the retail merchant in any way; nor will they, unless by unjust taxation they are compelled to cut their prices to a point where they will have practically no patronage dividends. It will be a sad day for the retail merchants of Canada when that takes place. If those merchants were wise they would not fall for the submissions of such organizations as the Income Tax Payers' Association.
To come back to the two stores: I am not a business man, but I would ask the committee to take note of the selling prices of the cooperative store which, for purposes of clarity,
[DOT] we shall call store A. The selling prices of that store are made up of three factors, the first of which is the original cost of the goods,
(Mr. Knight.]
the second the expenses in connection with the operation of the store, and the third the overcharge.
For the moment we shall leave store A and turn to store B, which is not a cooperative but which operates in exactly the same way. Its selling prices consist of the original cost of the goods, the cost of operating the store, and the overcharge.
One will ask what the difference is. In reply one could say that a cooperative institution is an organization in which one finds a number of people who want to buy a certain article for a dollar. They find that by banding themselves together they can make the purchase for ninety cents. Would any sane man say they should be taxed upon the ten cents they do not pay for the article which they have been able to buy for ninety cents through the process of joining together? One would say that that is self-apparent, that it is oversimplification. I admit it is simple, but the actual process is just as simple as the description I have given.
What is the difference between the two stores, or the two processes of merchandising, which I have described? The whole difference lies in what is done with the overcharge. And by making an explanation of that I hope to answer the question of the hon. member for Calgary West when he inquired as to the meaning of profit and of patronage dividends.
Let us return for the moment to a consideration of store A, with its cost, expenses and overcharge factors. The overcharge of store A is paid back into the pockets of Smith, Jones and Thompson, who bought the goods and paid for them on the understanding that they were charging themselves a little too much with a view to holding something in reserve and taking care of the expenses in the operation of the store. So that overcharge returns to the pockets of those individuals who in the first instance paid money for the goods. This much is clear.
On the business done in store B all the overcharge paid by Jones, Smith and Thompson goes into the pocket of Brown, the owner of the store. In the first instance I believe one is using a misnomer when he refers to patronage dividends paid back to the people who originally made the purchases. In other words that money disappears; it goes out of the picture; it is no longer there as an overcharge. It is that part which was paid in excess when the purchaser bought his goods from store A, and has been returned to such purchaser. On the other hand in the purchases from store B the overcharge goes from the pockets of all the purchasers I have named

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to the pocket of one man. This in simple language is I believe the definition of profit.
The minister will say that he is not going to tax such organizations, and of that I am glad. But I believe it is time someone, for the benefit of those who may be confused, should lay down facts as simple as those I have set forth.
The hon. member for Calgary West asked for the definition of a cooperative. In that connection I would bring to the attention of the committee a matter which I have already discussed with the minister's department and to which I received an answer. It has to do with a medical aid society which operates a branch in my city. I should like to have it defined as a cooperative which would escape taxation. This society has a large membership in the three prairie provinces, and is made up of employees of the Canadian National Railways. Its purpose is similar to that of other medical societies, namely that of providing surgical and medical care, in this instance, for the railway workers and their dependents. Why should there be any doubt about this organization being tax free? When the society was organized there was no suitable legislation then in force in Saskatchewan under which it would come and they had to organize under the insurance act. It is a nonprofit organization, and we feel that it should be free of income tax levy. What would be the status to-day of such an association? The royal commission on taxation of cooperatives paid some attention to these non-profit making organizations. The recommendation No. 9 of the commission report reads:
That associations incorporated or registered under provincial cooperative legislation, or incorporated as a cooperative under dominion authority, for the purpose of providing telephone services, distribution of electric power, or medical and hospital services, be exempt from income and excess profits taxes.
It will be noted that the legislation must be cooperative. At the time of the inauguration of this Canadian National employees association, although it is mutual and cooperative in nature, they were unable to register under a cooperative act. Although it has been overlooked, we are satisfied it was the intention of the commission to recommend that all such societies or institutions should be tax exempt. Can the minister tell us what would be the status of an institution of this kind?


Douglas Charles Abbott: Offhand I would think that an organization of that kind would probably not have income within the meaning of the act and consequently would not be subject to tax. The question is a technical one, and
I should like to take time to look into it. Perhaps I can give my hon. friend a more definite answer when we are on the bill.


Mr. STIRLING:: I have had great difficulty in finding out just how this legislation will apply to the various cooperatives in the riding I represent, of which I suppose there are thirty or forty. Some are consumer cooperatives, there are producers' cooperatives, there is an egg producers' cooperative, a seed growers' cooperative, but the great majority are fruit and vegetable shipping houses. They receive produce from the farmer and they estimate that it will cost a certain number of cents per package to grade, pack and prepare for shipment. If it is found at the end of the season that they have deducted more than enough for that purpose they rebate to the producer so many cents per package. I think that could be described as being the simplest form of cooperative. Of course there is no profit.
This organization, in order to assist its members, may set up a store which sells feed, seed, tools, groceries and all sorts of things. Here again it endeavours to buy as economically as it can and sell as economically as it qan, and at the end of the season it may be in position to make rebates, or possibly they would be termed patronage dividends to members and non-members alike.
From what the minister said in amendment two or three days ago I understand that the rebates or patronage dividehds paid to members will be allowed as a deduction, but a deduction from what? This organization is occupied principally in handling and packing the farmers' produce, and' it is only as a convenience for its members that it sets up the store. It surely cannot be conceived that the target amount of three per cent on capital can apply in this case, where but a small portion of the capital of the cooperative is tied up in the store which it runs.
I find it hard to ascertain what the three per cent really means. Am I right in assuming it is the amount which shall be considered to be taxable if the cooperative makes a profit and if, after deducting the patronage dividends paid to its members, it has left a comparatively small sum of money which is profit? We agree that a cooperative which makes a profit is taxable under this legislation, but is it to pay a tax up to three per cent of its capital when only a small part of that capital is used' for the business which produces a small profit?


Douglas Charles Abbott: I will see if I can explain it. The assumption is that the cooperative which my hon. friend has described, which

Income War Tax
might be both a consumer cooperative and a producer cooperative, has certain employed capital, that is, it has certain capital tied up in buildings, machinery, equipment and perhaps as working capital of some sort. This being a small cooperative it may have from $10,000 to $15,000 tied up in that type of asset. The legislation proceeds on the assumption that capital as such earns a return qua capital. If I have $15,000 and I put it into victory bonds, I get three per cent. If I have S15.000 and I put it into real estate, I get the rental. If I am a business man and I invest $15,000 in plant and equipment, I get a return on that capital as distinct from the return I get from my business acumen and other aspects of my trading venture. If a cooperative employs $15,000 of capital-I am using that as an example-and has that much income, it is considered as earning three per cent on that $15,000. That three per cent of $15,000 will be considered as taxable income and subject to tax. The whole kernel of this three per cent proposal about which there has been so much discussion is that capital is considered as producing a reasonable return, whether it is in a cooperative, in a grocery store, in a factory, or anything else; and it is suggested here that three per cent on that capital is a reasonable return. I do not know whether I,have made myself clear, but I have tried.


Grote Stirling: I gave an illustration of of what I conceived to be a true cooperative, that is, a business which receives the farmers' produce, grades it, packs it, prepares it for shipment, and sells it. There is no profit, because any excess over and above the cost of that work is returned at the end of the year. I understand from the minister that three per cent of its capital would be subject to tax.


Douglas Charles Abbott: Not if it operated on the basis my hon. friend suggests and returned everything at the end of the year. A cooperative of that type would have no profit out of which it could pay interest on capital. A great many cooperatives will not have earned three per cent on their capital; if their operations are conducted in such a way that they do not have a taxable income, then the three per cent rule just would not apply. My hon. friend has cited what to me appears to be a combination cooperative, a consumer cooperative and a producer cooperative. It is perfectly true that for the producer cooperative the result may be no taxable income on that end of its operations, whereas on the consumer cooperative end there may be a profit. If you combine the two, some of the

so-called profits on the consumer end of the operations may be income available for this three per cent return on invested capital.


Grote Stirling: In this instance we agree that the purely shipping house is a true cooperative and that there is no profit.


Douglas Charles Abbott: I did not use the term " purely shipping house." It may so conduct its operations that it will not have a profit.


Grote Stirling: Now I will cite the case of such a cooperative, and we will say that eighty per cent of its business is in handling the produce of the farmer, but it wishes for the benefit of these farmers to set up this store. It employs but a fraction of the capital of the association, and surely it cannot be right to set up that as a figure on which taxation can be levied, three per cent of the total capital. Can it not be three per cent of that portion of the capital used for the purpose of setting up the store?


Douglas Charles Abbott: I think my hon. friend is right, but I must reiterate that if the cooperative, for its own convenience or for reasons of its own, combines its producer and consumer functions, and if it has what is taxable income within the meaning of the act, then to the extent that it has capital invested in its general enterprise, three per cent on that capital must be considered as the return which the cooperative organization has earned on invested capital. There has been a lot of talk that it should be perfectly free to members of cooperatives to lend money to a cooperative without interest. That is quite true. They are free to do it. That is their privilege. But the organization as such must be deemed to have earned a return on that investment, and that applies to any organization that has invested capital. I know it is a little confusing.


Grote Stirling: Take as an illustration this association whose primary business is the handling of the produce of fruit or vegetable growers. Such associations have their annual meeting in the winter, and the directors of the association put it to their members that they deduct from any moneys coming to the growers in the coming year the sum of money required as working capital, a levy, if you will, in the form of so many cents a package or so many cents a box. In that way it sets up what practically amounts to what is called here a revolving fund, although that is not the term we use in the Okanagan valley. I take it that that sum certainly is^ looked upon as the growers' own money and is in no sense a profit and therefore is not subject to tax.

Income War Tax


Douglas Charles Abbott: That is correct. I gave that answer to the hon. member for Fraser Valley the other night. If there is an agreement that so much per box or per barrel or per quart of milk shall be deducted for that purpose, my hon. friend is correct. But that cannot be determined solely by a resolution of the directors of the cooperative. The member himself must agree that there shall be so much deducted per box of apples or whatever it may be.


Grote Stirling: He must agree-what does that mean?


Douglas Charles Abbott: Sign a contract, or send a letter to the association, the other contracting party.


Grote Stirling: Signifying his agreement?


Douglas Charles Abbott: Yes, and the other contracting party is the cooperative association.


Thomas John Bentley: The minister has left me a little bit confused. He was not consistent in his statement. He said in reply to the hon. member for Yale that if the organization pays out all its surplus in the way of dividends it has no income and is not taxable.


Douglas Charles Abbott: I did not say that. My hon. friend was citing a type of cooperative which operates in British Columbia, where the growers enter into a contract with the cooperative whereby they get an initial advance and authorize the cooperative to hold back so much per box of apples or per quart of milk, which they get back at the end of the season if the money is not needed.


Thomas John Bentley: Even in that case you are going to insist on applying this clause, "except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business." That is to apply to the capital equipment.


Douglas Charles Abbott: That is right. Some of the cooperatives may have substantial capital equipment which will not earn income within the meaning of the act, and against which three per cent could be allocated. That will probably apply in the case of a great many cooperatives. I think a lot of the cooperatives are crying before they are hurt. I think a great many of them will find that this three per cent rule will not apply.


Thomas John Bentley: I am not clear on that, and I should like to have an authoritative statement on it.


Douglas Charles Abbott: I am doing my best. I say again what I said the other night, that the process of trial and error is the best way to
demonstrate how this will work. Admittedly it is a very complex question, and I can only do my best to explain it.


Thomas John Bentley: I am going to give an example close to home. In Swift Current we have a cooperative association in which some people hold at the present time more capital shares than others, but we are gradually working to the point where all members will hold exactly the same number of dollars of shares, perhaps $10 per capital share. That is to provide the facilities we require for the distribution of our supplies and services. We have 1,500 members now, and hope to reach 2,000 in the next year or two. Then we shall have 2,000 members each with a capital share of $10. I can see no earthly reason for forcing us to pay ourselves three per cent on that $10 of capital equipment. It only means extra bookkeeping for us, and does not do the government any good. All it does is to make trouble for us. But it does establish one thing, and that is the government's determination that interest must be paid on capital, even if you are paying it back to yourself. If the reason for that can be made clear to me I will withdraw my objection.


Douglas Charles Abbott: There is to be no compulsion to pay three per cent on the figure my hon. friend mentioned. If there were 2,000 members in the cooperative, that would presume $200,000 invested capital in plant and equipment. If that cooperative operates in such a fashion that it has no taxable income, there will be no three per cent on the $200,000 which will be considered as subject to tax. It might operate in that way. I think it would be within its power to do it if it operated as the hon. member for Yale suggested. But if it does not, if it operates in the ordinary way in which an association ordinarily operates, without any contract with its members to deduct a certain amount per box or per barrel and then refund it at the end of the year, it may end up the year with, let us say, for the sake of example, a profit of $10,000. It then proceeds to distribute the final patronage dividends. During the year, let us say, it has paid an instalment patronage dividend, but after it gets its accounts closed at the end of the year it finds it has $10,000, after estimating as closely as it could what it could pay out. Three per cent of $200,000 would be $6,000, and therefore of the $10,000 there would be $6,000 which would be considered as subject to tax, and $4,000 which it would be free to distribute in any way it saw fit. The $6,000 would be subject to tax at the present rate of 30 per cent, which would be $1,800, so $1,800 would be deducted from the $10,000, and the balance of the $10,000
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or $8,200, would be distributed as a final patronage dividend for the year and the balance would have been paid as tax.


Thomas John Bentley: The minister is getting a little closer to it, but-


Douglas Charles Abbott: Perhaps I should add that if by any chance the cooperative had borrowed money, if it owed money and had paid interest on it, the interest on the borrowed money would be offset against the three per cent to which I made reference.


Thomas John Bentley: The minister mentioned the possibility of a $10,000 profit. That $10,000 profit would be the amount of money that was not allocated, under the terms the' minister suggested to us the other evening and again to the hon. member for Yale in reply to his question. That would be unallocated money which remains in the hands of the cooperatives and for which there is no authority from any member to withhold to his account; or would it be in some other way that the profit would arise? There is no place for a profit to arise in this cooperative, even the $10,000 the minister suggests, because we do not make estimates at the end of the year after stock taking and the auditor's report; our managing force and directors must provide an exact statement. There is no residue, neither $10,000 nor one dollar, after the allocation of the dividend is declared. The only amount held is what we have agreed to by resolution of the meeting. Now the minister is going to insist that we have an individual authorization of our board of directors to withhold it. We will not quarrel with that now-that is oniy another way of getting the authorization; but there cannot be any $10,000 or any other amount, so where will the profit arise?


Douglas Charles Abbott: If my hon. friend has paid out only what are contractual obligations- and I emphasize that word "contractual"- there will not be any income. Perhaps I had better quote what the minister said on that point in his budget speech, Hansard, page 2921, because it brings the point out fairly clearly:
The first step in determining the tax liability of a cooperative or any other company will therefore be to compute its taxable income in the ordinary way. In this computation the cooperative or company will continue to be able to claim as an expense payments that are found to be enforceable obligations of the cooperatives and not profit-sharing distributions. Having determined its taxable income the cooperative or company will then be able if the proposed amendment is adopted to deduct distributions in proportion to patronage paid out of income in that year subject to the limitation I have outlined above.

So that if my hon. friend's cooperative operated on the basis of paying out only contractual obligations to its members and patrons during the year and ended up the year with no income, the three per cent rule simply could not apply.


Thomas John Bentley: I am to understand, then, that the profit of an organization will be only that ipart that is not exigible by the members in any circumstances, and therefore three per cent of the capital employed will be taken from that, and become taxable-


Douglas Charles Abbott: Not exigible under a valid contractual obligation.


Thomas John Bentley: Not exigible under a rule or contract, or whatever the law prescribes. Then it will be the unallocated reserve which will be liable to income tax?


Douglas Charles Abbott: I would have to say, not necessarily.


Thomas John Bentley: What other place could it come from? That is the point I am trying to get at.


Douglas Charles Abbott: I am not clear what my hon. friend means by "unallocated reserve". If he means what is left over after they have met their contractual obligations for the year-yes.


Mr. ROSS (Souris):: This becomes more
confusing than ever. I had an idea that this was the theory of rent and investment income, but I suppose that is not so. Will the minister explain the situation with respect to the pool elevators? I understand that their elevators and all that system are recognized as capital; are they to be assessed on three per cent of these capital assets, or is it just the amount of money which is involved in their business for the year? What is the situation with regard to all their capital assets, including their elevator systems?


Douglas Charles Abbott: I am advised that the patronage dividends declared by the pools are not contractual obligations in the sense in which I have referred to them. They are profit-sharing distributions.


Thomas John Bentley: Oh, well; that is all wrong. I do not know where the minister got that understanding.


Douglas Charles Abbott: I am not an expert on the way the pools operate, but I am told that that is what the Department of Justice has ruled.


James Arthur Ross: Is it clear that none of these capital assets, such as pool elevators, are to be assessed?

Income War Tax


Douglas Charles Abbott: If the pool elevators or any other elevator has capital invested, and it earns a profit within the meaning of the income tax act, the first item taken out of that so-called profit will be 3 per cent on its employed capital. It will be considered that that investment will have earned a return before the member is entitled to a rebate on the price of his product. That is the essence of the thing, I think, and it seems to me that that is eminently fair as between cooperatives or any other type of enterprise, as between the consumer cooperative which is on one side of the street and the corner grocery on the other side of the street.


Thomas John Bentley: But pool elevators have not an investment in anything.


Douglas Charles Abbott: My hon. friend appreciates that a pool may have a separate legal entity in the same way that a large number of cooperatives are incorporated; they are a separate legal entity from the individual members. The McDougall commission recognized that unanimously; there is no question about it. I think we must accept the principle. My hon. friend shakes his head. There may be a difference of opinion, but I think the majority opinion is that we must accept the fact that they are a separate legal entity, and proceed on that basis.


Mr. DIEFENBAKER:: I find it very difficult to understand this resolution. It seems to have been drafted in a way that cannot be understood either by those who are for the cooperatives or those who are for the Income Tax Payers' Association. Certainly in my experience I have never seen a section drawn so incomprehensibly as is this one. I am sure the acting minister will take no praise for having drafted it; and it will be difficult to ascertain just who did draft it. The minister has had to resort to the explanation of the Minister of Finance on the budget in order to elucidate what apparently he himself is having difficulty in understanding-and I am not saying that in any derogatory sense at all. But would it be possible for the minister to let the committee have a copy of the bill in so far as it will implement this section?-because if the bill is no clearer than this resolution, litigation will be the order of the day.
As I understand it, a cooperative exists for the express purpose of giving service at cost and without profit. But as one reads this section, and I am saying this in the most cooperative spirit, it is meaningless. It may be understood by those who will be administering it, and they may place their interpretation upon it. But surely a committee of
parliament, men in all walks of life with all the dissimilar points of view that are being expressed here, have the right to ask the minister to bring down a resolution that we can understand and that will not be subject from time to time to different interpretations. Certainly the minister's point of view will not be the interpretation placed by the courts on any section based upon this resolution.
May I ask the minister a question in regard to a cooperative I referred to when I was speaking on the budget itself-the Davidson Cooperative Association. This has been a true cooperative giving service over the years, to such an extent that during 1945 it did business just slightly under half a million dollars. The directors have been dividing up any surplus by way of patronage dividends, subject to this condition. When a member is entitled to a patronage dividend, until he has earned a credit of $20 he may not draw that dividend. It becomes part of a reserve fund placed to his credit, and may be withdrawn on request at any time he withdraws from membership in the association. In other words, it is held as a trust fund to assist in the purchase of goods and in the assurance of credit at any time the member withdraws, when he is entitled to that $20. Would that now be subject to tax?


Douglas Charles Abbott: Listening to what my hon. friend has said, I should think it would be allocated. I should think it would come within the terms of the resolution, though I would have to look at the particular regulation.
I know the hon. member has had to be elsewhere in the last day or two when we were discussing some of these resolutions, but I have pointed out on previous occasions that it is necessary that some of them be worded in fairly general terms; one cannot be as specific as one is in the legislation itself. The resolution covers not only cooperatives but similar payments in other concerns in accordance with the McDougall commission's report. A number of matters which the minister dealt with in his budget speech and which I have been discussing here do not need to be dealt with by specific legislation. They can be dealt with under the provisions of the income war tax act as it stands to-day. It was felt desirable, however, that as part of the whole plan there should be a clear statement, or a statement as clear as it can be made, as to how some of these various matters would be dealt with.


John George Diefenbaker: So there is really no change in the law except for the three per cent.

Income War Tax


Douglas Charles Abbott: There will be, yes. My hon. friend will see when the legislation comes in that there will be a change in the law, particularly in view of the statement I made on Friday that cooperatives may deal with members and non-members on a different basis, which is of course different from the original proposal based on the recommendations of the McDougall report. I do not think the resolution is quite as badly drafted as my hon. friend would indicate. It is broad in its terms, admittedly.


John George Diefenbaker: Was not that always the law, the principle which the minister has just enunciated? What changes are being made?


Douglas Charles Abbott: The most fundamental
change is that we are making patronage dividends deductible from gross income for the purposes of taxation, which the Department of Justice stated was not the case when it gave its opinion in 1943. That is the big change, which the Minister of Finance referred to as a great victory for cooperatives. That is the big change that is being made in the law, and it is a pretty important one, I can tell you.


John George Diefenbaker: There could be no "victory" until the courts had so determined, and as a matter of fact, while the members of the Department of Justice did give that opinion, the government apparently did not regard the opinion too highly.


Mr. CRUICKSHANK:: May I ask whether patronage dividends paid in shares are subject to the tax?


Douglas Charles Abbott: I think they are deductible, yes. They will be income in the hands of the recipient, the same as if they were in cash.


George Alexander Cruickshank: And subject to taxation.


Douglas Charles Abbott: Yes.


George Alexander Cruickshank: In our province *we are compelled by law to have a ten per cent reserve. I do not know about the other provinces, but I should like to know' whether that ten per cent is subject to taxation.


Douglas Charles Abbott: I am advised that if the ten per cent reserve is beyond the amount required for depreciation and bad debts, it will be an unallocated reserve, considered subject to the tax.


George Alexander Cruickshank: I understand that in British Columbia if the amount is less than $100,000 a reserve of ten per cent must be set up. There are certain special rules, I
l Mr. Diefenbaker.]
presume, under a statute governing some cooperatives. The normal reserve in the province must be ten per cent, but in some cooperatives, owing to the capital structure, ten per cent is not sufficient.


Douglas Charles Abbott: I w'ould have to look into that question and give an answer later. I am not clear what the ten per cent is on. Perhaps the hon. gentleman could enlighten me on that.


George Alexander Cruickshank: I understand that in the province of Quebec the provision is five per cent. Ours is ten per cent, fixed by statute, and I cannot see why, when a provincial law compels a cooperative to set aside that reserve, it should be subject to taxation.


Douglas Charles Abbott: If that amount were in excess of what is allowed under the dominion income tax law for depreciation and bad debts, it would be taxable. Presumably under the provincial law the ten per cent is for one or other or for both those purposes, and I should not think it would be beyond what is allowed in the dominion law. But if perchance it is beyond what is allowed in the dominion income tax law, to the extent of the excess it would be taxed. It would not be taxed up to the amount allowed by the dominion income tax law.


George Alexander Cruickshank: Another point that affects us is this. We have certain odd amounts left over as we make our normal payments, and we put these odd amounts into a fund. Would that be subject to taxation? Suppose the amount were $750.


Douglas Charles Abbott: It would be subject to the same rule. If the ten per cent amounted to SI .050. if that did not go beyond the permissible limit under the Income War Tax Act, in respect of bad debts and depreciation, it would not be taxable. If the S50 ran them over $25 it would be taxable, I suppose, to the extent of $25. The governing factor would be the permissible reserve for depreciation and bad debts under the Income War Tax Act.


George Alexander Cruickshank: They are not permissible; they are mandatory under the provincial law and not subject to taxation.


Douglas Charles Abbott: They are not subject to tax except to the extent that they may exceed the permissible reserve under the dominion income tax act.


George Alexander Cruickshank: If the provincial law specified that it must be a certain amount, why should it be subject to taxation? I do no-t care whether it comes under the dominion income tax or not. If the provincial legis-

Income War Tax
lation allows them that right, why should we penalize the members of the cooperative who had nothing to do with the legislation here, and who operate under provincial law?


Douglas Charles Abbott: I think the answer to that must be that it cannot be within the power of any province to defeat the purpose of the federal income tax law, which must be a law generally applicable to all of Canada. Therefore so far as that law is concerned the various provincial governments should bring their legislation into line, or if they do not, if they impose a condition for depreciation and bad debts along the line we have been discussing, then the excess amount would still have to be considered taxable income for the purposes of the dominion act, but only to the extent of the excess; otherwise, as my hon. friend will see, it would be open to provincial governments pretty well to defeat the purpose of the Income War Tax Act. I do not mean to imply that we are saying to the provinces that they must bring their legislation in line with ours. But I do wish to make it clear that if their reserve requirements were greater than those permitted under the dominion law, the dominion law would apply and the excess would be taxable.


Percy Ellis Wright: Has the minister or his department any estimate of what this tax would return to the government on the basis of the cooperative business done in Canada in 1945?


Douglas Charles Abbott: No, we have not any
estimate of that.


Percy Ellis Wright: In my opinion it would not be a large sum of money. I believe there is a basic difference between the thinking of the members of this group and the minister on this subject. This tax contravenes the cooperative principle, namely, that a cooperative is a non-profit making organization. The minister has accepted the McDougall report. That report says that cooperatives are profitmaking organizations. So far as the cooperatives are concerned the report was unsatisfactory because it contravened that principle. The cooperative movement in Canada has grown out of the needs of the people over the past twenty-five or thirty years. Little groups of people here and there in every province have themselves tried to solve some of their economic difficulties. They used the cooperative method to do it.
I agree that across the dominion there are many cooperatives formed which are not true cooperatives. That was natural. We had no legislation either in the provinces or in the dominion to guide the various groups which formed themselves into these organizations.
Gradually some of the provinces developed cooperative acts which define a cooperative within provincial jurisdiction, but we have never had a dominion act which would unify cooperative practices across the country. It is because of the lack of an act to do that that we find ourselves in our present position.
The hon. member for Lake Centre said that this is a controversial resolution, that it is not clear. I do not think that it can be clear under our present set-up; I do not think we can ever have a clear position in this matter until we have defined what is a true cooperative, and when we have done that any cooperative which can come within that definition should be considered a non-profit organization and its capital or any part of its money should not be taxable. These organizations are groups of people mutually joined together to do business with themselves, to use their own money. That money is taxable in the hands of the individual, and by making it taxable in this way we are simply imposing double taxation on that money.
There is a second point which is important so far as the cooperatives are concerned, namely that it is going to make it difficult for them to expand. I believe that is the purpose of the resolution.


Douglas Charles Abbott: No, it is not.


Percy Ellis Wright: It will mean that if they build reserves, which are necessary in any business, whether it is individual or otherwise, the reserves will become taxable. Reserves are necessary to expand. You must have capital for expansion. If those reserves become taxable it will make it more difficult for these mutual organizations-I say "mutual" when they come within a specific definition which states what is a cooperative-


Mr. JUTRAS:: Does the hon. member mean that a cooperative should be defined as such, or its operation? Would he define a cooperative itself, or the operation of the cooperative? *


Percy Ellis Wright: The cooperative as such. Its operations will be included in it. We must have a definition of what is a true cooperative. We shall not have satisfaction under this or any other legislation until we do that. For the life of me I cannot understand how the government is to interpret resolution 16, which allows a cooperative a three-year exemption from taxation. Cooperative will have to be defined.
Veterans Affairs Resolutions


Douglas Charles Abbott: "Incorporated or registered under provincial cooperative legislation". That is the definition.


Percy Ellis Wright: The government is transferring the responsibility of defining a cooperative to the .provinces instead of our accepting the responsibility here. That is a poor way for the government to do business. It is going to accept what the provinces may define as a cooperative. One province may define a cooperative in one way and another province in an entirely different way. I do not think that will be satisfactory so far as this legislation is concerned.
I wish to repeat that this section contravenes two cooperative principles, namely, that a cooperative is a non-profit making organization, and that it will prevent, I am positive, the proper expansion of true cooperatives in Canada. Because of that I think the resolution should be withdrawn.
Resolution stands.
Progress reported.
At one o'clock the house took recess.
The house resumed at three o'clock.



BUSINESS OF THE HOUSE

[Stage Direction]
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs): Mr. Speaker, I should like to move, with the unanimous consent of the house, and only with unanimous consent:
That the three resolutions standing in my name as notices in the annex to the Votes and Proceedings of this day be now proceeded with, notwithstanding standing order 45.
I move this in order to have complete discussion, as was agreed upon last week, by the various parties in the house.
John Bracken: I have no objection to that procedure.


[Stage Direction]
Motion agreed to.


[Stage Direction]
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs) moved that the house go into committee to consider the following resolutions:

[Stage Direction]
That it is expedient to present a bill to provide financial and other benefits for certain persons who were attached to and served with

the naval, military oy air forces of Canada, outside the western hemisphere, during world war II, as supervisors in the auxiliary services.

[Stage Direction]
That it is expedient to present a bill to provide financial and other benefits for certain fire fighters who served outside the western hemisphere during World War II, as members of the corps of (civilian) Canadian fire fighters.

[Stage Direction]
That it is expedient to present a measure to amend the Veterans Rehabilitation Act by authorizing the minister to make, with the approval of the governor in council, grants to universities supplementary to those by the act authorized, to assist in meeting the expenses incurred in training veterans.

[Stage Direction]
That it is expedient to present a measure to provide rights, privileges and benefits to and in respect of veterans of world war II domiciled in Canada at the time of joining the forces of allied nations, and to the widows and mothers of such veterans as died in service or subsequently but before they had received such rights, privileges and benefits in full.

[Stage Direction]
That it is expedient to present a measure to amend the Pension Act to provide for extended payments of pensions to veterans and their dependents as therein set out; to provide further for reorganization of the commission and for the salaries and duties of the chairman, deputy chairman and other members of the commission and generally to enlarge the scope and application of the act.

[Stage Direction]
That it is expedient to present a measure to make applicable, the allowances and benefits accorded to a veteran, to certain persons described as "special operators" who were enrolled in Canada by United Kingdom authorities for special duty during world war II, under the Veterans Land Act, 1942, the Veterans Insurance Act, the Veterans Rehabilitation Act, part I of the War Veterans' Allowance Act, 1946. the Unemployment Insurance Act, 1940, the Department of Veterans Affairs Act, the Civil Service Act, the Pension Act, the Income War Tax Act, the Reinstatement in Civil Employment Act, and the War Service Grants Act, 1944.

[Stage Direction]
That it is expedient to present a bill to make provision for the payment of allowances to or in respect of veterans of a prescribed age and veterans permanently unemployable or incapable of self maintenance through physical or mental disability and widows and orphan children of veterans. Provisions of the bill apply to veterans of the North West Rebellion, the South African war, world war I and world war II. Provision is made for establishing a war veterans' allowance board to administer the act and for the payment of the salaries of the members and pensions on retirement.

Veteran's Land Act

[Stage Direction]
That it is expedient to present a bill to authorize payment out of the consolidated revenue fund of losses, within the limitations therein provided, to banks incurred in respect of loans made to veterans resident and domiciled in Canada who have received or are entitled to receive a gratuity under the War Service Grants Act, 1944, and who have not elected to take benefits under the Veterans Land Act, 1942. Such loans to be confined to the purpose of establishing the veteran in business or professionally. Provision is also made for the payment of the necessary expenses of administration out of moneys appropriated by parliament.

[Stage Direction]
That it is expedient to present a bill to amend the Veterans Rehabilitation Act, whereby provision is made, inter alia, that the Minister of Veterans Affairs may,
(a)	provide Canadian universities with moneys to enable them to make, as an emergency measure, small loans to veterans attending universities and also to pay expenses of repatriation of certain veterans discharged in the United Kingdom in order to take training outside of Canada and to pay transportation expenses of the wife and child of such veterans from the United Kingdom to Canada or other designated place outside of Canada;
(b)	provide training and re-training and pay allowances to a pensioner requiring such training by reason of an increase in his disabilities.
Provision is also made for entitlement of a member or former member of the Canadian forces to the statutory allowances and benefits in respect of all of his full-time service, if he is not accepted as a member of the permanent or regular_ force, or_ is not accepted for service for a special prescribed period; also for bringing a veteran suffering personal injury by accident when in training under the Government Employees Compensation Act.

[Stage Direction]
That it is expedient to amend the War Service Grants Act, 1944, to make provision inter alia (a) for the full payment of the statutory supplementary gratuity of a member who has joined the permanent naval or military forces or the regular air force or who has been accepted in the interim force, notwithstanding that he may have been required to accept pay and allowances at lower rates than were issuable to him or on his behalf immediately prior to the date of his joining the permanent or regular force or his acceptance in the interim force; (b) for a reestablishment credit for a member who does not elect to take benefits or training under the Veterans Land Act, 1942, or the Veterans Rehabilitation Act; (e) for a reestab-lisment credit to the widow or mother of a member who dies after discharge; (d) to permit a member to use his credit for the reduction or discharge of indebtedness on his home where he has already reduced such indebtedness.

[Stage Direction]
That it is expedient to introduce a measure to give statutory authority to a group of Orders in Council passed during the war conferring pension benefits on various classes of persons other than members of the armed forces and further to confer pension benefits on certain additional groups.

[Stage Direction]
That it is expedient to present a bill to amend the Veterans Land Act ,1942, to provide a change in the status of the director so as to integrate the administration of the Act more closely with other departmental activities administered by the minister and to provide authority for the director to contract with a veteran for the sale to him of land and improvements, building materials, and live stock and farm implements to a total cost to the director of five thousand eight hundred dollars upon the terms and conditions of payment therefor and in respect thereto contained in the said bill and regulations to be made thereunder.
He said:	His Excellency the Governor
General, having been made acquainted with the subject matter of these resolutions, recommends them to the consideration of the house.
Motion agreed to and the house went into committee, Mr. Macdonald (Brantford City) in the chair.
Alfred Johnson Brooks: Is the minister dealing with only the first three he mentioned?
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs): It was my intention, Mr. Chairman, with the consent of the committee-and only with that consent-to deal with all twelve measures in a short, concise statement. Then, by consent of the house, I would move them on to the second reading stage, at which time my hon. friend or any other hon. member would be free to adjourn the debate, to criticize or to commend as they might feel desirable.


The CHAIRMAN:: With the unanimous consent of the committee, it is suggested that all the resolutions be considered, and that one motion be passed covering all of them.


Mr. MACKENZIE:: That is correct.


William Ross Macdonald: Is there unanimous consent for that procedure?


Alfred Johnson Brooks: On behalf of the Progressive Conservative party I would say that this matter was discussed by the steering committee, with representatives of all parties, and we agreed to the procedure now suggested by the minister. The agreement was on the understanding that when these bills came before the house on second reading there will be every opportunity for debate.


Ian Alistair Mackenzie: That is quite correct.


Alfred Johnson Brooks: With that understanding we are in agreement.


Thomas John Bentley: The same understanding exists in this group.


William Ross Macdonald: Is it the pleasure of the house that I report these resolutions?
Veteran's Land Act


Alfred Johnson Brooks: Was it not the minister's intention to make a statement at this time?


Ian Alistair Mackenzie: Perhaps I might have permission, Mr. Chairman, to give a concise, synoptic and factual statement of what the committee on veterans affairs has recommended, and what the government is prepared to accept, so that hon. members at second reading stage may have the opportunity of making such comments as they may deem advisable.
For the convenience of hon. members, and after consultation with other parties, I have decided to ask the indulgence of the committee in order that I may present in one concise, composite statement the entire programme of veterans' legislation. I have received the kind consent of the house, and having that consent, I purpose discussing the twelve measures with respect to which resolutions have been introduced. Eleven of these stand in my name, and one in the name of the Minister of Finance (Mr. Ilsley). With the kind indulgence of the house three of the resolutions have been moved forward this afternoon. These resolutions relate to the civilian war pensions and allowances bill and bills to amend the War Service Grants Act and the Veterans Land Act.
All twelve bills have been considered by the special select committee on veterans affairs. I wish at this point to pause to say that for thirty years I have been in parliament and have watched committees function. I want to pay a tribute-an entirely non-partisan tribute -to the finest committee of the House of Commons of Canada I have ever seen in action. That, sir, was the veterans affairs committee. We have had our contentions, and probably still have more of them; we have had our controversies; we have had occasional animader-sions; but I never saw a more devoted band of loyal gentlemen in my life. Indeed, if I were in charge of decorations and awards-which I am not

I would recommend them all for the Canada medal. They did a grand job-a wonderful job. We disagreed at times, of course. There were times when we did not go as far as some of my hon. friends, like the hon. member for Vancouver South (Mr. Green), the hon. member for Cape Breton South (Mr. Gillis), or the hon. member for Acadia (Mr. Quelch) would like to have gone. But I think the work has been a wonderful work. The committee has written a veterans' charter for Canada, and for that work it will have the eternal gratitude of the veterans of this country. It will have the gratitude of a nation for the work it has done.
Ten of these bills have been recommended by the committee as such. With respect to
[The Chairman.l
two of them the committee has made recom- _ mendations; but the bills as introduced by the government are not completely in accord with the committee's recommendations.
These bills, and two which have preceded them, together with possibly one or two others standing in the name of other ministers, will be incorporated in the veterans' charter to be compiled. It is my intention to issue a vet-terans' charter, with the names of the sixty members of the committee on the front page, and to send it to every veterans' organization in the Dominion of Canada.
Five of the bills covered by the twelve resolutions to be discussed in this statement are amending bills. One is, in effect, an amending bill, but the amendments were so numerous that a completely new consolidation and revision is being presented.
Six of the bills are new legislation so far as this house is concerned. Four of the six new bills, however, deal with legislation which has already been in effect for some time by order in council under the War Measures Act. Nine of the twelve bills represent, to a substantial extent, the ratification by parliament of legislation enacted by order in council under the War Measures Act. Three of the bills are entirely new, and in almost all the bills, which are either amending bills or for the purpose of giving parliamentary sanction to orders in council, some new principles have been incorporated.
This body of legislation affects not only the veterans of world war II but the veterans of world war I, the veterans of the South African war and of the northwest rebellion. It affects Canadians who served in the forces of other members of the British commonwealth and in the forces of nations allied with His Majesty. Provision is made tfith respect to eleven different groups of persons who rendered loyal and hazardous service in world war II, although they were not formally enrolled in His Majesty's forces.
This statement will be exceedingly concise. I shall merely enumerate under the heading of each resolution or bill the principal enactments which are proposed without explanation or argument.
The first bill to which I shall refer is that covered by the resolution which I now move. It introduces a bill to amend the Pension Act. This bill with the one exception to which I shall refer later, is in exactly the terms recommended by the select committee. It consists of thirty-two sections and it affects all the veterans of any and every w'ar in which Canada has participated.

Veteran's Land Act
The principal features of the bill are as follows:
I.	The insurance principle, about which many of us have fought, including the hon. member for Vancouver South, which is restored.


Howard Charles Green: At last.


Ian Alistair Mackenzie: 2. The benefits of the Canadian pension scale are extended to all Canadians who served in the forces of the British commonwealth or of allied nations.
3.	The pensions payable to dependent parents, in cases where a widow is also pensioned, are doubled.
4.	The salaries of the pension commissioners are increased.
5.	The duties of the veterans' bureau are expressly defined.
6.	The language defining non-pensionable preenlistment conditions has been restricted or narrowed, according to the particular interpretation put upon it.
7.	The period for which pension may be paid retroactively has been extended when delay in making the award has been due to conditions over which the applicant had no control.
8.	Pensioners entering hospital for treatment of their pensionable disabilities will receive their pensions during such periods of hospitalization.
9.	Blinded pensioners, on entering the department's institutions for custodial care, shall continue to receive the helplessness allowance by which pension in such cases is augmented.
10.	Widows who have obtained divorce or separation decrees from their pensioned husbands may when pensionable as widows be granted pension rates higher than the alimony awarded by the courts, at the discretion of the commission.
II.	Canadians who served in the ranks in the imperial forces during world war I are to receive the full benefits of the Canadian Pension Act as the act may have been amended subsequent to the agreement of 1920, by which the government of the United Kingdom agreed to pay to such veterans the Canadian scale.
12.	The principle of equal pensions for women, as for men, is adopted.
13.	The datelines of pension eligibility for wives, widows and children of world war I veterans have been advanced from 1930 and 1933, so that all wives married and children born prior to May 1, 1944, are included.
All the foregoing amendments were recommended by the select committee.
I want now to pay a tribute to the hon. member for Nanaimo (Mr. Pearkes). In addition, the government, in deference to opinions expressed by many members of the committee but mainly advocated by the hon. member, has broadened the provision regarding the eligibility of children. The bill provides that children born of marriages contracted prior to May 1, 1944, even though the birth is subsequent to that date, shall be eligible. I think my hon. friend was the one who advanced that before the committee.
Next is the war veterans' allowance bill. This measure, while essentially an amending enactment, takes the form of a completely new, revised and consolidated bill. It is for the most part a submission to parliament of amendments adopted during the war by order in council. The bill will come before the house exactly as recommended by the select committee. It covers the veterans of four wars, and it incorporates into the a/ct the widows' allowance measure approved by parliament in the appropriation act of 1943.
The bill is in three parts. Part I refers to veterans; part II refers to widows of veterans, and part III refers to what has formerly been known as the dual service pension.
The principal features of the bill which are new to this house are as follows:
1.	Women veterans are made eligible at the age of 55, the same as widows.
2.	It increases the basic allowances from $20 single and $40 married, to $30 and $60 respectively, thereby permitting the allowable income to be calculated on the higher figure. The small pensioner, eligible for the allowance, is thus permitted a materially improved standard of living. A single person may have a total income of $640. and a married person $1,130.
3.	Six items are added to the lists of types of income not deductible from allowances.
4.	The value of the veteran's home permissible without deduction from allowances is raised from $2,000 to $4,000.
5. Salaries of the commissioners	are increased.
6.	Several amendments have been made in the interests of children. First, step-children, adopted or foster-children are included within the definition of "child." Second, allowances may be paid with respect to children during their educational period up to the age of twenty-one years instead of nineteen as it is now. Third, allowances with respect to handicapped children may be paid beyond the age of twenty-one.
Veteran's Land, Act

The bill to amend the Veterans Land Act is exactly as recommended by the select committee. Its principal provisions are:
1.	Assistance may be given to tenant farmers, and to farmers holding land under agreement for sale.
2.	Former soldier settlers in default of their
contracts are permitted to qualify under the Veterans Land Act, if they have served in world war II.	[DOT]
3.	In conformity with the long established principles of responsible government, the minister is made responsible for administration of the act.
The next is the bill to amend the Veterans Rehabilitation Act. For reasons well known to the select committee, there are two bills amending this act. The first bill authorizes the government to make grants to universities, not exceeding $150 per student veteran, to enable the universities to provide the additional premises, equipment, staffs and services required to meet the extraordinary increase in enrolment, arising out of educational benefit provided for veterans under this act. The resolution covering this short bill was placed on the order paper, in advance of the other proposed amendments as an assurance to the universities that the government accepted responsibility for this proposal. Once the government had accepted the principle of the bill the universities felt justified in proceeding with their financial arrangements.
The second bill to amend the Veterans Rehabilitation Act contains a number of amendments which had not been fully dealt with by the select committee at the time the first bill was introduced. This second bill has now been recommended by the committee. Its principal provisions are:
1.	The government is authorized to advance money to universities, for the purpose of making loans to student veterans, under regulations. It is contemplated that loans shall not exceed $500 per year

or $2,000 in all. Applications will be dealt with by boards of senior faculty members with representation from the Department of Veterans Affairs.
2.	Veterans accepted for vocational training but not able to enter upon their training on account of lack of facilities or the necessity of conforming to entrance dates may receive out-of-work benefits while waiting, and the receipt of such benefit shall not count against the time for which benefits are otherwise available.
3.	The minister is granted power to make regulations regarding the extension of university training beyond a period equivalent to the length of the veteran's service.

4.	Recipients of educational and vocational training benefits shall not be eligible for the benefits of the Veterans Land Act, with certain minor exceptions in the case of agricultural training.
5.	Disabled pensioners who may acquire retraining as the result of their disabilities may receive such training at 'any time without sacrifice of their reestablishment credit.
6.	The periods of service upon which benefits under this act may be based and the dates at which service shall be deemed to have ended are specifically defined with respect to veterans who enter the interim or permanent forces. The definitions and cut-off dates are identical with those in the War Service Grants Act.
7.	Veterans in receipt of vocational training who may be injured as the result of such training shall be eligible for compensation under the Government Employees' Compensation Act.
Now I come to the bill to amend the War Service Grants Act. This bill is exactly as recommended by the select committee, except for a minor amendment to section 4. Its chief provisions are:
1.	Supplementary gratuity payable to a veteran who upon joining the permanent force reverts to a lower rank shall be calculated on the basis of the higher rank that he held before reverting.
2.	For the purpose of calculating gratuities and credit in the case of veterans who join the interim or permanent forces, the dates at which service counting towards gratuity shall be terminated are defined in the terms of an order in council promulgated early this year. The dates are the same as those in the bill to amend the Veterans Rehabilitation Act.
3.	Widows and dependent mothers of veterans who die subsequent to discharge without having exercised all their reestablishment credit rights may receive the balance of the reestablishment credit to which the veteran was entitled.
4.	The uses to which reestablishment credit may be put are expanded in relation to the building of a house under the National Housing Act and in relating to the retirement of debt arising out of encumbrances on the veteran's house.
Now I come to a new piece of legislation that was recommended by the committee, the veterans business and professional loans bill. This is an entirely new piece of legislation. Its purpose is through a government guarantee to enable a veteran to borrow from a chartered bank a sum up to $3,000 at five per cent interest for the purpose of acquiring a busi-

Veteran's Land Act
ness, an interest- in a business, or the tools, implements or equipment of a trade, business or profession. The loans depart from ordinary bank practice id the Bank Act in that: (a) the maximum interest is fixed at five per cent; (b) the taking of security on land is authorized; (c) the period for repayment may be extended to ten years. Loans may not exceed two-thirds of the expenditure upon the purpose for which the loan is granted. The maximum of loans subject to the guarantee is 825,000,000. The guarantee is in the form of a blanket guarantee to each individual bank, at the rate of twenty-five per cent of any loss incurred on the first million dollars lent by such bank, and at the rate of fifteen per cent on loans in excess of one million dollars by any bank.
Next is the supervisors war service benefits bill. This bill has not been specifically recommended by the select committee. It was considered by the committee, which recommended that supervisors be granted exactly the same rights as former members of the forces. The bill provides that they shall be with respect to their overseas service on a par with former members of the forces with the single exception of income tax exemption. The subject. of income tax has already been debated in this house on the .budget resolutions.
I come next to the fire fighters war service benefits bill. This bill has not been recommended by the select committee. The committee made a recommendation that members of the Corps of (Civilian) Canadian Fire Fighters for Service in the United Kingdom should receive the same rehabilitation benefits as former members of the armed forces. The government did not concur fully in this recommendation. The bill confirms the following benefits already granted by order in council: Gratuity on the same basis as veterans with regard to overseas service; rehabilitation grant; the Veterans Land Act with respect to pensioners. Additional to the benefits conferred by order in council the bill will grant all former members of the corps who served overseas the right to vocational training, and will allow their overseas time to be calculated under the Unemployment Insurance Act the same as for veterans.
Next is the civilian war pensions and allowances bill. This bill substantially represents the recommendation of the select committee but with slight variations, which will be explained as I proceed. Its purpose is to confer the right- to pension upon certain groups of persons who rendered valiant service in the war but who were not attested as
members of His Majesty's forces. With respect to the following groups, the bill is in the terms recommended by the select committee:
1.	Merchant seamen.
2.	Commercial fishermen.
3.	Auxiliary services personnel.
4.	Canadian overseas fire fighters.
5.	Royal Canadian Mounted Police.
6.	R.C.MjP.-Special constable guards.
7.	Air raid precautions workers. .
S.	Potential recruits sustaining disability while undergoing treatment in the care of the Department of Veterans Affairs for the purpose of removing disabilities which debarred them from enlistment.
The draft bill as recommended by the select committee included also civil government employees incurring death or disability as the result of enemy action or counter-action. Upon consideration the government was not satisfied that this was the appropriate method of providing for the pension rights of these government employees, and this group is not included in the bill. The opportunity for further consideration of the most appropriate method of providing for this group is desired by the government. I can assure the house, however, that this does not result from any desire or intent to diminish in any way the rights which civil government employees acquired under the order in council which provided for their pension entitlement. The government has been assured by its legal advisers that no rights already conferred will be lost as the result of deferring legislative action with regard to them. All the civilian groups to which I have already referred were covered by order in council, and the parts of the bill recommended by the select committee referring to these groups follow the terms of the orders in council with exceedingly minor variations.
The select committee also recommended that five other groups be accorded pension rights in this bill, but did not pass upon the actual terms of the legislation now to be introduced with respect to those groups.
One group recommended by the committee has not been accepted by the government, and is not included in the bill. This group consists of former members of the Pacific Coast Militia Rangers. No claims have arisen from members of this organization and it would seem unnecessary, therefore, to include them in the bill at this time.
The four groups included in the bill upon the committee's recommendation, but with
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respect to whom the committee did not have the opportunity of passing upon the precise terms of the legislation, are as follows:
1.	Members of the voluntary aid detachment serving with the Royal Canadian Army Medical Corps in Canada.
2.	Overseas welfare workers, which include those who, under the auspices of the Canadian Red Cross Society or the Saint John Ambulance Brigade, left Canada to serve overseas as welfare workers, nursing aides, ambulaiiee or transport drivers, members of the overseas headquarters staff, or in any other capacity.
3.	Orthopaedic nurses selected by the Canadian Red Cross Society for service overseas with the Scottish ministry of health.
4.	Canadian civilian air crew of the Royal Air Force Transport Command.
The government's proposal in the bill to follow the resolution is that members of the voluntary aid detachment shall be pensionable on the same terms as members of the air raid precautions organization. The scale of pensions for these two groups corresponds closely with the rates payable under workmen's compensation.
Overseas welfare workers and orthopaedic nurses are granted their eligibility for pension on approximately the same terms as merchant seamen.
The civilian air crew personnel of the Royal Air Force Transport Command are granted their entitlement on a basis of need upon very much the same principle as was applicable under the former section 11 (3) of the Pension Act.
Now I come to the special operators war service benefits bill. This bill is exactly as recommended by the select committee. I think the house knows who these special operators were-about seventy men who were taken by External Affairs and who flew over and descended by parachute into enemy areas during the war and did magnificent service. The purpose of the bill is to confer all rehabilitation, pension and other veteran legislation upon these men. There are three others who served in other theatres of war, and they also will be looked after in regard to these benefits.


Alfred Johnson Brooks: I understood there might be some others besides these three.


Mr. TUCKER:: It will not be limited to them.


Ian Alistair Mackenzie: The last one is the allied veterans benefits 'bill. This bill is exactly as recommended by the select committee. It affects Canadians who served in

the allied forces in the event of their returning to Canada, and their dependents domiciled and resident in Canada. The bill is designed to ratify an order in council passed early this year on recommendation of the select committee on veterans affairs which sat in the autumn of 1945, and goes a little further. By the order in council and by the bill, Canadians who served in the allied forces upon returning to Canada, are eligible under: the Veterans Rehabilitation Act; the Veterans Land Act; the War Service Grants Act; and the Department of Veterans Affairs Act.
Owing to the fact that members of the forces of certain of our allies were, in effect, discharged in 1940 when Germany overran the low countries and France, the language of the bill has been sufficiently broadened in comparison with the order in council to ensure that Canadians in the forces of those countries shall not be excluded by reason of the fact that they were unable to return to Canada within two years of their discharge.
In conformity with the War Service Grants Act, widows and dependent mothers are made eligible to receive gratuities and reestablishment credit under the same conditions as the similar dependents of former members of the Canadian forces. The bill provides that any similar benefits received from the country in whose forces beneficiaries under the bill may have served shall be deducted from the Canadian benefits.
I wish to conclude by saying that we shall have our differences in debate in regard to some of these matters, but no committee of the House of Commons ever did a finer job than the veterans affairs committee of 1946. May I say in regard to my colleague and parliamentary assistant that no committee ever had a finer or abler or keener chairman than the hon. member for Rosthern, and even if he be conscripted or bludgeoned into other duties in a far-away province in the near future the veterans of Canada will never forget and the country will always gratefully remember, the work that he has done on their behalf.
Resolutions reported, read the second time and concurred in. Mr. Mackenzie thereupon moved for leave to introduce twelve bills founded on the resolutions, as follows:
Bill No. 325, respecting benefits to certain supervisors in the auxiliary services.
Bill No. 326, respecting benefits to fire fighters who served in the United1 Kingdom.
Bill No. 327, to amend the Veterans Rehabilitation Act (university grant).
Bill No. 328, respecting veterans of forces allied with Canada.
Bill No. 329, to amend the Pension Act.

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Bill No. 330, respecting benefits to certain persons who were recruited in Canada by United Kingdom authorities for special duties in war areas.	-
Bill No. 331, respecting allowances for war veterans and dependents.
Bill No. 332, respecting loans to veterans to assist in their establishment in business or professionally.
Bill No. 333, to amend the Veterans Rehabilitation Act.
Bill No. 334, to amend the War Service Grants Act, 1944.
Bill No. 335, respecting civilian war pensions and allowances.
Bill No. 356, to amend the Veterans Land Act, 1942.
Motion agreed to and bills read the first time.


James Horace King: When shall said bills be read the second time?


Alfred Johnson Brooks: Why cannot we get second reading now?


Ian Alistair Mackenzie: I should be very happy indeed to accede to the suggestion of my hon. friend, but I thought that possibly it might be found desirable by some hon. gentleman, when he sees the actual bills, to move the adjournment.


Alfred Johnson Brooks: The understanding we had in the committee was, I think, that there would be first reading with second reading immediately after, and then adjourn the discussion.


Ian Alistair Mackenzie: That is quite acceptable, sir.


James Horace King: Mr. Mackenzie moves that the bills be now read a second time.


Alfred Johnson Brooks: May I object to that? The bills, on second reading, should be read individually, so that if there is any motion to adjourn the debate after that it could be made . individually by different members.


Ian Alistair Mackenzie: That is the idea I had, exactly.


Walter Adam Tucker: The difficulty is, I suppose, that these bills should be distributed to hon. members before second reading. We have made very good progress and we appreciate it; I think we could have second reading to-morrow.


Ian Alistair Mackenzie: Yes; I think that will be better.
Motion stands.



WAYS AND MEANS

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

William Ross Macdonald: The committee is on
resolution 12.


Mr. MOORE:: I did not intend to speajc at any length on taxation of cooperatives, either on the budget or on the present resolution. The reason is that three members of our group before becoming members of the House of Commons were for a great many years members of cooperatives. On the budget resolution, and also on the budget itself, they dealt very ably with this matter, and laid the views of this group before the House of Commons. I do not want to take up too much time in discussing the matter this afternoon, but because I have had a great deal of correspondence in the matter from my own riding, I thought I ought to put myself on record.
As I understand it, the cooperatives throughout this country object to the government's taxation proposals on five main grounds. Just before the house rose last session, I believe it was December 18, the royal commission which investigated this question made its report. That report was studied by practically every cooperative throughout this country, and between the first of January and the first of June of this year they communicated with every member of this house urging them to oppose the taxation of cooperatives. Personally I had about thirty-eight resolutions from different cooperatives in Manitoba urging me to oppose this taxation. When the government brought down its budget proposals, particularly the present resolution, a large number of our members and, I suppose, members of other parties as well, received telegrams and registered letters from various cooperatives urging that we ask the government to reconsider some of their suggestions with respect to taxation and, if possible, to discontinue entirely the proposal for taxation of cooperatives.
I was particularly interested in the remarks made by the hon. member for Cariboo with respect to this situation. I think he judged the matter rightly when he stated the purpose of the royal commission which investigated this problem some time ago was not to find out if cooperatives should be taxed, but how it would be possible to apply taxation to the cooperatives. I think that is a true statement of the situation.
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In the communications I have had on the matter, cooperatives in my district and elsewhere in Manitoba are worried because the government ignores the basic difference between a cooperative business and a private business. They contend that we fail to recognize the difference between business done on a cooperative basis and business done on an individual basis.
Their second objection is this. Cooperatives are treated, according to government legislation, as private businesses. The government's resolution forces cooperatives to treat members and non-members on the same basis. Non-members are entitled under resolution 12 to patronage dividends.
Third, this legislation prevents cooperatives from providing service at cost by forcing them to pay taxes on not less than three per .cent of the employed capital. I think that should come in for a little discussion at this time. I presume that means three per cent of the capital employed in the business. There is one question which I should like to ask the minister. Does that mean that the remainder of the revenue of the cooperative is to be distributed as patronage dividends? Suppose a cooperative decides by a vote of its membership to use, we will say, sixty per cent of its income for the expansion of its business; will that sixty per cent be subject to tax under the Income War Tax Act or under the corporation tax act, in the amount, I believe, of about thirty per cent?


Douglas Charles Abbott: It would if it were retained in the company for expansion of business. If it were declared as a patronage dividend, and if the member lent it back to the cooperative, no question of taxation would be involved. The essence of it is that a cooperative no more than anyone else can build up capital out of tax-exempt income, in the proper sense of income.


Ronald Stewart Moore: I am glad to have that statement from the minister, because a great many cooperatives have been extremely worried as to what the government's policy would be in that regard. The fourth matter is this-interference with the right of the individual member to leave savings with the cooperative for the provision of further service by forcing payment of cash within six months. That has been extended to one year?


Douglas Charles Abbott: Yes. That point is cleared up. There is no interference. The individual member is perfectly free to leave the whole or a portion of his patronage dividend with the cooperative if he wishes to do so.


Ronald Stewart Moore: Would it not be taxed at three per cent? The fifth question is with

respect to retroactive taxation, and I take it that refers largely to the wheat pool. I know it is the wheat pools in my riding that are particularly concerned about retroactive taxation. I submit that for two reasons there should not be retroactive taxation. First, it would be a reversal of the policy declared by the Minister of Finance when section 4 p was enacted, and secondly, cooperators generally relied upon section 4p as granting them exemption under the Income War Tax Act. In the opinion of the royal commission they were justified in that reliance. Secondly, it would be a reversal of the attitude of the administrative officials for years. WThen the department changed its attitude, cooperatives were placed in a position of uncertainty which has continued to this time. Until the uncertainty is removed, cooperatives are at a loss to know how to conduct their operations in compliance with section 4 p.


Mr. LESAGE:: From what paper has the hon. gentleman been reading?


Ronald Stewart Moore: I have been referring to an
article appearing in the Manitoba Cooperator with reference to the first two paragraphs of section 4p of the Income War Tax Act. The wheat pools in Manitoba are particularly concerned about this matter: The set-up of the wheat pools in that province is somewhat different from that in Saskatchewan and Alberta, as I understand it. The pools in Manitoba are operated on a community basis, so to speak, in that the pool belongs to the individual community in which it is located. Since 1942 and 1943 there has been a fear that they would be subject to taxation. The result is that the wheat pools, in Manitoba, particularly, are not certain what their position is with respect to taxation, and they have urged that the whole matter be reconsidered by the government.
There is something else to which the attention of the government should be directed. It is not only the fishermen and farmers that are opposed to the present taxation of cooperatives. I have an interesting letter from the Manitoba trades and labour council dated June 11, 1946. It is a long letter and I am not going to quote it, but I think I ought to give the substance of its opinions. All other members from Manitoba have received this same letter. The trades and labour council goes on record as urging the government to desist from applying taxation to the cooperatives throughout the country, and they also go on record as opposing the taxation of cooperative organizations.

Income War Tax
There is only one other item that should be dealt with at this time. Up to the present a great many members have spoken on this subject and, I presume each individual member has been speaking for himself. I think the leaders of all groups should go on record as speaking for their respective parties so far as taxation of cooperatives is concerned. This is too important a matter to be discussed on an individual basis, and I do not think that because one member gets up and speaks in the first person singular he should be regarded as speaking for his party. Every party should go on record and tell the country where it stands with respect to the taxation of cooperatives.


Mr. HLYNKA:: Having listened to the discussion of the resolution during three or four sittings of the committee I am still debating in my own mind whether I should reserve my comments for the second reading and committee stages of the bills, or present them on this resolution. In any event I feel I should say a word or two at this point.
I rise chiefly to register my opposition to the remaining two or three objectionable features of this resolution respecting the proposed taxation of cooperatives. Although the Acting Minister of Finance has proposed three minor amendments which remove some of the objectionable provisions of the resolution as it was originally proposed, it appears to me that the most objectionable feature remains. I have in mind the adoption of the principle of imposing taxation on a true and genuine cooperative. I am not so much concerned about the amount of the tax or the rates of taxation; it is the principle that matters.
The minister said that if capital produces a reasonable return it should be taxed. But suppose the capital of a cooperative is made up entirely of the benefits which accrue from business which has been done strictly among the members of the cooperative, and who were in the first place taxed when they received their earnings and of course paid the tax. I should be inclined to think that if the members of a cooperative desire to purchase their requirements through their own cooperative organization in order that their dollars may be stretched as far as possible they should not be taxed on the money which they have saved in buying goods cooperatively, after they have already paid tax on their original earnings.
In the discussion that took place the other day the acting minister did not fully explain the revolving fund, even though hon. members came back to it more than once. I should like to have an explanation. In fact, the minister has made two statements which 63260-256
seem to me to be contradictory in answer to questions by the member for Acadia and the leader of the Social Credit group, the member for Peace River. At page 3945 of Hansard the following appears:
Mr. Quelch:	Are we to understand that if
a certain amount is paid out of the revolving fund and a certain amount of new capital is put in. that new capital will be taxable?
Mr. Abbott: Not unless it increases the fund.
Mr. Quelch:	Then it will not be possible to
expand the business without paying the tax?
Mr. Abbott:	That is right.
At page 3950 of Hansard the hon. member for Peace River said:
Is there not just one limitation to what the minister has just said in connection with the $25 which is kept by the cooperative on behalf of a member-
Mr. Abbott:	And on his instructions.
Mr. Low:	Yes. If that results in a net increase in the revolving fund, does not that become taxable?
Mr. Abbott:	No. I realize that it is a little
confusing, but the answer is definitely, no.
I wonder which of these answers is the correct one.


Douglas Charles Abbott: Both statements are perfectly correct-no contradiction.


Anthony Hlynka: I still need some explanation.


Douglas Charles Abbott: If my hon. friend will read the rest of my statement on page 3950 he will see that I made a further explanation of the revolving fund.


Anthony Hlynka: At any rate it appears to me that even if the cooperatives do business strictly with their own members they will still have to pay taxes, provided that they have an income which is taxable. I personally object to the introduction of the principle of the taxation of cooperatives. I concur in the proposition that in fairness to other forms of business, earnings derived from business done with non-members should be taxed.
Speaking on this resolution on July 26 the hon. member for Cariboo in effect said that he would not worry very much if private enterprise were to go out of business. On the other hand there are those in the income tax association who would like to see the cooperatives go out of business. Personally I cannot subscribe to either. of these views. I am in favour of both private business and cooperative business. The cooperative type of business and private business are necessary in the economy of a democratic country. Perhaps that is the line which the group to which I belong can draw in contrast to the stand taken on this matter by our friends to our immediate right. When cooperatives do business with their own members who have paid personal

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income tax on their earnings they should not be taxed. When people get together and decide on buying goods and services in a cooperative way they should not be taxed a second time. They have paid their tax on their original earnings, and if they choose to stretch their dollars as far as possible, why should they not do it? W'hy should they then be taxed a second time on these earnings, or on the saving which acrues and which makes up the lump sum which may be called capital, and which, as the minister says, will be subject to taxation under the proposed legislation?
I received twenty telegrams from cooperatives representing several hundred members, and also fourteen letters, protesting against the taxation of cooperatives. I also received 271 cards asking me to support the taxation of cooperatives. It is therefore obvious that there are two different views on this matter. Personally I should like to be fair to these two groups, and I should like to see justice done to both private enterprise and to cooperative business. A man who goes into private business and renders to ithe people a good service should have the opportunity of expanding and continuing his business and further rendering this service. On the other hand, if a group of individuals choose to get together and buy cooperatively in order to remedy their lack of purchasing power, they should have the privilege of buying cooperatively in bulk, perhaps saving a little bit, and at the same time stretching every dollar as far as possible. Once we introduce legislation adopting the principle of taxation on cooperatives I am afraid that if the government decides to raise taxes in the future all it will have to do will be to present the legislation to the house and we shall have higher taxation on cooperatives. On behalf of the people I represent I object to the taxation of genuine cooperatives. I know it is difficult to define what is a cooperative, but the government should present legislation defining cooperatives and at the same time should introduce a cooperative act within the four corners of which all the cooperatives could fall.
That is all I wish to say at this stage. If I have any further remarks to make I believe they can be best made when the bills are presented.


Douglas Charles Abbott: During the morning debate there was a great deal of discussion on the three per cent provision of the resolution, and perhaps some confusion. It seemed to me that much of the misunderstanding may be due to a misunderstanding of accounting principles and practice rather than to provisions

of the law. It may be that all my answers were not strictly accurate, although I believe they were substantially correct.
I think the situation can best be described in this way. If no legislation were to be enacted respecting the tax status of patronage dividends, cooperatives would be taxable on their income as determined under the Income War Tax Act. In some cases, as I have pointed out, they would have no taxable income. In other cases, cooperatives and ordinary companies would find themselves subject to taxes hnd would be unable under the ordinary law to deduct patronage dividends as an expense. For example, according to the law officers of the crown the whea.t pools would be unable to deduct patronage dividends as an expense of doing business. The proposed legislation, therefore, enables a cooperative or any other company to pay patronage dividends out of income that would otherwise be taxable under the Income War Tax Act, and to deduct such patronage dividends before paying tax. The only limitation is that they shall not be able to distribute their income in the form of tax-free patronage dividends to such a point as to reduce their taxable income below three per cent on capital employed, as set out in the resolution.
In order to illustrate the reasons for the three per cent limitation, I am going to compare the relative positions of two cooperatives, alike in all other respects except that one cooperative has financed itself with the issuance of share capital on which it pays a limited dividend, and the other has financed itself on a revolving fund basis, no interest being paid on patronage dividends declared but not paid.
Taking cooperative A, with a capital of $50,000, represented by shares on which a limited dividend of 4 per cent is paid; it has a surplus in a given year of $5,000. Ordinary dividends to shareholder members amount to $2,000, and patronage dividends $3,000, making up a total of $5,000.
We then take cooperative B, with a similar capital of $50,000, which is represented by a revolving fund on which no interest is paid. There is the same surplus of $5,000, with no dividends or interest paid. Patronage dividends amount to $5,000.
If there were no three per cent rule, cooperative A-the first one I mentioned-which financed with share capital would pay tax on $2,000, whereas cooperative B, which earned exactly the same amount but which financed on a revolving fund, would pay no tax. Yet the only difference between the two organizations is in their method of financing. The

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members are the same, and the surplus is the same. The three per cent rule, as the committee will appreciate, corrects that discrimination to some extent, although not entirely.


Mr. IRVINE:: I wish to correct one point of view expressed by the hon. member of Vegre-ville. I have no disagreement with his expressing his own view, but he did say I had expressed the view that there was no room for private business. His justification for saying that arose from an interchange between the acting minister and myself during the course of my remarks on the subject. The point under discussion at that time was that if a private corporation requires legislation of this kind for the taxation of cooperatives in order that that corporation may exist, then we can do without it.
Let us look at the recommendation of the commission in this respect. It says that the object is to make certain that the solution finally adopted will not ruin one or the other. Apparently the only way to prevent the ruination of private business in certain communities is by putting on a tax such as that to which my hon. friend has just objected. I say if that is the only way to save them, then they ought to be ruined. That was my view.
I do not say there is no room for private business. If a community wishes to pay a private business a profit for doing their business for them, that is a matter for them. But if another community wants to do its own business and to save its profit for itself, so that it will not be paid out to any other person, then I say it should not be compelled to keep alive in that community an organization which can exist only by taking profit or toll from that community, and to do it at the expense of the cooperative. That is very different from saying that I want to wipe out all private business. There may be room at any time under any system for a certain amount of private business. But I am saying that that private business must not be permitted to exist by imposing a restriction upon a cooperative. That was the argument of the commission, and the argument I used in my interchange with the minister.


Anthony Hlynka: I do not wish to be unfair to the hon. member, or to place upon his words an interpretation different from what he had in mind. For that reason I should like to place on record the exact words of the hon. member for Cariboo as they are recorded at page 3938 of Hansard:
So what the minister regards as fairness is to try to prevent the cooperatives from entirely swallowing up private business.
Mr. Abbott:	Why not?
63260-256i
. Mr. U^ine:	Why keep the bally thing alive
if it is not functioning in the best interests of the common people? If it cannot stand up and carry out its own philosophy in competing with cooperatives, it ought to go out of business.
Mr. Abbott:	Compete on fair terms, yes.
I am afraid that in this regard I am inclined to support the minister's view, even though I have expressed the view, and still do, that cooperatives should not be taxed. But when it comes to private business I believe it would be well for hon. members to State definitely whether they do or do not support private enterprise, because we must recognize that private enterprise also plays an important part in the economy of the nation.
In recent months and years we have heard a great, deal against private enterprise. I accept the hon. member's statement as to what he had in mind, but I suggest that all groups should definitely express themselves as to whether they are supporting private enterprise and its expansion, while at the same time wishing to see cooperatives expand.


William Irvine: I do not believe it would be possible for a private corporation successfully to compete with a true cooperative in the same community, unless this parliament or government gave some privilege to the private corporation.


Mr. GIBSON (Comox-Albemi):: They are competing in the matter of management. That is all they need.


William Irvine: They will not be able to do
even that, because we have developed and are still developing some able management in cooperatives. While I am on my feet I would add that we have to make up our minds whether we are going to bolster up certain things which have outlived their usefulness at the expense of new developments, in order to try to balance them. That is the principle stated by the commission, namely that of making certain that the solution finally adopted would not ruin one or the other. Well, if the day were afraid of the night and the night were afraid of the day, and this government were to pass legislation to keep them balanced, we should have perpetual and eternal twilight, with neither day nor night.


Douglas Charles Abbott: That is expecting too much, even of this government.


William Irvine: I am not charging the government with trying deliberately to destroy cooperatives. I know the Minister of Finance is one of the most sincere, diligent and competent members of the government. I would not suggest he had any such thing in mind. And I would even add that the acting minister is not far from the same calibre of man.
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Douglas Charles Abbott: Damning with faint praise.


William Irvine: But I do say the government is ill-advised in following the recommendations of those who are in direct competition with cooperatives and who find that the cooperative method is making it difficult for them to carry on. As I have said, the reason it is difficult is just this: A community through its cooperative would have no profits, but the savings made from the cooperative effort remain as savings instead of going to a private corporation to help to make up its profits. That is exactly the situation, and the legislation which the government is now discussing is of such a type as to leave no line of demarcation between the private corporation and the cooperative. In other words, it is a hypodermic injection of capitalistic virus beneath the skin of the cooperative.


Mr. McCUAIG:: I should like to place before the committee my view with regard to the taxation of cooperatives. It has been contended by the grain exchange and by others who wish to have cooperatives taxed that there is no difference between the line elevators and the cooperatives, since they both handle grain under the Canada Grain Act. But as a cooperator for over thirty years I know there is a fundamental difference. The line elevator companies are in business for one purpose only. They are not set up to do missionary work among the farmers, but rather to make money as joint stock companies-to make all the tariff will bear, all the time. When new railroads were built through the west, and even before the steel reached the different points, there was a frantic rush by line elevator companies to acquire elevator sites; and what a wonderfully remunerative business it was! The line elevators had five shovels which they stuck into every load of grain, namely, weight, grade, dockage, price spreads and service and handling charges.
In connection with weights, it was a common practice to show 200 pounds less on the grain ticket than was recorded on the beam of the scale. As to grades, a man had to take any grade that was offered, the standard excuse being that there was room only for No. 3. The spreads were between three and five cents between Nos. 1 and 2 northern-and I am talking now about 1915, 1916 and 1920, before the cooperative elevators started, and 1923, before the pools started. As I say, there was a difference of from three to five cents between No. 1 and No. 2 northern, from five to seven cents between grades 2 and 3, and from six to eight cents between grades 3 and 4. The wheat board spreads to-day are just about half of that. In many instances there was a loss of

15 to 20 cents a bushel between wagon load and car load lots. This was discrimination against the small farmer, the man with the wagon load, in favour of the man who could sell in car load lots. The pool put street wheat or wagon loads on the same basis as car load lots.


Mr. HARKNESS:: What about the United Grain Growers; did they not have a considerable effect on that?


Duncan John McCuaig: Possibly at one time, but in later years they stayed pretty close to their friends the grain exchange and refused to go into the pool. The hon. gentleman knows that.
In the matter of dockage it was a common thing to lose two bushels in excess dockage on a 75 bushel load by the policy adopted by the trade. Because of that method literally hundreds of thousands of bushels were sold by the trade for which the farmer never got credit on his statement.
The pools have reduced service and handling charges by about one-half. All this saving goes into the price the farmer receives for his grain and constitutes a part of his income. It was such abuses as these that forced the farmers to form cooperatives, to come together to do things for themselves. I personally went, through all the experiences I have related. I found that when I took exception to those abuses, changing elevators did not help any. The farther down the line I went, the tougher it got. I was a rebel. As I say, the difference between the line elevators and the pool elevators is that the line elevators are in business to make money, while the farmers in a cooperative elevator know that they are going to get service and save money for themselves. Farmers grouped themselves together in a cooperative in order to save money.
In my view the pool elevator is nothing more or less than an Extension of the granary on the farm. I joined in building a pool elevator in order to save myself from exploitation-just plain stealing. The money saved by the cooperative method of handling grain is directly a part of the farmer's income. Just as I went into the modern mechanized farming to cut costs so I went into the modern cooperative methods in order to help myself and eliminate excess service and handling charges.
My returns from the cooperative are not based on my share capital, as in line elevator joint stock companies. In the cooperative, one share means one vote. If I did not deliver any grain to the cooperative, my one share would not increase in value, and I would not receive any share in the earnings of the cooperative. Anything over and above the actual cost of

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handling the grain is either returned to me in the form of excess handling charges, or is used as a reserve to carry on the business or to take care of liabilities, in proportion to my contribution of grain. In either case it would be credited to me as a member. There are 127,000 members who are direct owners of the cooperative wheat producers. As individuals they are liable to income tax on earnings saved, but the cooperative as a whole should not be subject to taxation.
The Saskatchewan Cooperative Wheat Producers now receive over fifty per cent of all the grain delivered to country elevators in Saskatchewan. This is the real cause of the fight. The heyday of the private grain trade is over, because the farmers have learned the hard way. They know what the so-called "farmer's friends" have done in the past and they know what they would do in the future if they get the chance. The grain trade's last bet is to call upon the government to cripple the cooperatives by taxation. Surely, Mr. Chairman, an institution like the wheat pools ivhieh have to borrow from $45,000,000 to $50,000,000 must have some reserves. They must put up at least fifteen per cent of their own money in order to get credit. In a year like 1937, with little wheat to handle, the pools kept their elevators open to distribute relief, and provided a great service to rural municipalities. Their deficit was nearly $2,000,000. It was a service that was helpful to the government, because it provided people with the means to live, and kept them off the relief rolls. The line elevators were mostly shut down at that time. We found out then who the government's friends *were, who the farmers' friends were and who the country's friends were.
In my opinion a cooperative democracy is the only solution to avert the fast approaching crisis within our capitalist economy. If the government is going to take sides with the people who want to see the cooperatives taxed and crippled and put out of business, then I say the war is on. The British people had the good sense to see the handwriting on the wall. I hope that this government will sit up and take notice.
The Progressive Conservative members to my right have said that the Liberal government is going socialist. I think it can be honestly said that any steps which the Liberal government has taken towards socialism have been brought about by the pressure of sheer cold necessity. I am very glad that the government has had the good judgment to have this whole question of taxation of cooperatives
looked into, and I hope that the minister will continue to exercise his good judgment in the interests of equity, justice and liberty.
I have had a number of telegrams and letters which I shall not read, because many of them have been put on the record a number of times, but I would strongly urge the government to place a truly dominion cooperative act on the statute books, and then we shall know where we are going and what we are doing.


Hazen Robert Argue: I have two or three questions to ask the minister, but before doing so I want to go on record as whole-heartedly supporting the stand taken by other members of this group in opposing completely any taxation of cooperatives apart from the business which they might do with non-members. It has been said by others in this group that there is something more involved in the taxation of cooperatives than the loss of funds to the government, because within the cooperative movement there is an opportunity for people of all political and religious faiths and of various racial origins to meet on a common plane and work out their problems together.
I have received a number of communications from cooperatives in my constituency, and one which I was exceedingly pleased to get was from Mr. Eugene Bachelu, of LaFleche, president of the French-Canadian cooperative associations of Saskatchewan. Mr. Bachelu is also secretary of the LaFleche Cooperative Association, which is composed of both French and English-speaking Canadians.
There are one or two questions I would ask the minister which have not, I think, been asked at least in this way before. Does the minister believe that any government measure should reflect the desires of the majority of the electors?


Douglas Charles Abbott: I will answer that in the affirmative.


Hazen Robert Argue: The minister says yes. Then I would ask the minister if he believes that that the majority of Canadians support the present measure for the taxation of cooperatives.


Douglas Charles Abbott: I would think so.


Hazen Robert Argue: I disagree with the minister. I do not think it is possible for him to show definitely that the majority of Canadians support the taxation of cooperatives.


Douglas Charles Abbott: No more than it is possible for my hon. friend to show that they do not.


Hazen Robert Argue: I will wager that I can make a better job of showing that the majority of
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the people who have spoken on this question do not support the government's position, than the minister can do to the contrary.


Douglas Charles Abbott: The majority of persons who have spoken on it come from the group of which my hon. friend is a member.


Hazen Robert Argue: But there has been discussion of it elsewhere than in this house. I was in touch with various labour organizations and was informed that they have gone on record as supporting the cooperative movement and have asked their members to study and support it. I have a resolution here passed by the Ontario federation of labour, in convention February 10-11, 1945, representing 150,000 workers. The resolution unanimously opposed the taxation of cooperatives and credit unions. That is the voice of organized labour in Ontario. There is a total of 600,000 organized workers in Canada.
I have also a booklet from the Cooperative Union of Canada in which it is stated that at least three-quarters of a million members in their cooperative union or in cooperative associations are affiliated with the Cooperative Union of Canada. There you have the voice of 750,000 people supporting the cooperative movement, as well as the opinion of a large proportion of the working classes who are organized in labour unions. I say to the minister and to the government that if any government measure falls in line with the opinions of organized labour and of the organized farmers, he can take a chance on it that it is in the interest of Canadians generally. I would also say this, that when the government brings in a measure that is opposed by organized labour and the organized farmers through their cooperatives, it is a measure which in my opinion does not represent the opinion of the majority of Canadians.
I would ask the minister another question. Does he believe that any taxation by a government should be based on the principle or belief that the moneys derived from the tax can foe better spent for the welfare of the population as a whole in the hands of the government than if left in the hands of the taxpayer? .


Douglas Charles Abbott: That is a long and involved question, but I will answer it in this way. I believe that any system of taxation should be fair as between Canadians, and if a Canadian doing one type of business should pay his share of a tax, a Canadian doing the same type of business in another way should pay his share of the tax. I agree with the commission's statement-I have not the statement
[Mr. Argue.l
before me, but it is to the effect that fiscal measures are a poor way of assisting a particular type or method of carrying on business.


Hazen Robert Argue: I do not think any taxation proposals can fit equitably private enterprise and cooperatives, because they are diametrically opposed; they have different objectives. If it is to be taxation based upon the same formula it will not meet the interests of the majority of Canadians. I do not know, and the minister says in answer to another question he does not know, how much money is likely to come to the coffers of the government through this taxation proposal. It may be a million dollars, it may be two or three million dollars; I do not know. But I suggest to the government, while recognizing the need for government institutions to have money, that that one, or two or three million dollars would benefit Canadians generally much more if it were left in the hands of the patrons of cooperatives rather than taken into the government treasury. A cooperative oil refinery was set up in Saskatchewan a little more than ten years ago. Within a few years the price of gasoline, not only to members of that cooperative but to non-members, to all the people within that area, went down from six to eight cents a gallon. The amount of money invested in that refinery at that time was less than a million dollars, and I suggest that the consumers in that area with that million dollars were able to do something which was of greater benefit to the people of that area than if that money or any part of it had gone to the federal treasury. So I believe that, as cooperatives are able to expand throughout Canada, at least during the time when they are combating and overcoming monopolistic interests it is to the benefit of the people that the cooperatives should have all the money possible left with them so that they can complete the job they have undertaken.
We had a long debate in parliament on the 12J per cent increase in farm machinery. The members of our group thought at that time, and still think, that that increase was not justified. But if we had had a cooperative movement for the production and distribution of agricultural machinery we would not have needed to concern ourselves with the question whether the competitors of the cooperative farm machinery companies were able to increase their prices or not, because the people who saw fit to support and patronize their own cooperative would receive their farm machinery at cost.
We debated, too, this session the amendments to the Combines Investigation Act. Those amendments, it is hoped, will allow the government to deal more successfully with

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the problem of monopoly and enable it better to break up existing combines. I believe it is a much wiser procedure not to tax any part of the savings of cooperatives but rather to encourage and if necessary sponsor them, because cooperatives are the best assurance in the world that combines will be broken and that they shall not be formed in future to the detriment of Canadians.
A good deal of consideration was given by this government to the problem we are likely to be faced with in another two, three or four years in the way of unemployment, depression and deflation. I was sorry to hear that the government, at least for the time being, has abandoned its social security and its public investment programmes.


Douglas Charles Abbott: My hon. friend is covering the waterfront here, with cartels and unemployment programmes. I hope he will stick as closely as possible to the terms of the resolution.


Hazen Robert Argue: I thank the minister for his interjection. I was just going on to say that cooperatives are the instrument that prevents deflation, and when we are considering the taxation of cooperatives we must consider them in relation to the whole Canadian economy and determine how their growth will react upon the economy generally. The government, according to their own submission, believe that at some time public investment may be necessary. An ordinary corporation at various times has surpluses, which it may decide to distribute as dividends. Often the people who receive those dividends are not in the low income brackets but possess high incomes and do not feel the need of spending that money. Other profits of corporations may be retained as reserves, undistributed reserves, and reserves not used for capital expansion or for the increasing of inventories. That does not apply to cooperatives. If a cooperative retains within the cooperative association part of the savings it has made, it uses it for expansion, and because it spends, employment is provided. If the cooperative does not retain the money, it then pays it out as patronage dividends, and that money in the hands of low income earners is spent and goes into circulation and provides employment. When the government is considering taxation of cooperatives it should not consider it merely from the point of view of what advantage cooperatives may or may not have now as compared with private enterprise, but rather it should consider the whole cooperative movement in Canada, how it affects Canadians at this time and how its growth and expansion may be used to better economic conditions in this country. I suggest to the government that if it wants to do in respect of cooperatives that which is in the best interests of Canadians generally, now and in the future, it will totally abandon any proposals it now has for the taxation of cooperatives.


Mr. COLD  WELL@: 
Douglas Charles Abbott: To some extent.


Mr. COLD  WELL@: To some extent, yes. As I sat listening to that, my mind roamed over the debates we have had in this house for a long time; I remembered how on occasion I have sat here, as my colleagues have done, and we have had thrown at us the accusation that we believe in compulsion. Of course that is quite untrue; but if ever there was a case of the compulsion of a group of people, here we have one. We have a group of people who organize a cooperative society, public-spirited citizens who say that, for the benefit of themselves and of the institution they are going to build, any funds they put into the capital of the cooperative association shall be contributed freely and without interest for the entire group. We now have legislation which says that before a patronage dividend can be paid by the people who comprise that group they must first of all compute three per cent interest on the capital, employed. In other words, we are compelling a group of people to do something which they themselves do not wish to do because they believe it is against the best interests of the organization they are establishing.
As I interjected on the night the budget was introduced, I believe that this provision in the budget in regard to cooperatives is fundamental. We have had a great deal of discussion of patronage dividends; we have had a great deal of discussion of other phases of the government's proposals; and may I say that I am thoroughly in accord with my colleagues who have placed the point of view of this party before the house in this long debate. But if there is one feature of the proposals which, in my opinion, is bad from the point of view of cooperatives, it is this three per cent feature. It strikes at the very basis of the cooperative movement.
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I do not think this has perhaps occurred to the minister himself; it may not have occurred to his advisers; nevertheless what the government is actually doing is placing these nonprofit organizations on the same basis as profit-making corporations, and as the years go by I can see the arguments of my hon. friends and those across the country who argue that there is no difference between a cooperative and a corporation reinforced by this provision, reinforced because the government is injecting into the cooperative movement something which is really foreign to that movement.
If I were asking specifically for a single provision to be removed from the proposals which the government has made, this is the one that I would choose first, because I think it strikes at the very root and basis of true cooperative movements. I am, therefore, again urging the minister to consider the removal of this particular provision in the budget resolutions. I know that the view I am expressing here this afternoon is the view which is widely held by the cooperative movement. I do not think hon. members have altogether come to a realization of what the cooperative movement really is. If I wanted to place before the committee completely the difference between a private profit-making corporation and a cooperative society, I do not think I could do better than quote the letter which was quoted by the hon. member for Inverness-Richmond and the hon. menfber for Cumberland the other evening, written by the Reverend Doctor Coady of St. Francis Xavier university. That letter placed before the house clearly the fundamental difference between the two. Here is the way in which he actually put it:
Private profit business and cooperatives are specifically different kinds of business. It is logical to suspect, therefore, that no tax legislation that applies to the former would be applicable to the latter. Violence will have to be done to fundamental principles if this is tried.
That is the point I am trying to make, that you cannot inject into the cooperative movement a provision of this sort, which is foreign to the cooperative movement, without dealing a serious blow at the movement. I do not believe the government desires to deliver a serious blow against it. But I believe that the government has failed to understand the difference between what Doctor Coady speaks of as private business and what he speaks of as the cooperative movement. You cannot inject into one something that is foreign to it and expect the business to prosper.
I have kept out of the debate pretty well because I felt that the ground had been well

covered; but I am urging the minister, since I heard him speak earlier this afternoon, to reconsider the position. This is not much of a revenue producer. I do not think it will materially affect the revenue of the government; but it is a material consideration from the point of view of a cooperative society, and it injects into the cooperative something which is entirely foreign to it. In the days to come, when perhaps this parliament has gone and our successors are in our places, just as to-day we are the successors of those who in 1930 introduced amendments to the act, which we are now dispensing with, just in the same manner, I say, some sixteen years later parliament may come back and say there is no difference between a cooperative and a corporation. They both pay interest on the capital employed.


Douglas Charles Abbott: They do not have to pay it. They pay the tax if they do not pay it.


Mr. COLDWELL:: They must compute taxable interest before they pay patronage dividends, or before they can expand their business.


Douglas Charles Abbott: As usual, my hon. friend has stated his.point with clarity and conciseness. All the points he has made as to a cooperative differing from another type of business were made at full length before the McDougall commission, and it found unanimously that a cooperative, even a true cooperative, can and does, under certain circumstances, make income which is taxable income. It does, and hon. gentleman opposite realizes that a true cooperative which does business with non-members makes income which is and should be subject to taxation.


Major James William Coldwell: You are not asking us to agree with all that the McDougall commission says?


Douglas Charles Abbott: No, but my hon. friend is asking the government to give consideration to the special character of cooperative enterprise, and all the points he has been making were made fully before the McDougall commission. As regards this three per cent question, we are not forcing cooperatives. This legislation does not force a cooperative to pay interest to anyone; but it does say that a cooperative enterprise which employs capital earns a return on that capital which is in the nature of taxable income, and the McDougall commission acknowledged that a cooperative enterprise could and did earn income which should be subject to taxation. That is the whole point. I agree with my hon. friend; I do not think the tax revenue from

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this provision will be large because I think it will affect most cooperatives little, if at all. But I say that it maintains a principle which, in my judgment, it is most important to maintain, namely, that when a person in this country, whether it is a cooperative association, a corporation or an individual taxpayer, earns something which is taxable income, then it should be taken into account and a tax paid on it. That is the whole principle here.


Major James William Coldwell: The difference between the minister and myself is that he is regarding the cooperative as a corporation;-
Mr. ABBOTT; Or an association or an individual.


Major James William Coldwell: I am not.


Douglas Charles Abbott: The individual would be in the same position.


Major James William Coldwell: I am not; I am regarding a cooperative as a group of individuals who are doing business with themselves individually.


Mr. HERRIDGE:: I rise to support the position taken by the cooperative union of Canada and the various cooperatives that have wired and written me, and the arguments put forward in this debate to which I have listened with a great deal of interest. I refer particularly to the arguments adduced by hon. members to my right. I am not going to repeat these arguments; I support them.
I just wish to make a few observations in connection with this matter and perhaps to bring out one or two points which have been overlooked to date. The government appointed a royal commission to investigate the taxation of cooperatives. That is to the credit of the government. The appointment of the commission has had quite an effect in Canada. I am sure that many hon. members noticed that, when the commission held its sittings new public interest in cooperatives was aroused. I noticed that particularly in British Columbia. The sittings were often attended by quite a large number of people and in addition to that, the press carried extensive reports of the proceedings. That has had a tremendous effect on Canadian opinion and the Canadian people's understanding of the cooperative movement. That is one of the reasons why to-day the government, in its defence of its stand in this matter of the taxation of cooperatives, has to give further consideration to the pressure being put on by the cooperative movement, and to public opinion. We find the fishermen of the mari-times, the French-Canadian farmers, the Ontario farmers, the prairie farmers, the fisher-63260-257
men of the Pacific coast, the fruit-growers of British Columbia and the dairy cooperatives throughout all the provinces have united in their stand against the government's present tax proposals. I submit that in this issue we have had a demonstration of national unity around a principle which goes beyond race, creed or occupation.
As I said before, the government has reacted to the pressure of the cooperative movement. It has bowed to public opinion and has made certain amendments to the tax proposals. Personally I wish the government would go farther, as the previous speaker said, and delete this three per cent proposal. But I understand the government's position. At the last election they received a mandate from the people to operate the free enterprise system. At the same time they plastered the country with slogans about building a new social order. Therefore they are somewhat between the devil and the deep sea in this matter. It reminds me of what a friend said to me on one occasion. Ho said:	"I always
look on the Conservative party as a porcupine. It is exclusive, and its bristles are rather inclined to rise if you trespass on its preserves. I look upon the Liberal party as a rabbit." I asked why. He said: "It is always timid when it is facing a new set of conditions." That is what I think this government is at the present time. It does not realize the conditions which it is facing. I might say further that I asked the same party what he thought of the C.C.F.; what animal would he describe them by? He said: "Oh, a beaver, always building."


Douglas Charles Abbott: He must have been a member of the C.C.F.


Herbert Wilfred Herridge: Aside from that, does the government realize that the cooperative movement has revitalized the fishing industry on the Pacific coast, has done an immense amount of good for the farmers of Quebec, has been the cause of building up a dairying industry in this country, has saved the wheat situation on the prairies, has made it possible for the fishermen on the Pacific coast to earn a decent living, has salvaged the fruit growing industry in British Columbia? In doing that, the cooperative movements have actually saved the taxpayers of this country far more money than would be lost if this taxation proposal were removed. I suggest to the Acting Minister of Finance to give this question consideration from the point of view of the value of the cooperatives to the Canadian economy as a whole, on the basis of principle, and the value of the cooperatives in saving the government money.

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Robert Ross (Roy) Knight: I made my contribution to this debate this morning; but there is one point that I wish to make now, namely, that the Acting Minister of Finance constantly comes back to the fact that the McDougall report was unanimous. The Minister of Finance took the position that this is what the cooperative people and the people of Canada want and therefore the government is giving it to them. I agree that the report was unanimous, but that unanimity was bought at the expense of certain definite reservations. I know that Mr. Arnason, who was a member of that commission, certainly does not believe that cooperatives make a profit. While the McDougall report so states categorically, I want it on the record that that report was just a compromise. The cooperatives' side of the argument was also cop-promised before the decision was made unanimous. I think that is a clear statement of fact.


Douglas Charles Abbott: Mr. Arnason made no reservations on the point to which my hon. friend is now referring.


Mr. HANSELL:: May I also make a little contribution to this debate. My contribution may not be large; nevertheless I consider that it may be valuable; at least I think it is going to be. I rise because I feel in duty bound to say something on the basis that I, too, have received a good deal of correspondence, form letters, cards, briefs, telegrams and private interviews in respect of the whole matter of the taxation of cooperatives. If I were to review the position in which I find myself I would have to say, first, that the royal commission made their report almost a year ago. I believe it was on September 25, 1945, if my memory serves me correctly. Almost immediately there began to flow into my office a number of requests. I found that most of these were printed form cards. I suppose all hon. members received their fair share of these cards. Generally speaking, the cards requested that I should take a stand that private enterprise and cooperatives be taxed on the same basis. I thought those cards should have an answer, and I was not alone in sending out a personal letter to each of those who had sent in these printed cards. I might say, in passing, that I received about 350 of them-more than some members, and not as many as others. I felt there might be such a thing as those who had signed the cards not being completely informed in respect of all that might be involved in the subject.
However, I wrote each of them a personal letter, pointing out one or two recommendations made in the report of the royal com-

mission on cooperatives, and asking for any comments they cared to make in the matter. I believe I am not doing any harm by disclosing the fact that in answer to those 350 letters I received only eight replies. The eight I received showed considerable intelligence, and a number of them were several pages in length. These letters indicated to me that the few who replied had an extensive knowledge of their subject. It is needless to say, however, that only eight replies to 350 letters was disappointing. This all happened after the report of the royal commission had been submitted, but before the budget was brought down.
After the budget was presented, the picture changed to some extent. Then my office began to be flooded with a different type of request. Telegrams and letters began to come in, and further briefs were submitted, all asking me to take a somewhat different stand. It was suggested that, generally speaking, I should remain pretty well within the confines of the recommendations made by the royal commission.
Might I revert to a discussion of those few letters I received in answer to the form card? They were sent to me by small merchants, small businessmen who were operating what would be described as private enterprises. I fancy that many small businessmen would have said many of the things which were said in those eight replies. It was pointed out to me in those replies that the waiters were small businessmen such as clothiers, grocers, operators of general stores, and garage operators. They complained that they were being taxed on their meagre profits.
It is all very well to say that private enterprise builds up huge profits, but it must be remembered that that does not apply to all people who are in business under the private enterprise system. Nearly all my constituency is composed of either rural municipalities or small towns, and I found that many of the small businessmen in those areas find it difficult to keep their heads above water. Indeed, had it not been for the war, and a general expansion of credit with more money in circulation, many of them would have gone broke long ago.
Some of these people take this attitude: Why should my small profits be taxed when other individuals who are more wealthy than I am but who are members of a cooperative movement can take advantage of certain advantages which apply to cooperatives but do not apply to me? That is another side of the picture. I do not want it to be interpreted that I am against cooperatives. I

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cannot possibly be against them, because I cannot bring my mind to the point of thinking that people should not be permitted to get together to cooperate with each other in carrying on business for themselves. The principle of it seems right, to me. For that reason I favour cooperatives, and I want to do all I can to foster the spirit which actuates their formation.
At the same time, there is the other picture in respect of small private businesses struggling in outlying districts. I put in a word for them. Generally speaking, I must support the position taken by the royal commissioners, for I find that most of the briefs sent to me favour that report. There may be some details wherein there are differences of opinion, but these are on matters of administration.
In trying to think my way through the maze of complications surrounding this matter of the taxation of cooperatives, compared with the taxation of private business, I cannot help asking myself why we are really fighting about this matter. I wonder if we have really got down to asking ourselves that question, and trying to answer it. Is there any need to fight about it? I suppose, if we want to attempt to run the country under a restricted system, then perhaps we shall have to fight.
But why do we fight? What is wrong? There must be something wrong or we would not have to fight. Are we short of anything? I know we are not living in normal times to-day; but legislation of this type is not imposed upon the people for a specific year or because of the exigencies of the times. Legislation of this type is put upon the books and will remain there forever or until it is lifted again. It is put on the books because the present administration is operating under a certain financial arrangement. They refuse to move away from the rules and regulations imposed upon society by that system. In normal times wre are not short of anything; the only thing we seem to be short of is money. That is why we are fighting over the shortage. We have an industrial relations committee sitting at the present time. What are they fighting over?


William Ross Macdonald: May I ask the hon. member to confine his remarks a little more closely to the clause under discussion?


An hon. MEMBER:: Perfect skidding.


Ernest George Hansell: I do not understand what my hon. friend is saying, but I understand what you have said, Mr. Chairman, and I shall try to confine my remarks to the resolution. I want to know why we are fighting over this question of the taxation of cooperatives 63260-257J
versus private enterprise. In my opinion, I do not see that there is any reason to tax either. That is my position. In my opinion, the only reason the government would have to tax these people is that it is short of money. To some that may appear to be a good reason, but I cannot understand why we should be short of money when money is a creature of the law.
I want to pursue my illustration, Mr. Chairman, but I am afraid you will call me to order again if I do, and perhaps I should not impose upon your generosity, your fairness and your kindness. Therefore I shall not pursue my illustration any longer. It always occurs to me that we are working under a system where we believe there is only one bone for two dogs. I could never figure out why there is only one bone. Who said there was only one bone? Who put the one bone there? Why did they not put two there? I will not pursue my illustration, Mr. Chairman, because I know it will only aggravate you.
I should like to ask the minister one question and perhaps follow it with another. I want to ask him why he taxes the profits of industry or cooperatives. Why does he do it anyway? I want a satisfactory answer to that. I am not saying that under the present system we can do away with all taxation, but it seems to me that we are going too far. The hon. member for Cariboo passed out a few bouquets to the Minister of Finance. He said he was a most capable individual and had done a marvellous job. All my Liberal friends over there began to pound their desks. Then he went on to say that the Acting Minister of Finance was coming right along in his tracks, and the Liberals patted their desks again. Well, I did not pat my desk. I am not going to applaud any man who attempts to bleed the people. Why should I?


Douglas Charles Abbott: That is a strong statement.


Ernest George Hansell: That is a strong statement. If the government takes anything from my pocket it is taking something that belongs to me. A union man once spoke to me in terms of "take-home pay", and I said, "What do you mean by 'take-home pay'? Don't you take it all home?" It had not dawned upon him that it was his pay but that he could not take it all home.


An hon. MEMBER:: They took it home for him.	,
M.r. HANSELL: Somebody was confiscating it. I contend that when the government taxes me it is confiscating something that belongs to me. Am I going to applaud a Minister of Finance who confiscates? I am not going to do so. I like the minister because
Income War Tax

he is a nice fellow. Whenever I go to him with a problem, he hears it and tries to solve it for me. I do not like to be too strong in my statement, but the present system is something like a fellow who goes in to rob a bank and gets away with it because he is respectable. We applaud him and say, "Now, you know you are a fine fellow, you did that so nicely that everybody thinks you are a respectable gentleman." We applaud him.


Thomas John Bentley: We permit him to go back and do it again.


Ernest George Hansell: The hon. member for Swift Current says that we give him a mandate to go ahead and do it again. I want to ask the minister why he taxes profits. I am not saying there is no place for excess profits taxation.. I want to know why the minister taxes. I want to know why he cannot go to our own bank, the Bank of Canada, and say, "I want you to issue me a cheque for so much money and put that down on your books as a debt against the people of Canada." It is our bank and it would be our debt. We would owe that to ourselves and we would pay it to ourselves when we were good and ready to do so, not before. I want to ask the minister why he taxes. I want to ask him why he could not do that with the Bank of Canada.	.


Douglas Charles Abbott: The answer is quite simple: because he does not believe in Social Credit.


Ernest George Hansell: I do not know whether the minister considers that a good answer or not, but it will be on the record so that all the people of Canada may know that he has evaded my question.


Thomas John Bentley: I am going to be brief on one condition. I am going to ask the minister a question and his answer will decide whether I go any farther.


Mr. LAPOINTE:: Is that a promise or a threat?


Thomas John Bentley: It is both; you can take it any way you. like according to your nature. After all the debate he has heard and the information he has received, is the acting minister now irrevocably determined to maintain this three per cent clause in the bill?


Douglas Charles Abbott: The answer is yes.


Thomas John Bentley: 
Douglas Charles Abbott: This does not prevent that in any way.


Thomas John Bentley: It does, the way it is *written. It says it must be three per cent on the capital employed, and the capital

Income War Tax
employed by the Saskatchewan wheat pool is SIS,800,000, plus nearly _$5,000,000 in a special reserve.


Douglas Charles Abbott: 
Thomas John Bentley: Thank you. I hope the minister puts it that way in the legislation. It does not say so in the resolution, which reads:
. . . except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from 3 per cent of the capital employed in the business . . .
If the minister reads that differently from the way I do I wish he would write the legislation so that it will mean the same to me as it does to him.


Douglas Charles Abbott: I have already said that I think it would be helpful if members of the committee would wait until they see the legislation. There is also a question of legal interpretation involved. I do not underestimate at all my hon. friend's high qualities. He is as good a speaker as most lawyers I know, but I do not think he has had training in the legal interpretation of statutes.


Thomas John Bentley: That is quite correct. But I have had a lot of free legal advice since I came to this house.


Douglas Charles Abbott: It may be worth just about what you are paying for it.


Thomas John Bentley: I shall know when the fellows that gave it to me send in a bill. Seriously, however, if the minister will write into his legislation the words that will mean to me what he says he means I will withdraw my objections, but I should like the legislation to mean what he says it means.


William Scottie Bryce: I want to take two minutes, Mr. Chairman, since the minister has already said that the C.C.F. is doing all the talking and I have not done my share. I do not want to repeat what has already been said. But I would draw the minister's attention to the fact that the McDougall commission in their report said that in their opinion the cooperatives were a profit-making business, and it seems to me that this legislation is making that opinion an established fact. No true cooperative wilt stand for that, and I want to make that clear. I have listened to the leader of the opposition. I know that he knows about the cooperatives back west. He has told us that his group is supporting the cooperatives, and my hon. friends to my left
have said that they are for the cooperatives. Members on the other side of the house have written in the public press that they are also supporting the cooperative movement.


Douglas Charles Abbott: I have said the same thing myself.


William Scottie Bryce: And then you bring in
legislation that is against the cooperative movement.


Douglas Charles Abbott: No, no.


William Scottie Bryce: When the minister was
answering the hon. member for Melfort this morning he said that he would use the legislation of the provincial governments in order to determine what a cooperative was.


Douglas Charles Abbott: I did not quite say that.


William Scottie Bryce: You pretty nearly did.


Douglas Charles Abbott: I pointed out that under resolution 16 that was to be the test.


William Scottie Bryce: If you take the legislation that is in effect in the provinces, you would have nine cooperative acts. What is needed is a dominion cooperative act, and we shall never get anywhere until we have one. Until that is done, we shall continue to have the unfortunate position of what the McDougall commission said, what the opinion of the Minister of Justice was, and opinion expressed by many different people, but nothing definite.
I am going to appeal to the minister to withdraw these clauses in connection with cooperative taxation until he can bring in a dominion cooperative act so that we may have something definite to go on. This three per cent on capital being held for taxation purposes is perhaps in itself not serious; but it is driving the cooperatives, which are non-profitmaking organizations into the profit-making class, and then you can come along next year or the year after and make the tax fifteen or twenty per cent and tax the cooperatives out of existence.
I do not want to take any more time. I have had my two minutes. I feel, within myself-I am not referring to the acting minister or the Minister of Finance-that this legislation is being introduced on the advice of big business to curb the activities and the expansion of the cooperative movement, which has done so much for the rank and file of this country.


Mr. FERGUSON:: There has been a lot of discussion, and if most of the members who have spoken on cooperatives would spend their time in advising the government how to cut taxation they would not have to worry about the tax on cooperatives. Under the
Income War Tax

monetary system that we are using in Canada, we must all make up our minds to the fact that taxes must be paid if the government is to continue to spend large sums of money. I do not agree with these large expenditures, but if they continue to be made the bills must be paid. If an individual makes money, makes a profit, it must be taxed. If private corporations make money they must be taxed on their profits. If a group of men make money, a profit, it must be taxed. Why waste much more time talking about this matter?


William Scottie Bryce: Would the hon. gentleman permit a question?


Julian Harcourt Ferguson: You have been on your feet ten times on this subject. This is my first and last speech on it.


William Scottie Bryce: Tell us where you stand.


Julian Harcourt Ferguson: If you will listen you will know where I stand. Listen, more and say less. As regards the story told about that porcupine, I heard it once before. But the way I heard it was that the little porcupine represented the Conservative group, very sharp, very solid, and coming to the point very quickly. The same description of the rabbit would apply to the Liberals. But then my friend who was showing me around the zoo came to another animal who, he said, "represents the members of the house who talk too long and say nothing." I asked him what that animal was, and he said, "You must have a bad cold".


John Bracken: When this matter was up, I think on Friday last, I asked two questions of the minister. I do not know whether he has been able to get answers to them or not. If he has I wish he would give the committee the benefit of them, and if he has not perhaps he would say that he is unable to get them. Whatever changes the government may have proposed in connection with its first proposal as outlined by the Minister of Finance in his budget speech, it still intends that at least two taxes shall now be imposed on cooperatives. One is the tax on three per cent of the employed capital, and the other is whatever tax is imposed with respect to earnings by cooperatives in the last two years. My first question to the minister was, what is your estimate of the revenue you would derive from the taxing of the three large wheat pools in western Canada, on the basis of this three per cent on employed capital?


Douglas Charles Abbott: May I correct my hon. friend? It is a tax on three per cent of employed capital, not a three per cent tax on employed capital.
fMr. Ferguson.]


John Bracken: My words may not have been correctly placed, but there is no doubt as to what the government intends. It means there is so much employed capital, that three per cent is figured on it, that a thirty per cent is taken on the three per cent of the employed capital. What revenue, approximately, would this bring to the government from the wheat pools-the	three great cooperatives in
western Canada? And what revenue would the proposal of the Minister of Finance in his budget speech bring to the government of Canada on the basis of his plan as outlined in that speech to tax the pools for the years 1944 and 1945? I should like to have those two figures.


Douglas Charles Abbott: I am advised that that information is not yet ready, but it will be given.


John Bracken: Since the minister has not the answer now, perhaps he would tell me on the basis of one or two hypothetical figures whether my approach to the question is correct. Assuming that these three western wheat pools have employed capital to the extent of $30 million; three per cent of $30 million would be $900,000; the present tax on $900,000 at thirty per cent would be $270,000. On the assumption that $30 million is the employed capital of these pools, this plan would give to the government of Canada $270,000 a year.
Now the minister has not the answer to what the tax would be on these same organizations for the years 1944 and 1945, on the other basis proposed by the Minister of Finance in his budget speech. In view of the fact that he has not that answer, I wonder if he would give me an opinion on this statement, that that tax might amount in two years to a sum 'between six and twelve million dollars. Would the minister give us some idea as to whether that is approximately correct?


Douglas Charles Abbott: I cannot give an answer to that second part. I can give an answer to the hypothetical case my hon. friend has raised as to the three per cent of employed capital, if he wishes.


John Bracken: I think the minister would say that that was approximately correct.


Douglas Charles Abbott: Yes, but with some important qualifications. The tax might be $270,000, as my hon. friend has suggested, if taxes to that amount were not paid in some other way, such as the setting aside of taxable reserve or tax paid on non-member business; it might come under either head. Provided that the pool organization paid $270,000 in tax either on non-member business or by

Income War Tax
setting aside taxable reserves, on the figures my hon. friend has mentioned there would not be an additional tax of that amount because of the three per cent provision.


John Bracken: 
Douglas Charles Abbott: Might be.


John Bracken: Might be; probably it
would be somewhere near that figure. Now the government is saying with respect to the past, when it did not require the payment of whatever the law demanded, when for many years it did not even assess the pools-it is saying with respect to the past, upon which a test case was before the courts, the proceedings of which wrere stayed when the royal commission on the taxation of cooperatives was appointed, "We will settle with the pools on that disputed matter if they pay the tax on the original basis for the past two years." My information is that on that basis the tax would be in the millions of dollars, probably between six and twelve million dollars. The point I am making is this, if, after all this work this government has arrived at what it considers wise policy for the future, it will have a difficult time in establishing its own position with respect to the imposition of much heavier taxes for years that are now gone by.
I should like to ask one other question of the minister. Can he say or can he not whether there is any modification of the government's position as outlined by the minister in his budget speech with respect to this tax on these organizations in 1944 and 1945?


Douglas Charles Abbott: I made a statement on that question the other day, and if my hon. friend will look at Hansard of Friday last I think he will see how I expressed it. I can turn it up and quote it to him if he wishes.


John Bracken: Perhaps the minister
could tell me without turning it up.


Douglas Charles Abbott: I will read it. I made a considered statement, not a read statement either. It was considered but not read. It will be found at page 3924 of Hansard:
There is a question which has been raised by a number of hon. members in the course of the budget debate relating to what in my judgment has been inaccurately referred to as retroactive taxation. I refer, of course, to the assessments made against the western wheat pools for income tax during the years 1942 to 1945 inclusive. The committee will recall that in his budget speech the minister made an offer to the pools of settlement of these claims. Following the delivery of the budget speech the minister met the representatives of the pools and discussed ithe question with them. The members will recall that later the minister said that he had had this discussion, and that if it were felt by the pools that the proposed offer of settlement was not fair he was prepared to consider some further adjustment. Following the minister's departure I met the representatives of the pools on Monday. They submitted to me a counter-proposal for settlement of these claims. That counter-proposal is now under consideration by the government, and I simply want to say I am confident that a settlement will be arrived at which will be satisfactory to all concerned, but which I must emphasize,' must be fair to all those, including the general public, who are affected. Other than that I do not wish to say anything more at the moment.


John Bracken: Does the minister take the position now, which he took on that occasion, that he does not care to say more about the counter-proposal?


Douglas Charles Abbott: I have nothing more to add.


John Bracken: The minister does not care to let the committee know what the counter-proposal is?


Douglas Charles Abbott: No.


John George Diefenbaker: That is an unusual attitude to be adopted by the minister.


An hon. MEMBER:: It is quite usual.


John George Diefenbaker: It is becoming usual with him, but in a matter of such importance I do not see why the committee should not be permitted to know what plans the government has, or at least the nature of the proposal. May I ask the minister this? In regard to settlements covering the period from 1942 to 1945, if the government arrives at a basis of settlement with one of these cooperatives, will the same basis of settlement, the same percentage, be used for all others?


Douglas Charles Abbott: Yes. The basis will be uniform. It should be and will be the same for all.


John George Diefenbaker: I am glad to hear that, because otherwise there would be available to the minister or the government a discriminatory power that should not be permitted to exist.


Douglas Charles Abbott: May I hasten to add that as soon as a settlement is arrived at it will be announced and the exact basis will, of course, be disclosed.


John George Diefenbaker: If there is to be equality and the same percentage settlement
Income War Tax

for all, then I can see no reason why the minister should not reveal what that percentage is or the basis of settlement that is being considered. If the minister does not wish to give information regarding the offer, what is the basis upon which he as minister is prepared to go in order to secure a settlement? Surely we are entitled to know that.


Douglas Charles Abbott: My hon. friend is too good a lawyer not to know that you do not announce the basis of settlement in the middle of discussions. Moreover, you do not announce, before you conclude your settlement, how far you are prepared to go.


John George Diefenbaker: This comes back to just what I am beginning to suspect this particular- section is. It is a section designed to lead those who are in private business to believe that cooperatives are to be taxed and to lead the cooperatives to believe that they are not to be taxed.


An hon. MEMBER:: It is highly successful.


John George Diefenbaker: Highly successful, because the usual method of approach by the government is being adopted, namely, silence and refusal to answer questions dealing with the matter.


Douglas Charles Abbott: This section has nothing to do with the past.


John George Diefenbaker: I know, but it is the only section that deals with the matter of taxation of cooperatives. The rest was merely an ex parte statement on the part of the minister with reference to the attitude he would take in respect of income tax allegedly owing in the past. Possibly the minister, having taken that attitude-and it is not an unusual one of refusal to give information, will answer this question. We meet with that attitude every day, I may say, and we have no power to force an answer. In taking the stand he is now taking, the minister is merely following the best traditional principles of secrecy which the government has followed.


Ian Alistair Mackenzie: That is fundamental in government.


John George Diefenbaker: My hon. friend says it is fundamental in government that when the opposition ask for information in the matter of finance, or anything of the sort, no answer shall be given. That, of course, is a new doctrine that would not have been enunciated five or four, or even three years ago. However, that is the general attitude and I will not pursue the matter farther. The question I wish to ask is this: What is the meaning of capital employed in the business? Is there to be a definition?


Douglas Charles Abbott: Yes. There will be a definition in the statute, and that definition will probably be the one which is now used in the Excess Profits Tax Act, which has been carefully thought out and is a very fair definition. Perhaps there will be some modifications; but, broadly speaking, that will be the definition.


John George Diefenbaker: So that we who are not acquainted with it may be able to find it, what is the definition?


Douglas Charles Abbott: I will read it, but it is a very long one.


John George Diefenbaker: I would expect it to be.


Douglas Charles Abbott: The first schedule reads:
1.	Capital employed at beginning of period.- For the purposes of this act, capital employed in any year or fiscal period means the capital at the beginning of the said period computed in the manner hereinafter specified.
2.	Capital includes.-Capital shall be taken to be the following, subject to the deductions hereinafter provided:
(a)	Cost of assets.-So far as it consists of assets acquired by purchase on or after the commencement of the business, the price at which those assets were acquired and where the price of any asset has been satisfied otherwise than in cash, the then value of the consideration actually given for the asset shall be treated as the price at which the said asset was acquired;
(b)	Accounts receivable less reserve for bad debts.-So far as it consists of assets being debts due to the person carrying on the business, the full amount of those debts subject to any deduction which has been allowed under the Income War Tax Act in respect thereof on account of bad debts;
(c)	Value of assets acquired otherwise than by purchase.-So far as it consists of any other assets which have been acquired otherwise than by purchase as aforesaid, the value of the assets when they became assets of the business;
(d)	Amount of money and bank deposits.- The amount of money or bank deposits which are actually used by the taxpayer in the business.
Then there are the deductions.


John George Diefenbaker: To summarize, it covers the assets.


Douglas Charles Abbott: That is correct, assets less deduction for liabilities, depreciation and depletion and so on, except borrowed money. The explanation is set out in the first schedule to the Excess Profits Tax Act.


Mr. ZAPLITNY:: Can the minister give us an assurance that capital employed will not be construed as including turnover of the cooperatives?


Douglas Charles Abbott: I give that assurance readily.


Mr. CASTLEDEN:: The matter of retroactive taxation is vital so far as the pools are concerned. Retroactive taxation will take into account money which was set aside by the

Income War Tax
pools for a number of years. It is vital because, as far as the pools are concerned, they have operated their business under the protection of what they thought section 4 (p) gave them, ever since 1930. This will amount to millions of dollars, money which the pools have used in paying off claims on old estates taken up. At the present time patronage dividends are worked into revolving-door plans which will go back eight and even ten years, and probably more. In turning over in his mind the meaning of capital assets and the use of capital so far as the cooperative organization is concerned, I hope the minister will notice the basic difference between that and the money put into an ordinary enterprise for the purpose of declaring profits upon the sale of goods. The cooperative does not place capital into an organization for the purpose of paying profits; it puts it in there to create capital assets out of which the members will have assets from which they can operate their business. Their aims and objects are not to declare profit. That is why we so strenuously oppose the idea that the government is to compel all cooperatives to declare this three per cent. They are not to be allowed to declare and distribute patronage dividends beyond three per cent on the capital investment. It is clear what the government intends to do.


Douglas Charles Abbott: I am very conscious of the point which my hon. friend has been making.


George Hugh Castleden: It is clear that by this legislation the government intends to compel all cooperatives to declare that three per cent. That is basic so far as we are concerned. This resolution has been placed before the committee, and before it passes we intend to call for a recorded vote. We can see the basic principles of the cooperative movement violated by this legislation, and we cannot permit it to pass without registering our protest. When the bill is before us it will be impossible for us to do so.


Douglas Charles Abbott: Why? I made it clear the other night, when we were discussing this resolution, that it could pass on division. I said that to the hon. member for Rosetown-Biggar. When the bill is up for second reading it is open to any hon. member to attack the principle and to suggest amendments.


Mr. KNOWLES:: Suggest them only.


Douglas Charles Abbott: Obviously, amendments
which involve charges on the revenue have to be proposed by a member of the government.


George Hugh Castleden: That is the point I wish to make.


Douglas Charles Abbott: Any amendment which can be proposed here can be proposed when the bill is in committee after second reading.


George Hugh Castleden: We cannot get a vote on it.


Douglas Charles Abbott: It can be done in exactly the same way as here. You have three chances.


George Hugh Castleden: We are going to contest everyone of them, and we are going to make our position clear in regard to this matter.


Douglas Charles Abbott: I think the C.C.F. party has made it abundantly clear. I have not heard one member who has spoken on that side say that he was in favour of this three per cent clause. It has been made abundantly clear to the country that the party is 100 per cent opposed to it.


Stanley Howard Knowles: And a few Liberals, too.


Douglas Charles Abbott: I think we can take that for granted.


George Hugh Castleden: Let me conclude by saying that when this motion is put we are going to rise and ask for a vote on it.


Robert Fair: In the event of the government successfully collecting or extracting some money by way of back taxes, is it the intention to look over the field and see if there is some money to be extracted in the form of back taxes from other firms or organizations?


Douglas Charles Abbott: Did my hon. friend ask me a question?


Robert Fair: Yes. In the event of the government being successful in extracting some money by way of back taxes from the pools, is it the intention to look over other cooperatives with the purpose of getting back taxes from them?


Douglas Charles Abbott: So far as other cooperatives are concerned, I think the minister made it perfectly clear in his speech that what was described as the good faith principle would apply. Where they believed in good faith that they were not liable for taxes no attempt will 'be made to go back on that. My understanding of the pool situation is that in 1941 or 1942 they were advised that the Department of Justice had given the opinion that they were liable to tax, and then later in 1943 they were advised that the Department of Justice had given the opinion that patronage dividends were not deductible as an expense. The legal position would be, so far as they were concerned, that they could not plead ignorance of the stand taken by the Department of Justice.
Canned Fish


Mr. BURTON:: I was interested in listening to the minister give an explanation of the various stages that this legislation would go through. It is quite true, as he explained, that when the bill is before us an opportunity will be given to hon. members to register their protest; but at the same time this resolution stage, if it has any value at all, gives hon. members an opportunity to try to persuade the government to make worth-while changes before the bill is brought down. If that is not so, then I can see no value in having the resolution before us. Since it is nearly six o'clock. I suggest that the chairman call it six o'clock and possibly after dinner I may be able to persuade the minister to make a few changes before the bill is brought down.


Douglas Charles Abbott: I have listened to a lot of persuasive speakers, but I shall be delighted to listen to the hon. member for Humboldt.
At six o'clock the Speaker resumed the chair, and the house took recess.
After Recess
The house resumed at eight o'clock.
.	CANNED FISH



REQUEST OF UNRRA FOR RELIEF FROM CANADIAN COMMITMENT-STATEMENT OF MINISTER OF FISHERIES

Hon. H. F. G. BRIDGES (Minister of Fisheries) :: Mr. Speaker, before you leave the chair, and with the unanimous consent of the house, I should like to make a brief statement.
In order to clear up a misconception which may have been created by some press and radio announcements yesterday, I think it may be well for rjie to explain to the house the present position as regards UNRRA purchases of canned fish from Canada's 1946 production. Briefly, these announcements, which apparently originated in Halifax, were to the effect that UNRRA had asked Canada to release it from its commitment to purchase 30.000.000 pounds of canned herring, mackerel and chicken haddie and that thereby the maritime canners had been placed in a serious position.
What has actually happened is that UNRRA has asked to be relieved of this commitment as far as possible; but, at the same time, it has expressed its readiness to purchase whatever part of the 30,000,000 pounds, whether a large part or small, that Canada is unable to market through other channels. In other words, the commitment holds, even up to the total amount of 30,000,000 pounds if necessary.

Government departments, my own and the Department of Trade and Commerce, are exploring the possibility of finding other export outlets for some of this canned fish. On the domestic side, the wartime prices and trade board has recently lifted all restrictions as to the quantities of these products which may be released in Canada. In this way it may be possible to relieve UNRRA of some part of its commitment by disposing of some of the fish through other channels, but UNRRA will remain committed to take from us the remaining part of the 1946 output making up the 30,000,000 pounds. Thus the herring, chicken haddie and1 mackerel canners are assured of market outlet for this full quantity.


Mr. REID:: Will those who have supplies of canned herring and other fish be allowed to find markets outside Canada, apart from what UNRRA has stated it will take?


Hedley Francis Gregory Bridges: I will accept the hon. member's question as a notice, and give an answer later.



WAYS AND MEANS

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

[Stage Direction]
12. That for the 1947 and subsequent taxation years, the provision exempting the income of certain cooperative companies and associations be repealed and that for the 1946 and subsequent taxation years provision be made that there may be deducted from a taxpayer's income tne aggregate of the payments made,
(a)	in the taxation year or within six months thereafter to his customers of the taxation year; and
(b)	in the taxation year to his customers of a previous taxation year after the 1941 taxation year and not previously deducted under paragraph (a) in respect of specified allocations in proportion to patronage for the said years the prospect of which was held forth
(c)	by the statute or bylaws under which the taxpayer carries on business or by his contracts with bis customers, or
(d)	by the taxpayer in a specified manner prior to the commencement of the taxation year except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business, including therein borrowed moneys the interest paid by the taxpayer on borrowed moneys and deductible as an expense in computing his income.
Joseph William Burton: When the committee rose for the dinner recess our genial Acting Minister of Finance indicated that he would listen to me for a few minutes, but at the same time he gave the impression that little attention would be paid to what I might say.


Douglas Charles Abbott: Not necessarily; it depends upon what the hon. member says.

Income War Tax


Joseph William Burton: I should like to make use of this first opportunity I have had to discuss the resolution since the minister gave notice of the fact that two important changes have been made in what originally had been planned for the taxation of cooperatives. I wish to compliment the minister and the government, and to thank them on behalf of the cooperatives for the faltering step they did take. Even if it was done hesitatingly, at the same time it gives some of us the satisfaction of knowing that when occasionally we raise our voices the government listens. That is good, so far as it goes. The agreement to extend the period from six months to twelve months for the payment of patronage dividends is at least of some benefit to the cooperatives. The same observation would apply to the government's willingness not to compel cooperatives to treat members and non-members alike in connection with the payment of patronage dividends, a provision which is of considerable importance to the cooperative movement. As has been pointed out previously in the house, with benefits and privileges go some distinct responsibilities and obligations. Therefore I am pleased to see that the government has gone to this extent.
That leaves us with a resolution which still contains two undesirable features, from the point of view of the cooperative movement. The Minister of Finance on a number of occasions has objected to a reference to what has been called the retroactive feature in the taxation; nevertheless that is what people out in the country consider it to be, and it is something of great concern to some cooperative organizations.
As previously pointed out, this government and those which have preceded it are to blame for the situation in which the cooperatives find themselves to-day. Had we had a piuper dominion cooperatives act which would have given cooperative organizations fromi one end of the country to the other a proper yardstick with which to govern themselves, in all probability we would not find ourselves in this position to-day. Furthermore, as has been pointed out, a former minister of finance in moving an amendment to this act some years ago-and this has been placed on record'-distinctly told the house at that time that it was the intention of the government to make provision for cooperatives.
The question was asked this afternoon respecting the exact amount involved, and how much the taxation would bring to the treasury. While I admit that is important, yet to my mind there is something more fundamental in this than the mere counting of dollars and
cents. Consequently I say that the principle involved is of more concern to the people of this country and to the cooperatives in particular than are the actual dollars and cents, even though they may amount to quite a sum.
There is a second feature that I take serious objection to being retained in this resolution. I refer to the three per cent clause. I wish the Minister of Finance, the Acting Minister of Finance and their colleagues in the government would realize that the principal motive of the people who comprise the cooperative movement, their thought and their desire when they banded together, was not the return that they might get on the money invested but the service that they could render to the community.
The story has been told many times in this house, and I have no doubt that there are many members in the present parliament who have a working knowledge of how these different cooperative organizations were formed. However, I fail to see where that knowledge and understanding has been of any benefit to the government in bringing down this legislation. It is not my intention to take up the time of the committee or to weary hon. members, but I should like to give a brief resume of the history of cooperative organizations. In order to shorten that resume, I shall deal with only one organization which has been mentioned a number of times this afternoon, the wheat pools of western Canada. I want to assure hon. members from other parts of Canada that when we speak of the wheat pools we are speaking of only one part of the cooperatives, and we know that other parts are vitally interested.
I well recall in years gone by when we did not have a cooperative organization in so far as the marketing of grain in western Canada was concerned. A former minister of agriculture who sat on the same side on which members of the government now sit, the late Doctor Motherwell, played a most important part along with other people in forming the original grain growers' association of western Canada in an attempt to obtain some redress from the treatment that the farmers were receiving from the grain trade of that day.
We had a suspicion, in fact we had fairly definite knowledge that the grain trade of that day were not giving the farmers a square deal. It was commonly said that an elevator agent who could not make enough in operating an elevator for one year to paj' for the elevator three times over was of no use to the elevator company. I have seen a farmer drive-in forty or fifty miles with a little jag of grain. When he got to town the agent would examine the
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wheat and say, "That is a nice sample of No. 1, but I am sorry, I have room only for No. 3". The farmer had to take No. 3 price or haul his load home for another forty or fifty miles.
We had knowledge of those things. From the old united grain growers' association we established the Saskatchewan cooperative elevator company. In establishing that company we had a desire, not to make a profit on the money we invested, but to build a cooperative that would give us service and a fair share of the consumer's dollar. However, in building up that organization we did not accomplish what we had hoped to accomplish. I would not say that we were deliberately misled; but it finally turned out that, while there was a decided improvement in the service, while an attempt was made to give service in preference to making a return on investment, we still did not attain that cooperative principle for which we were striving. In the final analysis, the cooperative elevator company was run on the basis of a return for the money invested. As an example, if I hauled all my grain to the cooperative elevator I would not receive any more in proportion to the money I had invested than would the man who did not haul a single bushel.
As things went on, we could see more and more that we had not built our structure properly. In spite of the fact that the elevator company was giving improved service at reduced cost, we were piling money on top of money. Shares which cost S7.50 went up to 850, after the original investment had been returned time after time in the form of dividends. That confirmed the idea that we had that we were not getting a fair share of the consumer's dollar for the grain that we had been putting into the different elevators of this country.
That is what brought on the next step, the formation of the wheat pools and the subsidiary pool elevators. We learned from the mistakes of the past that if we were to build a true cooperative we had to get away from the idea of obtaining a return on our money. What we tried to do was to build an organization that would give the individual farmer a fair return on the consumer's dollar that was paid for his grain. I do not need to go over the history of the wheat pools. They had their ups and they had their downs, but throughout the years they have endeavoured to adhere to the principle that, instead of getting a return of money on the investment, the main concern should be to give service to the members and endeavour to obtain for them a fair share of the consumer's dollar.

As has been pointed out, for a considerable number of years the Department of National Revenue did not assess the wheat pools. Finally they came to the conclusion, rightly or wrongly I would not say, that under the act as it was and in spite of what the Minister of Finance has said in years gone by, the pools should be assessed. They intimated to the pools at that time that if they were not satisfied they could take the case to the courts and it would not cost them any more than if the government took the case to the courts itself. But no sooner had that action been taken than the government blocked it all by appointing the royal commission. That stopped any further litigation.


Douglas Charles Abbott: It did not block it. It was done by mutual consent.


Joseph William Burton: It prevented a decision from being given.


Douglas Charles Abbott: No, it did not prevent getting a decision, but by mutual agreement I believe, the litigation was not pushed ahead.


Joseph William Burton: That shows that the government was no more certain than the pools about the right to tax.


Mr. BERTRAND (Laurier):: The pools were more certain than the government.


Joseph William Burton: We can argue that back and forth. I do not know why the government are so determined to follow the McDougall report in some respects and then throw the rest of it overboard. They established a commission a year ago, and now they come back and adopt certain parts of its report and say:	There it
is, boys. The rest they simply let go by the board.
I was quite prepared to give the government credit for having done what they have done since the budget was brought down, but I wish to emphasize to you, Mr. Chairman, and the members of the committee that the other two parts of the resolution that I have mentioned are of fundamental importance to the members of the cooperative organization.
I have given the minister a brief resume of how we formed one cooperative. I will give another example. In Saskatchewan we formed the consumers' cooperative refinery, which brought about equally beneficial results for the consumer of gasoline in Saskatchewan, not in the way of returns on the money invested, but in giving service to the people of the province. It seems, however, that the government is determined to make those of us who do not believe that the wages of money must be given first consideration accept that principle. Those of us who have banded ourselves together in cooperative movements have done

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so with the sole purpose of trying to help one another and for the benefit of the community, not for the purpose of seeing what we can get out of the money invested in this or in that. We say that on any money that we as individual members of a cooperative receive in the way of patronage dividends and returns from our respective organizations we are prepared to pay income tax just like any other citizen, but we contend that the money that we put into the cooperative is the money of the individual and not the corporation's money to be used with the idea of making profits to pay dividends to certain shareholders. If a person does not want to do business with our cooperative, regardless of what that cooperative organization may be, that is his right and privilege and he can go ahead and do business with any other organization or company. But we contend that we have built up an organization that has striven for the advancement of the community instead of piling up profits on top of profits, and that we should not be penalized for doing that. I repeat I am satisfied that the government is determined to force upon the cooperatives of this country the idea that the wages of money come before service to the community.


Douglas Charles Abbott: I have denied that every time the statement has been made, but I suppose I had better do it again.


Joseph William Burton: In biblical days some people received a severe reprimand for worshipping the golden calf. To-day we have a lot of people in this country who, I think, should be reprimanded for giving precedence to interest on money above everything else. It is on that basis that I oppose this resolution.


[Stage Direction]
Amendment agreed to.
William Ross Macdonald: Shall the resolution as amended carry?


Gordon Graydon: Would you read it, Mr. Chairman?


William Ross Macdonald: This is the amended resolution:
12. That for the 1947 and subsequent taxation years, the provision exempting the income of certain cooperative companies and associations be repealed and that for the 1946 and subsequent taxation years provision be made that there may be deducted from a taxpayer's income the aggregate of the payments made,
(a)	in the taxation year or within twelve months thereafter to his customers of the taxation year; and
(b)	in the taxation year to his customers of a previous taxation year and not previously deducted under paragraph (a) in respect of specified allocations in proportion to patronage for the said years the prospect of which was held forth
(c)	by the statute or bylaws under which the taxpayer carries on business or by his contracts with his customers, or
(d)	by the taxpayer in a specified manner prior to the commencement of the taxation year except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business, including therein borrowed moneys, the interest paid by the taxpayer on borrowed moneys and deductible as an expense in computing his income.
Does the resolution as amended carry?


Some hon. MEMBERS:: No.


John Bracken: Mr. Chairman, have I the right to speak? A moment ago we had a vote on the amendment proposed by the government to its own resolution. To that amendment I saw nobody in this chamber vote in opposition. We now have before us the government's resolution as amended. That resolution as amended by the government this party will not support, and for this reason. The government, after many months-in fact after some years of study-after it has had a commission examine into this whole question, brings in a proposal with respect to the taxation of cooperatives. On two or three features of that policy it has changed its mind since its proposal was introduced, changed its mind on the suggestion and with the approval of nearly the whole house. But two taxes still remain in the government's programme: one, a tax on three per cent of the employed capital of cooperatives-a tax to be applied in future. That is one considered policy of the government with respect to the taxation of cooperatives in this country.
But with respect to the past, during which time the government imposed no tax on cooperatives, and during much of the time did not try to collect any, the law officers of the crown, whom it assigned to interpret legislation which was not intended to tax cooperatives, have recently interpreted the legislation to mean that it can tax cooperatives. In the light of that circumstance, certain of these large cooperatives did not pay patronage dividends over the last two years; they held the money back which would otherwise have been paid out-held it back in order to have funds to meet the threat of possible taxation. It is held there in huge sums; and on the basis of the tax laws of the past this government is saying in effect, "Now we are going to tax three of the large cooperatives in western Canada to the extent of millions of dollars. For the future these organizations will pay less than $300,000 a year; but for the last two years we are going to make them pay possibly ten or fifteen times that amount each
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year." They are now discussing just how much the latter tax will be

a proposed compromise on the legislation as it was.
My position is this. If it is wise policy from now on to tax these cooperative organizations, in round figures-because that is all we can get-say less than 8300.000 a year, this government cannot justify taxing these organizations ten or fifteen times that much for the last two years. For that reason we shall have to oppose this resolution as amended.


Mr. COLD  WELL@: The amendment
improved the resolution; but, as the leader of the opposition has stated, the amended resolution is, except for that slight amendment, as objectionable as ever. The principle is wrong. What the leader of the opposition has said in regard to the taxation of the large cooperatives is, I think, justified. This afternoon I objected strenuously to the three per cent feature of the resolution, and because of the unsatisfactorily amended resolution we shall oppose the resolution as amended.


Mr. LOW:: I have been deliberately refraining from much talk on this whole resolution because I wanted to learn exactly what it was that the government intended to do. There have been so many confusions in the course of the debate thus far that it has been most difficult to get at the kernel of the truth; but I think I now see the whole situation quite clearly, and I am definitely and unalterably opposed to the idea of applying that three per cent tax. My objection is not based on what will happen or what has happened or what could happen, we will say, retroactively with respect to the wheat pools-important as that matter is-so much as it is upon this principle of placing the cooperatives in exactly the same category as other corporations. If there are true cooperatives in this country-and there must be a good many true cooperatives-they certainly cannot be placed in the same category for taxation purposes as an ordinary corporation. The principle involved is to my mind, an important one, and the resolution as amended certainly does not in any way appeal to me.
I shall oppose it with all my strength.


Mr. BLACKMORE:: I happened to be out of the chamber, attending various committees, during this discussion, and I have not had an opportunity of making any statement regarding this matter. I have no desire to speak at length, but I believe that the whole situation with respect to what is proposed ought to be clarified. I cannot find out what is proposed under the resolution and the amendments of

the resolution. The meaning, significance and impact of this three per cent proposal are indistinctly understood.
I have a feeling, and have had ever since the campaign was developed against cooperatives, that there is in this country a body of men that is deliberately aiming to destroy cooperatives; and I do not believe that the present proposals of the government are entirely without a devious hidden influence somewhere seeking to accomplish that nefarious objective. The campaign which was conducted throughout western Canada in an endeavour to bewilder and confuse the people with respect to cooperatives and their taxation was financed with tremendous sums of money. That money did not come from any group of people who wrere anxious about the dominion government getting that much more revenue; it came from a group of people desirous of destroying cooperatives, and the only reason they wished to destroy cooperatives was that they had found that the cooperatives were doing the work for which they were organized, namely protecting the individual citizen throughout Canada against, the rapacious greed of monstrous organizations aiming at the destruction of the common man.
That is precisely the situation; and in order to clarify matters so that the committee may know where it is going and what it is doing, I would make this proposal. Let the government withdraw the proposal to tax cooperatives at the present time and devote at least a year to the clarification of the situation. Nowhere have I been able to find, even in the commission's report, a distinct and clearly demarcated definition of what constitutes a cooperative and what does not. Neither do I find in the speeches of hon. members on the government side or in the legislation which is apparently proposed any exact definition of what constitutes a cooperative. Merely to pass a law to tax cooperatives, when we have no idea what we are going to tax is, I consider, a reckless procedure.
It may be argued that if we pass the law and find later on that it is undesirable we can rescind it. That is simply not the way matters work in democracies. No matter how pernicious a law is, it will be next to impossible for us to organize a body of public opinion sufficiently strong to repeal it once it is passed.
I should like to make some suggestions; but, before doing so, I would read a statement made last January by Clinton B. Anderson, United States secretary of agriculture. I am quoting an excerpt from his speech, taken

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from the Alberta wheat pool budget of July 19, from an article entitled, "Clamps Down on Cooperatives":
When I think of farm cooperatives I think of them not as complex business concerns, but as groups of independent farmers banded together to do some job that is too big for them as individuals. They are not seeking profits as a group, hut are seeking to use modern business methods to maintain their way of life. It is this basic objective of farm cooperatives that has caused congress and the courts to recognize generally and in specific legislation the right of tarmers to organize cooperatives and the public welfare obligation of cooperatives. Shorn of all technicalities, it is this basic purpose that frees cooperatives from income tax.
I believe that with the sentiments of that statement virtually every member of this house is in accord, whether he be on the Liberal side or on the opposition side. I wager that eighty per cent of the members of the house are in sympathy with these remarks; yet at the present time we have no assurance whatsoever that the legislation proposed by the government is in accord with the spirit of these words. We have no such evidence at all. We need to know exactly what is a genuine cooperative. The definition ought to be worked out with minutest care by men thoroughly qualified for the task.
Of all the organizations in Canada at present operating under the name of cooperatives, exactly which ones can qualify under the definition implied in Mr. Clinton Anderson's statement, and precisely why? That question every hon. member ought to be able to answer, but there is hardly one of us who is capable of giving an answer to it, simply because we have not the information at our disposal. On the other hand, which organizations cannot so qualify, and precisely why? That is something which we ought to know.
All this ought to be worked out, first of all; the facts should be publicized in every nook and corner of the dominion, and every cooperative should be given at least a year in which to bring its organization and practices into conformity with principles universally accepted as those of genuine, bona fide cooperatives. Until this is done, we are in no position, either as a house or as a country, to pronounce on the important matter of the taxation of cooperatives. I submit in all earnestness that the government should withdraw these resolutions and allow the people of Canada to know exactly what is being proposed with respect to their welfare where the taxation of cooperatives is undertaken.


William Ross Macdonald: I am about to put the question, and1 thereafter no further discussion will be allowed. Is the committee ready for the question?
Resolution as amended agreed to on division: Yeas, 70; nays, 56.


William Ross Macdonald: I declare the resolution as amended carried.


John Bracken: Mr. Chairman, I understand that on a vote in committee pairs are not recognized. I did not vote, only because I wished to carry out the spirit of an arrangement I had with the Prime Minister. Otherwise I would have voted against the resolution as amended.


William Irvine: I am in a similar position in relation to another hon. member.


Douglas Charles Abbott: I suggest that the committee now take up resolution 16. This is the other resolution dealing with cooperatives generally. Resolutions 13, 14 and 15 deal with credit unions and mutual insurance companies.
16. That the income of a corporation or association commencing business after December 31, 1946, incorporated or registered under provincial cooperative legislation and organized and operated as a bona fide cooperative for the purpose of marketing natural products of or acquired from its members, or of purchasing supplies, equipment or household necessities for, or to be sold to, or of performing services for, its members be exempt from taxation during the first three complete taxation years following the commencement of business.


Percy Ellis Wright: Will the minister further clarify the statement which was made that the government would accept the cooperative acts of the provinces as the basis of determining a true cooperative for taxation purposes under the resolution? Is that a fact?


Douglas Charles Abbott: I believe there will be some other provisions; but cooperatives which are recognized as such, incorporated, organized or registered under provincial cooperative legislation. will be recognized as coming within the legislation to be founded on this resolution, There will be some other provisions in the bill, but I cannot give definite indications as to what they are until I am able to bring in the bill itself.


Percy Ellis Wright: We should have something more definite than that on this matter. This is changing entirely the principle of taxation in this country when the dominion government hias to rely on provincial legislation to determine those who are taxable under dominion statutes. I am not a lawyer, but I think that is a departure from any taxation principles which I have known before in this house.


Douglas Charles Abbott: Will my hon. friend allow me to repeat what I said before? Resolutions of this kind are largely in the nature of notice on broad lines of intended legislation. If my hon. friend will reserve his specific criticism

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until the bill is before the committee he will see the exact conditions which will be laid down to render a bona fide cooperative eligible for the three-year exemption contemplated under this resolution.


Percy Ellis Wright: Then what will be the position of cooperatives such as many of those we have in the province of Saskatchewan, which have been formed during the war years? Most of the cooperatives which have been formed took over existing businesses. That was the only way they could get a quota of stock to sell. In most rural areas and small towns we find that it is much better for all concerned for the cooperative being formed to take over an existing business rather than set up a competitive business and perhaps put out of business someone else who is serving the community. Am I to understand that if a cooperative is formed in that way it will not be allowed to obtain exemptions for the three years as will other cooperatives which are formed and do not take over an existing business?


Douglas Charles Abbott: As indicated in the minister's speech, that was the intention, although it is not so specified in this resolution. The real purpose of the exemption to a new cooperative is to enable it to get on its feet. If a cooperative takes over an existing business which is already established and has a clientele, has inventory, has working capital and all that kind of thing, it does not need-


Percy Ellis Wright: It will not have working capital.


Douglas Charles Abbott: It may or it may not; it will depend on the type of cooperative. If it takes over an established business it has not the same need for this exemption, for what it may be worth. It certainly should not be the intention of this or any other legislation to encourage groups of individuals to take over existing businesses and be prepared to convert them into cooperative enterprises, which, in some cases, might be for the purpose of obtaining tax exemptions.


Mr. COLD  WELL@: May I just say a word on this resolution? I know some members of the committee feel that the cooperatives are inclined to deal rather harshly economically with existing small businesses. I know there is nothing that any cooperative has done-if what is alleged is correct-which may equal what is proposed under this legislation. This is what is happening in many of the smaller towns in western Canada. The farmers organize a cooperative society. Instead of going into a town and competing with the merchant already established there and put-
ting him out of business because of the membership at large in the community, the cooperative goes in and suggests to the business man that they are going to organize anyway. He has an established business there and on a fair basis they are prepared to take over his business. In many instances of which I know they appoint the owner of the store the manager of the business. As a matter of fact I know that some of the managers of these stores-and I have several in mind at the moment-who have accepted such a proposition are to-day actually better off than they were as independent merchants in the villages. In the interest of equity, and from every other point of view, I say that the explanation given by the minister in the budget speech is frequently against the interests of the small businessman in the area where the cooperative starts up. What you are going to do is to say to the people in the community-and I have particularly in mind the farmers in a given community-you may start a cooperative society, but if you take over an existing business you cannot get the same relief as you would if you started a new business of your own.
With regard to what the minister says concerning a business established with its own working capital, I would ask him to think it over. I do not think it is a sound argument. As a matter of fact a cooperative organized to take over a business begins in exactly the same way as a cooperative starting a new business. It has to raise working capital in the same way; it has to do its business in the same way as any other cooperative beginning business would do. On the other hand, if the interpretation given by the minister in his budget speech to the words "commencing business" is adhered to, in many instances it will work a hardship on men who have established a small business and who might otherwise be protected by coming into the cooperative and acting as managers for the cooperative society. The minister should give consideration to that point.


Douglas Charles Abbott: Let me say at once that there is nothing in the resolution which would preclude that, and on this particular point, whatever it may have been on some others, my mind is completely open. I shall be glad to give consideration to that point and to discuss it with my colleagues. In its terms the resolution does not preclude it; it is in broad general terms.


Major James William Coldwell: I am thinking of the budget speech.	.

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Douglas Charles Abbott: I mentioned that. I pointed out, as the minister indicated in his budget speech, that was the intention.


Percy Ellis Wright: What is the position of a cooperative which was formed in 1944?


Douglas Charles Abbott: It is not affected at all by this resolution.


Percy Ellis Wright: Will it have exemption from taxes for three years?


Douglas Charles Abbott: No; this applies to the ones commencing after December 31, 1946.


Percy Ellis Wright: Then the minister is making a distinction there. This resolution should be framed in such a way as to include a cooperative which started in 1945. As it reads now, it refers to cooperatives starting in 1946.


Douglas Charles Abbott: We do not like retroactive legislation.


Percy Ellis Wright: It does not need to be retroactive. Start from this year and say that from this year it will not be taxed. It is not retroactive so long as it is made applicable to cooperatives which started in 1945 or 1944. It would simply mean that the cooperative which started in 1944 would have one year in which it would be free from taxation; the one which started in 1945 would have two years, and the one which started in 1946 would have three years. The minister will have to do that to make the legislation fair.


Mrs. STRUM:: I was delighted to hear the minister say that he had an open mind on resolution 16, because there is one particular aspect which interests me very much. During the war years, cooperatives starting up could start only by buying out existing businesses. Under the wartime controls they were not allowed to start new businesses. I happen to know of one case because I was a shareholder and it was in my home town. The only way they could start up was by buying out a retired merchant. It meant that we had to raise a substantial amount of money to take over. We had to pay for the business in cash and we were crippled for lack of liquid capital; we were crippled in the matter of stocking our shelves with merchandise because we were forced to put out such a large outlay to begin business. Had we been able to start under other circumstances, we might have been able to rent a building and we would have had only the cost of rental, but we were forced to buy a building which contained living quarters and which was much larger than the sort of unit we would have started with ordinarily. I am sure that there are many cooperatives in this position. From the beginning they are forced to purchase existing businesses. They are forced to put out a large amount of available capital in order to get started. Anything that will make it difficult for them to carry on will be a crippling move, and I am glad to hear that the minister is open to conviction.


Frederick Samuel Zaplitny: I was interested in the answer which the minister gave to the hon. member for Melfort in connection with the three-year exemption from taxation. Had the answer been more favourable, I would not have thought it necessary to move an amendment. However, in view of the attitude taken, I move the following amendment:
That resolution No. 16 pertaining to Income War Tax Act be amended by striking out the words "commencing business after December 31, 1916" as such words appear in lines 1 and 2 of the said resolution.
The effect of that amendment would be that any cooperative commencing operations in 1944, 1945 or 1946 would come in under the exemption, the same as the others.


Douglas Charles Abbott: As my hon. friend probably anticipates, I am obliged to take the stand that his amendment is out of order, having been moved by a private member. Clearly, if adopted, it would alter the balance of ways and means for the current year, and would render cooperatives which might otherwise be taxable exempt from taxation. Therefore I must take the stand that it is out of order.


Major James William Coldwell: Will the minister allow this whole resolution to stand, in view of the representations made, and give consideration to the various aspects of it?


Douglas Charles Abbott: If the committee insists I will allow it to stand. I have pointed out that it is in broad terms, with the exception of the point now raised by the hon. member for Dauphin. But I also point out that section 4(p) of the Income War Tax Act will continue in force until December 31,1946. So that whatever rates are available to cooperatives under section 4(p) will continue until that date, and the new legislation will become effective as and from January 1. 1947. Therefore I think it is consistent to give a three-year period of complete exemption from January 1, 1947. I shall give further, and perhaps even sympathetic consideration to the point raised by the hon. members for Rose-town-Biggar, Melfort and Qu'Appelle, as to the question of extending the privilege to a cooperative which acquired an existing business.
However, I must take the stand that any amendment to change the date is out of order and, in fairness, I should add that I would have to have much more convincing
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reasons than have thus far been offered to make me change my view that we should make the commencement of this exemption period coincide with the effective repeal of section 4(p).
I should hope that, subject to further discussion on the general principle, the committee could accept the resolution, thereby enabling us to proceed with the others.


Percy Ellis Wright: I appreciate that the minister will give consideration to the points raised, but I should also like him to give consideration to the matter of cooperatives formed in 1944 or 1945. Under section 4(p) they may be, and in many cases are exempt from taxation. Now they will find that when section 4(p) is revoked they will be taxable. The fact is that they will be taxable for the last year, upon which they would not otherwise be taxable if they were new cooperatives being formed in 1947. There would be two years in the case of one, and one year in the case of the other, under section 4(p). But now they become taxable. I believe it will be found to work out in that way. An unfairness will be created there, unless this provision applies to all cooperatives as from 1947, whether thev were formed in 1945, 1946 or 1947.


Douglas Charles Abbott: I will think over the point raised by the hon. member. Frankly I do not think there is any danger of their being involved.


Mr. ISNOR:: In view of the statement
made by the minister that he would give sympathetic consideration to the case made out by the hon. member for Rosetown-Biggar when that hon. member painted a picture of a merchant going into a village and taking over the business of another, I should like to say a word respecting a similar situation, and approaching it from a different angle.
Two merchants are competitors in the same village. They carry on in a friendly way, doing business and serving the community for years in a satisfactory manner. A cooperative comes to one store and says to the owner, "We have a proposition whereby you will turn over your business to us and we will make you our manager. If you do not do that we will open another store in competition with you. Because of our membership and the friendly feeling existing toward us in the community, you can figure out for yourself what wall happen to you."
Because of that pressure, one of the merchants gives way, sells his business and takes the position of manager. He is now in competition with the second merchant across the

street. One of these merchants enjoys a three-year exemption, while the other suffers no handicap at all.
In the course of time the cooperative organization will set up certain profits, perhaps in the form of patronage dividends. The other evening the sum of $25 was mentioned, of which $10 is kept and $15 goes back into the business. The reserve is set up until such time as they have sufficient money to spend S500 or S600 for the installation of a new front. Notwithstanding the fact that the prices in the two stores may be the same, people will naturally turn to the one with the most attractive front, and with the better window lighting. Because of the reserve and the handicaps set in his way, the second storekeeper would be placed in an unfair position. That is why I should like to see fair taxation for all types of business.


Thomas John Bentley: A minute ago the minister said that he had an open mind, and that he would possibly give sympathetic consideration to the suggestion made. Then he qualified his statement by saying that he had not yet heard any convincing evidence.


Douglas Charles Abbott: That was on the other
point.


Thomas John Bentley: I believe it applied to both these points. If the minister will turn to his copy of the McDougall commission report he will find at page 45 the most convincing evidence in support of our contention. I would ask him to direct his attention to paragraph 7 on that page, and the seventh line in that paragraph where he will find these words:
. . . with the consent of the minister, be exempt from income tax for its first three fiscal periods following the commencement of operations.
That was the recommendation mentioned by the hon. member for Melfort. I do not offer it in any spirit of criticism, but I believe the minister will see the justice of it.
I should like to point out one important cooperative which will be affected by the proposals in resolution 16 of the budget resolutions, and the minister's statement respecting the budget, to the effect that this three-year exemption will not be applicable to those who begin operations prior to December 31, 1946. In the budget speech it is indicated that those who take over an existing business will not be exempt, either.
We have in Swift Current what is known as the cooperative horse-marketing association, through which we pack horse meat for Belgium and UNRRA. We have found through the years that the ranchers who used to be in the

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horse-raising business, when it was a good business, have found that the country now needs cattle more than it does horses. Horses are very hard on grazing land because they clip close to the ground like sheep.
A couple of years ago, in an attempt to get rid of these horses a marketing and packing organization was established under cooperative laws. They had1 great difficulty in getting started because the war was on and buildings and supplies were hard to get. There was considerable competition in the way of getting capital because campaigns were being carried on for the purchase of victory bonds and so on; yet they had to be financed. First, the Saskatchewan government guaranteed the organization to the extent of $50,000. Next, the Belgium buying committee helped them by way of advance orders. The Bank of Montreal made considerable advances on the understanding that when they became organized and the members' capital began to come in they would be reimbursed from that and from the earnings when they started to work.
They got going under those difficulties. If they had had to build a new building, as the budget indicates is necessary, they would never have got started. However, they took over an old power plant which belonged to the city of Swift Current. That was an existing business, and technically, according to the budget, that stipulation would apply to this particular case. On both counts this new association is going to suffer severely unless the minister gives more than sympathetic consideration to its case. That is one reason why I believe the most convincing argument I could offer is the recommendation of the McDougall commission.


Douglas Charles Abbott: This goes farther than the McDougall commission recommended. As my hon. friend has pointed out, the McDougall commission recommends that it be with the consent of the minister. In other words, they were suggesting that another of these discretions to which objection has been taken in some cases should be conferred upon the minister. The resolution proposes that the exemption will be given as of right; there will be no discretion in the minister to approve or refuse it. That is why I say the proposed legislation goes farther than the McDougall commission recommended.


Thomas John Bentley: That is quite correct so far as those who started after December 31, 1946. are concerned; but it is not so good, as I think the minister will admit, with regard to the case to which I referred. I believe they should receive some consideration because they have done a useful job for that part of
the country and for the world. Poland and Belgium are very happy about it, as is UNRRA.


Douglas Charles Abbott: The hon. member has almos convinced me to eat horse meat.


Thomas John Bentley: I would be glad to gm you a can because I have one upstairs.


Jean-François Pouliot: Until what age does a horse remain palatable?


Thomas John Bentley: Mr. Chairman, is this germane to the discussion? I am not an expert on the packing of horse meat. They have an expert at the plant who decides what horses shall be used. They are graded according to the amount of flesh.


Ernest Bertrand: Old horses are better than young ones.


Thomas John Bentley: That is my opinion.
Generally speaking, horses between five and ten years of age in good flesh are considered the best. Those are range horses, and they are always good.


Major James William Coldwell: May I say just a word to the senior member for Halifax because probably the minister wdll read what the hon. member said and what I said in connection with the taking over of an existing business. Of course, what the senior member for Halifax said is true to a large degree. If a cooperative society with a large membership came into a community where there were two stores and made a proposition to one of the storekeepers to sell out to the society and take over the management, that new cooperative store would then be entering into competition with the other store which was not taken over and which was already in existence. I submit that the argument that the new cooperative society has an unfair advantage is not soundly based. I take it from the legislation before us that we all recognize that a cooperative society is on an entirely different footing from that of a private profit-making business.


Gordon Benjamin Isnor: In what way?


Major James William Coldwell: I quoted what Doctor Coady had to say this afternoon. I shall not repeat the quotation, but Doctor Coady made this statement:
The essence of private profit business is that the businessman takes a toll from his fellow human beings-legitimate in some eases, and positively unjust in other cases. In cooperatives on the other hand no member of the firm or company-to use the terminology of old-line business-can take a toll from his fellows. Any money he receives back in the shape of patronage dividends is his own money. These dividends are overcharges that were made by him-
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self in the course of a year's business. By no stretch of the imagination, therefore, can patronage dividends be called profit or income.
I think that is sound. The hon. member for Swift Current made a statement during the budget debate. I am not permitted to quote that statement, but I think I can summarize it in, this way. When a man joins a cooperative society he begins to serve himself. He puts a can of peas on the shelf for which he has already paid. Then he goes to the store to get that can of peas from the shelf. All that is required is that there shall be sufficient taken from him to put a new can of peas on the shelf. However, the cooperative society usually takes from him at the moment more for the can of peas than the actual service and the can of peas require to be taken, and at a subsequent period he gets back the overcharge. But that is not profit. Consequently the two types of business are not analogous, and that is the point we have been trying to get before the committee ever since this debate started.


Mr. SMITH (Calgary West):: Suppose I who am not a member of the cooperative society buy the can of peas?


Major James William Coldwell: I do not think any cooperative society objects to paying a tax on the profit made on business done with nonmembers. That has been said over and over again.


Mr. MacNICOL:: How can they keep track of purchases by non-members?


Major James William Coldwell: It so happens that most of us belong to cooperative societies. When we buy something in the cooperative store we are given a slip on which the purchase is registered. At the end of the year the cooperative society knows exactly what business it has done with its own members. In fact, your own number is placed on the slip for the records of the cooperative society.


John Ritchie MacNicol: If I walk into a cooperative store as a stranger and make a purchase, is the clerk going to ask me if I am a member?


Major James William Coldwell: He would say, "Are you a member and what is your account number?" You would then give your name and number if the clerk did not know you, but in most instances they know their own members.


Gordon Benjamin Isnor: I would point- out to the hon. member for Rosetown-Biggar that there is a difference in the manner of doing business described by him and the ordinary business carried on by a cooperative store and the average so-called free enterprise store. The two stores I cited both purchase from wholesale houses;-these stores may be general or

grocery stores;-they each have a manager and two clerks and they pay the same scale of wages. The overhead in each store is about the same. It is fair to say that their overhead expenses will be on the same plane at the end of the year. They purchase $80,000 worth of goods in the course of their operations and mark them up 25 per cent, which gives them a gross profit of $20,000. Both stores sell their goods at the same price. Take a look at their windows. Peas, beans, and so on, are all ticketed at the ceiling prices, and their profit is exactly the same.


An hon. MEMBER:: No profits in the cooperatives.


Gordon Benjamin Isnor: I am dealing with actual facts, not imaginary. They are definitely profits, or there is gain, the difference between the cost and the selling price.


Gladys Grace Mae Strum: You mean margin.


Gordon Benjamin Isnor: Term it anything you wish to satisfy your own mind. The fact remains that the cost is the same and the selling price is the same. You can call it profit or margin or gain; it all amounts to the same thing when you put it in the cash register and total up your profits or gains at the end of the year. As I say, there is $20,000 profit, less the operating expenses. So that the net profit or gain or margin is the same in the case of both; the consumers are all paying the same price.
You may ask, where is the difference? The difference is that the private enterprise store, No. 2 store, is paying income tax year in and year out to the government to help carry on the business of the country. The cooperative pays no tax; it pays out its profits in the way of patronage dividends, and if the member of the cooperative does not wish to hold on to them he is allowed to give back $15, we will say, out of $25 to build up a reserve. If there is any fairness in taxing one store and not the other, I may be stupid but I cannot see it.


Major James William Coldwell: The individual store owner puts his margin, if you wish to call is that-


Gordon Benjamin Isnor: I call it profit.


Major James William Coldwell: He puts his margin or profit into his own pocket. The cooperative society, on the other hand, does not distribute a profit but returns to the individual members the overcharge which in the other case went as profits to the individual store owner. In the case of the cooperative it is returned to the members of the organization, being an overcharge that was made in the beginning. The reason why the cooperative store has

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about the same mark-up as the private enterprise store is because it does not wish to enter into a price-cutting competition with the private enterprise store. As to the payment of income tax, the individual members of the cooperative society, if their incomes are large enough, pay income tax on them.


Gordon Benjamin Isnor: May I deal with that? There is a definite difference between the income of an individual and the income derived from the operation of a store.


Mr. McMASTER:: What tax would store No. 2 pay, the one that was not run by the cooperative?


Gordon Benjamin Isnor: I wish to deal with the overcharge which the hon. member for Rosetown-Biggar mentioned. There is no such thing as an overcharge. When two stores set up to do business they both sell at the ceiling prices laid down by the regulations of the wartime prices and trade board. There is no overcharge. If a store tried to overcharge it could not possibly compete with the store that did not. The reason the small merchant is able to compete with the largest chain store or departmental store, no matter how big, is that he sells service to his customers. That is why the great majority of them succeed.
I am not opposed to cooperatives. I rather welcome competition on fair lines, but I certainly do not think the government or anyone else should subsidize one competitor against another. That is the whole point. You could not possibly succeed in business if you were continually overcharging your customers. Common sense will tell you that. If you adopted that course you would not last very long in business. Only by fair dealing can you carry on and build up a bigger business.
One hon. member asked me, would they not pay the same income tax? During the war, when we were paying excess profits tax over a certain standard basis, our entire profit beyond that point went to the government. But if we are allowed to distribute that excess to one hundred or one thousand individuals they in cum will pay a very much smaller amount individually, and the aggregate amount of income tax paid by these individuals on that distribution will not begin to represent the amount paid in taxation under the Excess Profits Tax Act or even under the standard profits tax by the store.


Percy Ellis Wright: The hon. member in distinguishing between two types of business called one a free enterprise business and the other a cooperative.


Gordon Benjamin Isnor: Just to distinguish them.


Percy Ellis Wright: I should like to know in what respect a cooperative business is not a free enterprise business.


Gordon Benjamin Isnor: I do not think it is necessary to go into detail on that. The hon. member knows my views in regard to free enterprise and individual incentive to make thp best of one's opportunities, and I know his ideas in regard to cooperatives and public ownership. But I would say this, that there is a difference between the two, and the difference is that one continues to pay income tax from January 1, 1947, right through for three years, while the other pays no tax whatsoever. Surely that is a difference.


Arthur Leroy Smith: Will the hon. member permit a question?


Gordon Benjamin Isnor: I hesitate to receive questions from the hon. member because I may not be able to answer them.


Arthur Leroy Smith: I am sure you can, because I make my questions extremely simple when I am addressing them to you. My thought is this. We will assume that nineteen of my hon. friends to my immediate left form a cooperative.


An hon. MEMBER:: We are twenty-eight.


Arthur Leroy Smith: I said nineteen, because in Alberta you cannot have a partnership of over twenty people. We will also assume that nineteen of you on the other side of the house-I will leave my own party out of the discussion-also form a partnership. My hon. friends to my left open a grocery store on one side of the street in the town of X. You have a grocery store on the other side of the town of X. Your windows are dressed the same; you are selling groceries. I drive along the centre of the street in my borrowed motorcar-because I have not one at the moment-I am going out to shoot some ducks, or something of the kind, and I want some grub. I look at the windows and I go to one store or the other. Now, the cooperative pays no income tax, but the partnership does. Both adopt exactly the same methods of display and salesmanship. Will the senior member for Halifax, knowing that they adopt exactly the same methods, tell me why one should be favoured in the matter of taxation as against the other?


Gordon Benjamin Isnor: The hon. member always makes his questions so interesting and states them so simply, and then he surrounds them with a lot of frills. But after all-


Arthur Leroy Smith: The answer is, there should be no difference-if that will help you.
Income War Tax


Gordon Benjamin Isnor: The answer I would give him is exactly the same answer as he would give me. The hon. member gave the answer to the question the other day when he asked much the same question, and cited the two stores; I agree with him and I know he agrees with me.


Mr. CASE:: I think this is a time when we should take a practical view and not be merely idealistic. I can, claim a close association with the cooperative movement in Canada from its earliest beginnings in the province of Ontario and in parts of the province of Saskatchewan. But I also have the benefit of a background of municipal experience, and I know this, that one of the bugbears that municipal governments face is tax exemptions on land and on some enterprises which may be located within the municipality. I tell the committee this, that the costs of government in this country are now reaching proportions when somebody must dig down deep to raise the wherewithal to carry on.
As I view the cooperatives, the one method that they can employ to save money for their patrons is their method of purchasing. They purchase in large volume. Their costs of distribution are very little less than those of private enterprise, if there is any difference at all. The fact of the matter is that in a majority of cases the private enterprise man is probably providing his clients with some accommodation by way of credit, whereas the cooperatives will certainly seek to collect on the goods as they are sold; and quite properly so. I know that when I was associated with the Saskatchewan grain growers, whether the organization -was selling binder twine or whatever it might be. we had cash on the barrel head when we sold, while probably the fellow down the street gave a range of credit for the goods he w'as selling.
Since someone has to make -up the volume of money required, bear in mind that every time you grant an exemption somebody else must dig a little deeper. Not long ago I rose in this chamber and said that I had no objection to crown companies, provided that they bore their share of the nation's taxation; and in my contribution to this amendment, I am only trying to be consistent. I can remember that we had a motto in the Sunday school, in the days when I was interested in that particular work:
If everyone in the Sunday school is just like me, What kind of Sunday school will the Sunday school be?


Douglas Charles Abbott: That is an interesting
question.


Wilfrid Garfield Case: If people find a means whereby, when they call themselves cooperatives, they will be granted a preference, the net result may be that you will have many cooperatives but someone will pay the costs. So what I am suggesting is that, since the costs of government are so great, I believe every individual and every corporation and enterprise should bear its fair share of the nation's costs.


Frederick Samuel Zaplitny: If I may be permitted to refer to the question asked by the hon. member for Calgary West, I think an answer should be given to his question, because I believe he was seeking an answer in all sincerity. May I point out there are two differences between a cooperative enterprise and the type of partnership which he described to us. In the first place, if any surplus is acquired, whether we call it profit or anything else, in the case of a cooperative it is divided on the basis of business done, while in the matter of a private business it is divided on the basis of the amount of money invested. That is one difference.


John Lambert Gibson: And the amount of risk taken.


Frederick Samuel Zaplitny: That does not enter into it. The other difference, which I think is probably more important, is that in a private business, as I understand it, those who own shares have one vote for each share, or the basis is such that the more shares you own, the more control you have over the business; in fact, if you own more than half the shares you have the controlling interest in the business. In a cooperative you can own as many shares as you like, but it is "one member, one vote." No matter how much any one member invests, he has only one vote, and it continues to be a democratically run and operated enterprise. Those are the two differences.
Before I take my seat, perhaps I had better do two things at once. I am given to understand, Mr. Chairman, although you have not yet so ruled, that the amendment I have moved is out of order. I am also given to understand that if I withdraw it at this time there will be a more appropriate place to move it, on the third reading of the bill. So that with your permission I should like to withdraw my amendment at this time.


William Ross Macdonald: Has the hon. member leave to withdraw his amendment?
Amendment (Mr. Zaplitny) withdrawn.


Arthur Leroy Smith: I made a suggestion a moment ago which was criticized in a very kindly way-if I may use the expression of the Minister of Labour who is not

Income War Tax
here at the moment-and it was this. I suggested that nineteen people over there formed a cooperative and nineteen people there formed a partnership. Let us assume that the nineteen people in the partnership put up $100 apiece and that each had an equal vote because each had an equal investment. The answer of the hon. member was this, that in a cooperative, no matter how many shares a person owns, he only has one vote. A partnership can equally well have a partnership agreement stating the same thing. There is nothing against it in law, in equity, or in common sense. Having that in view, I hope to hear from the hon. member again, because he did say that his method was the more democratic. The most democratic thing I know of in this world is a willingness and even an eagerness to pay taxes, because that is the way the country lives. Governments have no other source of	income.	My	wholepoint is just this:	why,	because	you	use adifference in method, is there a difference in obligation? Those nineteen men, let us say, are selling to nineteen hundred people to make their profit. "Profit" is a good word and I intend to use it.	I drive along	the street;there is their store	and	there is	your	store,
and I am invited to buy at either place. In my judgment there is neither logic nor reason -perhaps they mean the same thing-why one in a matter of taxation should be treated any differently from the other.
Let us take this horrible thing, a corporation -because all you needed to do in the terrible thirties was to mention that something was a "corporation" and you could fill a hall in any part of the country and get lots of cheers if you just abused the corporation sufficiently. My hon. friend is quite right that a majority in shares, which means a majority investment, controls the corporation. In that, I frankly confess, it differs from a cooperative. If you have a real cooperative, be it a consumers' or a producers' cooperative, and a consumer, whom we will call A, buys more than B, then A will get more of the profits than B. That is the basis on which it is done. In other words, by purchase he makes a greater investment and therefore gets a greater return. What is the difference between that and a person making a greater investment in money, in buying shares, and therefore getting a greater return? Frankly I can see no difference whatever, and I should like my hon. friend, or the hon. gentleman who is almost on his toes ready to go, to answer what I have said.


Stanley Howard Knowles: May I join with those who have tried to answer the question of the hon. member for Calgary West. I still prefer
to think of us as a group of twenty-eight, all of whom would be in the cooperative, but we will accept his example of nineteen persons forming a cooperative and nineteen others forming a partnership. We have been asked to indicate differences. One particular difference that I would point out is that the nineteen of us in the cooperative will receive back patronage dividends, or whatever you call it, from that cooperative only to the extent that we ourselves make purchases. The nineteen of us will not gain by any of the sales which we may make to the hundreds of others who come along to buy, although actually a cooperative does not work in that way; most of the others would also be members. On the other hand, the nineteen who are in the partnership share in the profit that is made from sales to the hundreds who come to buy from that store. To that should be added the fact that we nineteen who are members of a cooperative cannot and do not make our living on the basis of what we save by being members of a cooperative. We have to have some other source of income, on which we pay taxes, and it is out of that other income that we effect a saving in purchasing the things we buy from a cooperative. But the nineteen, who form a partnership and are in a position to sell goods to hundreds of customers who come in, do make their living out of the profit they make from their investment in that concern, and hence should pay taxes thereon.
One other point I would put on the record has relation to a remark made by the hon. member for Grey North. To be perfectly fair, he did not make a misstatement; but when he referred to the difficulties that municipalities have with tax exemptions, the impression may have been gained by some that maybe cooperatives were in this position. I wish to make it perfectly clear-and I think he will confirm it-that cooperatives have to and do pay taxes to the municipalities on their property.


William Ross Macdonald: Shall the resolution
carry ?


Stanley Howard Knowles: On division.
Resolution agreed to on division.
13.	That for the 1946 and subsequent taxation years, paragraph (q) of section four which exempts from taxation the income of credit unions be amended to exempt the income of any credit union or any corporation or association the members of which are credit unions which derives its revenue primarily from loans made to members residing within the province to which is is restricted for carrying on its business.


Douglas Charles Abbott: This resolution relates to credit unions. These credit unions are at
Income War Tax

present exempt under the law and will continue to he so exempt. The McDougall commission, however, recommended certain changes in the wording of the exemption, and this resolution is generally in line with its recommendation.


Major James William Coldwell: Resolution 13 refers to any corporation or association the members of which are credit unions, and which derives its revenue primarily from loans made to members residing within the province to which it is restricted for carrying on its business. During the war, a good many credit unions took any spare money they had and put it into victory bonds. What is the interpretation, under resolution 13, regarding investments made by such unions in victory bonds? Would that be taxed, or does this primarily cover the point? I should like the minister to give us a statement regarding that, because it is an important point.


Douglas Charles Abbott: The effect of the legislation which will be introduced upon the basis of this resolution will be to exempt the whole income of credit unions. There is a question under section 4 (q) as it now stands that income such as my hon. friend has referred to would not be exempt because of the language of the section which now provides that the revenue shall be derived from loans made primarily to members residing within the territorial limits, and so on. This refers to revenue derived primarily from loans made to members residing within the province to which it is restricted. The intention is that the legislation when drafted will exempt the entire income of credit unions.


Major James William Coldwell: That is the point.


Percy Ellis Wright: We have in Saskatchewan what is known as the Saskatchewan cooperative credit society. The membership of this society consists of all the credit unions in the province, or, if not all, a very large proportion of them. There are other members of the society of the various cooperative associations in the province, a great number belong to the society. The spare funds of the credit unions are made available to these cooperative societies through the Saskatchewan cooperative credit association. Would the minister tell us what the position of that society will be under this resolution with regard to taxation?


Douglas Charles Abbott: That will be taken care of. The point has not been overlooked. There is some difficulty in preparing a suitable drafting of the act in order to bring in recommendation 2 A of the commission, but I am told by the officials that they believe it is going to be

possible to work out a satisfactory section to cover the point which the hon. member has
just raised.


[Stage Direction]
Resolution agreed to.
14.	That for the 1947 and subsequent taxation years, the provison exempting from tax the income of mutual corporations not having a capital represented by shares be amended to remove therefrom mutual insurance corporations except mutual insurance corporations which derive their premiums wholly from insurance of churches, schools or other religious, educational or charitable institutions.
Douglas Charles Abbott: Resolutions 14 and 15 deal with mutual insurance companies and parallel generally the main proposals with respect to cooperatives. The main proposals with respect to cooperatives are, as the committee knows, the repeal of the exempting section 4(p)'and allowance of deduction for patronage dividends. Resolutions 14 and 15 propose similar action with respect to mutual insurance companies other than life insurance companies. That is to say, resolution 14 repeals the present provision exempting mutual insurance companies, while resolution 15 allows these companies a deduction from income on patronage dividends; that is to say, amounts returned to the policy holders. In effect, the companies will pay tax on the amount of profits retained by the company and transferred to general reserve which is free from the individual claims of policy holders.


Frederick Samuel Zaplitny: Does this refer to fire insurance companies only? It says mutual insurance corporations.


Douglas Charles Abbott: Fire, casualty, automobile and the like, other than life.
Mr. ZAPLITNYr: I understand that a number of mutual companies carry on business in rural communities, insuring farm buildings. As the minister knows, it is not a lucrative type of business, and the ordinary fire insurance company is not at all-fussy about insuring farm buildings because of the hazards. I was wondering whether it would be possible to include, along with religious, educational and charitable institutions, such as schools and churches, farm buildings.


Douglas Charles Abbott: I shall be glad to consider that and take it into account when the legislation is being prepared.


Mr. MENARY:: In our riding we have twc companies, one a mutual insurance company and the other a wind and weather company These companies were organized by the farmers putting up so much money and charging a certain fee. Afterwards they obtained some capital which they have not paid out, but they pay the losses. Would these companies b(

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subject to taxation? They are mutual companies, as I said before and they have a reserve now.


Douglas Charles Abbott: If these companies or the mutuals transfer anything to reserve from the claims of policyholders, then they would be subject to tax in the same way as a cooperative; otherwise, they would not. As the committee probably knows, in the case of mutuals such as my hon. friend has referred to, the principal tax imposed under the Special War Revenue Act is a premium tax. The provision there is that if more than fifty per cent is from farm buildings premiums the tax is not imposed.


Lewis Menary: These are all insuring farm properties.


Douglas Charles Abbott: Anything transferred to general reserve would be subject to tax.


William Alexander McMaster: I should like to say something on this resolution. The minister may overlook this, but these companies are really true cooperative institutions. In my hand I have the Ontario sessional papers. In Ontario there are sixty-seven farmers mutual fire insurance companies. To show how small they are, the county of Middlesex has ten. Nearly every township has its own fire insurance company. The total amount of premiums received during 1942 was about $1,736,000, as compared with a total of nearly $14,000,000 received from joint stock companies. The amount of premium is small. In the case of the Ontario companies I have not the exact amount of the reserve, but the companies have paid their fire losses as they arose; consequently they are bound to have a certain reserve; otherwise they could not meet the losses when they occur.
This afternoon the Acting Minister of Finance was helpful in telling hon. members of the party to my left how they could evade taxation by getting rid of their assets, revolving them around and paying patronage dividends. But these companies cannot get rid of their assets; they have to keep them. Let us take an example, the Pictou county farm mutual which has a dominion charter. Its statement appears in full in the bluebook put out by the department which has to do with fire insurance. I find that the Pictou county farmers' mutual has about the same premium income as the Ontario companies have. This company considers it must have gross assets of at least $99,000, or practically $100,000. On the basis of the three per cent rule it would pay a cooperative tax on $3,000, or a corporation tax of $900. When we consider that their total expense for commissions is only $1,620, that their total fees, salaries, directors' fees, auditors' fees and everything 63260-258
else are only $1,583, the minister will see at once that a great burden will be placed on these companies if they are taxed. These companies do business which the old-line companies do not want; that is, these companies do business in small areas where they know the people and buildings, and do it cheaply, whereas the old-line companies would have to send out special assessors to look at the buildings and perhaps fix the rate in different cases. They are doing work which is essential, because the experience of the farmers in Ontario is that, once a building is burnt, it is difficult to have it rebuilt and the farm becomes practically abandoned. Instead of taxing these companies $900 a year, I would suggest that the government would be well advised to bonus them to the extent of $900.


Douglas Charles Abbott: I shall be glad to take my hon. friend's remarks into consideration. As my hon. friend knows, many of these companies operate on a premium note basis and consequently do not need a reserve.


William Alexander McMaster: They may not get the money in fast enough; they must have a reserve.


Mr. HACKETT:: A moment ago the minister referred to the Special War Revenue Act.


Douglas Charles Abbott: We shall be coming to that resolution. I referred to it in replying to the hon. member.


John Thomas Hackett: Shall we be coming to it to-night?


Douglas Charles Abbott: It is doubtful; I had not intended to.


John Thomas Hackett: Will the minister discuss it if it is reached to-night?


Douglas Charles Abbott: Not the question, which I think my hon. friend has in mind. That resolution is to stand to-night anyway.


Thomas John Bentley: I should like to ask a question for information purposes, but I am not certain that this is the proper place. I cannot find the place in any of these four resolutions, although I think it must be here somewhere. If the minister will turn to page 45 of the McDougall report he will find a reference in paragraph 9 to the exemption from income tax of telephone services, distribution of electric power and medical and hospital services. Where are these items dealt with, or is it intended to deal with them?


Douglas Charles Abbott: I do not know that this is the place to deal with them. They are not dealt with specifically particularly, because it was not desired to make a great many

Income War Tax

exceptions in the legislation. I shall be prepared to discuss these when we come to the bill. I believe some are already covered in the act as it now stands. The income _ of any company, or commission, or association not less than ninety per cent of whose capital or stock is owned by a province or municipality is exempt. That would apply to some of them. That is section 4, paragraph (d) of the Income War Tax Act. If' my hon. friend will let that question stand we can discuss it in more detail on the bill. I believe that most of these corporations he referred to are already exempt under the existing provisions of the act.


[Stage Direction]
Resolution agreed to.
15.	That for the 1947 and subsequent taxation years, there may be. deducted for the purposes of this act, from the income of insurance companies, other than life insurance companies, whether mutual corporations or joint stock companies, amounts credited to policyholders by way of dividends or refund of premiums or of preniium deposits and either
(a)	paid to the policyholder,
(b)	credited to the policyholder on account of premiums for renewal of policies or
(c)	credited on terms under which the policyholder is entitled to or may obtain payment thereof within a period not exceeding thirty days after demand for payment by him and if notice of crediting on such terms has been given to the policyholder.
Resolution agreed to.
30. That a corporation or joint stock company shall pay a tax at one-half the ordinary rate of income tax for corporations upon income derived on or after January 1, 1947, from the operation of a mine:
[Stage Direction]
(a)	that has come into production during the period commencing January 1, 1944, and ending December 31, 1949, and
(b)	that, in the case of a mine that has come into production before January 1, 1946, is a basic metal or strategic mineral mine and in the ease of a mine that has come into production after January 1, 1946, is a metalliferous or industrial mineral mine,
during the first three complete taxation years after the mine comes into production.
Douglas Charles Abbott: In a moment I shall ask one of my colleagues to move an amendment to this resolution. Resolution 30 provides that new mines coming into production after January 1, 1947, shall not pay corporation income tax for the first three years. The amendment to the resolution which I shall ask to have proposed in a moment grants this complete exemption instead of the half rate called for in the resolution as it stands. This more generous provision is introduced in the light of the disappearance of the premium on United States funds which was announced recently. Paragraphs (a) and (b) of the resolution'deal with the unexpired portion of the three-year period in the case of certain mines which came into production after Janu-

ary 1, 1944, and in respect of which exemption for excess profits taxes was granted. These mines will also be exempt from corporation income tax upon income derived on and after January 1, 1947.


Mr. McCANN:: I move that:
Resolution 30 be amended by striking out the words "pay a tax of one-half" and substituting therefor "be exempt from."


Arthur Leroy Smith: Where does that come in?
The CHAIRMlAN: In the first line of the resolution.


Douglas Charles Abbott: The resolution would then read:
That a corporation or joint stock company shall be exempt from the ordinary rate of income tax for corporations . . .


Arthur Leroy Smith: I am not smart enough to follow this.


John Thomas Hackett: Shall be exempt from what?


Douglas Charles Abbott: In colloquial language the provision is this. The original proposal was that new mines coming into production after the first day of January, 1947, would pay income tax at half rates for three years. The amendment now proposes that they will be completely exempt from income tax for three years. In other words, instead of paying half the rate they will pay no tax. In place of the words "pay a tax at one-half" we substitute the words "be exempt from".


Mr. MACDONNELL (Muskoka-Ontario):: I wonder if this could stand for a moment. I believe the hon. member for York West will have something to say about it, and he will return to the chamber in a short time.


Douglas Charles Abbott: I have no doubt some other hon. members may wish to offer some observations in the meantime.


Arthur Leroy Smith: Will this provision apply to oil wells?


Douglas Charles Abbott: No.


Arthur Leroy Smith: Why not?


Douglas Charles Abbott: We have other provisions applying to them.


Arthur Leroy Smith: Surely an oil well is a mining operation, just the same as a gold mine.


Douglas Charles Abbott: We have other legislation for oil rvelis, as my hon. friend knows. There are some resolutions included in these now before us, and I should be very happy to listen to the hon. member if he would make his observations on the appropriate resolution.

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Arthur Leroy Smith: I am anxious to know now if there are any similar amendments with respect to oil wells.


Douglas Charles Abbott: No.


Arthur Leroy Smith: As it is now proposed, it applies only to mines.


Douglas Charles Abbott: There are no similar amendr ments.


Arthur Leroy Smith: Then perhaps I may discuss this matter from the point of view of mining. An oil well is nothing but a mine. Why does the minister make a different provision for mines from that for oil wells?


Douglas Charles Abbott: For obvious reasons we have to give tax relief to oil wells on a slightly different basis. I am told that the first three years of an oil well are generally the best, whereas in mining that is not generally so. Then there is the matter of the change in the exchange rate which has affected gold mining, but does not apply to oil wells.


Arthur Leroy Smith: Oh, it affects them tremendously. But, leaving that aside- and perhaps, Mr. Chairman, I am out of order in discussing the matter at this time.


William Ross Macdonald: A discussion of the taxation of oil wells would more properly come under resolutions 31 and 32.


Arthur Leroy Smith: May I, with the greatest deference and respect, agree with you that such discussion wmuld be more appropriate on those items. But it seems to me germane to the point as to whether or not they are to be treated in a similar manner. Certainly the drilling of an oil well is mining, in the broad sense. While the minister exempts mines for three years-and I am not complaining-I would remind him that when one opens a mine he has some idea of what is underground. The drills work this way, that way and the other way, and ore bodies are proved. But in connection with the drilling of an oil well, the drill is the only geologist found thus far which has ever been any good, because what the drill finds controls whether you lose your money or whether you get back a return. Certainly the geologist has gone a long way. We have seismographs, and all that sort of thing. The most that the sponsors for these instruments have ever claimed for them is that they can find a structure. And, that structure, having been found, no method has yet shown whether the structure will contain salt-water or oil. No scientific method has yet been found which will determine that fact. Accordingly I suggest to the minister that by the time he reaches his resolution 63260-258J
respecting oil, he should have some regard to the fact that both of these endeavours are mining endeavours, and that he might find some assistance for the people of Saskatchewan and Alberta who are so busy these days in trying to find oil.


Douglas Charles Abbott: I shall not answer the hon. member's point at this time, because it will be dealt with more fully on resolution 31. I would point out to him, what he probably already knows, that under section 8 (10) of the Income War Tax Act a special 50 per cent tax credit is given to oil wells for deep drilling, and the like, and that there is no comparable exemption for the mining industry.


Arthur Leroy Smith: With great respect I suggest that the acting minister is quite wrong about that. He has a special provision for deep-test wells, but no provision at all for the man who goes out in the province hon. members to my immediate left come from, and in the plains of Alberta where shallow-test drilling is found. The minister has nothing to help those people.
Let us always remember that great companies never discover oil fields. They have always been discovered by the small man who does some wild-catting, and those discoveries are later bought up by the big interests.


Douglas Charles Abbott: 
Agar Rodney Adamson: I wish to refer to the minister's statement of last Friday evening, but I doubt whether this is the section upon which to do it. However, I have a suggestion to make to the minister on this resolution. The resolution as it is amended provides for exemption from ordinary income tax for the first three years for mining companies coming into production. My suggestion-and I believe it is an important one-is that most young mines coming into production are not profitable enough in the first three years to come under the provisions of the Income War Tax Act. Seldom do they make a profit in those years. But under the regulations of the department they are forced to make annual writeoffs for both depreciation and depletion. The write-offs are at the rate of 15 per cent per annum. So that when the three years are up and the income tax payments begin, the predevelopment charges, depreciation and depletion are written off to the extent of 45 per cent. I am speaking more to a ruling of the department than to an amendment in the section.

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I am asking that new mines coming into production, and exempt from taxation, shall not be forced to undertake depletion and depreciation at the rate of 15 per cent per annum for the first three years. If that is done the minister will really bring into effect the meaning and intention of section 3. If that is not done it means that the mine has virtually 50 per cent of the depreciation written off when it should be in a tax-free period.
The intent of the regulation is that mines shall be tax free for the first three years. Therefore I am asking the minister to rule thrit this shall also include suspension of depreciation and other write-offs.


Douglas Charles Abbott: My hon. friend will appreciate that that is a matter for the Minister of National Revenue in the administration of the income tax act.


Agar Rodney Adamson: I am making this plea in this house because, unless that is done, the whole intent of this resolution will be abortive. Mines do not pay taxes in the first three years because very few of them make sufficient profit, although there is occasionally one that may. If you force them to make their [DOT]write-offs at 15 per cent it means that when the three-year period is up their depreciation will be virtually 50 per cent gone, at a time when they begin their normal life of tax paying.
I realize that this is a matter for the Department of National Revenue, but I want to make the plea now, and I want to make it as strong as I possibly can, that they should not be forced to write off any part of their pre-development expenses, the cost of structures, the cost of the mill, the cost of sinking a shaft and all the other essential costs in bringing a mine into operation until such time as the first three years are up. I think that is the true intention of the framers of this resolution.


Douglas Charles Abbott: As my hon. friend has pointed out, it is not a matter for legislation; it is a matter for administrative action on the part of the Minister of National Revenue.


Major James William Coldwell: I think this proposal is an exceedingly generous contribution to the mining industry. I should like to put this point of view before the committee. A mine or an oil well taps the natural resources of Canada and those natural resources are the property of the people of Canada. When gold or some other mineral is taken out of a mine, nothing but a hole remains and the same thing applies to oil. I know of no industry in Canada which has been as wasteful of the natural resources of the people of

Canada as the oil industry. One has only to go to the Turner valley in Alberta to see the amount of valuable gas which is being wasted, gas which could heat most of the homes in western Canada. He would then realize the valuable resources that have been wasted in that particular area.
It is always said that private enterprise is prepared to take risks, but it seems to me that much of the legislation we have adopted in this country over the last few years has been designed to take the risk away from private enterprise. To a great extent that is true of the legislation we have passed concerning the mining industry during the last number of years. Year by year we have extended to the mining industry valuable concessions in the way of being able to write off certain depreciation, to have allowances made for prospecting done, and now we come to a proposal which will give new mines complete exemption for three years. Where is the risk to capital in proportion to the rewards which they expect? If a rich mine is found the profits that accrue are out of all proportion to the amount of money invested in the undertaking.


Ernest Bertrand: How many
mines do not find anything?


Major James William Coldwell: It is quite true that a large number do not produce, but the individuals who go into the mining industry go into it with a view to getting large rewards. If they are going to get large rewards they should be prepared to take a commensurate risk.


Mr. LENNARD:: There is not one in a thousand that makes anything.


Major James William Coldwell: That is all very well, but during the past few years, from what I have been able to see, persons engaged in mining have done pretty well.


Mr. CASSELMAN:: You have not heard about the losses.


Major James William Coldwell: That is just like the old story about the widow and the orphans, always a loss but never a gain. The industries that are receiving this concession, mining and so on, bring about a terrific depletion of Canada's natural resources. Once these resources have been taken out of the ground, they are gone completely. Very often we find the people who have benefited from this kind of operation have no interest in Canada except the amount they can take out of Canada somewhere else.


Some hon. MEMBERS:: Oh, oh.


Major James William Coldwell: That is perfectly true. How about Sir Harry Oakes? How about Sir

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Herbert Holt? How about a number of others I could mention? What interest had they in Canada except to take everything they could out of the country and go somewhere where they could get tax exemption and would have to pay no succession duties?


Frank Exton Lennard: Only one or two people have done that.


Douglas Charles Abbott: That may apply to Sir Harry Oakes, but it did not apply to Sir Herbert Holt. I am told by the deputy minister that it did not apply to Sir Harry Oakes either.


Major James William Coldwell: Leave Sir Harry Oakes out of it entirely. The fact remains that these natural resources belong to the people of Canada. These persons are going to take those resources and use them for their own profit.


John Lambert Gibson: They put in more than they take out.


Major James William Coldwell: Do not tell me a story like that, that they put in more than they take out. The statement is an obvious absurdity. Many people are trying to get into the mining industry to-day. So far as I am concerned, I am opposed to this concession being made. Once the resources are taken out, there is nothing left but a hole in the ground, except that frequently there is also a ghost town. In many cases the workers who have done the work in the mining industry have had to leave and take a loss on the homes which they have built. Ghost towns dot many parts of this country, and these have been created by mining and other industries of that description which have squandered the natural resources of the country by private exploitation. I am just saying that I am opposed to this legislation.


Ernest George Hansell: While the hon. member was speaking, I picked up a paper which contained an interesting Canadian Press dispatch under date of July 27, from Moose Jaw. This reads:
Resources minister J. L. Phelps of Saskatchewan yesterday told delegates to the C.C.P. provincial convention here that the Saskatchewan government is permitting private enterprise to develop northern oil resources because it does not feel ready to take the step itself. He said that the "government will move" at the proper time.
The statement came at the closing session of the three-day convention when P. G. Makaroif of Saskatoon C.C.F. provincial council member, asked why a socialist government was permitting private enternrise to develop oil resources in Saskatchewan and to sell stock.


Major James William Coldwell: The two cases are not analogous. In the first instance, the Saskatchewan government will get a royalty from the oil taken out of the ground.


Frank Exton Lennard: That is all right, is it?


Major James William Coldwell: In the second instance, we are proposing as a federal parliament to give complete exemption to the mining industry for three years. Those are two entirely different propositions. We are not opposed to private enterprise, but we demand that private enterprise shall take the risks if it takes the rewards. That is the point. Otherwise it is no longer private enterprise. But what you are trying to do is to remove the risk from private enterprise and to place upon the people of Canada the risks that private enterprise should assume if it is to take the profits for itself.


Joseph William Burton: While I realize that this resolution does not deal with oil and with what took place at the C.C.F. convention in Moose Jaw recently, I want to advise the hon. member for Macleod that, as usual, that press statement carried only half the story. I shall not take time to tell the whole story now.


James MacKerras Macdonnell: I should like to make one or two comments on what was said, by the hon. member for Rosetown-Biggar. I quite agree that we should not take all the risk out of private enterprise, and if he will take the record of what happens in these various mines he will see that there is quite enough risk and loss left even if a certain concession is made at the outset. Before he commits himself against, these alleviations granted to the mining industry, he might take into account one thing he did not mention. He talked of one or two or three people making a lot of money and then leaving the country, and when they do that my feeling? are about the same as his. But he forgot to mention the people who do not make any money. He also forgot to mention another important factor, and that is the amount of labour that goes into these things, which is paid for before anybody makes a nickel out of the mines. He also forgot to mention that we have reasonably efficient income tax laws which take a very large amount of money away from the very few individuals who, after taking the risks, make a little money. Therefore I suggest that his speech was based o,n unsound premises.


Douglas Scott Harkness: The hon member for Rosetown-Biggar introduced the matter of exploration for oil in this country, and he made some disparaging remarks about the terrific waste which had gone on in Alberta and which was going on there now, he said. His remarks indicated a deplorable lack of knowledge of the history of the search for oil
Income War Tax

in Alberta and a lack of understanding of the oil situation as it exists at the present time. There is no tremendous amount of waste of gas going on in Alberta, particularly in the Turner valley, now and has not been for many years.


Major James William Coldwell: For how many?


Douglas Scott Harkness: For a number of years. I would not be prepared to say just how many, but conservation measures have been taken there for at least the past ten years.


Major James William Coldwell: After twenty-five years of waste.


Douglas Scott Harkness: The hon. member's
statement was as to what was going on now. Following that up, I might point out to the hon. member that had what he thinks should have been done been done, if the oil wells drilled in Turner valley when the field was entirely a wet gas producer had been capped, we would have produced no oil in that country whatever, and the result would have been that the taxpayers of this dominion would have been called upon to pay a bill of some $7,000,000 more in subsidies last year for the prairie provinces alone, let alone the tremendous value that has come from the development of oil in that province. Furthermore, he seems to think that all a man has to do is to drill a mine or an oil well and reap a fortune. Over 8150,000,000 of risk capital has been put up to drill oil wells in Alberta and up to date there have been returns of less than $130,000,000. There have been losses of between $20,000,000 and $25,000,000 to the enterprisers who put up the money to bring oil into production. Possibly he thinks it would have been an excellent thing for the Alberta government or the dominion government to do this oil exploration under government ownership and take that loss. My answer is that they never would have done so and there would have been no oil development if it had been left to governments. Unless private enterprise is given encouragement through proper taxation to go ahead and develop the industry, it will not develop.


Frederick Samuel Zaplitny: This resolution contains what I was trying to secure under resolution 16. In other words, the tax exemption applies to mines that have come into production during the period commencing January 1, 1944, and ending December 31, 1949, which means that a mine coming into operation in 1944, 1945 or 1946 will have a three-year exemption. That privilege is not extended in the case of the cooperatives. I withdrew my amendment at that time because I felt that the minister had given us an undertaking that

he would give the matter consideration. I am pointing this out as a further argument to those I used on resolution 16. In the case of these mines there is an exemption granted which may be considered as being retroactive. The minister made quite a case by saying that we should legislate for 1947 and subsequent years, but in this case we are legislating for as far back as 1944. I am not asking for special privileges but for something along this line under resolution 16.


Douglas Charles Abbott: The answer to that is that paragraphs (a) and (b) of this resolution simply carry forward an existing exemption which these companies had from excess profits tax in connection with mines which came into production after January, 1944. We are simply continuing that exemption from the excess profits tax.


Frederick Samuel Zaplitny: I do not know that we understand each other. All I am asking is that the same consideration be given to existing cooperatives which started this year or in 1945 or 1944. I think the cases are parallel.
I was interested in hearing, as I always am, what the hon. member for Muskoka-Ontario had to say. He said that the hon. member for Rosetown-Biggar did not mention the part that labour played in the development of mines. I do not think he was quite correct, because my leader did make reference to the fact that it was the labourer who produced the wealth which he does not always share. If this exemption from income tax also included the man who works in the mines for the first three years, it would have my support.


Frank Exton Lennard: I would remind the hon. member for Rosetown-Biggar that to keep one man working underground in the mines in southern Canada eight men are employed outside the mine.


Mr. JACKMAN:: I was interested in hearing the leader of the C.C.F. say that more money was taken out of the mines than was ever piri into them. That statement of his seemed to draw a lot of support from his followers. I am glad that he has such an optimistic impression of the mining industry, particularly the gold-mining industry. I hope, on behalf of himself and his followers, that his optimism is born of personal experience, because so far as gold-mining is concerned it is much too rich for my blood. It is too risky an enterprise, and I mil leave it to younger and more enterprising individuals.


Frank Exton Lennard: Why look at me?


Harry Rutherford Jackman: I should be interested if the hon. member who is the leader of the

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C.C.F. has any figures to demonstrate that far more has been taken out of the ground than has been put into it. I well recall Mark Twain's definition of a mine, "A hole in the ground in which fools throw their money." However, the hon. member may have figures for us. But I think the hon. member for Rose-town-Biggar's quarrel is not with lack of enterprise on the part of private individuals, but with the niggardliness of mother nature, who saw fit to deposit gold in very small quantities in, very few places in the world. I not only support the recommendation of the government to grant some tax exemption to these new mines which are now being drilled and which are expected to come in, but I also support the admirable recommendation of my colleague the hon. member for York West for further relief. I do that because I recognize, and if the hon. member for Rosetown-Biggar will be practical and forget his theory he will see, if he has taken the trouble to acquire any knowledge of the facts which now face us, that there is a whole field of gold-bearing rock structure, particularly in the province of Quebec, which is not commercial ore except with the ten per cent premium which golds formerly commanded in terms of Canadian currency, namely $38.50 per ounce as against $35; and if the premium is not available, as is the case to-day, a great many mines which were scheduled to go into production will not be in conjunction with that of his colleague, the able to do so.
It is not a question of whether there is sufficient venturesome money around; it is simply a question of looking at the assay values of the gold-bearing rock and knowing that it is going to turn out so much per ton. It is perfectly foolish to continue to develop that property if you are not going to get back a dollar for the dollar you put in. There must be at least an honest return in that way: other-wish we would be wasting the assets of the country.
The government now sees fit to give these mines on the borderline-and it may apply to the occasional rich mine; I do not know, but the great problem in Canada to-day is the majority of new mines in the Quebec mining area, which badly need it-this alleviation from taxation which the Minister has indicated in the present resolution. However, I should also like to endorse as strongly as I can the sentiments expressed by the hon. member for York West, and say that much of this advantage which the government proposes in the resolution will be lost because the new mines will have a substantial proportion of their pre-development costs and of their mine structural costs-I am not famibar with the exact
terminology of the mining industry-written off compulsorily when they are supposed to be getting three years relief, and perhaps when they have not even profits of any sort from their operations against which to write off the depreciation and depletion costs. In those circumstances, I believe the resolution of the minister is certainly abortive and is nullified by the working of the Department of National Revenue. I hope that the minister's department, Minister of National Revenue, will take these two considerations under advisement, in the interest of these marginal mines, which will either pass out of the picture, or will live, because some relief is given to them, in hope of better times to come. There will then be a chance for this large mining field in Canada to continue to operate.


Howard Charles Green: There is one thought I should like to leave with the acting minister about the remarks which were made by the leader of the C.C.F., the hon. member for Rosetown-Biggar. I do not question for a minute that he was sincere in what he said, but the unfortunate result of a speech like that is this, that when the Department of Finance comes to consider assistance for mines in the years that lie ahead, or even in this session, the thought is apt to arise at once, "Oh, well, some of the members of the house are against any help being given; they think the miners are all big fellows and should not get any help; we had better just go slow about giving this relief. The whole of the C.C.F. are against it. We had better let it ride for another year." The result may very well be that relief will not be given that should be given.
The remarks of the leader of the C.C.F. stem, I am afraid, from the fact that he does not know anything about mining. He comes from a wheat-growing province, Saskatchewan, and his remarks are entirely out of line with the needs of British Columbia. My province is a great mining province. I think that, next to lumbering, mining is our most important industry. I was born in a mining town and raised in a mining district. It was not a case of half a dozen men coming in and making a lot of money and then getting out; everybody in the whole district was interested in mining; nearly everybody had a claim and expected at some time to make forty, fifty, a hundred thousand dollars or perhaps a million. Storekeepers financed prospectors, and many of the prospectors made good. From my own experience, these prospectors were the backbone of that district. Prospectors have opened up large parts of British Columbia; they have made a great contribution to that province. The unfortunate position to-
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day is that the prospectors are practically all gone. And here we have the leader of the C.C.F. rising in his place to-night and conn-plaining about help being given to prospectors.


Major James William Coldwell: Prospecting.


Howard Charles Green: Oh, well, "prospecting".
Prospecting is done by individual prospectors. Somebody has to put a pack on his back, go out in the hills and try to find a new mine. Very few new mines are being found in Canada. That is the alarming fact in connection with our mining industry. So I say to the minister, don't just be led up the garden path-


Douglas Charles Abbott: Oh, I won't.


Howard Charles Green: -by the leader of the C.C.F.


Douglas Charles Abbott: Not by the C.C.F. My hon. friend may rest assured that we shall be on our guard.


Howard Charles Green: The relief given in this resolution is needed. It will be of help to the mining industry and that industry deserves all the help it can get.


Mr. MacINNIS:: I hesitate about taking part in a discussion of this kind when there are so many experts.


Frank Exton Lennard: Oh, not that business again!


Angus MacInnis: I was not referring-


Frank Exton Lennard: Every time you rise you take that line.


Angus MacInnis: I was not referring to the hon. member for Wentworth. There is something strange in the arguments which I heard to-night. If I understand aright what was said, no one makes money in mining; everyone who goes into it takes a loss. That is the argument.


Some hon. MEMBERS:: No.


Angus MacInnis: That is the argument that was made-that there was more money put in than was ever taken out.


Ernest Bertrand: The argument is that more people are losing than are gaining.


Angus MacInnis: That is right-that there was more money put in mines than was taken out.


Ernest Bertrand: Not money; more people lose.


Harry Rutherford Jackman: I asked you to prove the contrary; that is all.


Angus MacInnis: I took down the remarks of the hon. member for Rosedale. He said it would be perfectly foolish to go on if we 
did not get a dollar back for every dollar we put in. Surely it wrould be perfectly foolish, and soon even my hon. friends, who are so enterprising that they are willing to venture everything, would not carry on very long. It would be foolish even if we got a dollar in return for every dollar invested or ventured. Consequently somebody must be getting more than a dollar's return for every dollar that goes in. But what is happening in this country is that people who cannot afford it are putting money into mines.


An hon. MEMBER:: What about the horse races?


Angus MacInnis: If the hon. gentleman wishes to play the horses, that is his business. I did not know that was a particularly good business, and I am interested in good business. The people who buy mining stock, the great majority of those who put their money into mines, do not derive the benefits from it. The big fellows do not lose, and if you observe what is going on in Ontario to-day under the security commissioner-I believe that is his title-you will find that many of these men are being prosecuted for fleecing innocent people in this sort of thing.
I am not opposed to the principle of what is proposed here, but it should be done properly. The minerals of Canada are the property of the people of Canada. They are a Canadian asset. A mine is different from a forest or a river or the sea from which we get our fish. Once you have taken the mineral out of the mine there is nothing left.


An hon. MEMBER:: You could take all the fish out.


Angus MacInnis: No. There would still be suckers left no matter what you did. What should be done-and some government, some day before the mines are depleted will do it, I hope-is to see that the people of Canada as a whole, and not only those who put money into mines shall derive some advantage from these national assets. The miners themselves have an interest in them. What has happened? The member for Vancouver South said that he was brought up in a mining town, but there is not much mining there now'. There are heaps of slag and holes in the ground and lots of dead towns in British Columbia all over the province.


Howard Charles Green: Oh, no; they are not all over the province.


Angus MacInnis: They are all over the province except that part of the province that is not habitable. I have gone all over the province and I know what it is like. What happens is this. The mines are worked out,

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and the people who have settled in those localities find themselves without means to make a living. The result is that they have to move and start life anew somewhere else. What a responsible government should do is to take a part of the profits of the mine and a part of the proceeds of taxation that is levied on the mines and set up a fund, so that when a particular area is worked out the workers who have made their homes there can be removed to new areas where new work is starting up.
Besides that, there is, around these mines, land that can be used for other purposes. There are some agricultural lands that could be developed at the same time. Nothing is done, however, except to take out everything that is in the ground and then to clear out. That is pretty much the case so far as the forests of British Columbia are concerned. It is only within the last few years that, after great pressure, sometimes from the government's forest service employees, who each year drew attention to what was happening to the resources of the province, some action has been taken. Whether it is soon enough to catch up with the spoliation of our resources is a question which no one can answer at the present time. This sort of thing, done in a hit-or-miss fashion to help a few speculators, is not good enough. We should have a programme extended over a number of years that would be beneficial not only to those who are getting money, by hook or by crook, from people who are so innocent that they will put their money on the horses or in a mine-


Harry Rutherford Jackman: Or even on the C.C.F.


Angus MacInnis: Oh, no. These people do not put money on the C.C.F. Those who put money on the C.C.F. are people with intelligence who want something for the future. Some day they will get a return, and it will not be a depleted mine.


Frank Exton Lennard: The hon. member for Vancouver East made a remark to the effect that I was not expert in anjdhing. Let me assure him that I have never posed as an *xpert in anything, but I will say this. Those hon. gentlemen who sit directly to my left profess to be experts on everything under the sun, but I would remind them that those who live in glass houses should be the last to throw stones.


Mr. LITTLE:: I have lived in a mining district for the past thirty-five years and have seen prospectors going out prospecting. I knew Sir Harry Oakes when he was a poor man like the rest of us in that part of the country, and I know he was one of the best 63260-259
prospectors we had. I do not, therefore, like to hear anyone say things about a man who has gone. I have no brief for him in having left the country, but I can say that there was no finer man than he when he was plain Harry Oakes.
In my opinion, we would not have had a mine in Cobalt or Noranda, or Kirkland Lake or Timmins if any government had been developing those properties, let alone my hon. friends opposite who profess to know so much about mines. I have seen men, prospectors, leaving and staying away for six weeks at a time, and when a prospector comes back one would hardly know that it was the same man. That was the effect that his sojourn in the bush had had upon him.
Of course there is the motivating idea of making money. That was the idea that I had when I first went to that part of the country. I went into lumbering and 'remained in it until I went to Kirkland Lake and got into transportation. I put up the first building in Cobalt and I know what these mining men went through. I should like my hon. friends to start mining, going into a place and spending thousands of dollars in a hole and not getting a cent out of it. See how- long they would stay in power under those conditions.


Agar Rodney Adamson: I wish to congratulate the hon. member for Timiskaming on what he has said. He has shown something of the pioneering spirit that has made this country what it is to-day, and it is to be devoutly hoped that that spirit will not be killed in this chamber.
I wish to put on the record some figures in answer to the contention that labour and other people in general get no benefits out of mines. The figures I am going to put on the record will show that labour and the town do profit from the mines. In the first place, there is an entirely - wrong impression about the development of mining. A ton of rock is absolutely of no value to the country unless it is developed. If it is developed it is worth to the country in new wealth the minerals it contains.
Briefly, I should like to put these figures on the record, because I think they are germane to the argument we have had to-night. These are the official figures compiled by the department of mines of Quebec for all the mines in western Quebec for 1944. The average value of a ton of ore was $6.35. This was at $38.50 an ounce for gold. The cost of developing was as follows: general development, 57 cents; development, 74 cents; mining, $2.32, and milling, 93 cents, making a total of $4.56 for direct mining costs. That figure of $4.56

Income War Tax

represents very largely the cost of labour. Therefore, out of the $6.35, labour got the bulk of the $4.56 which went for direct mining and milling costs.
Let us get down to cases. Let us look at the profit which all these mines made. The earned surplus of all these mines after taxation was sixty-two cents a ton. The country was better off to the extent of $6.35. Labour got $4.56, or very nearly $4.56. The cost of steel and powder and other things are there, but the great bulk of the cost of mining and milling is labour. Therefore labour got many, many times more out of the $6.35 than did the owners of the property. Surely it is of tremendous advantage to this country that this sort of thing should go on. It is of advantage to labour, because labour gets the bulk of the value of the ore. It is of advantage to the country, because the country is $6.35 richer for every ton of ore that is treated, and there are a great many other advantages as well.
I merely wish to refute as definitely as I can that it is the rich man and the rich company that make the profit. The cost of mining was $4.56, and the profit, sixty-two cents. These are the figures and I think they should be on the record in this debate. That was at $38.50 an ounce for gold.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to on division.
31. That the deductions from tax allowed to a corporation whose principal business is the production, refining or marketing of petroleum or petroleum products in respect of drilling and exploration costs be extended to oil wells spudded during the year 1947 and the deepening of oil wells which is commenced in 1947 but that in respect of such wells the deductions be reduced from 26! per cent and 40 per cent of the cost to 20 per cent and 30 per cent respectively.
Douglas Charles Abbott: With respect to resolutions 31 to 35 inclusive, the tax credits now granted to petroleum, natural gas and mining industries, in respect of exploration expenses are continued for another year with an appropriate adjustment in the reduction of the flat rate tax on corporation income from forts' per cent to thirty per cent. Also under resolution 31, the existing tax credit granted for expenditures in regard to a new oil well is extended to include expenditures incurred in the deepening of an existing well.


Douglas Scott Harkness: In connection with resolutions 31, 32, 33 and 35, which are the ones which deal with oil, gas drilling and exploration. I do not wish to repeat what I said in the budget debate, with reference to these matters. However, I should like to draw to

the minister's attention the five suggestions which I made at that time and to ask him what action the government is prepared to take in connection with them.
So far as the oil industry is concerned, I have been cheered by some of the concessions which the minister has made to the cooperatives and to the mining business since the budget resolutions have been discussed. I was particularly interested in his announcement that, so far as the gold mines were concerned, the depletion allowance was to be changed so that, as he said, those who need help least will not get most. I strongly recommend to him that he change the regulations so far as the depletion allowance for oil wells is concerned, with that same idea in mind.
The other concession given to gold mines is that new mines would pay no income tax for the first two years of operation. In a modified form that might very well be applied to the oil business. As the minister has said earlier this evening, the first three years of an oil well's operations are its most profitable ones. That is quite true; nevertheless a concession which will accomplish much the same effect should be given to oil wells to encourage further drilling.
The five suggestions which I made when I spoke in the budget debate were as follows: First, the extension of the fifty per cent tax drawback for deep-test wells, to completing abandoned exploratory wells. Whether that is covered in the present regulations, I do not know. I hope the minister will clarify that and afford the extension of that fifty per cent drawback to wells drilled in the plains areas, where it is practically essential to have a large amount of drilling if we are to keep up our present oil production in Canada, let alone expand it. Second, an increase in the depletion allowance from the present 33J per cent to 50 per cent, with probably a regulation in connection with it similar to the one they have in the United States, so that it can be spread over several years and carried forward or backward as desired in order to take care of years in which there is no profit, and other years in which there might be a big one. Third, that all drilling costs, permit and leasing expenses, geological and geophysical expenses and so forth be allowed as deductions for income tax purposes and that these deductions be taken as and when desired. That is, they may be carried forward or backward. Fourth, that the present income tax regulations in connection with oil and gas wells be made part of the permanent tax structure in order that operators may be able to make future financial plans knowing where they stand. Fifth, removal of the subsidies now being paid on

Farm Implements
crude oil being imported into the prairie prov-vinces in order to enable western crude oil to reach its true economic level. If the minister would make a statement covering these points we might have a good basis on which to proceed.
Resolution stands.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Wednesday, July 31, 1946.