1950-05-04

[Stage Direction]
First, second and third reports of standing committee on miscellaneous private bills.- Mr. Winkler.


Mr. W. G. Weir (Porlage-Neepawa) moved:: That the name of Mr. Drew be substituted for that of Mr. Murphy on the standing committee on public accounts.
That the name of Mr. Pearkes be substituted for that of Mr. Green on the special committee on the Dominion Elections Act.


[Stage Direction]
Motion agreed to.

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

Mr. Pearkes:: 1.	How many Canadians were held as prisoners of war by the various hostile powers, during world war II?
2.	What were the total man days each detaining power held Canadians as prisoners of war?


Mr. Blanchette:: 1.	Germany and Italy, 7,816; Japan, 1,736; total, 9,552.
The above refers to members of the Canadian armed forces only. It is not possible to determine the number of prisoners held by Germany and Italy separately, owing to transfer of prisoners of war between these two countries.
2.	This information could only be obtained by a review of each of the files of the 9,552 prisoners of war.


WAR ASSETS
Mr. Knowles:: 1.	Are goods or equipment sold by war assets corporation sold "as is" and "where is," or may such goods or equipment be reconditioned or overhauled before being sold?
2.	Are there any instances of any motor launches or boats or sea-going craft of any kind being renovated, repaired, overhauled, or reconditioned before being sold by war assets corporation, and is any such craft now being renovated, repaired, overhauled, or reconditioned in readiness for its being sold or put up for sale?
3.	If so, where has such work been done, or where is it now being done?
4.	To whom has any such craft been sold, or who is the prospective purchaser of any such craft?
5.	Have any contracts been let by war assets corporation to North Channel Ship and Yacht Repair Company at any time since January 1, 1948?
6.	If so, what are the details of any such contract, including the amounts of money involved, the work done or to be done, and the purpose thereof or the reason therefor?


Mr. Mcllrailh:: 1.	(a) Yes; (b) yes.
2.	No.
3.	Answered by No. 2.
4.	Answered by No. 2.
5.	No.
6.	Answered by No. 5.


NEWFOUNDLAND
Mr. Higgins:: What is the amount of Newfoundland's financial surplus now on deposit with the government?


Mr. Sinclair:: 



$20,000,000. QUESTIONS PASSED AS ORDERS FOR RETURNS OLEOMARGARINE  IMPORTED INGREDIENTS

Mr. Catherwood:: 1.	Has the government given consideration to the imposition of restrictions on the amount of the importation of vegetable and other oils and ingredients necessary for the manufacture of margarine?
2.	If so, with what result?
3.	What steps, if any, have been taken to increase the tariff against such oils?



MINISTERS OF THE CROWN


Mr. Knight:: 1.	What was the total cost of the round the world trip of the Secretary of State for External Affairs and the Minister of Fisheries?
2.	Was a plane chartered for the main trip? If so, from what company or organization?
3.	What was the amount of the accepted tender of that organization?
4.	Were tenders for this service requested by the government from other organizations or companies?
5.	If so, what companies tendered, and what were the amounts of the tenders?



DEPARTMENT OF NATIONAL HEALTH AND WELFARE

[Stage Direction]
«
Mr. Fraser:: 1.	How many departments or branches are there in the Department of National Health and Welfare?
2.	What are these departments or branches called?
3.	What are the functions of each?

Inquiries of the Ministry
4.	How many permanent employees in each department or branch?
5.	How many non-permanent?
6.	What was the total travelling expense lor all employees of the Department of National Health and Welfare in the year 1949?



STRAWBERRIES


[Stage Direction]
On the orders of the day:
Mr. R. E. Anderson (Norfolk):: Mr. Speaker, I should like to ask a question of the Minister' of Trade and Commerce. I have been informed that five hundred tons of strawberry pulp packed in sulphur dioxide are being sent to Canada from Holland, some of which has already arrived. I understand the reason given was that Holland prefers our hard currency to that of Great Britain where the shipment was intended to go. As our own strawberry season is approaching, could I have the assurance of the minister that further shipments will not be permitted?


Mr. Graydon:: Could we have the hon. member's question again? There was so much noise we could not hear it.


Mr. Speaker:: 'Order. The hon. member's question is a little longer than we generally allow at this time.


Gordon Graydon: It is important, though.


Mr. Speaker:: If the house would like to hear it again, perhaps the hon. member would read it a second time. I would ask hon. members not to make so much noise.


Some hon. Members:: Hear, hear.
<Question repeated.)
Right Hon. C. D. Howe (Minister of Trade
and Commerce): I can confirm the hon. member's information that a quantity of strawberry pulp packed in sulphur dioxide has been exported to Canada from Holland. This fruit pulp would be imported into Canada under customs tariff 105c with a customs duty of 25 per cent ad valorem under the most-favored-nation rate.
In 1949 our exports to Holland were valued at $13,759,130 and our imports at $6,687,602. In view of this decided trade balance in our favour and the existing tariff protection to domestic producers, the government could not favourably consider the suggestion made by the hon. member that imports of thi^ type from Holland be refused entry.


Gordon Graydon: You will kill the fruit industry if you admit them.
IMr. Fraser.J



PRIVILEGE


[Stage Direction]
On the orders of the day:
Mr. C. E. Johnston (Bow River):: Mr. Speaker, on Thursday, May 4, there appeared in the Montreal Gazette an article-


Mr. Speaker:: Order. When the last question was a^ked there was so much noise in the chamber the question could not be heard.


Mr. Chevrier:: It came from over there.


Mr. Speaker:: At the present time there is just as much noise. I would ask hon. members not to converse with each other at this time, so that the questions asked may be heard.


Mr.   Johnsion@: On Thursday, May 4, the Montreal Gazette contained an article with a Canadian Press byline. This article is headed, "Privilege of franking said safe for M.P.'s," and it states, in the second paragraph-


Mr. Speaker:: Order. I cannot allow the hon. member to read a newspaper article at this time.


Mr.   Johnsion@: It is a question of personal privilege. I am not asking a question.


Mr. Speaker:: A question of personal privilege should have been raised earlier in the proceedings.


Mr.   Johnsion@: I tried to, but you did not see me, sir.


Mr. Speaker:: The time to raise a question of privilege is at the opening of the sitting.


An hon. Member:: Any time.


Mr. Speaker:: However, as the hon. member now wishes to bring up a question of privilege I think we should hear him.


Mr. Knowles:: It is a good one, anyway


Mr.   Johnsion@: And it is a very important question of privilege. The first sentence of the second paragraph in the article reads:
In the public accounts committee Mr. Sellar was questioned by C. E. Johnston (C.C.F.-Bow River) about a proposal to put the post office on a commercial basis.
I should like to draw attention to the fact that I am not a C.C.F.'er, I have never wanted to be, and I am quite content to be a Social Crediter.



WAYS AND MEANS

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

[Stage Direction]
Hesolved, that it is expedient to amend the Income Tax Act and to provide, amongst other things:
1. That for the 1949 and subsequent taxation years, the provision under which the 10 per cent tax rate on the first $10,000 of income of a corporation applies only to one of several related companies be amended so that the test of relationship of companies shall be ownership of 70 per cent or more of all the issued common shares of capital stock of the corporation instead of mere control.
James Sinclair: Mr. Chairman, before I begin the discussion of the Income Tax Act resolutions, there are one or two matters connected with excise tax to which I should like to refer. I believe this would be the appropriate time to do so.
The hon. member for Melfort asked an interesting question as to the status of American contracting firms bidding on Canadian projects, having success in their bids and then bringing their equipment across the line to work on such projects. Obviously if they were able to bring equipment across without duty and sales tax they would be in a preferred position in comparison with Canadian contractors. I referred this matter to the deputy minister of national revenue in charge of customs and excise, and perhaps, for the information of all hon. members, I might be permitted to put his opinion on the record.
Under the customs tariff the contractors' equipment mentioned would be subject to payment of customs duty and sales tax in the ordinary course, but where materials are owned by a United States concern who have been given a contract by Canadian interests to perform certain operations in this country and who require the use of equipment which is of a special nature and not available here, it is the practice of the department to submit the facts to the governor general in council with a view to obtaining authority for collection of the duty and sales tax on a proportionate basis, conditional on exportation of the equipment within a specified length of time. It is only where inquiries made by .the department have established the fact that no Canadian interests would be prejudiced that such submissions are forwarded to council.
I should like to make a short statement with regard to the first income tax resolution to be found in the ways and means resolutions now before us. While I am piloting these resolutions through the committee, the Minister of Finance of course will actually put the bill through. I am not a lawyer, and income tax legislation is without doubt the most technical of all the legislation on our statute books. Nevertheless most hon. members are
Income Tax Act
not lawyers, so it may be an advantage so far as the resolution stage is concerned to have the general intent of these resolutions explained in layman's language, and that is what I intend to do.
The Minister of Finance has told me that between the first reading and the second reading of the bill at least one week will be allowed to elapse, during which time hon. members who are interested in this type of legislation can study the bill. He has asked me to repeat the invitation he has given to all members of the house to avail themselves of the services and help and advice of the many excellent and competent officials in the Department of Finance and of National Revenue who have worked on this legislation.
The first of the Income Tax Act resolutions relates to the ten per cent tax concession which was made last year to small business. You will remember that before last year we had a flat thirty per cent tax on the profits of corporations, and it was felt that that bore down too heavily on the small businessman. So for the first time in the history of our tax legislation we introduced a graduated scale of corporation taxation somewhat similar to' the graduated scale we have always had in: connection with personal income tax.
The rates were changed to ten per cent on the first $10,000, and then, to ensure that there was no revenue loss, the rate was raised to thirty-three per cent on the profits beyond that figure. That actually meant that a company with profits less than $77,000 a year would gain under this legislation, while a company with profits over that would have to pay heavier taxes.
The intent of the legislation was not necessarily to help small business; the intent was to help the small businessman. There are many wealthy men in this country who have a great number of small businesses and who derive from those businesses large incomes of perhaps $50,000 to $100,000 per year. If this ten per cent rate were applied to all small businesses which had profits of less than $10,000 a year, it would be possible for such a man to have an income of from $50,000 to-$100,000 a year and pay only this ten per cent corporation tax rate, whereas another man with the same income, but derived solely from one company, would be paying ten per cent on the first $10,000 and thirty-three per cent on the income above that.
If the ten per cent rate was to be applied1 to every company then it would be possible for certain types of businesses to break up into individual units. For example, chain

Income Tax Act
stores could be broken up so that every store was a separate corporation which would pay the ten per cent rate. The result would be that the aggregate corporation income would be subject only to the ten per cent rate. On the other hand, there are many industries which could not be broken up in that fashion. In my own riding there are mines and pulp and paper mills where the final sales are at the end of their production, the sale of ore or concentrates or paper.
Last year we tried to devise legislation which would help the people we wanted to help, the small businessmen who were struggling to expand their businesses, by relieving them of this heavy thirty per cent tax and substituting the ten per cent rate. However, to protect against abuses such as I have mentioned we limited that to one of a number of controlled companies. The majority shareholders of those controlled companies will be the ones who will designate which of the companies shall receive this concession of ten per cent tax on the first $10,000.
When the minister was piloting the bill through the house, hon. members on both government and opposition sides pointed out some of the factors which were involved, and suggested that it might prove to be a hardship on the minority shareholders in controlled companies. At that time the minister gave the house assurance that if during the year experience showed that this was inflicting hardship on the type of businessman we intended to help, changes would be made, and made retroactive to cover the 1949 tax year. When I appeared before the Senate I gave the same assurance.
During this past year it has been found that the present legislation, while of good intent, has hurt one class of businessman in Canada. It often happens that someone, perhaps a returned veteran, wants to start a small business in a small town, possibly a garage. He cannot raise the money in the ordinary way, so he turns to what you might call the local capitalist, the man who has made his money in the town. This man not only has money; he has credit standing and managerial experience. I am sure that every hon. member who has small towns in his riding knows that that situation exists. Such a man may help any number of little industries to get going. He will retain control of the company during a certain period and exercise managerial control. Because of that the business is able to obtain bank and other credit.
Under the present legislation only one of such a group of small companies which had been helped by one or two local men of

money would be able to obtain this concession. Whichever company was picked out would get the concession, but the others, the minority shareholders in the other groups, would not only be denied the ten per cent concession; they would be paying a corporation tax, not at the old thirty per cent rate but at the new level of thirty-three per cent. It is for that reason that we have introduced this new resolution to expand the idea of control, not to bare control, but, as is stated in the resolution, to ownership of not more than seventy per cent of the common shares.
It is hoped by this means to expand this concession to most of the genuine small businesses in the country. At the same time the seventy per cent stipulation does not make this concession available to some of the large corporations whose business is of such an order that they could break it up into units and so avoid the normal corporation tax.


Mr. Green:: Will this be retroactive?


James Sinclair: That is the assurance given by the minister, that it will cover the 1949 tax year. That was promised by the minister in the resolution speech he made last fall.


Mr. Fleming:: On the face of it I think this resolution is likely to commend itself to hon. members. The parliamentary assistant, however, might expand the information given in some respects. In the first place, may I ask whether, under the terms of the proposed bill, this will remain the only definition of related corporations? In the second place, is the parliamentary assistant in a position to inform the house how many corporations have been affected by the provision introduced last year in the amendment to section 36 of the act? How many small companies were benefited by the reduction in rate?


James Sinclair: So far as the latter part of the question is concerned, of course the tax returns are not in yet. Our only knowledge comes from the correspondence we have received. Gererally the concession was greatly welcomed, but the one complaint was from this group of companies. Perhaps I should also mention that it was not in the House of Commons but rather before a Senate committee that the question was raised by various senators. I know at times the Senate is harshly dealt with in this house, but my experience in the last few years in the position I occupy has been that the Senate committees on banking and commerce and finance are of tremendous aid to our parliamentary processes. It was there that various senators put their fingers on the point that our bare control measure would inflict hardship on the very class of small businessmen in small towns whom we were seeking to aid. The

actual definition of related companies will be spelled out most carefully in the bill which will be available once the resolution passes.


Donald Methuen Fleming: That is not quite an answer to my question. I asked if this test, as proposed in the resolution, will now become the only and exclusive test to determine whether or not corporations are related.


James Sinclair: Oh, no; this particular test has been applied only with relation to this special tax concession.


Donald Methuen Fleming: Again may I say that I do not think the parliamentary assistant has understood my point. Is this going to be the only test under section 36 of the act whether corporations are or are not related?


James Sinclair: Yes; that is right.


Mr. Diefenbaker:: Will the parliamentary assistant say what restrictions or safeguards there are to protect the department against companies subdividing into other companies, and bringing the subdivided companies within the position contemplated by the act last year and the change now being made? As I understand it, when the Minister of Finance introduced the budget he said these changes were made for the purpose of encouraging small business, and that is a most commendable purpose. The parliamentary assistant has mentioned that there are numbers of businessmen who control a number of small companies. What is there to prevent any company in Canada today from coming within the shareholder provision of this section by subdividing into units? What is there to prevent a businessman with half a dozen small companies from continuing to operate those companies, thereby escaping the heavier rate of taxation? What is there to prevent larger businesses with the same type and percentage of control from breaking up and thereby ensuring an evasion of income tax?
Let me carry it one step further. What is there to prevent a chain store, taking the example given by the parliamentary assistant, from coming into this country, opening a dozen units, and, within the control limits provided under this resolution, establishing each one of those chain stores as separate incorporations? Has anything like that been done in the last year? Are any safeguards contemplated in the bill to be introduced to implement the resolution which will prevent such a situation from arising?


James Sinclair: Perhaps I did not explain sufficiently why we picked on seventy per cent. If it had been ninety or ninety-five per cent, then it would have been comparatively easy to do the sort of thing the
Income Tax Act
hon. member for Lake Centre has suggested. With seventy per cent control, however, it is not merely seventy per cent control by one person but by one person or persons not dealing at arm's length. If in two or three of these companies one saw the same shareholder in the other thirty per cent of common stock, then the Department of National Revenue would say that these people are obviously not dealing at arm's length.


John George Diefenbaker: That is not a very strong safeguard.


James Sinclair: I am assured that from the legal standpoint-and I know that is what my hon. friend is interested in-adequate safeguards have been worked out.


John George Diefenbaker: What are they?


James Sinclair: That is why I said so clearly that while I think I am competent to explain the matter in layman's language to a layman,
I should not presume to try to explain a legal point to the hon. member for Lake Centre. I am quite sure the minister will do so when the bill is introduced. After all, resolutions are only expressions of general intent and not details of legislation.


John George Diefenbaker: There will be safeguards?


James Sinclair: There will be safeguards.


Mr. McLure:: Before the resolution carries there is a matter I wish to bring to the attention of the Minister of Finance and his parliamentary assistant. In the resolution it is stated that it is expedient to amend the Income Tax Act to provide certain things. I should like to mention a particular case having to do with income tax. If a married woman has an income in excess of $250 and under $1,000, the income of $250 is automatically deducted from her husband's exemption as a married man. That is to say, if the wife's income is $750 the husband has $500 taken off his $2,000 exemption as a married man. On the other hand, a widower keeping house, with a daughter living at home, has an exemption of $2,000 as a householder. His daughter can have an income up to $500 and it is not deducted from the widower's exemption of $2,000. This appears to be discrimination in the widower's favour to the extent of $250 compared to the situation of a married man. A married woman's income should be exempt up to $500 before any deduction is made from her husband's exemption. I believe this matter was brought up last year. Then there is the case of the married woman over sixty-five.


The Chairman:: Order. I think the hon. member is out of order. We are discussing

Income Tax Act
amendments to the Income Tax Act, not the principles of the act. We are discussing the principles of the amendments.


Winfield Chester Scott McLure: The resolution reads: "Resolved, that it is expedient to amend the Income Tax Act", I am suggesting amendments, and therefore I do not see how you can rule me out of order. I only have one more item. A married woman over sixty-five can have an income up to $1,500 before being taxable, but in this case any income over $250 has to be deducted from her husband's exemption as a married man. If her income is in excess of $1,000, in spite of the fact that she has an exemption of $1,500, her husband loses all his status as a married man and is therefore taxed as a single man. This certainly is an unfairness in the act that should be corrected. If an additional exemption of $500 is allowed on attaining the age of sixty-five, I believe that $500 should be reflected in an adjustment of the husband's income. The wife who is over sixty-five should have an exemption of $500 in connection with her income before the surplus income affects her husband's exemption, which would make $1,000 in all after the wife attained the age of sixty-five. This situation affects many people, and as a matter of equity it should be rectified. I hope the department will see it in that way; and any change should be made retroactive to 1949.


James Sinclair: As you pointed out, Mr. Chairman, this first resolution has to do with corporation tax. In the second place, my job here is to explain the general intent of the amendments. The points the hon. member has raised undoubtedly would be pertinent on section 9, which has to do with income tax. In fairness to myself, the hon. member read these details-as he had to, when dealing with such figures-from a manuscript, and obviously he would not expect me to remember all the facts and figures he mentioned. When the bill is before the house, however; when we are dealing with the sections concerning personal income tax, and after the minister has had the opportunity to read the remarks of my hon. friend in Hansard, I am quite sure an answer will be forthcoming.


Mr. Smiih (Calgary Wesl):: I want to ask the parliamentary assistant for some explanation with respect to the diminishing balance of straight-line depreciation concerning income tax, and perhaps he would tell me when such questions would be appropriate.


James Sinclair: I can certainly tell the hon. member that the best time to ask the questions will be after he has had the bill in his hands and has seen the actual legal provisions contained therein. I am quite sure
[The Chairman.]
the minister will be only too anxious to explain anything that may be asked, now that we have had some little experience with that matter.


Mr. Smiih (Calgary West):: Thank you very much; I merely wanted to find out when I should ask the questions.


Mr. Drew:: I want to mention just one point in connection with the explanations that have been given. As the parliamentary assistant has stated, he does not suggest that he has the legal training to give a strictly legal interpretation of some of these matters. He then goes on to say that he is not in a position to explain some of these details, but that if this resolution is passed now, when piloting the bill through the house later on the minister will be able to give the explanations that are required.
It may well be that the items now before the committee will be adopted without variation, but the motion before the committee is that it is expedient that certain things be done. I submit that we are not in a position to say whether or not it is expedient unless at this point there is some explanation as to why these things should be done. In fact if there is any time when the explanations should be given it is at this point, because this is the time the committee states in principle whether or not certain things should be done. Then the bill carries out the stated view of the committee in clear legal phraseology. For that reason, without raising any meaningless objection, I suggest that this is the time when every explanation that is requested should be given, so that before the committee decides whether or not something is expedient, hon. members may know about it. Then it will be possible for the legal draftsman to interpret that decision in legal phraseology.


James Sinclair: The points raised by the leader of the opposition are the very points I tried to make in my explanation. This resolution actually states that it is expedient to extend our ten per cent corporation tax rate from bare control to seventy per cent control. I suggest that the argument by hon. members today should be directed to whether or not it is expedient that we should stick to bare control or whether we should extend it to seventy per cent, eighty per cent or ninety per cent control. I certainly suggest that at the resolution stage it is not proper for me, for example, to launch into a discussion of marriage exemptions in connection with personal income tax, or the application of the diminishing balance of depreciation. The intent of this resolution is to change the announced rate of last year of ten per cent

on the first $10,000 and we must decide whether that shall apply to only one company which is barely controlled, or shall be extended to companies controlled to the extent of seventy per cent or more of the common shares.
That, I submit, is the intent of the resolution. I have tried to explain it in the only way I can, in layman's language, for the benefit of the laymen in the house, who are just as much interested in tax questions as the lawyers are. Certainly I would be the first to admit that I am not qualified, particularly at the resolution stage, to discuss the legal procedure by means of which this intent will be translated into effective legislative action. At various times there has been talk in this house about cutting down on our parliamentary procedure. One of the suggestions has been that we should get away from this resolution stage on money bills. Some are for it; some are against it. I see that the hon. member for Winnipeg North Centre is just itching to rise to his feet-


Stanley Howard Knowles: Just to keep the record straight, I think what the hon. gentleman is saying is confirmed in part by a report that was laid on the table at one time; but that recommendation was to do away with that stage of the debate when the Speaker was in the chair, not with this stage.


James Sinclair: I quite agree; but on money bills we give this extra warning, if I may call it that. It' is not just the warning given by the first reading of a normal bill; it is an extra warning, both with the Speaker in the chair and when we are in committee. Hon. members will recall that when the Speaker was in the chair nothing was said about this particular item. At that time the debate on the motion that we go into committee of ways and means covered quite a wide range, but no one mentioned the actual budget resolutions. Even here in committee, when I think we should stick to the intent of the various resolutions, there was a feeling-it may not have been the feeling of the majority-that this was another parliamentary procedure that perhaps was not as essential today as it was in the days gone by.
In any case, I have tried to explain the intent of this resolution, which is to extend this ten per cent corporation tax concession from just bare control to seventy per cent control. I have stated that as soon as these resolutions are passed the bill will be brought down, and there will be at least a week, between that time and the time the minister proceeds with it, during which the actual details may be examined.
Income Tax Act


John George Diefenbaker: Perhaps the hon. member would tell us whether any difficulties were experienced during the past year in connection with evasion of the regulations or the act as it was altered last session. While the parliamentary assistant was telling us about the difficulties and intricacies of the income tax regulations, a letter came to me from a farmer in Saskatchewan which bears out what the hon. member was saying. This farmer points out that the time has come in this country, because of the difficulties in connection with income tax forms, and, as he puts it, the necessities of the times, when some special course on income tax law should be made available in the public schools, so that the farmers would be able to make out their income tax returns and know what the forms actually mean. He said he was referring to the new simplified form that had just come into use. That is an aside, but it does bear out what my hon. friend says, that it is a difficult and abstruse subject. I believe he rather minimizes his own ability when he says he cannot explain the intricacies of the resolution; for he took some time in doing so, and all of us understand what he was trying to say, even though experiencing that mental shortcoming that we have in matters such as this.
The parliamentary assistant has explained at great length the change that is being made. Within the last year, were there any cases in which companies deliberately endeavoured to get away from the payment of income taxes by subdividing?


James Sinclair: The Department of National Revenue has no official knowledge of such, because the returns are only now in for the year. All we can go on once again is the actual correspondence we have had concerning the difficulty in applying our present law to the small business set-up in Canada. Certainly by fall I think the Department of National Revenue will have an accurate picture as to how this tax change affects small business. I want to thank the hon. member for his earlier remarks.


[Stage Direction]
Resolution agreed to.
2. That in order to permit a private company to pay tax on undistributed income so that it may capitalize the undistributed income, the company may elect
(a)	to pay a tax of 15 per cent on undistributed income held by the corporation at the end of the 1949 taxation year and
(b)	to pay a tax of 15 per cent on undistributed income earned thereafter equal to the dividends distributed from time to time by the corporation during the period when the undistributed income was earned.
James Sinclair: Perhaps I should speak first on this resolution, because it has perhaps been

Income Tax Act
most misunderstood in the press of the country. There seems to be a suggestion that this is a punitive section, and that it is the intention of the government to tax capital gains. On behalf of the minister I can assure you the government has no intention of trying to tax what are now understood to be capital gains. Mind you, if one pursues in academic discussion what a capital gain is, then the grocer who buys a can of vegetables for eight cents and sells it for twelve cents has made a capital gain. We say, however, that that is his way of doing business. The man who is a speculator in real estate, and who buys a property and sells it at a higher price, has also made a capital gain, but he derives his income in that manner. On the other hand, a man who makes a long-term investment and later realizes on it to his advantage is making the sort of increase in capital which, in. the case of the grocer and the real estate man, is regarded as income. These things cannot be spelled out in the law, but have to be judged on the facts of each case.
There has been some suggestion that this resolution has to do with capital gains, -but the actual effect of it is the very opposite. Far from being a punitive section, it is a beneficial section, with special effect on private companies. It may have some small application to public corporations, but because of the special financing problems of private companies, which in our present act are spelled out as being companies of seventy-five shareholders or less, it is more applicable to them. These companies have financial problems which public corporations have not got.
There are many men in this house who are in business in a small or large way who know, first of all, how hungry an expanding business is for money. There is no end. to the money which has to be poured into a business if it is to expand. Public corporations, of course, because of their good credit, can float bonds and stocks, and have these methods of financing open to them. A private company is practically limited to the plowing back of profits into the company. This practice has been followed across the country as long as we have had private companies in Canada. The second reason why these companies have had to put back into the company an unduly large percentage of their profits rather than pay them as dividends has been the attempt to make the sale of their stock, when necessary, as attractive as possible. In some years they make money and can pay dividends out of profits. In other years they do not make money, but they have to put aside a fair proportion of their profits in the good years in order to maintain a steady

dividend. All of you know what difficulty there is in attempting to realize on the forced sale of private company stock.
For these reasons these private companies, much more so than public companies, have had to pile up a considerable portion of their profits as undistributed income. If the principal shareholder should die, this problem becomes acute, because succession duties are levied and the estate must raise the cash to pay them, so the company has to be wound up. Under our present tax laws the entire volume of the undistributed profits must be assessed as income of that year. The company may have been twenty years accumulating that surplus, and yet the shareholders, because of reasons beyond their control, the most obvious one being the death of the principal shareholder, are forced, if the company has to be wound up, to pay income tax in one year at our present rates on that entire amount.
This problem is not new. It was with us during the war, and in 1939 the Ives commission was set up to ascertain in what way, fair to both the crown-that is, the people of Canada who expect to get a fair tax return out of these companies-and to the private companies who in good faith established these surpluses, this problem could be settled. The Ives commission made recommendations which were carried out. They provided, first of all, for a graduated scale of income tax to be paid on this surplus. It is detailed in the Income War Tax Act, section 94. Section 96 of the act gives the sliding rate which varies between fifteen per cent and thirty three per cent, depending not on the total income of the shareholder but on the actual dividend which he got from the company. Of course that is not quite the fairest way, because the actual shares he had in the company might not reflect his total income. A very rich man may have a small share in the company, and he would get by with a low rate. Another man may have his total investment in that company, and because of the graduated scale applied to the actual dividend payable, he may pay quite heavily.
The second thing which was noticed in consideration of the Ives commission report was that many of these payments were tax-free payments, such as payments to other corporations and payments to persons who are non-taxable such as including trustees of pension funds. We thought-at this time it would be proper, eleven years after the Ives commission investigation, to bring forward another optional proposal for companies that want to avail themselves of it. There is nothing forced in this. Any private company that wants to do these things can relieve itself of this problem which will occur if it

has a winding up. The resolution says that the company may elect to pay fifteen per cent on undistributed income held by the corporation at the end of the 1949 tax year, or it may if it wishes, pay a tax of fifteen per cent on undistributed income earned thereafter equal to the dividends distributed from time to time by the corporation during the period when the undistributed income was earned. In other words, it is a matching provision. Some companies may not care to avail themselves of this provision, but others will. At least we are now opening up an avenue whereby these private companies, with these special financial problems which public companies do not have, can put themselves in shape, if they so wish, to meet the problem which will occur if there should be a forced winding up of the company.


Donald Methuen Fleming: On this resolution a question naturally arises as to its scope. The resolution specifies "private companies". It reads as follows:
That in order to permit a private company to pay tax on undistributed income so that it may capitalize the undistributed income, the company may elect-
[DOT]-to do certain things. In dealing with this subject in a statement to the house at pages 1217 and 1218 of Hansard on March 28, the Minister of Finance did not make reference to private companies. The expression that he used, referring apparently to the same subject, was "closely-held corporations". There can be closely-held corporations that are not private in nature. Depending on the definition of "closely-held" there might be some private corporations that might not come within the definition of close holdings of stock. I think there should be some clarification of the scope of this resolution. In his statement the parliamentary assistant dealt only with private companies. The resolution mentions only private companies. We wish to know precisely what companies are included.
I was interested to note that the parliamentary assistant dealt with this question of freeing surpluses. There is some ground, of course, for what he said about the relative problem of private companies, on the one hand, and companies that are not private, on the other, as to their sources of further capital. However, when the hon. gentleman refers to certain disquiet in the mind of the public in relation to the intent of this resolution, may I say to him that that disquiet has its foundation in things that have emanated from the Department of National Revenue and from the government.
In the past the impression has gone abroad, and there is foundation for it, whether it was the intention of the government to
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create that impression or not, that the government proposed to wield the big stick and to compel corporations to distribute surpluses. For example, I refer to a Canadian Press dispatch of January 11, which appeared in most Canadian newspapers, and which reads as follows:
The revenue department has stepped up its campaign to free large surpluses of unused and undistributed income accumulating in corporation treasuries, a government spokesman said today.
There is that mysterious individual, "the government spokesman," who crops up periodically. I continue:
Corporations have been asked to use the surpluses for expansion and development or pay them to shareholders or face additional tax action by the government.
The government move is designed to help keep the economy buoyant by stimulating the flow of surpluses held by corporations for a period of years, the spokesman said.
Corporations showing a reluctance to free the surpluses are being told by registered letter that the department considers the undistributed income as being actually distributed to the shareholders as dividends, and that the shareholders will be taxed as having received this additional income.
This power is vested in the department under federal income tax laws. The spokesman said the corporations, for the most part, are co-operating with the department and the threat likely will not materialize in many cases.
The spokesman said a shareholder certainly would complain to the corporation executive if he were being taxed on money which he did not receive. The corporation thus would be forced either to pay the shareholder the amount of tax charged by the government or else actually distribute its surpluses as dividends.
Corporations which feel they have good reasons for retaining the surpluses are given a chance by the department to state their case, the spokesman said.
In some instances, corporations had put aside money for future building purposes or for purchase of additional property, or for other business reasons.
If they can show that the amount put aside is reasonable and is being put to use as quickly as possible, then the department would give them every consideration.
I have intimated, sir, that whether or not the government intended to create the impression, statements of that kind, and actions of the kind referred to in this government release under the name of threats, have created a feeling of disquiet throughout the country.
Where money is required, certainly it is within the function of this parliament and it is the duty of this parliament to enact laws to impose the burden of taxation, and impose it equitably. It is another thing, Mr. Chairman, to put in the hands of the executive branch of government a power which permits them to say: We are going to pass individual judgment on the way your executive or your board of directors does its business; we are going to say that in our opinion you are carrying an unduly large

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surplus, and because we entertain that opinion, we are going to require you to distribute that surplus. In the next case the government may look at another business corporation and say: Well, we will not take as stiff a view of your case; we are not going to interfere with you. There is a very great danger in a situation of that kind, where power is vested in the executive branch of government to discriminate between various taxpayers. It is a most serious matter; and when you find that power, which is capable of very discriminatory use, vested in those who talk in terms of threats, it is a matter of which parliament should take note.
I say, sir, that if the parliamentary assistant is right in saying that there is a feeling of disquiet throughout the country in relation to this resolution, it is not, I believe, so much because of the bare terms of the resolution as it is because of the history of what has preceded it. I wish to say simply this in regard to corporation surpluses. If a time comes when there is a severe business recession, we shall be very glad to see corporations that are large employers of labour in this country possessing some surpluses with which to carry on. Where corporations have been denuded of the surpluses which, with prudent management, they have put aside for a rainy day, and they find themselves in a depression or recession of business without adequate surpluses to draw on to finance operations, we cannot expect them to be able to carry on and maintain employment and their business as they would be able to do if they had those reserves to draw on which prudent management dictates should be available for times of reduced business.
There are corporations in this country today, particularly those that are interested in the export of certain commodities, where export markets have been closed to them, that are already very glad to have some reserves to fall back on. What I am saying in general is this: that it is the function of management, broadly speaking, in relation to the needs of a business, in relation to the desire to maintain continued stable employment and the position of the company in the community and the country, to build its stability on the creation of surpluses in good . times. All wise corporations are doing it today; and it is the duty of management, in good times, to create that umbrella for a rainy day. I hope, sir, that this government is not going to inject itself, by arbitrary exercise of powers that are open to very discriminatory use, into those situations and say to company A: You distribute $100,000; to company B: We will take a different view of your case; you will distribute $20,000; to
	.
company C: We will not ask you to distribute anything. That situation, sir, is fraught with great danger of abuse, and I do urge that a statement should be made on the part of the government reassuring those who are concerned in this matter in all parts of the country that there is to be no wielding of the big stick; that the administration of the taxation statutes of this country is going to be fair and equitable, and that no attempt is going to be made to use powers that are capable of discrimination in this fashion.
I now turn to one other subject which the parliamentary assistant raised in his introductory statement on this resolution. He said it is not the policy of the government to tax capital gains. Then he went on, as I understood him, to suggest that in some respects the tax on income today can be regarded as, in fact, a tax on capital gains.
I should like to say a word or two on that subject. Again a feeling of. grave disquiet has been created throughout the country on this subject of the taxation of capital gains, and this feeling stems directly from an authoritative interpretation placed upon the Income War Tax Act by the courts of this country. In his budget speech, as reported at page 1217, the Minister of Finance said:
During the past year there has been considerable uncertainty in the mining industry with regard to the position of prospectors and those who are engaged in developing our mineral resources. From the early forties onward, it has been the practice to interpret the law as not subjecting to tax gains made by bona fide prospectors and developers in discovering and proving up mining properties. As the house knows, our Income Tax Act was completely rewritten, and the new act has been in force since the beginning of 1949. The new act contains no clear-cut authority for the practice which has been followed during the past decade. The position under the law of these important groups should be clarified, and we are proposing this year to introduce an amendment which should allay the fears of many who have in recent months been concerned about this matter.
I believe the reference there is probably to-resolution No. 3. Then the minister continued:
Perhaps I might also take this opportunity, in view of recent public interest in the question, to assure the house that it is not the policy of the-government to tax capital gains. Under any income tax law there is always a very difficult problem in drawing a line between gains which are profits-from carrying on a trade or business and those which are not. To my knowledge no tax legislation has ever been passed in any country that has removed all doubts on this score. In England, where our basis of income tax had its origin, the matter has been settled almost entirely by the courts,
. taking into account the facts in each individual case.
Then the minister adds these significant words:
Much as I would like to introduce greater certainty, I do not believe that it can be done satisfactorily by legislation.

Then he proceeds, in effect, to put forward his panacea for this problem of disquiet in the public mind by saying that provision is being made for the more expeditious hearing of cases before the income tax appeal board, and permitting taxpayers in such cases to go directly to the exchequer court, if they so desire.
It will take more than the statement of the minister on that occasion or that of the parliamentary assistant today to allay the very grave fears and disquiet created in the mind of the public by recent authoritative decisions as to the meaning of certain expressions in the Income Tax Act. It comes down to this, that what have been regarded by the public as capital gains have been interpreted in a strict sense by the courts as not constituting capital gains but being, in effect, income. Therefore they have been made subject to tax.
In a technical sense the Minister of Finance may be quite right in saying that it is not government policy to tax capital gains. He might be quite right in a technical sense if he were to say, as the Minister of National Revenue said to me about a month ago in reply to a question I asked him when the orders of the day were called, that the government is not taxing capital gains- because the Minister of National Revenue did make that statement in the house. While it may be right in a technical sense, it is not right in the sense in which that expression has come to be understood by the public. That, it seems to me, is the feature of the situation which cannot be overlooked or sidestepped by the government.
The fact of the matter is that gains which have been regarded by people in the mining industry, those engaged in the development of that industry, and also by people in business generally, as being gains in the nature of capital, have now come as a result of certain decisions-one in particular-to be regarded as income by judicial interpretation of the Income War Tax Act.


Mr. Benidickson:: I wonder if the hon. member would give the facts of the case to which he has referred?


Donald Methuen Fleming: Yes, I intend to refer to that case, and I would hope that my hon. friend, whose constituency is interested in the development of mining, would have something to say about the case. The decision to which I am about to refer is one which has struck a serious blow, according to my understanding of the situation, at the development of the mining industry in Ontario and in other parts of Canada.
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James Sinclair: On a point of order, it would seem to me that we are now discussing resolution No. 3 instead of No. 2. I had hoped this matter would be raised, but I would suggest that the hon. member should continue his remarks on the third resolution which deals with the subject he is raising. In this way we would proceed in a more orderly fashion.


Donald Methuen Fleming: If there is any disorder in the way we are going about it, then it has been due to the parliamentary assistant. I had expected to raise this matter on resolution 3, if my understanding of the relationship between the remarks of the minister, as they appear at page 1217, and the resolution is correct. But it will be remembered that it was the parliamentary assistant who, in introducing resolution No. 2, undertook to deliver himself of a statement about capital gains, and it is this question of capital gains I am discussing.
While I am anxious to contribute as best I can to orderly discussion, it seems to me that the parliamentary assistant having raised the question broadly this would be the proper time for me to continue my remarks. I am half-way through them now.


James Sinclair: I did mention capital gains, but only in relation to this matter of the undistributed income of these private companies. The point to which the hon. member is now referring, where he deals with mining development, is clearly covered by resolution No. 3. If the hon. member wishes to discuss resolution No. 2, and the point as to whether this surplus is to be regarded as a capital gain, as he suggested in the early part of his remarks-and in that he was in order-well and good; but as for making a general speech on the subject, I suggest it should be made on resolution No. 3.


Joseph-Alfred Dion: Shall the resolution carry, and the hon. member continue his speech on the next resolution?


Donald Methuen Fleming: No. May I dispel the erroneous impression left by the parliamentary assistant when he says that I have been dealing with the question of capital gains as applied to mining. I was not confining my remarks to that at all, but rather to the taxation of capital gains in general. I was proceeding to cite a particular case which has to do with a tax of a gain from the development of a mining property, and was doing this by way of illustration of the very great harm that can be done, not simply by the taxation of capital gains in the strict sense of the word, but by completely upsetting the understanding of the public in regard to what is a capital gain.

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In view of the breadth of the subject I suggest the discussion ought not to be confined simply to the terms of the third resolution. Having gone thus far in my remarks I cannot help thinking that it would be more orderly to continue the discussion of the subject at this time, and that we would probably save time in the end by doing so.


James Sinclair: Very well, go ahead.


Donald Methuen Fleming: I am anxious to contribute to the orderly discussion of the subject.


James Sinclair: All right.


Donald Methuen Fleming: The case to which I referred is the recent decision in the Exchequer Court of Canada in the case of W. J. McDonough v. the Minister of National Revenue. That was a decision by Mr. Justice Cameron and I think it is one which any hon. member would wish to treat with high respect. At the same time I submit that having regard to the very unfortunate effect that this decision has had on investment in-


James Sinclair: Once again I am informed- I am speaking as a layman-that this case has been appealed to the supreme court, so when my hon. friend says that the decision is most unfortunate I submit that he is out of order.


Joseph-Alfred Dion: If the case is being appealed to the supreme court it would be sub judice.


Donald Methuen Fleming: The parliamentary assistant began this afternoon by disclaiming any knowledge of the legal aspects of these resolutions or any intention of discussing them from that point of view. I am not proposing to discuss whether this decision was right or wrong; I accept the decision as it stands. I am simply dealing with the effect of the decision on the mind of the public. I am not undertaking to say whether the decision is right or wrong. I just finished saying that I treat the decision of Mr. Justice Cameron in the exchequer court with the utmost respect.


Mr. Adamson:: The department is acting as though it were correct.


Donald Methuen Fleming: It is not my province in this house to quarrel with that decision, to argue whether it is or is not correct. It is not from that point of view that I approach the decision. The basis on which I do approach it is the qualifying words in the passage I read from the speech made by the Minister of Finance in this house on March 28 when he said this:
Much as I would like to introduce greater certainty, I do not believe that it can be done satisfactorily by legislation.

We who are sitting here as a parliament must take account of situations that are created as a result of decisions delivered in the courts. Having regard to the situation created by this decision we must ask ourselves whether that decision ought or ought not to be redressed in this parliament by legislation. My argument is that it ought to be redressed by legislation. Wherever there is a situation at all comparable with that which was before the court in the McDonough case then I submit that parliament must take cognizance of it and by legislation remove the grounds that have given rise to a feeling in the mind of the public that we have entered a period where capital gains are being taxed, a reversal of the understanding in the past of the business and mining communities as to the basis of taxation of gains. [DOT]
I think it is quite clear that what I have to say does not trespass in any respect on the rule followed in the house in connection with the correctness or incorrectness of matters before the courts or under appeal. In this case the taxpayer who was appealing had received some stock in a company in consideration of having conveyed to that company an interest in certain mining properties. When he came to realize on part of his stock the government stepped in and proposed to tax him upon it.


James Sinclair: Which part of the stock? That is the key of the whole thing.


Donald Methuen Fleming: If my hon. friend wants me to go into this in great detail I shall be happy to do so. Up until this moment he has been trying to confine me in my approach to this question.


James Sinclair: My hon. friend referred to the decision as being an unfortunate decision. I may not be well versed in the law but I should think that when there is an appeal to the supreme court the fact that a member of parliament of the high standing of my hon. friend has referred publicly in a place where he is privileged to the decision as being an unfortunate decision could not help but affect the standing of the case before the court. Then when he comes to the actual case he does not go into it thoroughly. There were two blocks of stock, the stock the taxpayer actually got for his claim and the stock on which he had an option.


Donald Methuen Fleming: Is the parliamentary assistant trying to make my speech?


James Sinclair: It would be a better speech if I did.


Donald Methuen Fleming: The parliamentary assistant attempts to stop me at one point from discussing the case and then in the next breath says that I should go into it further.


James Sinclair: Go into it accurately if you have to go into it at all.


Joseph-Alfred Dion: I do not think it is in order to discuss a case that is under appeal to the supreme court because it would be sub judice. It is difficult for the hon. member to discuss that case without affecting the judgment and I think it would be much better not to discuss it.


Donald Methuen Fleming: I respect fully what you have said and your feelings in relation to it, but notwithstanding the difficulty which the parliamentary assistant has sought to create I wish to make perfectly clear what I am proposing to do. I shall be quite glad to go into the facts of the case in great detail, or to refrain from doing so, according to your direction. What I wish to put before the committee is an interpretation of the law and I can do that without further reference to the facts of the case. I urge upon the committee that the situation is such that it calls for an amendment of the act. That leaves me in the position in which I started. I am not attempting to quarrel with the decision, to argue that it is right or wrong. When I spoke of its unfortunate effect I was referring to the feeling of disquiet and fear that it has created in the mind of the public. Referring to certain authorities, the court said this:
But the mere fact that a transaction is an Isolated one does not exclude it from the category of trading or business transactions of such a nature as to attract income tax to the profit therefrom.
I pass over any reference to the application of that rule to the facts before the court in view of what you have said. Reference is made in this judgment to a statement of the law in another case of which I think parliament ought to take note. It is this:
It is quite a well-settled principle in dealing with questions of assessment of income tax, that where the owner of an ordinary investment chooses to realize it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of schedule D of the Income Tax Act of 1942 assessable to income tax. But it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business. The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in such investments as a business, and thereby seeking to make profits. There are many companies which in their very inception are formed for such a purpose, and in these cases it is not doubtful that, where they make a gain by a realization, the gain they make is liable to be assessed for income tax.
I say with some degree of confidence that it has been the understanding of the business
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and mining communities that gains made on individual transactions in the development of mining properties or the realization of assets, gains from such transactions which are not carried on by traders or people whose business it is to engage in that kind of transaction, were not considered as income gains but as capital gains and therefore not taxable. I contend that the alarm created in the public mind is so serious that its remedy cannot be confined to the limited type of legislation envisaged in the third resolution. I submit that what is required is broader legislation in order to make it quite clear that the investing public, the public engaged in the development of resources, may be able to depend upon a continued application of the law according to the understanding that has prevailed for a good many years. In view of the fact that a decision has been made in the exchequer court to the contrary, that will now require legislation. As I understand it the third resolution offers some legislation, but it does not cover the whole field.
The subject of taxation of capital gains is one that can have the most widespread and unfortunate results, not simply if capital gains are in fact being taxed but even if there is in the mind of the public an apprehension that capital gains are or are about to be taxed. Therefore I urge that this subject be approached broadly in view of the way in which it has arisen and the fear in the mind of the public, and that we have ample legislation now to remove all fear and apprehension as to the result.


Mr. Thatcher:: I rise to ask a question. I should like to say first that when the hon. member for Eglinton started to speak I thought I could agree with him almost completely. After his talk for forty-five minutes or thereabouts and going around the matter so much I am so mixed up I do not know whether I can or whether I cannot. When he said that people are concerned about undistributed profits, capital gains, or whatever you want to call them, he certainly hit the mark because it is a matter about which there is considerable concern throughout the country. I have read the resolution as many times as I think necessary and I am still not clear about it. It is still ambiguous even after the explanation of the parliamentary assistant. The clause seems to me to be important, not for what is offered but rather for what it threatens to do in the future. I still cannot see what a private businessman would gain by taking advantage of the provision unless at some time in the future the government is going to tax his undistributed income. The parliamentary assistant stated this afternoon

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it would allow a businessman to plow back profits. I cannot see that at all. He might as well keep his profits in surplus as have them tied up in capital. What advantage is there? Therefore I say again that I wish the parliamentary assistant would tell the businessmen of Canada in a nutshell how on earth they benefit from this clause. I cannot understand it.


James Sinclair: Mr. Chairman, unlike the hon. member for Moose Jaw I kept notes of what the hon. member for Eglinton spoke about, and therefore I have the various headings of his remarks. First of all he raised the question of the difference in terminology, that I had referred to private companies and the minister had talked about closely held companies. The actual position will be spelled out in the legislation as to those companies with seventy-five or less shareholders.


Donald Methuen Fleming: Will it be confined to private companies of that nature?


James Sinclair: That is the definition of a private company so far as this legislation is concerned. So far as this section is concerned, the definition of a private company will be one with seventy-five shareholders or less.


Donald Methuen Fleming: May I ask by way of clarification whether the expression "private company" will be interpreted here as it is used in the Companies Act?


James Sinclair: No.


Donald Methuen Fleming: That is the point. The expression "private company" has a very definite significance both under statute and in the business world.


James Sinclair: So far as this section is concerned, it will be spelled out just as carefully as it is spelled out today in part XVIII, section 94 as to what it relates to so far as the taxation proposals in this section are concerned.


Donald Methuen Fleming: Do I rightly understand the hon. gentleman to say that this provision will not be confined to private companies as that expression is defined in the Companies Act?


James Sinclair: I will answer in this way. It will be confined to private companies as specified in section 94 of the Income War Tax Act. Once again, a private company for purposes of this act is one with seventy-five or less shareholders.


Donald Methuen Fleming: It can include companies
which are not private companies under the Companies Act but which have only seventy-five shareholders?


James Sinclair: Quite right. It gets down to the other expression, "closely held".
(Mr. Thatcher.]


Donald Methuen Fleming: It would have been better to use that expression because the expression "private company" suggests something quite different.


James Sinclair: Turning to the next point, I want to speak with as much heat as he did when he read an unmentioned press clipping.


Donald Methuen Fleming: I said it was a Canadian Press dispatch. It appeared in a number of papers, and I gave the date of it.


James Sinclair: He quoted this government
spokesman. When the government wants a spokesman the spokesman is identified by name. If there is going to be an announcement of policy the Minister of Finance or someone authorized by him will make it. I know the hon. member does not want to distort things. Having started off by describing it as a press release by an unmentioned government spokesman he then called it a government release. It was not a government release. Government announcements of policy will come from the Minister of Finance.
Turning to the hon. member for Moose Jaw, I will try to explain the matter by saying that if you want to be academic then the purchase of some small article by a grocer for 30 cents today and the sale tomorrow for 40 cents is a capital gain. On the other extreme is the example of a member of parliament who comes here at the beginning of a session and buys a house for $15,000. Four years later, because of reasons which the electorate think sufficient, he may have to dispose of his house and he sells it for $20,000. That is the other extreme of a capital gain. Without any doubt that capital gain is not taxable, but the actual income which comes from the daily or weekly buying and selling of goods and chattels, which is the business of the man, is certainly not a capital gain as the people of Canada understand capital gain. In between those two comes the borderline case, and the whole question can only be determined by the courts on the facts as to where that borderline occurs, whether or not a man is engaged in it as a business or whether it was an incidental investment.
Proceeding further, I will not touch on mining now but will deal with it when the next resolution is before the committee. As fairly as possible I tried to portray the difficulty which perfectly respectable private companies find themselves in when it comes to winding up. If they have accumulated a large surplus and do not know what to do with it there is nothing at any time which prevents them from paying dividends out of that surplus. They can do that at any time, and it is their problem. I want to refer now

to another class of private companies, fortunately very small and generally tightly held, which for their own selfish reasons decided during the war, when personal income tax was very high, to pour out just as little as possible in the way of dividends which would of course then be subject to personal income tax. They decided to hold the money back in a reserve in the hope that after the war personal income tax rates would be lower, and then they would pump it out as dividends. Fortunately that has happened very seldom in this country.
Power was given not to the Minister of Finance but to the Minister of National Revenue under section 9 (6) to take action in such cases. Even after a warning was given such companies had the right to state their case. I believe that so far action has been taken in only six cases. As hon. members who follow this type of legislation will realize, after subsection 2 of the resolution is implemented there will have to be substantial changes in the entire section 9 which of course will be apparent to members when they get the bill on first reading. We are not thinking in terms of companies which pile up profits to evade personal income tax but of private companies who have the problem, which I tried to describe in clear terms, of having to accumulate working capital. There is the problem of what they are going to do in the case of involuntary winding up. The hon. member for Moose Jaw, who knows the problems of private companies, says he cannot see any real advantage in this today. All it does is give these companies an opportunity to put themselves in shape against a forced winding up. For example, if tonight while crossing Wellington street on the way home the hon. member were knocked down, I am quite sure his company would be better able to meet the tax on whatever undistributed income his company may have if he chose to take advantage of this resolution-


Stanley Howard Knowles: Take advantage of being knocked down?


James Sinclair: -because, having paid this 15 per cent on the undistributed income, the company could be satisfactorily wound up if necessary because of reasons beyond its control, or even within its control.


Wilbert Ross Thatcher: Then would the parliamentary assistant state categorically that it is not the intention of the government at an early date in future to force companies to get rid of their undistributed profits or surplus?


James Sinclair: I am not the minister, though I am very flattered by all these references;
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and since I am only the parliamentary assistant all I can say is that what the government is doing today is giving these deserving companies who are in this position an opportunity to put their house in order if they wish to do so. No punitive action is being taken. They can do it if they wish, but they do not have to do it.


Wilbert Ross Thatcher: Why would they do it? The parliamentary assistant still will not say that in the mind of the Department of Finance, or whoever it is, there is not the idea that they will give us a year to get our house in order and at the end of that time, if we have not done it, we are likely to have undistributed profits taxed substantially.


James Sinclair: I think the hon. member is confusing the report of the Ives commission with this resolution. There is no limit of one year here.


Wilbert Ross Thatcher: All I am asking is whether the government is getting ready to do something next year.


James Sinclair: My hon. friend is asking me what is going to be in the budget next year. Hon. members know that even a week before the budget is presented people ask the minister the same question and one can only give them the bland assurance that these matters are under consideration. I cannot tell what is going to be in the budget next year, but in view of the fact that there will be substantial changes in section 9 of the act because of this resolution I would suggest that hon. members wait until the bill is brought down. Then they will have at least a week to study the implications of this resolution with respect to section 9 as it now stands.


Mr. Gibson:: Just to go a step further with the happy suggestion of the parliamentary assistant with respect to the hon. member for Moose Jaw, supposing he were knocked down tonight, could his trustees take advantage of this provision after his death?


James Sinclair: The answer is that if he had just one trustee that would be possible. If he has more than seventy-five trustees it is without the confines of this resolution.


John Lambert Gibson: But it would no longer be a private company then.


Mr. Jeffery:: When the parliamentary assistant first spoke on this matter he compared this suggested action to the first Ives distribution. I see a considerable difference, in that this is not a distribution; it is a capitalization. I think it should be pointed out that this is not money that will foe distributed to shareholders. Rather it is money that will be capitalized, and cannot be distributed.

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James Sinclair: The hon. member is quite correct - in that observation.


Arthur Leroy Smith: Following the questions of the hon. member for Moose Jaw I want to ask the parliamentary assistant this question. You say this simply gives an opportunity to these honest, small companies to put their house in order. To put their house in order against what? Against what the government may do to them if they do do not take advantage of it? Is that what you mean?


James Sinclair: No.


Arthur Leroy Smith: I think that is the only inference one can draw.


James Sinclair: The answer is, to get their house in order against involuntary winding up under section 9(1). That is where the problem arises. That is the opportunity they have, if they want to do it. If they do not do this, on winding up the undistributed income is going to be taxed as income of that year and, depending upon the income of the shareholder, it may be taxed at a high rate.


Arthur Leroy Smith: Then we have it clearly that if one pays the 15 per cent now he is free of all further claims with respect to income tax against what may have been undistributed profits, which may have gone into working capital or elsewhere. If that is not done, however, the statement now is that the government will step in and in one year take this surplus, which probably has been accumulated over dozens of years, as profit in that year. Whether the parliamentary assistant realizes it or not, that is what he has just said. I can quite see the fears in the mind of the hon. member for Moose Jaw, that being so.


James Sinclair: The hon. member realizes, of course, that this is the law right now, if a company has to be wound up. What we are trying to do by this resolution is what I attempted to explain in my opening remarks; that is, allow a beneficial option which a man can take but which he does not have to take unless he wishes. If he does take it, then on the winding up of his company he will not be faced with these further difficulties. That is why it is so important to private companies, because death does interfere with the plans of those companies. On winding up, then, they are free from this very heavy penalty under section 9(1) as a result of having the accumulation of years suddenly taxed as the income of one year. If they do not want to take advantage of this option, at least they cannot say they did not have the chance; and as the hon. member for Comox-Alberni pointed out, even then their trustee may take advantage of it.


Arthur Leroy Smith: Let us say I
started a little company, made a little money and put it back into machinery or other capital expenditures. Unless I take advantage of this provision, at the end of the road the government comes along and takes all my investment. It can easily amount to that. They could take everything I had invested in my company, though it was in the nature of capital assets which were purchased with earned money, such as machinery and so on. The government could step in and take it all if I did not pay this 15 per cent.


James Sinclair: Not take it all; tax whatever it would amount to as income received in that year.


Arthur Leroy Smith: Let us assume the parliamentary assistant and I have $100,000 in a company. I would have to borrow my $50,000 from you, I know, but we will assume we have that much invested. Of that amount $75,000 is in assets of various kinds, buildings, land, machinery, movable assets and so on. On winding up we must pay income tax on the whole of that, though it is not realizable, and that means the end of the enterprise. That is a situation which may easily arise, is it not?


James Sinclair: Let us make one real distinction. The $100,000 you are speaking of must be in the form of capital equipment acquired by plowing back profits which have not been declared as the personal income of those owning the company. That would not apply to the original capital, or to any further capital which was raised in other ways.


Arthur Leroy Smith: But the company has paid the corporation tax.


Wilbert Ross Thatcher: During the war years there were no personal taxes on these closely-held companies.


James Sinclair: But that is the law as it now
stands. Now we are at least giving them the opportunity of paying 15 per cent on that accumulation, if they wish to take advantage of it, which will relieve them of having that money regarded as income in the year of winding up.


Wilbert Ross Thatcher: The parliamentary assistant is getting us more mixed up as he goes along, and I would like to have this clear before we leave it. Perhaps I am a little more stupid than other hon. members; many may agree with that. Nevertheless I still do not understand the reasoning of the parliamentary assistant in the case of a person dying. If a person dies is it not simply a question of paying death duties, or whatever you call them? Could he not protect himself against

the eventuality that the parliamentary assistant has mentioned by having a substantial insurance policy? I would think that would be the easier way.


James Sinclair: I quite agree that that is another way if anyone wants to do it. I may point out that if it is a large estate, then the succession duties would be much more than 15 per cent which he would have to pay to clear it in advance. That again is a matter of business choice for the private business concern. Today we are at least giving them some opportunity if they wish-there is nothing forced about it-to put their house in order without taking out insurance.


Wilbert Ross Thatcher: Is the parliamentary assistant suggesting that a man must first pay succession duties, and then pay income tax or whatever you want to call it on the surplus-


James Sinclair: No, I am wrong on that, it is income tax.


Wilbert Ross Thatcher: He has to pay income tax on his surplus then, on top of that, succession duties?


Arthur Leroy Smith: In other words, Mr. Chairman, a man can be very successful in his business while he is alive, but when he dies he may leave nothing but a cause for battle between the succession duty people and the income tax people?


James Sinclair: Getting back to the hon. member's question, I unfortunately used the phrase "succession duties". The succession duties would have to be paid on the capital, but under section 9(1) of the act as at present that portion which goes to his estate in the form of undistributed income is regarded as income for that year, and would be subject to income tax according to the level of his income at the rates for that year, in exactly the same way as earned dividends.


Mr. Hatfield:: All that he has built up over a period of years?


James Sinclair: Yes, so today we are giving him this beneficial provision, so that rather than face up to that, he can put his house in order by paying the 15 per cent.


Wilbert Ross Thatcher: The successful way of dealing with this matter would be by repealing this section 9(1), if that is the case. In spite of all that the parliamentary assistant has said, it still looks to me as though next year the government is planning to bring in a tax on undistributed income if they take advantage of this 15 per cent clause. Nothing the parliamentary assistant has said has dispelled that fear.


James Sinclair: I certainly do not intend to attempt to forecast what the government is
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going to do in its budget program a year from now. I would suggest that if we repealed section 9(1), then no company would ever pay any dividends. The dividends would be salted away, and then when a firm wound up all of that profit would be capital, and income tax payments would have been avoided.


Wilbert Ross Thatcher: They can be caught today without that clause.


James Sinclair: As I tried to point out earlier, because of the points that have been mentioned by the member for Eglinton, the member for Moose Jaw and the member for London, it is quite obvious that there will be substantial changes in section 9 (1) when the bill is brought down.


Agar Rodney Adamson: It seems to me that this is an entirely new principle and a dangerous one. A shareholder in a private company, that is a company with less than seventy-five shareholders, may own 15 per cent of the shares of the company. Throughout the years the company may be able to build up through profits an undistributed surplus of say $100,000. The company in its wisdom plans to use that $100,000 at some time in the future for a project it plans to undertake when the time is propitious. The shareholder owning 15 per cent of that company dies. Under this regulation the surplus in that company which was built up, or at least 15 per cent of it, is considered taxable in the year of death as income.
Surely, that is an entirely new principle. The shareholder has the option of paying 15 per cent of what he may expect the surplus in the company to be, or have his share of the undivided surplus regarded as income in the year of his death. Surely that is a new principle and a wrong principle. It is the principle of a capital gains tax written right into the act.


James Sinclair: Once again I shall try to spell it out. This company has accumulated $100,000 as a surplus. If this company had paid out of its profits each year the full dividends, the shareholder receiving those each year would have paid personal income tax which begins at 15 per cent over exemption. However, for good reasons which I tried to outline, the company has accumulated the $100,000. Now, not under legislation proposed but under existing legislation passed by this parliament, section 9(1) of this act says that the $100,000, representing accumulated profits which have not been pumped out and have not been subject to personal income tax when spread around the shareholders, is taxable when the company is wound up.

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Using this example, out of the dividend which is taxable as income, the shareholder's $15,000 would be taxable at income tax rates for his category. Let us suppose the company took advantage of this proposal and paid 15 per cent. The company would then have $85,000 to distribute tax free. That would be his, instead of having to pay at his personal income tax rate on the $15,000. In that case it is obviously beneficial to that man if his company takes advantage of this proposal.


Agar Rodney Adamson: But that is in the case of a company being wound up. I am speaking of the case of the death of a minority shareholder while the company is still in business and proposes to carry on business. It has $100,000 of a surplus, and the man who dies has 15 per cent of the stock. His stock is sold, and it appears to me that under this proposal his estate would be liable. I am glad to see the minister shaking his head. It seems to me his estate would be liable under this clause for the tax on the surplus, whether or not it had been distributed.


James Sinclair: I pointed out that the application of this clause is on the winding up of a company. If the stock of the shareholder who dies can be sold, he is in exactly the same position as the shareholder of a public company who can sell stock. The normal processes continue after that. It is only because of the special financial problems in these closely held companies, when the principal shareholder dies and the company has to be wound up, that this clause is needed. If the ordinary shareholder dies and his stock can be sold, then the position is no different from one who holds stock in a large corporation whose shares have a market value. This section is only applicable on the winding up which is a problem that arises principally because of the death of the one who holds controlling interest in a small company. Then, not only the heirs of the person who died, but the persons who are left in the company, are forced to accept this distribution as soon as the company has been wound up. I think you have followed the illustration I gave. It is obviously to the advantage of the shareholder, in the example the hon. member put forward, to have this tax paid, but there again it is a matter of choice.


Mr. Hodgson:: I should like to ask a question. It may not be in order. If it is not in order the parliamentary assistant may say so. Suppose an individual, or a private company, bought a block of land and timber. He does not take a timber lease; he buys the land and all. Of course he buys it on the instalment

basis and pays so much each year. It takes every dollar he can make and scrape together to make his payments, which he must show as income. He pays income tax on it every year until he has probably 75 per cent or 80 per cent of the timber cut off, on which he has also paid income tax. He still holds the land and a certain amount of timber that he could take off if he wishes, which would pay for the land. On this land he has some lake property. He wishes to develop that lake-shore property and sell it for lots, but not individual lots. Does he have to pay income tax on the return from that land?


James Sinclair: If the hon. member's case comes down to this-[DOT] I find it quite difficult to follow it through-if he has bought a block of land for timber purposes, and part of it he later sold, that would be an ordinary capital gain and would not be subject to tax. If on the other hand he is a real estate promotor and does that all the time, then his income from that in that year is going to be taxable as income.


Wilbert Ross Thatcher: Just one other question to sum this thing up. I want to make sure that I clearly understand it. Do I take it that resolution 2 is an insurance policy which a man can buy for 15 per cent of his surplus and protect his family from a much larger tax in case he dies? Is that all it is?


James Sinclair: That is pretty well the intent of this bill. That accurately sums it up. Once having paid the tax he has this tax-paid surplus, as far as the winding up is concerned, when this undistributed income is going to be distributed among the shareholders.


Wilbert Ross Thatcher: Will the parliamentary
assistant state whether the treasury board discussed it at meetings which he attended? Did they discuss whether or not, if businessmen did not put their house in order, as he suggested, this year, next year there would be a substantial change in the budget?


James Sinclair: To begin with, I am not a member of treasury board.


Wilbert Ross Thatcher: But you attend its meetings.


James Sinclair: I occasionally attend. Whether I attend or not, there is obviously a pledge of secrecy as to what goes on there, so I could not tell the hon. member in any case. Getting back once again to the question, nobody here is able to forecast what is to be in the budget a year from now. That is why, as hon. members all know, there is intense interest in the budget. Anyway, all I can say is that this is the program of the government, and when the bill is brought down and the hon. member gives his usual studious care to section 9 he

will find the appropriate changes being made to accommodate this resolution with the present section 9 of the Income Tax Act.


Donald Methuen Fleming: There is one remark that the parliamentary assistant made a few moments ago that calls for some comment. It will be remembered that when I was speaking earlier I read a Canadian Press dispatch, giving the date of it, and mentioning that it appeared in a number of Canadian newspapers, in which extended remarks were attributed to a so-called "government spokesman." That expression appeared in the press article several -times. I invited the parliamentary assistant, or someone speaking on behalf of the government, to disclaim any policy of the kind that was announced in the article. In his reply the parliamentary assistant began first of all by accusing me of quoting something without disclosing the source. Apparently he had quite overlooked that I had said that it was a Canadian Press dispatch, and appeared under a Canadian Press byline. I gave the date and mentioned that it appeared in various Canadian newspapers. In addition to that, without actually making the kind of statement that I invited him or someone speaking for the government to make, indicating to us that the kind of policy outlined in that article was not and is not government policy, he chose to berate any who would suggest that articles appearing in that form, attributed to a so-called "government spokesman," were in fact a form of government release, and said that when government releases were to be made they would be made by ministers, and they would make statements. I do not propose to let that remark pass unchallenged, sir, because every member in this house knows perfectly well that when the government wishes to pass out some publicity, to make a statement without committing itself too far to it, or to fly a trial balloon, they simply put out, through one of their multitude of publicity men in the various departments, one of these statements to -the press, and the remarks are attributed to a government spokesman.
You had a very good example this afternoon, sir, of just the way in which the government abuses this method of publicity.


Mr. Fournier (Hull):: That is what you think.	'


Donald Methuen Fleming: That is what I am telling the minister; and if the article I read this afternoon does not reflect government policy, sir, then I invite the Minister of Public Works to rise in his place and say right now that that article does not represent government policy and never did. Second, I invite the minister-
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Alphonse Fournier: The only answer I can give-


Donald Methuen Fleming: to say that that article-


Alphonse Fournier: You would not stop for an answer.


Donald Methuen Fleming: I will give the minister ample opportunity in a minute, Mr. Chairman. Second, I invite him to say that that article, ascribed to a government spokesman, was not in fact authorized by any government department or any government official who had power and authority to issue such a statement. If he will do that I shall have some other interesting questions to ask him, either now or on another occasion.
The minister knows perfectly well, sir, and every hon. member knows perfectly well, the way in which the government abuses this practice. If they get something which they think is good-


Alphonse Fournier: It is all good.


Donald Methuen Fleming: -which they think will be popular, then, of course, the minister will make the statement and will take the responsibility or credit for it. If they think it may not be so popular, if they want to test public opinion, then of course the statement is ascribed to "a government spokesman." I am making this point perfectly clear this afternoon. I am not going to debate this matter further. When the parliamentary assistant this afternoon undertakes to say that the statement reproduced by the Canadian Press, and ascribed to a so-called government spokesman, is not equivalent to a government release, then he is just flying in the face of the facts. As every hon. member knows perfectly well, the Canadian Press would not take that statement and publish it in this form unless it -came from an accredited government source. If that is the way in which the government is using all these expenditures on publicity which we discussed recently, then I think it is high time-


Alphonse Fournier: I hope we are not
going to get away from what is under discussion. My hon. friend is just building up straw men by suggesting that when the government decides on a policy it needs someone else to announce it. I say to the hon. member that when the government decides on a policy there are enough ministers to make the announcement, and that is the way in which we proceed. If you will just keep to what is under discussion, and let the other questions that you have in mind come up in due course, they will be discussed.

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Donald Methuen Fleming: It is quite obvious that the minister was not in the house when the press dispatch was read.


Alphonse Fournier: I am here quite often.


Donald Methuen Fleming: I say this to the minister also: We are discussing the budget resolutions now.


Alphonse Fournier: Which one?


Donald Methuen Fleming: I was speaking a moment ago of subjects that were discussed in the budget debate, and which are properly before the committee now. If the minister had been in the house he would not attempt to suggest that this matter is not properly before the committee, because the parliamentary assistant has undertaken to challenge this particular press release as being something authorized on behalf of the government.
Now, sir, I am leaving the subject with this parting observation, that it is a pretty fair sample of the way the government plays fast and loose with publicity they put out; and we can ask ourselves at the proper time whether very heavy expenditures for government publicity in all departments are warranted at the expense of the Canadian taxpayers when we see this abuse made of such publicity on the part of the government.


James Sinclair: I cannot let this pass unchallenged. The hon. member is very excited now, as he generally is when he gets worked up. He has left the inference that the Canadian Press was the publicity agent of the government. The government will make their announcements with regard to policy in due course, and the ministers will make the statements, as my minister did in the budget speech. But the hon. member is naive when he makes the suggestion that a minister should get up and immediately deny any kite flown by the press, because-


Alphonse Fournier: Or the opposition.


James Sinclair: Or the opposition-they want to lead these hard-working gentlemen of the press up some blind alley and fly a kite, because they want to challenge the government to put out government policy in advance. Any statement of policy from the Department of Finance will come from the Minister of Finance, and he need not rely upon unauthorized government spokesmen in press dispatches.


Donald Methuen Fleming: Will the parliamentary assistant answer this question simply-because I asked it when I first spoke, if he would say this, or if someone would-will he say that the press dispatch from which I read does not reflect government policy?


Some hon. Members:: Oh, oh.


James Sinclair: The hon. member must think I am more naive than most people. I have just tried to explain-and I am sure other hon. members who were not all heated up were listening-that it would be an easy way to find out future government policy to have the press fly a kite, and then get up and demand that the government either deny or accept this press release.


Donald Methuen Fleming: Supposing for the moment that we have done with the article. As an innocent member I am asking a simple question of the parliamentary assistant. I say, regardless of whether it was a government spokesman or not to whom this statement of policy is ascribed, will the parliamentary assistant answer a simple question, yes or no, as to whether the policy outlined in that article is or is not government policy? It is a simple question; a yes or no answer would be sufficient.


James Sinclair: Government policy today, so far as taxation is concerned, is governed by the present Income Tax Act. When the new act is brought down the hon. member will be able to know what new government policy therfe is, so far as taxation is concerned.


Donald Methuen Fleming: That is not an answer at all. To call that an answer would be just to insult the intelligence of a schoolboy. If the parliamentary assistant desires to make any progress, then I suggest that instead of ranting, as he has been doing, and thrashing the air with his arms he accept my invitation on that subject we were discussing as to forcing the distribution of corporate surpluses, to say whether that newspaper article-and he must be familiar with it by now

does or does not reflect government policy. It is so simple it could be answered yes or no.
I make it clear to the parliamentary assistant that I do not propose to be given the run-around on my question. It is a simple question, it is relevant to the subject under discussion, and if the parliamentary assistant wishes to give information and wishes to expedite the proceedings it will permit of his giving a very simple answer.


James Sinclair: Mr. Chairman, once again, these resolutions are to give the intent, and either decrease or increase the tax, and the change in regulations which cover any changes in legislation. The present act provides, in section 9(6), that the minister, in his discretion, has this right, which has apparently been used six times. As to whether or not that right, which is not the sort of material covered by the resolution, will be changed, the hon. member will find out when the new act, with the new section 9, is brought down

for first reading. And when that first reading takes place will depend, of course, on how long the hon. member wishes to talk.


Donald Methuen Fleming: The parliamentary assistant is dodging a simple question. We came here this afternoon prepared to be thoroughly co-operative and to obtain necessary information.


Some hon. Members:: Oh, oh.


Donald Methuen Fleming: Yes, we have been thoroughly co-operative. If the parliamentary assistant wishes to give the information, in reply to a simple question, then we will proceed very much more quickly than by having some hon. members opposite-and I sympathize with them, because they do not get a chance to do anything else-murmur in undertones. We will progress faster if the parliamentary assistant will give the information, which is of a very proper and relevant nature-and it is simple, quite simple. I have asked him what is government policy. We have had a statement as to what purports to be government policy. Surely in the face of that it would be competent for the parliamentary assistant to say yes or no, as to whether that is government policy. And if he does not know, then we shall accept a frank answer to that effect, and we shall ask the Minister of Finance-or the Minister of Public Works, who has undertaken to speak for the government on this occasion, I believe. We will ask him to give the information.
I am not going to pick and choose among the ministers. I would just as soon have the Minister of Public Works answer a financial question as any other minister-the Minister of Finance included. I am sure he knows as much about problems of finance in government as any government minister. So I should be very happy if the minister will answer my simple, straightforward, proper and relevant question-if, for the first time in his life, the parliamentary assistant is tongue-tied:


Agar Rodney Adamson: I am always interested in any change or alteration in the English language. I think probably one of the functions of parliament is to call attention to any new usage. On behalf of the committee I should like to inform those who prepare Webster's dictionary that from now on "government spokesman" means "journalist's balloon".


Heber Harold Hatfield: In connection with a company which has built up a surplus of $100,000 over a period of years and decides to invest that money in an extension of plant: if I own 75 per cent of the stock of the company and die before the act comes into effect,
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what happens? Are my heirs assessed on the amount of that stock, that surplus, at 100 per cent?


James Sinclair: In the case the hon. member
has described, if on his death it were necessary for his heirs to take the money out of the company, then at present their share of the undistributed surplus-not the capital value-whether in money or plowed back into the assets, would be taxable under section 9(1) as income of the year. If this measure is passed he or his trustees have the option of getting that out tax-free by paying this 15 per cent-that is, tax-free, so far as income tax is concerned, on winding up. However, if the company is not wound up and goes on, there is no change.


Heber Harold Hatfield: Under that act you are forcing the company to sell the plant in which they have invested $100,000. If they have no other capital you are forcing the company out of business.


James Sinclair: The hon. member has described exactly the situation which caused the request for this resolution, the purpose of which is to ameliorate that condition. It is quite true that if a company had put all its surplus into assets, and was forced to wind up, then on the death of one of the shareholders they were in that very difficult position. Today if they wish to they may put their house in order in the manner described by the hon. member for Moose Jaw, by paying what would be considered an insurance of 15 per cent on the undistributed income of the company.


Heber Harold Hatfield: Would it not be easier to repeal the present act?


Wilbert Ross Thatcher: If we are going that far, would it not be sensible to allow the estate, or the people who are the heirs, to take advantage of the provision and pay the 15 per cent, instead of lumping all income in one year? Is there anything unreasonable in that?


John Lambert Gibson: He said that.


Heber Harold Hatfield: They should not be forced to sell the assets.


James Sinclair: The hon. member will appreciate that there are two different personalities involved. It is not the individual who pays the 15 per cent on the surplus; it is the company. If for example the hon. member were to die, then before making distribution to his successors this 15 per cent could be paid by the company-even though he could not do it-on the company surplus. Then they could distribute it.


Joseph-Alfred Dion: Shall the resolution carry?

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Donald Methuen Fleming: I ask the parliamentary
assistant or, failing him, the Minister of Public Works, whether the Department of National Revenue in January of this year or since has stepped up its campaign to free large surpluses and of undistributed income that have accumulated in corporation treasuries?


James Sinclair: The answer to that is, "No". Of course the hon. member can direct a question tomorrow to the Minister of National Revenue, not to the Minister of Public Works or to the parliamentary assistant to the Minister of Finance.


Donald Methuen Fleming: The answer is, "No"?


James Sinclair: No.


Stanley Howard Knowles: Yes, the answer is no.


James Sinclair: The answer is, no, it has not stepped up the campaign, if those were the words used, since February, to force the distribution of surpluses.


Donald Methuen Fleming: Then this report is wrong?


Wilbert Ross Thatcher: Would it not be feasible when someone who owned the majority of the shares in a private company died for the remaining shareholders to take advantage of this 15 per cent clause? It seems to me that the heirs then would not be taxed this terrific amount in one year.


James Sinclair: Perhaps I should let the hon. member for Comox-Alberni answer that because he asked that very question fifteen minutes ago and the answer was that it could be done.


Wilbert Ross Thatcher: What is the necessity of having this at all? You told us a while ago that this was an insurance policy.


James Sinclair: There are two clauses to this resolution, it must be remembered.


[Stage Direction]
Resolution agreed to.
3.	That for the 1949 and subsequent taxation years, there shall not be included in computing income amounts received in consideration for mining properties, by prospectors who have prospected, explored or developed the properties, or by persons who have financed prospectors to do so, other than persons who carry on the business of dealing with the public in shares or securities or who dispose of the shares after carrying on a campaign to sell them to the public.
Donald Methuen Fleming: I understood the parliamentary assistant was going to give some information about this resolution.


James Sinclair: The intention of this resolution is to codify the practices of the department. Since 1940 under the Income War Tax Act the matters covered by this resolution were not regarded as income. We
[The Chairman.]
are now intending to spell them out in the act so they will be part of the act. I may say that the mining industry welcomes having these in the act.


Donald Methuen Fleming: I am quite sure the parliamentary assistant is right in saying that this has been welcomed by the mining industry. I think everybody would welcome this if it means what we have understood it to mean. It is a little surprising to find that the minister has found it possible to introduce such legislation after he said on March 28, as reported on page 1217 of Hansard:
Much as I would like to introduce greater certainty I do not believe that it can be done satisfactorily by legislation.
Those words were uttered largely in relation to this matter of taxing capital gains. The question arose from just such matters as fall within the ambit of this resolution. If the parliamentary assistant is right in saying that this resolution proposes to codify what has been the settled practice of the department since 1940, how does it happen that the Department of National Revenue took precisely the opposite position in 1949 in seeking to tax gains which under the settled practice he has referred to were always regarded as capital gains up until that time?


James Sinclair: I think I have as close contact with the mining industry in my province as any of the British Columbia members. The general prospector and the mining company which is exploring and developing mining claims is covered by this. On the other hand, we have in Vancouver what we call the Pender Street mining men, and in Toronto I would call them the Bay Street operators. These people simply manipulate properties and buy and sell them in the same way that a real estate company would buy and sell real estate. Somewhere in between the two a dividing line must be drawn. My mail has been filled with expressions of appreciation from prospectors and the British Columbia mining industry, the people who are really doing the development work in British Columbia, that this is now going to be part of the law. On the other hand I have received, and no doubt other hon. members have also, letters from this mining promoter group that they should be included in this and that the gains they make from the buying and selling of stocks should not be regarded as income but as capital. The borderline or the dividing line will be most difficult to spell out, but the legislation when brought down will cover as much as possible and the borderline cases will be matters that may have to come before the courts.


Donald Methuen Fleming: If it is possible to spell out legislation with respect to this particular case then it ought to be possible in a similar manner to enact legislation broad enough to meet other cases apart from mining. If the principle is sound that there should be no tax on capital gains or what the public has been accustomed to regard as capital gains in this instance, if it is possible to have a clear legislative enactment in this instance, then it ought to be possible to do it more broadly and enact a definition of income to make it quite clear that the benefits of the same sound proposals will be available to others.


James Sinclair: The matter will be taken under consideration.


[Stage Direction]
Resolution agreed to.
4.	That special deductions from income to taxpayers whose principal business is the production, refining, or marketing of petroleum or petroleum products or the exploring or drilling for oil or natural gas or mining or exploring for minerals, be allowed for expenses incurred in the 1953 operations on the same basis as for expenses in the operations in the years 1949 to 1952.
Mr- Harkness:	I presume this resolution
covers the same deductions which have been allowed on a yearly basis in connection with special depletion and depreciation allowances?
James Sinclair: That is correct.


Mr. Harkness:: I cannot understand the
reference that expenses incurred in the 1953 operations shall be allowed on the same basis as expenses in the operations in the years 1949 to 1952.


James Sinclair: This resolution and the one following are on a year to year basis. Special consideration was given to these particular industries last year and we felt that the oil industry had expanded to the point where we could look a little further into the future. In order to help them we told them that the concession would be given for the next three years from 1949 to 1952. We are still going to give it for three years but we are advancing it one year more to 1953. In other words, we are continuing to give them a three-year assurance that this type of benefit is going to be available to them.


Douglas Scott Harkness: I have urged the Minister of Finance for the past four or five years that this legislation should be put on a permanent basis. A move was made in that direction last year when it was put on a three-year basis. As I remember, last year the Minister of Finance said that consideration would be given before the next budget was brought down to putting this on a permanent basis.
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James Sinclair: Very detailed consideration
was given to the request of the industry this spring. I can assure you that the department is most anxious to give the consideration due to this expanding industry.


Mr. Fair:: There is one matter I should like to have cleared up although it is not directly connected with the resolution we are discussing. I refer to the depreciation rates allowed on farm machinery. I have been asked by some of my constituents to find out what could be done when a farmer made out his income tax return at the new rates without knowing that he had the privilege of using either the old rate or the new. Can he write to the district income tax office to have his return changed to the old rate?


James Sinclair: Of course this is a matter for the Department of National Revenue, but I am assured by officials that he can file an amended return and have his rate changed back to the old rate.


[Stage Direction]
Resolution agreed to.
5.	That special deductions from income and taxes to taxpayers whose principal business is production, refining or marketing of petroleum or drilling for petroleum be allowed for expenses incurred in respect of deep-test oil wells in 1951 operations on the same basis as for similar expenses in 1950 operations.
Douglas Scott Harkness: I understood the parliamentary assistant to say a minute ago-and I think it was probably a slip of the tongue- that the three-year provision had been extended to No. 5 as well as to No. 4. Of course that is not the case. I should like to ask why it was not extended to clause 5 which deals with the drilling of deep-test oil wells. This provision has been on a yearly basis for some eight years now. During that time there have been a considerable number of requests from oil men in Alberta that it should be put on a permanent basis. The situation as to deep-test wells is that you may start to drill a well this year and as you are going down, in many cases 10,000 or 11,000 feet, you run into difficulties of various kinds. Therefore it may take you a year and a half or more to complete the well. In fact in some cases it has taken more than two years to complete some of these wells. The yearly extension of this provision of course does not give protection to people in that situation. It would seem to me that placing this provision on a three-year basis is, if anything, more necessary than placing resolution 4 on a three-year basis.


James Sinclair: As to the first question, it is the year in which the well is started. If a well is started in one year then they are protected in that year even if it should take a

Income Tax Act
year and a half to drill it. The second reason why it is limited is that such wells are few in number. I think there were only six last year, and the total number all told since the beginning of the legislation has only been forty-seven. They are very expensive wells, and it is a substantial concession.
In Alberta today of course we have greatly expanding production in the shallow fields. There is not the same necessity to have drilling of deep wells today in view of the trouble of getting the oil to market. For these reasons, since there was a small number of a special class in which the expense is very great, it was felt that this provision should be continued only on an annual basis with the understanding that any well started this year will be covered until completion. Last year I remember the hon. member for Comox-Alberni caught me out with a very simple question as to how deep a deep-test well is. I had taxation information but not information of that kind. I am prepared now, however. It is a well at least 7,000 feet deep which has been assessed by the department of mines as coming in this category. In the plains where the strata are flat it is 8,000,
9.000	or 10,000 feet, but in the foothills where the strata are on an angle, and where drilling is more difficult, they take them as low as
7.000	feet. It is a special concession given to a small group, and a group to which too much attention is not being paid today. Because of the great expansion in the shallow fields it remains on an annual basis.


[Stage Direction]
Resolution agreed to.
6.	That for the 1950 and subsequent taxation years, section 73 of the Income Tax Act, which imposes a tax on income from oil royalty rights held by a trustee as if the trustee was a corporation, be repealed.
Douglas Scott Harkness: Will the parliamentary assistant explain what the purpose of this change is, what the income tax people are trying to get at?


James Sinclair: The income tax people,
believe it or not, are actually being helpful in this case. In the old act oil royalties, although they actually are partnerships, were deemed to be corporations and subject to corporation tax. Oil royalties are one of the ways in which Canadians can invest in this field today. Therefore we are now going to say by legislation that syndicates formed for oil royalties are no longer to be deemed to be corporations but to be treated as partnerships as in fact they actually are. Therefore the effect will be most helpful and will be most welcomed in the province of my hon. friend.


Douglas Scott Harkness: If that is the case I am glad to see that it has been taken care of.


[Stage Direction]
Resolution agreed to.
7.	That for the 1950 and subsequent taxation years, section 18 of the Income Tax Act, under which lease-option or hire purchase or like agreements relating to movable property are deemed to be agreements for sale and the payments to be purchase price and the purchaser to be the owner for purposes of depreciation, be extended to apply to all property except real or immovable property used in the business of farming.
Mr. Charlton:: Will the minister explain this section?


James Sinclair: This is a very interesting section. Again it is brought on by some of the problems of financing these days. I will use the example of a chain store which after all is in the business of buying and selling food. Some of them do not want their capital tied up unnecessarily in real estate, the property they have to buy and the parking space next door. Therefore the practice has developed of some of these institutions, such as chain stores or service stations, selling their properties for a capital sum to an insurance company and then leasing it back under an annual hire purchase agreement. For example, $100,000 is the value of the property. They pay $20,000 for five years, and at the end by a payment of a small sum, $1 or $100, they acquire the property. They may hope of course that the payment of $100,000 will be regarded as rent of the property and therefore deductible as an operating cost of doing business.
Of course that rate would be very much higher, than the depreciation on a firm down the street owning a similar property and taking the ordinary depreciation allowed under the law. More than that, if the land is included in that they are actually in effect getting depreciation on land which of course is not allowed under ordinary depreciation schedules. Of course many of these deals are perfectly bona fide. The longer the'term of the lease the more closely it approaches ordinary depreciation rates. The present act applies this principle to movable property. Now we are extending it a little further and applying it to immovable property as well, other than that used in farming.


Douglas Scott Harkness: While I understand the explanation, I wonder why this clause has been put in at the end, "except real or immovable property used in the business of farming." Although this provision apparently was put in there to cover the chain stores people and so on, it would apply to everybody except farmers. Why are they specifically exempted?


James Sinclair: I understand my hon. friend comes from a farming riding and I am a little surprised that he should raise that question. I believe he is a farmer himself.


Douglas Scott Harkness: I am asking for an explanation.


James Sinclair: , One reason is that last year farmers were allowed to continue taking straight-line depreciation if they so wished. On the other hand, everybody else, other than farmers and fishermen, must take diminishing balance in which there is a recapture provision. That is one reason why farmers are excluded.


Alexander Haley Jeffery: This section says that such agreements are deemed to be agreements for sale and the payments to be purchase price. In other words, in such contracts as are mentioned in this section no allowance is to be made for the deduction of any interest that may be involved in the payment?


James Sinclair: Interest is regarded as a part of the purchase price in that the purchase price is spread over these periods.


Donald Methuen Fleming: The parliamentary assistant has just raised a question about interest and has said that under these hire-purchase agreements interest is to be regarded in effect as a part of the purchase price. This situation has wider involvements and implications, and I think the committee should pause a moment to consider them.
In the Income Tax Act we have provision made for the deduction of interest on borrowed money used to earn the income of the taxpayer. To most people there should not be any difference between cases A and B. In case A the individual taxpayer, being possessed of a certain asset-it may be of the kind referred to in the resolution, the purchase of some equipment-in the course of his operations goes out, borrows money and pays interest on the money borrowed. In case A if the money is borrowed and used in the course of earning the income of the taxpayer then he will be allowed that interest by way of deduction as a business expense. But take the case of the taxpayer B who purchases some equipment, either under a hire-purchase agreement or subject to an existing encumbrance. Suppose he buys property, it may be either real or personal, subject to a first and second mortgage, or perhaps a third mortgage. If he simply assumes existing obligations and pays interest on those obligations, the taxing authorities of this country say they will not grant him any deduction in respect of his payment of interest on account of encumbrances existing when he bought the property.
That is an extraordinary situation, and I wish to express my regret that something has not been done in these resolutions to 55946-1381
Income Tax Act
eliminate that anomaly, which is very discriminatory in its operations. An eminent writer on the subject of income tax asked this question recently in a well known publication:
If a company buys a building for $100,000, assumes a $50,000 first mortgage and gives a $30,000 second mortgage, it has not borrowed the $50,000 nor the $30,000-
He is speaking now of the interpretation by our taxing authorities.
-and, therefore, cannot charge the interest on these amounts as an expense.
Or if a taxpayer agrees to pay $10,000 for a piece of plant, payable $1,000 down and $1,000 a month with interest, he cannot charge the interest as expense. Why? Because he did not borrow the money first and then pay off the $10,000 at once. If he had done so the interest would have been allowed.
Must all the modern methods of buying assets be revised in order not to have the interest disallowed under this decision?
This very directly affects the farmer. Here is a situation that came to my attention not long ago. Attention is drawn here to an extraordinary tax situation under which a farmer who would purchase machinery and borrow money to pay for it is permitted to charge interest on the borrowed money as a business expense, while the farmer who buys machinery on deferred payments cannot deduct interest on the balance as a business expense; and the same thing applies to other purchases of capital goods.
The income tax appeal board has ruled that a man who bought a garage for $50,000, of which $10,000 was declared to be interest, should be refused permission to treat this as a business expense. If he had borrowed the money from some third party and purchased the garage for cash, he would have been entitled to treat the interest on the loan as a business expense.
That situation just reeks with anomaly. I 'do not think anyone could defend it as common sense. I must express regret that apparently nothing is proposed to meet that situation.
I refer to the decision in the McCool case by the Supreme Court of Canada last year. The full title is Minister of National Revenue
u.	T. E. McCool Limited, reported at 49 Canadian Tax Cases, page 395. In that case a situation of this kind came before the Supreme Court of Canada for interpretation; and what I have indicated in my remarks up to the moment is the interpretation that the Supreme Court of Canada placed upon section 5(1) of the Income War Tax Act, which in this respect is in terms similar to section 11(1) (c>
of the Income Tax Act. In effect what the Supreme Court of Canada said in that case was that before the money regarded as being

Income Tax Act
an obligation upon the taxpayer would be treated as a loan under that section of the act, so that the amount paid by way of interest on the loan would be considered by the Department of National Revenue as a business expense, there must be a real loan and a real borrower. That is the language used in this report, and I am referring now to the judgment of Mr. Justice Kellock at page 407. Then Mr. Justice Kellock went on to say:
Here there is nothing more than unpaid purchase money secured by a promissory note which, in my opinion, is insufficient.
In that case the encumbrance had existed prior to the purchase by the taxpayer, and he was not permitted to treat what he had to pay on that money by way of interest as an expense. Then Mr. Justice Kellock goes on to say:
It is not sufficient to say that if the company had borrowed the amount of the note and paid McCool it would have been entitled to the deduction. However that may be, that was not done and the statute does not apply.
Then at page 413, after quoting the terms of section 5(1) (b) of the Income War Tax Act in relation to the interest on borrowed capital, Mr. Justice Estey said:
Terms such as "borrowed capital" "borrowed money" in tax legislation have been interpreted to mean capital or money borrowed with a relationship of lender and borrower between the parties. It is necessary in determining whether that relationship exists to ascertain the true nature and character of the transaction. In this case the promissory note arises out of an exchange in which, as already detailed, the purchase price was paid by assuming outstanding obligations, a small payment of cash, allotment of capital stock and the execution and delivering of this promissory note. Under such circumstances it cannot be held that the relationship of lender and borrower in respect to this note exists between the respondent company and the payee of the note.
That decision has been followed in at least one other case since, the Rhinehorne case, recently decided in the exchequer court.. This is a situation which I believe demands immediate redress. It offends the ordinary common sense of all people to say that if a man buys subject to existing obligations and as part of the purchase price assumes those obligations and agrees to pay interest on them, and after completing the purchase goes on to pay the interest, he shall not be entitled to regard that as interest on borrowed money and therefore as a business expense, while at the same time if that man made an outright purchase without assuming obligations or encumbrances, and borrowed capital afterwards for use in the course of his business, for the purpose of earning an income, the interest on that borrowed capital may be deducted from his income as a business expense.
[Mr. Fleming.l
Under those conditions I say it offends against common sense to say that in their result the two cases should be absolutely and diametrically opposite in the view of the taxing authorities. For the purposes of that taxpayer the situation to all intents and purposes is the same, but the result for taxation purposes is exactly the opposite. This is going to affect a great many farmers and businessmen in this country, and I urge that the matter should receive immediate attention by the government in order that remedial legislation may be brought down. The proper remedy, of course, is not to deny to the taxpayer in the latter case the right to regard that payment of interest as an expense. The proper remedy is to permit the taxpayer in the former case to treat the payment of interest on obligations he has assumed as an expense within the terms of section 5 of the Income War Tax Act, or section 11(1) (c) of the Income Tax Act.


James Sinclair: The hon. member will be very glad to learn that the supreme court decision has been brought to the attention of the government and remedial legislation will be brought down in the bill that will be introduced.


[Stage Direction]
Resolution agreed to.
Resolution 8 agreed to.	.
9. That individuals who were resident in Newfoundland on March 31, 1949, may, for the purposes of computing tax payable by them, elect to report their actual incomes for the whole year 1949 instead of that for the period after March 31, 1949, which is now adjusted to an amount that would correspond to this income for the whole year for the purpose of computing the tax.
Resolution agreed to.

[Stage Direction]
1. Resolved, that it is expedient to introduce a measure to amend the customs tariff, being chapter forty-four of the Revised Statutes of Canada, 1927, as amended, as follows:-
(a) By repealing subsection four of section five and substituting the following:-
"4. The said discount shall not apply in the case in which the duty does not exceed fifteen per centum ad valorem, or in the case of a specific duty or a specific and ad valorem duty combined in which the computed rate does not exceed fifteen per centum ad valorem, or where the rate of customs duty under the British preferential tariff is the same as the rate of customs duty under the most-favoured-nation tariff, or to goods admitted into Canada which have the benefit of reductions provided for in the Canada-West Indies trade agreement, 1926."
(bl By repealing section fourteen and substituting the following:-
"14. (1) The ad valorem rate of duty set forth in tariff item 84, 85, 87, 92, 94 or 95 in schedule A applies to goods specified in the item imported at any time except during a period in which an order of the minister under subsection two has applied the rate of specific duty set forth in the item in lieu of the ad valorem rate of duty in which case the rate of specific duty set forth in the item applies to goods imported during that period.

(2)	The minister may order that the rate of specific duty set out in a tariff item mentioned in subsection one shall apply to goods specified in the item in lieu of the rate of ad valorem duty set forth therein for such period during each fiscal year as may be fixed by the minister not exceeding the number of weeks mentioned in the item: Provided. that, in the case of sub-items (b), (d), (e), (f), ig). or (i), of tariff item 87, the minister may order that the rate of specific duty shall apply during two separate periods in a fiscal year but the number of weeks in the two periods shall not exceed the number specified in that sub-item.
(3)	The minister may exclude from an order made under subsection two, either at the time of making the order or at any time thereafter, goods to which the order would otherwise apply imported through ports in a specified region or part of Canada during the whole or any part of the period mentioned in the order in which case the ad valorem rate of duty applies to the goods so imported."
(c) By repealing subsection three of section sixteen and substituting the following:-
"16	(3) All such goods imported into Canada
after the date of the coming into force of any such order of the governor in council which do not comply with the requirements of such order shall not be released from customs possession until they have been so marked, stamped, branded or labelled under customs supervision at the expense of the importer."
Wilbert Ross Thatcher: Is the parliamentary assistant going to make a statement regarding the situation at all? This resolution is rather ambiguous.


James Sinclair: Mr. Chairman, I think most members appreciate the fact that these changes in the customs tariff are quite difficult to follow because, of necessity, they must refer in detail to the item numbers. These resolutions, all four of them, fall into three main categories. First, changes in the tariff brought about by reason of the Geneva and Annecy trade agreements; second, since the act was opened a great deal of cleaning up and removing of deadwood was undertaken; third, there is this section on wildlife which should be kept out of the country. I shall only have time to make a statement on the first resolution.
Section 5 of the customs tariff is amended to discontinue the discount of 10 per cent that applied to goods imported under the British preferential tariff direct into a sea, lake or river port of Canada, in regard to those products in which the British preferential rate is now the same as the most-favourednation rate. It must be kept in mind that this discount of 10 per cent, established in the budget of May 11, 1923, did not apply where the British preferential tariff was 15 per cent ad valorem or lower, and this discount never applied to imports of wines, malt liquors, spirits, spirituous liquors, liquid medicines, articles containing alcohol, sugar, tobacco, cigars and cigarettes.
Customs Tariff
Perhaps I should read the pertinent part of section 5. Subsection 4 of section 5 reads:
The said discount shall not apply in the case in which the duty does not exceed fifteen per centum ad valorem, or in the case of a specific duty or a specific and ad valorem duty combined in which the computed rate does not exceed fifteen per centum ad valorem, or to goods admitted into Canada which have the benefit of reductions provided for in the Canada-West Indies trade agreement, 1926.
During the negotiations at Geneva in 1947, it was claimed by a number of foreign countries that section 5 of the customs tariff was a hidden extension of our British preferential tariff system. The Canadian negotiators were strongly urged to discontinue the 10 per cent discount, and as a compromise it was ultimately agreed that the discount would not be continued on those items where the most-favoured-nation tariff was brought down to the level of the British preferential tariff. The actual effect of it is not very consequential. During the calendar year 1948, Canada's imports from all British countries of goods dutiable at rates exceeding 15 per cent ad valorem, with the same rate under both the British preferential and the mostfavoured-nation tariffs, were valued at a little over $3,120,000. During that year our imports of dutiable and free goods from the British countries were valued at over $504 million, of which $182 million were dutiable and over $321 million were exempt from customs duties. I have here a list, it is not a very long list but it is too long to read, of the items which will be affected, that is those items on which the most-favoured-nation rates and the British preferential rates are now the same.


Howard Charles Green: Could you give us the principal ones, and then put the list on Hansard?


Agar Rodney Adamson: I think the list might go on Hansard, Mr. Chairman.


James Sinclair: There are only three principal items, which are as follows: manufactured brass, $330,000-that was the value of the British imports in this last year; cotton clothing, $2,298,000; mixed clothing $422,000. The list is not very long and most of the items are small, but perhaps it could go on Hansard and then members will have it when the bill comes up.


The Deputy Chairman:: Has the hon. member leave to put the list on Hansard?


Some hon. Members:: Agreed.


James Sinclair: The list is as follows:
Imports from British empire countries during 1948 of goods dutiable at rates exceeding 15 per cent ad valorem but on which the rates were identical under both the B.P. and M.F.N. tariffs, the B.P. rate, however, having been subject to a 10 per cent discount

Customs Tariff
which no longer applies since the implementation in the budget of March 28, 1950, of an undertaking given by Canada at Geneva in 1947:
Imports
Tariff		from
Item		British
No.	Goods	countries45	Milk foods 	$ 16645a	Cereal foods, up to 25 lbs	48123(a)	Kippered herrings 	7,904325	Stained or ornamental glass win-	dows	502352	Manfs. of brass:	Hand pumps 	279Valves 	21,319Meters and parts 	9,697Manfs. of brass, n.o.p	288,049Copper 	14,062Bells and gongs 	10,102Rivets, burrs, etc	1,990362a	Metal parts, for loose-leaf binders	742394(b)	Axles and axle bars, etc	1,463424a	Hand fire extinguishers, etc	12,701505a	Hardwood flooring, etc, 	166532	Cotton clothing:	Shirts, not knitted 	126,332Cotton clothing, n.o.p	209,715Women's and children's dresses	15,777Men's smocks and overalls 	256Tray cloths, table cloths, etc. ..	860,306Quilts and counterpanes 	128,552Sheets 	68,848Towels 	555,726Cotton mfrs., n.o.p	158,761Wash cloths and bath mats ....	8,981Pillow cases 	153,575Typewriter ribbons 	11,142548	Mixed textile mfs.:	Clothing, veg. fibres, n.o.p	
Diapers, quilts, counterpanes,	34,752etc	
Sheets, pillow cases, tablecloths,	317etc	64,779Vegetable fibres, mfrs., n.o.p. ..	266,549Fabrics, coated 	7,236Handkerchiefs of flax or hemp	48,973553(1)	Cotton blankets 	31,227Total 	$3,120,994
Total imports during 1948 from British countries:
Dutiable	$182,964,319
Free	 321,149,559
Total	$504,113,878
Total imports during 1948 from United Kingdom:
Dutiable	$134,786,720
Free	 164,715,480
Total	  $299,502,200


Wilbert Ross Thatcher: Mr. Chairman, I have some rather extended remarks to make on this customs tariff schedule. Since it is now two or three minutes to six, will the parliamentary assistant and the chairman agree to call it six o'clock?


Alphonse Fournier: Before it is called six o'clock, Mr. Chairman, I see we have made some progress this afternoon and we may get through with these resolutions some 
time during the evening. Last night I announced we would take up resolution No. 3 on the order paper, that is the amendment to the Research Council Act to appoint one more vice-president; that is not very lengthy. Then, I announced we would take up the resolution of the Minister of Veterans Affairs. This is a continuation of that matter, and there have already been fifteen speakers, so I do not think that will take very long.
I would suggest, in all fairness to the house, that if we complete those things before eleven we have three small bills with which we might deal, and I shall name them. One is the act respecting the appointment of the auditors for the Canadian National Railways. The second is the bill to amend the Manitoba Boundaries Extension Act, 1912, and the Ontario Boundaries Extension Act. I understand both provinces have passed statutes concerning the boundary, and they need a bill here to approve those things. There is a third bill, No. 18 on today's order paper, an act to amend the Department of Transport Stores Act. I understand the purpose of the bill is to increase the revolving fund, and to find a way of declaring obsolete a portion of the stores that they have on hand.
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at eight o'clock.
Wilbert Ross Thatcher: I want to make a few remarks on this resolution, but I should like to ask a question of the parliamentary assistant in order to make one point clear. Could he tell me why the Geneva agreements, which were formulated about three years ago, have not yet been passed by parliament? Is there a special reason why?


James Sinclair: Not only have they not been passed by this parliament, but so far as I am aware no other parliament of the signatory countries has yet passed them. As hon. members know, the Geneva agreements have been continued by further discussions at Annecy, and are now going to be further discussed at Torquay this summer. What we are doing as fast as we can is implementing actually in our legislation the undertakings given at Geneva, and these amendment changes are almost entirely because of the Geneva trade agreements.


Wilbert Ross Thatcher: Mr. Chairman, in a general way, as far as these customs tariff amendments now before us are concerned, this group is disappointed that the government has not

seen fit at this time to proceed with further tariff reductions, particularly against British goods.
The parliamentary assistant and other hon. members will bear in mind that on numerous occasions over the past several years this group has asked in parliament that tariffs be lowered against British goods, so that the British might earn dollars to buy our merchandise, our farm products, and the like. I must say that I am getting just a little bit tired of listening to my goods friends in the Liberal party, in parliament and out of parliament, preach about the need for freer trade, for fewer restrictions, for lower tariffs, while they do so little about them.
The resolutions in front of us today are, in my opinion, a good example of that lack of action. For several years the Minister of Finance has argued in his budget speeches about the need for lower tariff barriers. And he has always admitted the need to help Britain sell more goods in this country. But every time he comes to parliament he has the same excuse for inaction. His reason for inaction last year is to be found at page 1801 of Hansard. He said:
In view of the pending tariff negotiations at Annecy and other trade discussions which are envisaged, and in view also of the intention to introduce legislation at a later date to implement the general agreement on tariffs and trade, I am not proposing any tariff changes at the present time.
Well, a month or so later he brought down the Annecy agreements, but I am sure even the most ardent member of the government would not say that these were particularly significant changes. Then this year the minister had another reason for not doing very much about the tariff schedules, and I quote from his budget speech at page 1218 of Hansard:
In view of the important tariff negotiations which are scheduled to commence in a few months' time-
He refers to Torquay.
-the budget resolutions relating to the customs tariff which I am tabling contain very few changes.
I say this very respectfully. In my opinion the Minister of Finance is possibly one of the best exponents of double talk in this House of Commons. In his budget speech last year he said it was government policy to help British exporters regain their historic share of the Canadian market; and yet in his next breath he announced the reimposition of tariffs against British textiles. Look at his budget speech again this year. He went on for five or ten minutes at page 1218 of Hansard, if I remember correctly, to speak about the need of lowering tariffs. Yet on page 1219, a minute later, he announced an increase of 15 per cent in the tariff against British tinplate. I ask the parliamentary assistant to explain
Customs Tariff
where there is consistency in these words. I ask him to give us more information as to why such a change was necessary.
Today, Mr. Chairman, two-thirds of Canadian exports are going to the United States. That fact is a cause for some satisfaction, but it is also a cause for considerable concern, because since the end of the war Canada has been seeing her usual and traditional markets in Britain, the commonwealth and Europe, shrink. The fact that we have been able to make up for these losses in the United States is probably an achievement. Yet at the same time we are subject to that old danger which often happens when we put all our eggs in one basket. It seems to me that this is what we are doing with our export trade today. The United States is by no means the most stable market in the world. Our past experience bears that out; because overnight, in the past, United States tariff changes have virtually wiped out our markets. An economic recession in the United States has had a similar effect. Therefore I say that since we are selling two-thirds of our exports in the United States we are vulnerable to several things-first, a change in the United States administration; second, a change in their tariff policy, and third, to economic conditions in the United States if they become worse. In view of the vulnerable position which I have pointed out, Mr. Chairman, I think that when the Canadian delegation goes to Torquay in a few months' time they must go there with that in mind.
I was interested in an article which appeared in the Financial Post about a week ago. It was written by Kenneth Wilson. I should like to quote it:
A new battle over what's left of the empire preferential tariff system now looms for 1950-51 as 40 nations begin preparations for the full-dress trade negotiations scheduled for Torquay, England, next September.
Canada has very few important preferences left to negotiate. But United Kingdom and empire preferences in the Canadian market are still substantial.
These will be under heavy attack at Torquay, especially by European countries.
I am one who believes in freer trade, but I am also one who believes that we should guard these commonwealth preferential tariffs with a degree of care.
It seems to me that diverse markets are safer markets. Any action which would further increase our economic dependence upon the United States at this time is, in my view, to be viewed with concern. It is possible that the government may make a grievous mistake if it goes to Torquay and agrees to scrap commonwealth preference.

Customs Tariff
I think, Mr. Speaker, that Canada's No. 1 trade problem is still to regain our markets in Europe, to regain our commonwealth markets, to regain our markets in Britain. British leaders have told us repeatedly that there is only one way to do that, namely, to let them sell more in this country so that they can earn Canadian dollars. One of my criticisms of the customs tariff regulations which are now before us is that the government has been apathetic in this respect. The government has been lax in watching the British buyers gradually choked out of the Canadian market through their lack of dollars. If our main problem so far as tariffs is concerned is to get back some of these commonwealth markets, then I view with concern certain tendencies which seem to me to be prevalent in this country. Protectionists of various kinds seem to be more active. Not so long ago dumping duties were applied against certain Japanese textiles, I read in the newspapers that interests in British Columbia in the cement business are asking for dumping duties against Japanese cement. I heard this afternoon in the house, I believe it was the hon. member for Norfolk, ask for protection against strawberry pulp coming from Holland. These applications are bad enough, but there is one which should concern this house in particular. At page 1904 of Hansard I asked the Minister of National Revenue whether or not any application had been received for dumping duties against small English cars, and his answer was, "Yes." I then asked him what disposal had been made of such requests, and he answered, "The matter is under consideration." Mr. Chairman, I am amazed that a government which professes to believe in freer trade would consider for more than ten minutes such a high-handed request, because for several years our government has been urging British manufacturers to get their prices down and to become competitive, so that they can sell in this market. Apparently the British automobile manufacturers have been successful in doing that because they are able to bring their cars here, pay freight on them, pay sales tax and still compete.
Now, the automobile manufacturers, I presume, want dumping duty protection. I would remind the government of two things: first that Canadian cheap cars have roughly doubled in price since 1939, and secondly, that the Canadian automobile industry today has almost complete protection from American competition, (a) because of the tariff, (b) because of exchange differences and (c) because of import quotas. There is virtually no American competition, so far as Canadian cars are concerned.

Therefore I say that the request, whomever it is from, a short sighted, narrow-minded request made on the basis of self-interest. If Canadian automobiles are entitled to dumping duty protection, or to additional tariff protection, whichever you choose to call it, then every other industry in Canada in a similar position is entitled to the same protection.
Of course, if that protection were brought in, it is obvious what would happen to our trade with Great Britain. The whole proposition I say is absurd. If the Canadian automobile industry want to sell more cars in Canada, then let them get their prices down. Let them compete. I am sure the average Canadian consumer would welcome such a decrease in the cost of living.
Mr. Chairman, I refer to all pressure cases of this kind. I think they come at a most inopportune time-coming as they do a few months before the free nations of the world meet at Torquay to discuss eliminating trade restrictions and lowering tariffs generally. I think there are few things that would darken the prospects at Torquay as much as Canada's coming forward with further protectionist measures at this time.
This nation has to depend for its prosperity upon lower tariffs and upon fewer restrictions. To raise barriers just before an international effort to lower them would be, in my opinion, an act of economic folly. I hope the parliamentary assistant will give more information about these dumping duties. What is the policy of the government going to be in future? I wish he would give some assurance to the people of Canada that, so far as British automobiles are concerned, there is not going to be the imposition of any dumping duty.
In conclusion I wish to urge the government once again to translate some of its lofty words in the house and elsewhere about freer trade into some concrete action. Hon. members in this group realize, I think, as do members in other groups, that upon freer trade rests the best assurance for Canada to avoid a recession in the immediate future.


Mr. Wright:: Before the parliamentary assistant replies I should like to second the comments of the hon. member for Moose Jaw with respect to these tariffs. There is just one further point I would bring to the attention of the committee, and that is a point which is brought out in the Auditor General's report. At page 11 we find in section 39 the heading, "Tariff items and customs drawback", and it states:
The governor in council may, from time to time, and in the manner hereinafter provided, in addition to the other purposes and matters in this act mentioned, make regulations for or relating to the following purposes and matters:

(1)	granting a drawback of the whole or part of the duty paid on articles which have been used in Canadian manufactures, or granting a certain specific sum in lieu of any such drawback.
And then at page 12 we find the Auditor General's comment with respect to P.C. 4793 passed by the governor in council on October 22, 1948-
-providing drawback of 99 per cent of customs duty paid on certain imported steel sheets, when used in the manufacture of stampings for automobiles.
Here we have a case where the government is giving a 99 per cent drawback to the manufacturers of automobiles in this country on certain types of steel being imported into Canada. At the same time the manufacturers come to the government asking for dumping duties on English cars, when they have American cars completely barred from the market. I am asking the parliamentary assistant what protection the buyers of cars have in this country. Who is getting the benefit of this 99 per cent drawback the manufacturer is getting on customs duties in connection with the steel used for the stampings going into the manufacture of cars in this country? It certainly is not the buyer, when we find that the same car, exactly, is selling for $400 or $500 more than it is in the United States, while at the same time the workman in the United States factory is receiving from 30 to 40 per cent more in wages than is the man doing the same work in the Canadian factory.
When the governor in council passed this order in council giving the drawback of this duty, what action was taken to see that that drawback is passed on to the Canadian consumer in the price of the goods the manufacturer makes out of the article on which he has received the drawback?


James Sinclair: I shall deal first with the points raised by the hon. member for Moose Jaw. He has asked why we do not make further reduction in the British tariff at the present time. Under the Geneva trade agreements any reductions we now give the British we have also to give to all the other signatory nations. That is the basic principle of the *entire Geneva agreement. We certainly are not going to do that until we have reciprocal concessions from them. That is another reason why we are not making any of these concessions before the meeting at Torquay. It is easy to ask these concessions for other countries, but I think industry in this country is also entitled to some reciprocal arrangement to assist them.
The next point, so far as the British tariff is concerned, is a most interesting one. The figures I gave earlier this afternoon show to what extent we have opened the door to the
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British. Last year our total imports from British countries were valued at $504 million of which $321 million, or over three-fifths, were exempt from customs duty. I think that is a pretty fair break, so far as the British market is concerned.
Then, the next point: so far as cars are concerned, British cars enter today free from customs duty. American cars are subject to-


Wilbert Ross Thatcher: But there is a sales tax.


James Sinclair: And also a sales tax on Canadian cars. I do not think anyone would say that British cars should be sold in this country and not pay the same tax in that way as do Canadian cars. We put them all on the same footing in this country as our Canadian cars. American cars, on the other hand, pay a duty of 17 per cent on admission to Canada.
The next point he mentioned was that of tinplate. I should like to make a special reference to tinplate when discussing resolution 3. This is the only item since 1936 on which we have raised a tariff; and when the actual reasons are given, and when the figures are known, hon. members will realize how inconsequential it is.
Then there is the matter of the alarm raised by the hon. member because the government has given consideration to a proposal put forward by an industry in this country. I hope that day will never come when the government will not be willing to listen to the representations put forward by any industry, whether it accepts them or not. Of course the automobile industry, like every other industry in Canada-like the farmers in Canada and the fishermen in Canada-would naturally like to have special protection for their industry. When these requests are put forward the government has to give them full consideration and then, in due time, announce a policy with regard to them.
The last point was the one raised by the hon. member for Melfort with respect to this drawback on drawn steel used in the manufacture of stampings for automobiles. This item has been in the tariff since 1930, making provision for steel sheets, hot or cold rolled, or coated with lead or with lead and tin, -064 inch to -032 inch in thickness, 20 to 42 inches in width and 50 to 120 inches in length, if imported and used in the manufacture of stampings for automobiles, giving a 99 per cent drawback. The reason is that at that time we did not manufacture such sizes. The only change that has been made is made because of a difference in design. I am informed that because of the extra width of the present bumpers and fenders on the new cars these coated steel plates are now allowed

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in from twenty to fifty inches rather than the previous widths of twenty to forty-two inches and fifty to one hundred inches. That is the only difference in a tariff item which has been in effect since 1930.
As far as these drawbacks are concerned, naturally when a drawback is allowed the saving should go on down to the consumer. If the drawback was not allowed then I imagine the consumer buying that car would have to pay for the duty as well. Apparently what caused the comment by the Auditor General was that the change to increase the width of the plates from forty-two to fifty inches to provide for the extra length of bumpers was done by order in council.


Wilbert Ross Thatcher: Can the parliamentary assistant state whether the government is still considering this question of dumping duties? They were considering it some weeks ago and I was wondering if any decision has been reached. Can the parliamentary assistant also tell the committee which company or companies made the request?


James Sinclair: The request was made to the Minister of National Revenue, not to the Minister of Finance. I cannot give the hon. member any information at the moment. I am sure the Acting Minister of National Revenue will be glad to give him that information.


Percy Ellis Wright: The parliamentary assistant did not answer my question very fully. He said that this drawback was permitted in 1913. At that time the United States cars were coming into Canada in competition with Canadian cars, but now the importation of United States cars is under certain restrictions. The government should see to it that when a drawback is permitted on materials going into Canadian cars the benefit should be passed on to the consumer. This drawback is not being passed on at the present time or our cars would not be costing from $400 to $500 more than United States cars.


James Sinclair: There are two points to consider. If the sheets were available in Canada the item would not be there and, secondly, if this drawback was not paid I think you know what would happen. Today Canadian errs are in keen competition, and if we did not allow this drawback on goods not made in Canada then the cost of our cars would be raised up by that amount.


Wilbert Ross Thatcher: I understand that dumping duties are part of the customs tariff schedule. That being the case I do not understand why the parliamentary assistant should refuse to give the information I asked for

a moment ago. If he cannot give it, I suppose we shall have to wait. Perhaps his. adviser would be able to give this information.


James Sinclair: The Minister of National
Revenue said that the government is giving this matter consideration. This would be just one of the many briefs which the department receives during the year on taxation matters. When a decision is reached the hon. member will have an answer. Just because an application has been made by an industry for a tax reduction should not cause the hon. member to assume that it is going to be granted.


Wilbert Ross Thatcher: Are dumping duties not part of the customs tariff schedule?


James Sinclair: The hon. member is quite correct, but this is a problem of administration by the Department of National Revenue. The items under discussion here represent changes in the customs tariff which the hon. members are free to discuss.


Mr. Herridge:: I should like to bring to the attention of the parliamentary assistant a matter which is of importance to a large number of Canadians. I have been interested in the fact that there has been a 20 per cent duty against penicillin since some time in 1947. I asked the following question about this some time ago:
1.	Has a tariff been imposed on penicillin? If so, what is the rate of such tariff and when was it first given effect?
The answer received from the Department of National Revenue was as follows:
Yes. The present rate of 20 per cent M.F.N. has been in effect since April 1, 1947.
My second question was:
What was the value of penicillin imported into Canada for the years 1945-46-47-48-49?
The answer by the Department of Trade and Commerce was as follows:
Penicillin was not separately classified in Canadian trade statistics prior to January 1, 1949. Imports of penicillin and products during the calendar year 1949 were valued at $1,507,456.
We are charging a 20 per cent duty on a very necessary drug while under the third resolution to amend the Excise Tax Act we are providing for the removal of the sales tax from a number of articles and materials used by bona fide public institutions certified to be such by the Department of National Health and Welfare. I heartily agree with that because we are doing something commendable to reduce the cost of hospital administration and expense.
I do suggest that it is most unfortunate that we should continue to impose this 20 per cent customs duty on a necessary drug

like penicillin. In going over the schedule at the back of these resolutions I find that there is a 20 per cent tariff against rough granite and a 25 per cent tariff against bagpipes. As far as I am concerned you could put 100 per cent on bagpipes and take it off penicillin. I notice that castor oil comes in free.
When you consider the customs tariff it is hard to see the logic of some of these items. When the parliamentary assistant answers my question I should like him to explain the 25 per cent duty on bagpipes and the 20 per cent duty on penicillin.
Penicillin is used to fight infection, and in this connection it has been used with great success in recent years. It is good for colds, pneumonia, bone diseases and other infections with which hon. members may be familiar.
I am informed by my doctor that where a patient is suffering from pneumonia he may require five or six injections daily for as long as three weeks at a cost of about $5 per day. The 20 per cent tariff on penicillin is an added burden on people who are sick and who can ill afford to pay the cost of this drug.
I should like to know the amount of penicillin manufactured in Canada and why this 20 per cent tariff is placed on such a necessary drug. I should like the parliamentary assistant to use his influence to have this duty on penicillin removed and thus lower the cost of medical treatment, just as we are doing under resolution No. 3 to amend the Excise Tax Act.


Mr. Bryce:: I do not rise to defend bagpipes, as some people might expect I would. Even though there might be a 100 per cent duty against bagpipes coming in, they will still flourish. I support what the hon. member for Kootenay West has said. I think it is a shame that people should have to pay a duty on penicillin. I am not talking about this from a medical point of view; I am talking as one who has had to pay for it. I had to pay for it for twenty-seven weeks and when you have poor people like myself in that position it is quite a drag on them. From what doctors tell me this appears to be one of the finest things ever discovered. I join with the hon. member who has just spoken in urging that this 20 per cent duty be taken off this drugi I do not see how you can justify that. It is something for suffering humanity and you should let it in if it is at all possible.
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James Sinclair: Perhaps I should say a word. Penicillin comes under section 2 of the resolution. After seeing on the order paper the question of the hon. member for Kootenay West I made it my duty to get a very full answer for him which I will give at the proper time. Just to clear the air, so far as bagpipes are concerned, if they are brought in from the United Kingdom-and I would hope they would be brought from there- they come under the item brass band instruments of a class or kind not made in Canada; bagpipes and complete parts thereof, British preferential tariff, free. The most-favourednation tariff-I do not know what other nation would care to make them-is 25 per cent and the general tariff is 25 per cent.


Mr.   Baler@: Reverting to cars, is the devaluation of the pound the reason why British cars are coming in free at the present time?


James Sinclair: No; British cars have come in free for many years. The devaluation of the pound has been a great help to the British since their currency was devalued more than ours. That has been one reason why they have been able to come into this market, but the freedom from tariff was in effect long before devaluation.


Mr. Knight:: It may be a far cry from penicillin to fire equipment but I think the discussion arises because of the attitude of the government in keeping out of the country, by means of a prohibitory tariff, things which are necessary for the preservation of human life. I have been interested in this question for a year or two. Can the parliamentary assistant give us figures first as to the amount of the prohibitory tariff, and second the amount of such fire prevention equipment that is imported into this country? We constantly read of disasters affecting human life being caused in part at least through defective fire equipment or the absence of equipment altogether. I remember taking part in a debate once when the Minister of National Defence was concerned and he said that in his opinion the prevention of fires in Canada was an integral part of national defence.
That being so, and in view of the argument I have advanced that many municipalities have suffered disasters through loss not only of human life but also of property, I think that something should be done. If there is any way in which the government can facilitate a plentiful supply of equipment being made available in Canada to protect the lives and property of its citizens from fire, I think the government should take those steps. I do not think any government should desire to profit by putting a
2182
house of Commons
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tariff on such items. In that way I think the matter is linked with penicillin and other drugs which people need in these times. What is the good of these things being in existence if people are prohibited from using them? To my mind it is undemocratic because it simply means that people who can afford these expensive medicines are in a position to have them while those who are not must do without. In the same way the poorer municipalities have to do without the means for fighting fire.


James Sinclair: Of course fire engines do not come under resolution 2(a) now under discussion. While I have all the details connected with the amount and production of the things which are affected by these changes covered by these resolutions, I obviously cannot give my hon. friend at the moment the figures on the amount of fire equipment which is made in this country or imported. I can tell him, however, that under tariff item 424 fire engines and other fire extinguishing machines and chassis for same, complete parts other than chassis parts, are imported free from Great Britain. There was a 30 per cent tariff on them for most favoured nations which has been reduced by the Geneva agreement to 25 per cent, and there is a 35 per cent tariff for other nations. I would point out that perhaps this is an indication of the policy which his colleague, the hon. member for Moose Jaw, wants. He wants the British to have the edge on other countries, and we give them that edge by admitting fire equipment free from Great Britain and with a 25 per cent duty from the United States.


Wilbert Ross Thatcher: Is the parliamentary assistant in a position to tell the house tonight whether the Canadian delegation which will be going to Torquay will use the commonwealth preference tariff schedule as a bargaining point, or anything else? Is there any intention of scrapping that, or am I premature in asking that question?


James Sinclair: Obviously a parliamentary assistant is not in a position to answer questions like that. I suggest that the hon. member direct his question to the Minister of Trade and Commerce.


Mr. Mclvor:: On a point of order, I think the parliamentary assistant has enough to do to look after one department without having to answer questions on two or three.


Wilbert Ross Thatcher: This is his department. I would suggest that he should not be piloting these resolutions unless he has the information.


Mr. Smith (Moose Mountain):: On behalf of the farmers, as possibly you might gather,
IMr. Knight.]
may I say that I am learning things in the house every day, and I think possibly I can learn more. Being a farmer I always thought that, so far as tariffs and dumping duties were concerned, all the farmer needed to do was to pay them. I should like to ask the parliamentary assistant how the farmer benefits from dumping duties and tariffs.


James Sinclair: If the hon. member will wait until we get to 1(b) I will give a very practical illustration because the change in 1(b) in connection with the importation of vegetables is pertinent to the question he has just asked.


Percy Ellis Wright: I should like to ask the parliamentary assistant if, when purchasing supplies, provincial governments are exempt from paying duties on their purchases.


James Sinclair: No, neither the provincial governments nor the federal are exempt. It is only on sales and excise taxes within the country that exemptions are extended.


Percy Ellis Wright: There is no rebate of the customs duty?


James Sinclair: No.
Paragraph (a) of resolution 1 agreed to.
(b)	By repealing section fourteen and substituting the following:
"14. (1) The ad valorem rate of duty set forth in tariff item 84, 85, 87, 92, 94 or 95 in schedule A applies to goods specified in the item imported at any time except during a period in which an order of the minister under subsection two has applied the rate of specific duty set forth in the item in lieu of the ad valorem rate of duty in which case the rate of specific duty set forth in the item applies to goods imported during that period.
(2)	The minister may order that the rate of specific duty set out in a tariff item mentioned in sublection one shall apply to goods specified in the item mentioned in lieu of the rate of ad valorem duty set forth therein for such period during each fiscal year as may be fixed by the minister not exceeding the number of weeks mentioned in the item: provided, that in the case of sub-items (b), (d), (e), (f), (g), or (i) of tariff item 87, the minister may order that the rate of specific duty shall apply during two separate periods in a fiscal year but the number of weeks in the two periods shall not exceed the number specified in that subitem.
(3)	The minister may exclude from an order made under subsection two, either at the time of making the order or at any time thereafter, goods to which the order would otherwise apply imported through ports in a specified region or part of Canada during the whole or any part of the period mentioned in the order in which case the ad valorem rate of duty applies to the goods so imported."
Paragraph (b) of resolution 1 agreed to.
(c)	By repealing subsection three of section sixteen and substituting the following:
"16. (3) All such goods imported into Canada after the date of the coming into force of any such order of the governor in council which do not comply with the requirements of such order shall

not be released from customs possession until they have been so marked, stamped, branded or labelled under customs supervision at the expense of the importer."
Paragraph (c) of resolution 1 agreed to.
2.	Resolved, that schedule A to the customs tariff be amended by striking thereout tariff items 16, 17, 28b, 77 99e, 101b, 206a, 208v, 209d, 446h, 480a, 520c, 558b (a) and (b), 558d (a) and (b), 605a, 607, 696a, 705, 705a, 709 (a) and (b), 779 and 779a, the several enumerations of goods respectively and the several rates of duties of customs, if any, set opposite each cf the said items, and by inserting the following items, enumerations and rates of duty in said schedule A:


James Sinclair: Since penicillin has been mentioned by the hon, member for Kootenay West, perhaps I should give a fairly full explanation of the situation because it is one which is naturally of very great concern to the people of Canada. Our present tariff item 206a(l) provides for duty free entry from all countries of serums, antitoxins, viruses, toxins, toxoids, vaccines and allergenic products, n.o.p., for parenteral administration in the diagnosis or treatment of diseases of man. There is a second section applying the same thing to animals.
Last June a United States company entered two importations of penicillin S-R, duty free, under tariff item 206a at the port of Windsor, Ontario. On July 15, 1949, the importer was advised by the Department of National Revenue that antibiotics including penicillin were not considered to be biological products, and were dutiable under tariff item 711, the item covering unenumerated goods, at the most-favoured-nation rate of 20 per cent. The importer appealed this ruling to the tariff board and the appeal was heard by the board on October 4, 1949. It is to be noted that tariff item 206a covered biological products. These products, however, were limited to those for parenteral administration-I looked up that word, and it means an injection under the skin-and to those manufactured under licence of the Department of Pensions and National Health, now the Department of National Health and Welfare.
The tariff board rendered its decision, which was actually in favour of penicillin being admitted duty free, with one dissenting opinion. The deputy minister of national revenue has now announced that he intends to apply to the Exchequer Court of Canada for leave to appeal from the decision of the tariff board on questions of law.
It was quite apparent, therefore, that the wording of tariff item 206a was too ambiguous to be continued in its present form, and it is now proposed to revise the wording to specify by name the products this item was originally intended to cover. As the minister stated in his budget speech, he is going to
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refer the whole question of antibiotics to the tariff board for investigation and report under part I of the Tariff Board Act. It is felt that the present wording will meet this situation until the report of the board is tabled in parliament. Penicillin will therefore continue, as in the past, to be dutiable under tariff item 711 at the rate of 15 per cent under the British preferential tariff and 20 per cent under the most-favoured-nation tariff.
Now I want to go on to the next part. When penicillin was first developed, during the middle years of the war, the manufacture was started by the Americans to begin with, and we found we could not obtain penicillin from the United States sources. So as a matter of national security we encouraged the construction of laboratories in this country to undertake the manufacture of penicillin. These companies started operations in Canada in 1943; and when we speak of prices it is very interesting to see what happened to the price of penicillin and other antibiotics produced by these companies since that time. In 1943 they offered penicillin to the government at a price of $20 per 100,000 units. By 1944 the price had fallen to $7 per 100,000 units. Today the price to hospitals has been lowered to 19 cents per 100,000 units in 100,000-pnit vials, or 12 cents per 100,000 units in the million-unit vials. I think it is very definitely in the national interest that the manufacture of penicillin and other antibiotics, such as streptomycin, be continued in this country, and so some protection is deserved.
I have the figures here as to production. I will not name the companies, but of the three producing these antibiotics the value of the penicillin produced last year in one case was $768,000, in another $2 million and in the third $160,000. Two of the three companies produced other antibiotics, the value of production of one amounting to $2,323,000 and of the other to $64,000 making a total production worth $5,310,000 in this country, adequate to supply our own needs and actually leaving enough for export to the amount of $1,829,000.
In the past penicillin was classed under tariff item 708, not as one of these biological' products. This American company made a test case of it. All we are doing now, pending full investigation by the tariff board, is to continue in law what has been the practice. That is being done for two reasons, first because it has been the practice and second to protect this very important industry which-has grown up in Canada, which was developed at a time when we could not get penicillin from outside sources, and which

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is adequate to meet our present needs. More than that, I believe the fact that the price has fallen from a high of $20 per 100,000 units in 1943 to a low of 12 cents to hospitals in 1950 is an indication that we have secured good results under this policy.


Agar Rodney Adamson: Can the minister say why penicillin is still under prescription, why it cannot be bought without a prescription? I have been asked this question many times. It comes in certain strengths, but apparently a prescription is still necessary.


James Sinclair: I cannot give the answer as far as the medical end is concerned. One of the difficulties with penicillin, of course, is the fact that it deteriorates very quickly. One of the reasons this United States company was so anxious to dump penicillin in this country was this price war in the United States, and also a desire to get rid of a surplus of deteriorated penicillin. However, I think the Minister of National Health and Welfare would be a better person to ask why penicillin is still sold only by prescription.


Agar Rodney Adamson: Can the minister say what was the price of penicillin to hospitals in the beginning?


James Sinclair: All the penicillin the hospitals got in 1943 came through the government, and the government bought it at $20. At that time penicillin was used only in military hospitals, because of short supply.


Donald Methuen Fleming: May I ask the parliamentary assistant if he is in a position to give us a brief analysis of the changes made in the tariff schedules? Those changes seem to be very few, and I wondered if there was a brief analysis available.


James Sinclair: The only actual change in the entire schedule is the change in tinplate. That is the only instance in which there is a tariff increase.


Stanley Howard Knowles: Then may I ask whether there are items in these schedules now before us in which there is no change .at all, or is there in some instances a change in the designations?


James Sinclair: There are many changes in numbers. I just gave an example. Item 206a included these biological products for injection into human beings, and a second section of the same item covered products for injection into animals. That now has been separated into two sections. Another example is potassium chlorate. There was a change in the tariff schedule in 1933, and the item read "all potassium chlorate imported into the country after July 1, 1933." That deadline is still carried in the tariff schedule,

though obviously it is of no significance seventeen years later; and that has been removed. The greater part of this job is cleaning up things like that, the exceptions being the gums and tinplate in the next section.


Stanley Howard Knowles: In other words there has been some change in every item in the schedule, even if it is only the number of the items?


James Sinclair: That is quite right.


Wilbert Ross Thatcher: Regarding the tinplate item-[DOT]


James Sinclair: That is the next section.


Mr. Murray (Oxford):: If I may enlighten the hon. member for York West, as one who has retailed penicillin for a goodly number of years, I may tell him that penicillin is available to the public in a strength up to 3,000 units for oral use; but its parenteral use is still under the direction of a doctor. As the hon. member will see, if it were available to the layman it could be used indiscriminately. I am sure that is the reason it is offered only to medical men for parenteral administration.


Agar Rodney Adamson: Thank you very much. I am sure the committee will be glad to have that information. Since penicillin is unlike the sulfa drugs, since it is not toxic or habitforming in any way, I wondered why a prescription was required, since apparently there is no possibility of an overdose.


[Stage Direction]
Resolution agreed to.
3.	Resolved, that Schedule A to the Customs Tariff be amended by striking thereout tariff items 5(a) (b) and (c), 7(a) (b) and (c), 8, 8a, 13, 22, 23, 26, 27, 28, 28a, 29, 29a, 30, 31, 39a, 39b, 41, 45 , 47, 62, 62a, 66a, 74, 75, 76, 76a, 76b, 76c, 76d, 79b, 79c, 79d, 81(a) (b) and (c), 82(a) (b) (i) and (ii) (c) (i) and	(ii)	(d)	and	(e),	83(a) (b) and (c), 84, 85, 87(a)	(b)	(c)	(d)	(e)	(f) (g) (h) (i) (j) (k) (1)(m)	(n)	(o)	and	(p),	89(a) (b) (c) and (d), 92(a)(b)	(c) (d) (e) (f) (g) (h) and (i), 93, 94, 95, 99c, 100, 100a, 105, 105b, 105c, 105d, 105e, 106(a) (b) and(c)	, 106d, 108, 109, 109a, 109b, 110, 111, 114, 120(a) (b) (c) and (d), 123, 123a, 141, 152, 152a, 152b, 152c, 154, 156, 160(a) and (b), 161, 162, 163, 163a, 167, 178(i)	and (ii), 178a, 178b, 179, 184a, 184b, (i) and (ii), 184c, 184d, 199b, 207, 207a, 207b, 208i (i) and (ii), 208j, 208t, 232, 232a, 247a, 254, 254a, 262, 264, 264a, 266, 273, 273a, 276, 276a, 276b, 277, 277a, 278, 278a, 278b, 278c, 278d, 284, 305 , 306, 307, 326 (i) and (ii), 353, 353a, 366, 366a, 366b, 368, 383(b), 384(a) and (b), 402b, 414, 414a, 414c, 429(g), 430b (I) and (II), 434, 440m (i) and (ii), 440g, 446g, 450, 451b (i) and(ii)	, 518, 519, 520, 522c, 523, 523b, 5231, 523n, 524a, 532, 549, 549a, 549b, 553, 554e, 568b, 569 (i), 569(ii), 569 (iii), 569 (iv), 569 (v), 569a, (i), 569a (ii), 571, 571a, (i) and (ii), 597, 597a, 598, 598a, 604, 605, 607 Pt, 2, 607a, 611a, 616(i) (ii) and (iii), 619a, 624a (i) (ii) and (iii), 654, 655, 656 and 710 (b) and (bb), the several enumerations of goods respectively and the several rates of duties of customs, if any, set opposite each of the said items, and by inserting the following items, enumerations and rates of duty in said schedule A:
James Sinclair: This is the resolution to which I should like to direct attention because of

the comments that have been made and editorials which have appeared in several new-papers in Canada, about tinplate. In this list covered by resolution 3, there are I think a total of 435 items. Almost all of them are changes in numbering or the removal of obsolete language or changes in designation to fit designations agreed upon at the Geneva trade conference. There are however two of them to which I should like to refer. The first is the duty on gum compound. This is item 254, which provides for duty-free entry under the British preferential and most-favourednation tariffs of various gums. Under the mostfavoured-nation tariff there is a 10 per cent duty applied if those duty-free gums are mixed before entry. That is one small change brought about by Geneva, that they now enter duty free. It is a small group, and not of much consequence.
The other group, tinplate, is a much more interesting example. Hon. members will recall that the object of negotiations during the 1947 discussions at Geneva was to reduce the general level of tariffs and eliminate tariff preferences on a mutually advantageous basis. Towards the end of these negotiations the United States requested the United Kingdom to give up the tariff preference it enjoyed in Canada on tinplate. The proposal did not originate with Canada. The United States requested it and it was the United Kingdom who agreed to this, and you will see the reason why not much objection was made. The United Kingdom agreed, and received in return tariff concessions from the United States in compensation for giving up this preference.
In order to facilitate the successful conclusion of United States, United Kingdom and Canadian trade negotiations, Canada agreed to the proposal that the British preferential tariff on tinplate be increased to 15 per cent, the same as the most-favoured-nation rate, thereby actually eliminating the preference. It was understood on all sides that when this change was made it would be of very little practical importance in trade between Canada and the United Kingdom. In the first place, the United Kingdom did not expect to be in a position, for many years in the post-war period, to export significant quantities of tinplate to Canada. In the second place, Canadian production had expanded to a point where we were supplying a very large part of our own requirements. Our present production of tinplate is in the neighbouhood of $35 million annually.
I shall give you the figures on imports. In 1947 our import of tinplate from all countries was valued at over $8 million, of which only
Customs Tariff
$107,000 worth came from the United Kingdom, and the remainder from the United States. Even since that time our production has steadily increased. During 1949, imports from all countries have dropped from $8 million in 1947 down to $3,800,000, all of which came from the United States except $68,000 from the United Kingdom. We produced this year between $35 million and $36 million of tinplate ourselves. Last year's import from the United Kingdom was only $68,000. You can see, therefore, that when the Americans requested the British to make this concession, the British realized it was a trivial concession. Every indication is that we shall have a still greater Canadian production, and that our small imports are going to dwindle still more.
If there is any interest in the figures, I can put on the record the monthly importation during 1949 of tinplate from Britain and the United States. Actually, it just shows the story I have given, a steady dwindling of imports from both countries down, as I said, to the $68,000 last year from the United Kingdom, when our own production amounted to $35 million.


Agar Rodney Adamson: Can the parliamentary
assistant say when we began to manufacture tinplate in Canada?


James Sinclair: We manufactured it in a small way before the war, but it was during the war that the manufacture of tinplate began on a large scale. Since the war, when tin from Malaya became available, the Canadian steel companies went ahead with the manufacture of tinplate, using the latest electrolytic method.


Wilbert Ross Thatcher: The parliamentary assistant has been plausible, but I still do not think he has given a logical reason for this increase. I think he said the amount involved was inconsequential, so it does not matter. If the amount involved is only $68,000, why put the tariff on at all? The parliamentary assistant pointed out that the United States asked Great Britain to agree to this, and the British did so. The British have had the gun put to them quite a few times in the last few years. With ECA aid and things of that nature, how can they refuse some of these United States requests? I think half the people of Canada should realize that, despite the verbiage which the parliamentary assistant used to dress this up, it is a straight increase and a protectionist measure to protect the tinplate industry in Canada.


James Sinclair: It is very obvious, to anyone who gives the matter a little thought, that the British were horse-trading and did a good job of it. They secured these important

Customs Tariff
concessions in return tor the preference on tin which did not amount to anything. It is inconsequential so far as this country is concerned.
When one talks about ECA dollars, hon. members should realize that the leaders of the United States delegation have to satisfy the members of congress about the United States concessions, and here they could say that in return they secured the abolition of the British preference on tinplate. Our country did not ask for it. It was a matter arranged between the United Kingdom and the United States, and we gladly agreed because, as I say, it is inconsequential to this country owing to our greatly increased production of tinplate.


Robert Ross (Roy) Knight: I should like to ask the parliamentary assistant if he knows anything about these wire and tape recording machines used for playbacks in checking speech in educational institutions? I want to know if a duty is charged against those things, and if so, why they are not on this free list No. 696. Needless to say I am not an expert on picking out the various items. What are the conditions that apply to these machines used for educational purposes? The minister was asked about this, and he said a considerable number of these machines were manufactured in Canada. I have made some inquiries, and I And there is only one machine manufactured in Canada. He said they were available from various sources, and I should like to know what those sources are. My information is that there is only one machine produced in Canada and that it is sold under different names. I am further informed that the price of a machine in the United States is about $125, Canadian funds, and that the price in Halifax is $270, a difference due to these various prohibitions. I should like to know whether the importer of such an item has to have an official permit before he can import it.


James Sinclair: These dictating machines today come under item 414a. There has been no change in that item, but there is a 10 per cent duty on machines of British origin, and 20 per cent most-favoured-nation, with 25 per cent other nations. The United States, of course, is a most favoured nation. Pardon me, I am informed that the most-favourednation is 20 per cent, but the United States has another rate of 12 per cent. I believe last year the minister did say that these machines were made here. I understand that at least two firms make those machines in Canada.


Robert Ross (Roy) Knight: Is this information correct that two firms are making them, or is only one firm making them and selling them under

different names? The minister mentioned several sources in Canada. What are they? What is the reason for the imposition of this tariff?


James Sinclair: I have been trying to give all the information I can on the actual items that we have under review. It is information about these that I have here tonight. On an item such as the hon. member mentions I suggest that a question should be put on the order paper, and in that way he could obtain more information, because we could give the answer tomorrow or later.


Robert Ross (Roy) Knight: May I ask the parliamentary assistant what in his opinion is the justification for having tariff charged on these things? Surely, if they are for educational purposes, for the use of schools and colleges, they should be treated in the same way as other things in 696.


Stanley Howard Knowles: Perhaps as the hon. member for Coast-Capilano you could give us your opinion.


James Sinclair: I have given my opinion quite often. The main reason we put on taxes is to raise revenue for the desirable services which hon. members ask for. For example, the hon. member for Saskatoon is asking for federal aid to education. Well, if we are going to give federal aid to education we shall have to find money somewhere, and it can only be found through taxation.
So far as the use of these dictaphones is concerned, the great bulk of their use is undoubtedly in business offices, and we tax most of the equipment used in business offices as a source of revenue, and this class of thing comes in that category.


Robert Ross (Roy) Knight: I do not see what my views on education have to do with this kind of thing. So far as I am concerned, I confess a desire for federal aid to education, and I have no thought of changing my views. Does the reply of the parliamentary assistant mean that we are going to get federal aid to education? We already have a tariff placed against these machines, and I should like to know the justification for it. Must a Canadian school or university have an import licence before they can import these things at all?


James Sinclair: The answer to the second question is yes. The answer to the first question is that probably the hon. member did not understand my reply. That probably is the reason why hon. members, like the hon. member for Saskatoon, are continually making these demands for bigger expenditures, and have no realization at all that somehow, somewhere, the Minister of Finance has to find the money to finance these expenditures.

I used the example of education only because the hon. member has put forward on various occasions his thought that there should be financial aid from the federal government for education. That being the case, I would think that he should realize that somewhere, somehow, the federal government is going to have to find that revenue to maintain all these desirable projects.
I am informed that in Saskatchewan, for example, they very recently increased their sales tax from 2 per cent to 3 per cent for this very reason, not that they wanted to impose an extra tax on goods which may still be necessities, or used in schools or businesses, or in industry, but because they had to get extra revenue. Therefore again I say to him, as far as this matter of dictaphones is concerned, which is not an item covered by this resolution at all, that if he wants to secure more information on it he has only to ask the appropriate minister, the Minister of National Revenue. We have come here prepared to discuss every item on the schedule, but not to discuss policy or items which are not covered in these amendments.


Robert Ross (Roy) Knight: Mr. Chairman, the avowed policy of this government, so far as I know, is not to charge tariff against these educational machines. I think my question was reasonable enough. Why is this item I have in mind not included among these other items for which the government itself has given us a precedent in the matter of allowing them in free? I am not asking for federal aid to education in this instance. I am asking the government to do away with something that is a drag upon education. Why should that one particular item regarding tape machines, or whatever the technical name is, not be on this list when there are on the free list many other things having to do with education? Personally I think it is a matter that has not been considered. I think it is carelessness on the part of the department concerned. I see no other reason. I believe it has not come to the attention of the government, or they have not given it consideration. If they had they would realize and see that it is simply one machine that should be free because of its similarity to the items that are free. I am not asking for anything; I am simply asking that the government follow its own precedent, the precedent of not charging tariff on educational machines. I do not see why we should have to pay $270 for a thing which, in the United States, is worth $125 in Canadian funds. I do not think that these remarks about the C.C.F. government in Saskatchewan and what it is doing there are applicable or relevant to the matter under discussion. It is simply the same old story
Customs Tariff
of playing politics with a matter which in my opinion should be considered seriously. I am interested in the children of this country, and it has nothing whatsoever to do with politics, or with the C.C.F. government in Saskatchewan.


Stanley Howard Knowles: I think the parliamentary assistant should give a little thought to the nature of the answer he has given to the hon. member for Saskatoon. The hon. member for Saskatoon asked why educational institutions have to pay this particular tax. His answer was that the government has to collect that tax from educational institutions so as to provide funds for federal aid for education, which it is not providing.


James Sinclair: The hon. member is very good at playing on words. I do not think anybody in the committee except himself took that meaning out of my words.


Stanley Howard Knowles: That is what the hon. member said.


James Sinclair: If the hon. member is no more accurate than that in phrasing things he has just heard, I can understand why he is so loose in paraphrasing things that happened weeks or months ago.


Stanley Howard Knowles: You said it; now you
straighten it out.


James Sinclair: Getting back to this question, it is quite true that the sales tax and excise tax are remitted on a great number of things used by educational institutions. To my knowledge there has never been a request from any educational institution of standing in the country for exemption for these dictaphones for recording and mechanical use by educational systems in Canada. If that request comes forward and is supported by a good case no doubt the minister will give careful consideration to it.


Mr. Fraser:: Just before we close this discussion, the assistant to the minister made the statement that these duties were imposed in order to raise revenue.


James Sinclair: That is part of it.


Gordon Knapman Fraser: I do not think that is all the reason. I think the reason is to protect our workmen against other goods coming in here and stopping them from manufacturing them.


James Sinclair: It is a combination of these two.


Gordon Knapman Fraser: Yes; it is to protect our men and secure their jobs for them.


Donald Methuen Fleming: Would the parliamentary assistant indicate to the committee briefly how much of the Geneva agreement has now been carried into effect, first by order in

Customs Tariff
council and second by statute, and what portion of the agreement may yet not be in effect in Canada?


James Sinclair: I am informed that of the almost 1,000 items on the Geneva schedule we have now implemented, through this and other changes, some 435, and we have carried out, more than perhaps any other country, most of the undertakings which we gave at Geneva; and that will be one of the points which we will raise at Torquay, the fact that we have taken the lead. That is why we are anxious to get this through. We have taken the lead in trying to implement in our tariff schedules the concessions agreed to at Geneva. The fact is that out of almost 1,000 items we have implemented 435.


Donald Methuen Fleming: That is to say, there are roughly 565 that have not been carried into effect. Is that correct?


James Sinclair: Yes, on which further negotiations will take place at Torquay.


Donald Methuen Fleming: As to the 435, assuming the enactment of a bill to give effect to the resolutions now before the house, how many of the 435 will then rest on a statutory basis, how many on an order in council basis?


James Sinclair: The entire 435 will then rest on a statutory basis, and as the other undertakings are agreed to at Torquay they too will be put on a statutory basis.


Percy Ellis Wright: On a former item the parliamentary assistant said, in reply to a question by the hon. member for Moose Mountain, that he would explain on this item how the tariff and dumping duties benefited western farmers. I should like to hear his explanation.


James Sinclair: It was not on this item. However, I might be permitted to revert to resolution 2. The hon. member for Moose Mountain asked if there was any instance where these dumping duties helped Canadian farmers.
An hon Member: Western farmers.


James Sinclair: Yes, western farmers. This matter connected with fruits and vegetables certainly is one which concerns the western farmers whom I know in my province. At Geneva the question of the protection of a country's fruit and vegetable farming industry during periods when it is in production was thoroughly discussed. Section 14 of the present Customs Tariff is being repealed and the new section 14 is being substituted therefor.
The new section authorizes the minister of National Revenue to fix the period when imported fresh fruits and vegetables are to be subject to the specific rates of duty pro-

vided for in the various tariff items covering fresh fruits and vegetables. The minister is also authorized to do something he could not do before, namely to apply it regionally. This is important in Canada where the various crops come in at different periods of the year. During those periods which are designated in the Geneva agreement by time, the length of the period in which these extra duties can be applied, the minister can regionally or nationally, by means of this extra specific duty, protect the Canadian farmer growing these fruits and vegetables.
Up until we concluded this Geneva agreement we had an agreement with the United States which, of course, this agreement now supersedes. That agreement called for three split periods for cabbage, carrots and beets. We were asked for the split period because of the nature of our problem. First in the season is when our own hothouses are producing these fruits and vegetables for the Canadian market, during which time they have to have a measure of protection against surplus coming in from the United States. Then there is the period later in the year, when there is field production, when we have to have similar protection.
That has now been extended. We now have a split period for beans, cabbage, carrots, beets, cauliflower, celery and lettuce.


Robert Ross (Roy) Knight: Returning to the matter I mentioned a moment ago, I should like to draw the attention of the parliamentary assistant to something he said. His statement was that, so far as he was aware, no application had been made by any educational institution. I am prepared to accept his word in regard to his lack of awareness, but not as to the other matter-because an application was made.
I shall place on record, to just such an application by a professor at Dalhousie university, the reply from some assistant, apparently, of the Minister of National Revenue. This reply is dated at Ottawa, March 20, 1950, and states:
I wish to inform you that the "Revere" magnetic tape recorder, per descriptive illustration submitted, manufactured by Revere Camera Company, Chicago, Illinois, a general purpose recorder for use in the recording of sound on a magnetized tape, incorporating provision for play-back thereof, is considered to be an article of a class or kind made in Canada, and, therefore, not admissible under tariff item 696 under any circumstance, but rated for duty under tariff item 445k, at 22J per cent ad valorem, most-favoured-nation tariff, subject, in addition, to the consumption, or sales tax of 8 per cent levied on the duty-paid value . . . The above magnetic tape recorder is restricted importation under the provisions of the Emergency Exchange Conservation Act and may only be imported under permit from the emergency import control division, Department of Finance, 490 Sussex street, Ottawa.

And then Mr. Abbott wrote, in reply, I believe, to the hon. member for Rosetown-Biggar on some date in 1950-1 have not the exact date:
With regard to the duties and taxes, I am informed by the Department of National Revenue that these wire and tape recorders would not be classified under tariff Item 696, which allows educational equipment to be imported into Canada duty free-
And I would ask the parliamentary assistant to listen to the reason given.
-because these machines are manufactured in Canada and are available from several sources.
The point I made, and which the parliamentary assistant has not cleared up, is that it is suggested that these machines do not come from several sources in Canada, but rather that one machine is made and sold under various names, giving colour to the suggestion that they come from various sources. I am not sure whether that is correct or not, but I presume it is the business of someone in the department to find out. I would ask for that information. If it is true then in all reason, leaving out all those wisecracks about politics, the C.C.F., and everything else, in the interests of educational organizations in this country I see no reason why that one particular item should be picked to be omitted from the list of items to be allowed in free under the heading of items used for educational purposes.


Mr. Blackmore:: Mr. Chairman, before we pass this item, there is one comment I should like to make. Men can keep on repeating fallacies until they begin to believe they are true. One of the fallacies constantly repeated by ministers in the House of Commons is that all payments must come from taxation.
Just to give the parliamentary assistant something to think about, may I read from the proceedings of the committee on banking and commerce in 1939, the official publication thereof. At page 54 I find this:


Mr. McGeer:: That is the theory that governmental expenditure must be made through the medium of taxation.


Mr.   Towers@: Governmental expenditure may be
made either through the medium of taxation or through borrowing, or through the issue of currency . . .
I hope we do not hear any more of this parrot repetition of the fallacy that everything must be paid for out of taxation.


[Stage Direction]
Resolution agreed to.
Resolutions 4, 5 and 6 agreed to.
Resolutions reported, read the second time and concurred in.
Research Council Act INCOME TAX ACT
Alphonse Fournier: for leave to introduce Bill No. 177, to amend the Income Tax Act.
Motion agreed to and bill read the first
time.


EXCISE TAX ACT
Alphonse Fournier: for leave to introduce Bill No. 178, to amend the Excise Tax Act.
Motion agreed to and bill read the first time.


James Sinclair: The bill to amend the Customs Tariff will not be received from the printer until Monday, so I am not asking for first reading tonight. The other two bills are in the hands of the printer tonight and should be available tomorrow. The minister has asked me to give his assurance that the income tax bill will be before the house for at least a week so that hon. members will have a chance to digest it thoroughly.


RESEARCH COUNCIL ACT
Alphonse Fournier: that the house go into committee to consider the following resolution:
That it is expedient to introduce a measure to amend the Research Council Act to provide for the appointment of an additional vice-president of the national research council, and to bring the act into conformity with the Patent Act as to the definition of "invention."


Howard Charles Green: Is the parliamentary assistant making a statement?


Mr. G. J. Mcllraiih (Parliamentary Assistant to the Minister of Trade and Commerce):: Mr. Speaker, the legislation of which this resolution forms the basis is not extensive in scope. Hon. members will recall that the Research Council Act was passed in 1924 and amended in 1946. By the 1946 amendment provision was made for the appointment of two vicepresidents, one vice-president, scientific, and one vice-president, administration. In 1947 when the operation of the atomic energy project at Chalk River was placed under the jurisdiction of the research council the man in charge of that project was given the position of vice-president, scientific.
The result is that as far as the research council itself is concerned the one position of vice-president, administration, is filled but there is no position to which a person could be appointed to have similar jurisdiction over
2190	HOUSE OF
Research Council Act
the scientific end of the operation. It is desired that there should be a vice-president having charge of the scientific work of the research council other than that of the atomic energy project, and the legislation proposes to create this additional position of vicepresident, scientific.
The second part of the resolution simply deals with the definition of the term "invention." It will be recalled that the Research Council Act was enacted in 1924, whereas our patent legislation is more recent. The definition of "invention" in the Patent Act is wider and gives more complete protection than the definition in the Research Council Act. It is proposed by this legislation to bring the two definitions into line so that the research council definition will follow that of the Patent Act.
This is particularly important when one remembers that under the legislation patents of invention by technical officials of the research council vest in the council. With the current developments in chemistry and atomic energy it is particularly important that the definition be wide enough to include compositions of matter as well as apparatus and other mechanical inventions. The present definition is somewhat weak in this respect.
There is one other slight change being made by the proposed legislation which has to do with the term "national research council." The present legislation does not provide for the use of that term although it has been in general use since 1925 when it was authorized by an order in council. It is proposed to give its use legislative authority. I do not think there is any more I can usefully say on the resolution stage.


Howard Charles Green: Mr. Speaker, this seems to be a reasonable proposal the government is making to the house. I suggest to the parliamentary assistant that it would be helpful if after receiving second reading the bill is referred to the special committee set up to consider the working of the national research council. During the sittings of the committee last year which dealt with the atomic energy control board we had some evidence given to us concerning the need for another vicepresident. There was some discussion which I think would be of assistance in considering this particular measure.
I suggest also that, when the house goes into committee on this present resolution, the parliamentary assistant give us further details of the functions of this new vicepresident. I take it that at the present time Dr. Norman Keys of Chalk River is the


vice-president, scientific; apparently the intention is to name him vice-president in charge of that project and to have some other scientist appointed vice-president, scientific. We ask that the parliamentary assistant clarify that situation. I hope nothing will be done to reduce the prestige of Dr. Keys. I think he has done a splendid job at Chalk River and I am sure all the members of the atomic energy committee of last year would be against any move which would injure his standing.
We would like to know also if this new vice-president is to be a member of the executive committee of the research council. There is provision now for an executive committee consisting of the president; vicepresident, administration; vice-president, scientific; and at least three other members selected by the council. I suppose the bill will provide that the new vice-president will also be a member of that executive committee.
When the Research Council Act was amended in 1946 power was given to the council to set up crown companies. They could do it in two ways: either by procuring the incorporation of a new company or by taking over the share capital of an existing company. I do not know how many companies have been taken under the wing of the research council since that particular amendment, and I ask the parliamentary assistant to give us the story about these crown companies when the resolution goes into committee.
Finally, with regard to the definition of "invention". The research council are given very wide powers with respect to inventions by scientists and others in their employ and also very wide powers to sell those inventions. The parliamentary assistant has mentioned that there is to be a definition of the word "invention" to coincide with the definition of invention in the Patent Act, but in the Research Council Act reference is also made to discoveries and to improvements in processes, apparatus, or machines, and so on. It seems to me to cover more ground than would be covered by the one word "invention". When the house gets into committee I hope the parliamentary assistant will explain whether or not the definition of "invention" will do away with the word "discoveries" and the other words contained in the present Research Council Act.
Subject to receiving an explanation along the lines I have suggested when we are in committee of the whole house, the official opposition have no objection to this particular measure. I emphasize once more the desirability of having the bill, after it receives

second reading, referred to the special committee set up to consider the work of the research council.
Motion agreed to and the house went into *committee, Mr. Beaudoin in the chair.


George James McIlraith: Mr. Chairman, dealing with the points raised by the hon. member I think I ought to say at the outset that, on the question of referring the bill to the committee now examining the operations of the national research council, I see no objection at all to that procedure if it appears to meet with the wishes of hon. members of the house. As to his remarks about the head of the atomic energy project at Chalk River, I think the hon. member can feel perfectly secure in the knowledge that nothing is being done that will in any way detract from the position held by that gentleman. I think we all rather share in common a high opinion of him and of the work he is doing there. The situation is simply that so far as the research council is concerned, exclusive of the atomic energy project, there has been no vice-president in charge of scientific matters. That was what was contemplated in the 1946 legislation, and by reason of the necessity of using that position for the man in charge of the atomic energy project there has been no position to which a man could be appointed.
One result is that a great deal of the time of the president of the council is taken up with general scientific meetings, and there is not sufficient time for him to give the close attention that is required to the supervising of certain of the scientific projects and the correlating of one scientific project to another. Therefore I think it becomes apparent that the position is necessary.


Howard Charles Green: Who is to be the vice-president?


George James McIlraith: As a matter of fact I do not know, but I do not think I would be in a position to say so even if I did know. I do not think we can discuss the matter of personnel at this point in the legislation. I think hon. members will agree that is most improper.


Howard Charles Green: I only asked because in the organization chart in the report of the national research council for the year 1948-49 there appear three vice-presidents, a vice-president, administration, a vice-president, scientific, and a vice-president and project manager. That is for the period expiring over a year ago.


George James McIlraith: What page is that?


Howard Charles Green: That is at the end of the report of the national research council for 1948-49. Therefore it would appear that there must
Research Council Act
be somebody at the moment who, while he may not be called vice-president, scientific, is doing the work.


George James McIlraith: I am afraid it is not just as simple as that. I am not aware of there being anyone occupying that position.


Gordon Graydon: Has somebody got the name with somebody else doing the work?


George James McIlraith: I do not think so. I do not know what the explanation of that statement is but certainly there is no one occupying the position now. As to the matter of the definition of inventions, I think that is something that can better be dealt with when we see the actual section of the bill when it is before the committee. The new definition is quite wide and retains the breadth of the present one. As a matter of fact it extends the present definition.


Howard Charles Green: What about crown companies?


George James McIlraith: There is just one crown company, and that is the corporation dealing with crown patents.


Howard Charles Green: There is only one crown
company?


George James McIlraith: Yes, the one dealing with crown patents.


Gordon Graydon: Mr. Chairman, this gives me an opportunity to discuss another matter which I think is germane to the subject under discussion. I am sorry to have to do so in the absence of the Secretary of State. I raised the question during the last session and I do so again on this resolution because I fancy that if a change is to be made it should be incorporated in legislation such as we have envisaged here. I do not know for how many years members of the house have had continually to raise the question of the chaotic conditions of the patent office of Canada. I suggested at one stage that perhaps the government should consider carefully whether or not they should take the patent office and put in under the Department of Trade and Commerce.
I am not an expert on patent affairs, and there are not many in this house who are. I am looking at one member over there who perhaps has more experience than a good many. I know that he, along with many other patent attorneys with whom I have talked from time to time, cannot possibly be satisfied with the conditions existing at the present time in the patent office. I have been amazed that no concrete action seems to have been taken to bring the patent office abreast of modern conditions so far as business is concerned. In these days patents are a most important cog in our general industrial

Research Council Act
machine. If our patent office is seriously behind in its work, then of course it retards the progress of business and industry.
It has been stated from time to time in and out of the house that the patent office today, while perhaps improved in its operations over what it was during the war, still has not reached the point where it really is able to serve the industrial and business public of Canada and the general public as well, because they are all affected, in the way that I think a governmental institution should. In saying that I am not casting any reflection upon a single person connected with the patent office. My feeling is that right through the whole patent office there is a feeling of despair and discouragement because of the mountain of work that lies ahead of them which they can only chip off day by day. People may say the same situation has existed in the United Kingdom and the United States. I am not able to give the committee a very clear picture with respect to the United Kingdom patent office, but I am told that the patent office in the United States has been greatly improved as the result of a drive by the government of that country to clean up the backlog of work. I think this resolution should give this committee an opportunity to discuss the whole question of patents in this country.


Louis-René Beaudoin: I am sorry to interrupt the hon. member, but I think we should be clear on this point so that we may know in further discussions, either on this resolution or on the bill that will follow it, whether or not it is in order to discuss the patent office and any other reforms that might be thought desirable in the Patent Act. As I see it, the resolution precedes a measure to amend the Research Council Act. In the latter part, where it mentions bringing the act into conformity with the Patent Act, it seems to me that act is being mentioned only by way of explanation

and incidentally, while this resolution may provide a good opportunity for one who desires to discuss the Patent Act, I do not think it would be in order to do so. That is my view, as I am able to analyse the resolution, and I should like that point clarified now.


Gordon Graydon: With great deference, Mr. Chairman, I differ with your ruling. I had a great deal more to say about the patent office, because I thought this a good opportunity to bring the matter before the Prime Minister and the parliamentary assistant. I do suggest that they seriously consider my suggestion and make a drive, as has been done in other countries, to clean up the patent situation.


Gordon Knapman Fraser: Would the parliamentary
assistant tell us what will be the salary of the additional vice-president.


George James McIlraith: I am afraid I cannot give that information at the moment.


Gordon Knapman Fraser: Why cannot the parliamentary assistant give the information?


George James McIlraith: I don't know it. However, I shall be glad to get the information for the hon. member.


Gordon Knapman Fraser: We will have the information?


George James McIlraith: I can give it tomorrow on the orders of the day.


Mr. Richard (Ottawa East):: I would have been glad of the opportunity to say something about the Patent Act, Mr. Chairman, but since that was ruled out of order as soon as the hon. member for Peel completed what he had to say, I will wait until the estimates are before us. In partial explanation, however, I may remind the hon. member that the patent office has been an orphan for many years. First it was under agriculture, then it was under trade and commerce, and now it is under the Secretary of State, and perhaps that explains why it is a little abandoned. But there has been progress.
Now I want to ask the parliamentary assistant whether he has a definition of "invention" under the Patent Act. That would perhaps clarify the point raised by the hon. member for Vancouver-Quadra. I think the important part of the definition is the fact that it includes composition in matter, to cover chemistry and allied sciences.
Resolution reported, read the second time and concurred in.
Mr. Fournier, Hull (for Mr. Howe) thereupon moved for leave to introduce Bill No. 179, to amend the Research Council Act.
Motion agreed to and bill read the first time.


WAR VETERANS ALLOWANCE ACT
[Stage Direction]
The house resumed from Thursday, April 20, consideration in committee of the following resolution-Mr. Gregg-Mr. Beaudoin in the chair:	[DOT]
That it is expedient to present a measure to amend War Veterans Allowance Act, 1946, to provide benefits for certain former members of His Majesty's forces other than Canadian and for certain former members of the forces of His Majesty's allies or of powers associated with His Majesty, which forces participated with Canada in wars concluding on or before the 31st day of August, 1921, who have resided in Canada for not less than twenty years, and to provide further for decentralizing the administration of the act.
Mr. Brooks:: Mr. Chairman, when this
resolution was discussed about two weeks ago I was not present, but I have read the statements made at that time and I must say that I heartily agree with much of the criticism and also with much of the praise offered on that occasion. This question of extending the war veterans allowance to other than Canadians is not a new matter to come before this house. I am very pleased indeed that this benefit is being extended to these men, most of whom are imperials, who have now become citizens of our country. This is something for which the veterans committee has fought on many occasions. If you were to go through the records of that committee for the past fifteen years I think you would find there was not a session during which the granting of the war veterans allowance to imperials was not brought to the attention of that committee and the government. I think it is only a matter of justice that these men should be included.
I have sometimes wondered just what was the reason for this change of heart, why after all these years it should be recognized now that these men are entitled to consideration. I have a feeling that it may have been brought about as a result of the matter being dealt with at the time Newfoundland was brought into confederation. I know one demand made by Newfoundland at that time was that the imperials in that province be granted the war veterans allowance. It would have been an anomalous situation in the rest of Canada if the imperials in Newfoundland were granted the benefits of the war veterans allowance and those in the rest of Canada did not receive the same treatment. I wonder whether it was on that account, and perhaps the minister will tell us, that after all these years these men have received the benefits to which they are entitled.
Now that this act is being amended, Mr. Chairman, I think the government and the department could very well have made some other amendments. I believe they were forced to make the amendment regarding imperials, as I say, owing to the fact that the allowance was granted in Newfoundland. When these amendments were being made, why was it that, after all these years, and after the pressure which has been brought to bear through the different veterans committees, the Canadians who were in England during the first war were not included? They had just as much reason, and perhaps more, to be included as the imperials. It is not necessary for me to argue this point. A reading of the record of debates in this house, as well as the record of debates in the veterans
War Veterans Allowance Act committees, will reveal the reasons why Canadians in England during the first war should be included. Many of our men who went overseas with the first contingent in the first war suffered a great deal on Salisbury plains. It has been recorded that more men died of disease and exposure on Salisbury plains during the first winter than were killed by bombs in England during the first war.
There are men who never even got to England-and I am not opposing this because I was strongly in favour of dual pensions-in the first war and the second war, who are receiving war veterans allowance. It does seem to me that the men who served in England are as deserving as the men who were not allowed to go to France, for many good reasons, and they have just as much right to receive the war veterans allowance as those men who served in Canada only. It was brought out in our committee that there are men, whose only service apart from training was in France after the armistice was signed, men who served in labour battalions, men who were on the war graves commission, and men who were sent to fill up battalions before they went into Germany, who are entitled to war veterans allowances. Yet the men who served four and five years in England during the first war, and who suffered on Salisbury plains, are denied the war veterans allowance. I do think that the minister, if he had wished to do a complete job, could easily have included in these amendments the Canadians who served in England.
Arguments have been advanced for increases in the basic rates, but I am not going to take up the time of the house by repeating those. They are all recorded in Hansard. Then there was a point brought up the other evening, I think by the member for Nanaimo, in connection with the widows of imperials who died before they had put in the twenty years' residence required in this country. I have often wondered just why the twenty-year period was chosen. We have been told, that the War Veterans Allowance Act is a form of old age pension act. We know that in the Old Age Pensions Act a man had to be in Canada twenty years before he qualified for the old age pension. Just why we should say a soldier should have to be in Canada twenty years, I do not know. The War Veterans Allowance Act is not an old age pension act. When it was first granted, it may have had some resemblance to an old age pension act, but it has been changed so radically that today it cannot be considered as a half-sister or half-brother of the Old Age Pensions Act. I believe the minister should consider reducing that period of twenty years,
2194	HOUSE OF
War Veterans Allowance Act and allowing those widows whose husbands were here the shorter period of time to have the benefit of the war veterans allowance.
Under the old age pension act in the United States, if a person is a resident in some of the states five years, he receives the benefit of the old age pension. In some other states one need only be a resident for one year to receive the pension benefit. Under our citizenship act anyone who comes to Canada can become a Canadian citizen in five years, so I think the five-year residence period could easily have been adopted under the War Veterans' Allowance Act for these imperials. After all an imperial soldier would be a British subject, and the five-year period would suffice to qualify. The widow of an imperial veteran who died after five years' residence in Canada could very well have been granted the war veterans' allowance. It would not have involved a large amount of money, because I think the minister will agree with me that there is not a large number of these widows, and as time goes on no doubt there will be fewer.
So far as the second part of the bill is concerned, I quite agree with the minister that the act could be better administered if it were put on a district basis. The district war veterans allowance authorities are given practically the same authority as Ottawa has. They can award, increase, decrease, annul or suspend an allowance, according to the act. All this is subject to review in Ottawa. I hope that there will be a careful supervision by the department in Ottawa to make sure that all parts of the country are being treated alike. We know that in certain provinces these matters are not always dealt with in the same way. I warn the minister he will have to be careful to see that the administration across Canada is uniform, and that there is no discrimination so far as any part is concerned.
There is another matter which I believe the minister might have taken into consideration, and that is in connection with the veterans who are indigent and live in the United States. If they come to Canada, they are required to have three months' residence here-


Mr. Mutch:: Not now.


Alfred Johnson Brooks: That has been cancelled?


Leslie Alexander Mutch: That was cancelled in 1948.


Alfred Johnson Brooks: I was speaking more particularly about the old veterans who have to go to the United States because of health, or because they have to live with their families there. They have no families here in Canada.
I think the minister knows of some of these people. I myself have some in mind. They


have to leave this country on account of their health, or because they wish to live with their relatives in the United States, but they are not given the war veterans allowance. That is a matter which could very well have been considered when these amendments to the War Veterans' Allowance Act were being considered.
It is not my intention to labour these points any further, except to say that when the War Veterans' Allowance Act was being amended these points should have been taken into consideration. They have been brought before the war veterans committee time and time again. In the committee there was almost unanimous support for Canadians in Great Britain receiving the war veterans allowance, as there was almost unanimous support on some of these other points. As I say, these points could have been considered. I believe the imperials were included chiefly because Newfoundland demanded it when she came into confederation. It would have placed the department and the government in an anomalous position if they had not included them in every other part of Canada.


John Lambert Gibson: Mr. Chairman, I was particularly glad to hear the hon. member for Royal speak tonight, because it has often appeared to me that hon. members from British Columbia particularly were the most difficult people that the government had to deal with in this house. I do not know whether we have a higher standard of living in British Columbia, or whether it is that we are hard to get along with and expect more. However, it is pleasant to know that in these representations to the government the members from British Columbia have the support of at least some of the other provinces in the dominion.
Out in British Columbia we feel that there is some merit in the contention of the veterans' organizations out there that our war veterans allowance does not come up to the payment that we make to old age pensioners. I am quite sure that the minister himself is greatly concerned on that point, because nobody likes to have it implied that we treat our war veterans in a more niggardly way than we treat our old age pensioners. We realize that the veterans get paid at an earlier age, and there are other advantages that are not given to the old age pensioners. I might say that our old age pensioners in British Columbia get hospitalization care, which is something we in British Columbia are proud of.
The minister might consider the value of establishing a standing committee on veterans affairs, as has been suggested so many times in the house. We can realize that when he

goes to cabinet he finds that there are 15 or 20 other ministers there who think that they need money just as badly as he does. It must be quite a competition and no doubt the minister who can make the most strenuous representation as to need is the one who gets the most consideration. I was wondering whether the minister would consider the virtue of having a veterans' committee standing behind him to support him in his very able endeavours to obtain more funds for his old comrades whom, I am sure, he has taken care of in a magnificent way since he became minister.
There is one thing that I should like to say to the minister in regard to the payment of war veterans allowances to imperial veterans. This is a matter that the Canadian Legion has been pressing for a great many years. It is greatly to the minister's credit that he has finally been able to submit arguments to his colleagues and has been able to prevail upon their better judgment, and thus has been successful in obtaining that concession. It does seem to me that, so far as the widows are concerned, if the man did not live the twenty years in Canada he really must have aged more quickly because of his service in France than the others, because he was not able to stand up for twenty years afterwards. I do not think there would be too much money inyolved. I think the minister would probably agree with that. I do not think there would be any principle involved that would not be compatible with his views and with the views of the government. As there is not too much money involved I would ask him to see if he could not persuade his colleagues to meet the wishes of the Canadian Legion in this regard.
I think Canadians are particularly proud of the veterans legislation we have. It seems that every time we pass legislation some members of the opposition rise in their places and say it is too little and too late. I do not want to be placed in that position because, in my opinion, this government and the minister have done a tremendous job for the veterans. Within the confines of the money that we are able to secure from the Canadian people in the form of taxes, the Department of Veterans Affairs have done a magnificent job in administering it. So long as I have been in the house there has been nothing but first-class administration of this department. I am particularly proud to have had a small part-and probably a very small part in supporting the government since I came here in 1945-in this legislation; but I would ask the minister to give these matters
War Veterans Allowance Act all the favourable consideration he possibly can. This is a debt which the people of Canada owe and will gladly pay.


Stanley Howard Knowles: Mr Chairman, as one of those who spoke when this matter was up before on April 20 I intend to take only a few minutes, and to confine my remarks to just one subject. I want to say further that this is a subject to which the two previous speakers have referred. I am speaking about it to help reconstruct, if I can, the atmosphere of the house the last evening this matter was under discussion. I refer to the discovery that we made that evening that with the bringing in of the imperials and others their widows are not to qualify unless they are widows of veterans who themselves lived in Canada the full twenty years before they died, even though the widow may have been here even longer than twenty years.
I fully realize that on the evening of April 20 the minister set it out clearly and seemed to take a very firm position. But I think he will realize also that there was a feeling ,in the house that somehow or other the position he took was not right. Several examples were given. For example, I gave two instances of imperial veterans who came to this country both in 1925, bringing their wives with them. The first veteran died in 1944, having lived here 19 years. His widow is now in need, but she will not qualify. The other veteran managed to live until 1946. His widow will qualify. Why not treat the two widows alike? In both instances you have a widow who probably herself came from the United Kingdom and has become a Canadian citizen like the rest of us. In both cases you may have widows whose sons served in the second war. It did seem to all of us, I am sure, the other evening, that this point of discrimination was not fair.
I say, Mr. Chairman, the reason I took to my feet to say the same thing that two previous speakers have said is that I did think it desirable to reconstruct that atmosphere that was here before, in the hope that the minister has thought about the situation in the meantime. As we all know he has had the opportunity in the meantime as well of meeting representatives of the non-pensioned widows groups in this country who were here in Ottawa last week. I am sure they expressed to him their pleasure at the changes that were being made, but also their dissatisfaction on this point. I have no doubt they expressed dissatisfaction on other points as well. I would back them in the other things for which they asked, but we know that we get these things just step by step: therefore I am rising to add my support for

War Veterans Allowance Act this one step that the house did seem to want the other night. It was asked for from all sides of the house. I hope that in the meantime, even since the minister saw the widows who were here last week, he has been able to think about this matter and move perhaps in the direction of the suggestion made that evening by the hon. member for Vancouver-Quadra.


Mr. Cruickshank:: Mr. Chairman, I shall try to be brief. Speaking as a member of the Canadian Legion, let me say that we believe sincerely, as the hon member for Comox-Alberni has said, that imperial veterans' wives should be given exactly the same treatment as is accorded Canadian veterans' wives. I sincerely hope the minister and the government will consider at least bringing the war veterans allowance up to that accorded old age pensioners. We all know the cost of living has gone up.
There is no partisanship where veterans are concerned, and we all know that while the people of Canada might question some kinds of taxation, they will never question taxation which will have the effect of giving' veterans, and particularly the dependents of veterans, a fair deal.


Mr. Gillis:: I do not wish to labour this matter. However, I have listened with a good deal of attention to what other hon. members have said. There are just two thoughts I would leave with the minister, and concerning which he may have something to say later on. I believe the worst kind of discrimination lies in the fact that the widow of the veteran of the first war who saw service in England, even under the present arrangement, is not entitled to the war veterans allowance. Those widows at this time are aged and in many cases incapacitated and not able to earn for themselves. On the other hand the widow of the veteran of the second world war, who is much younger, and perhaps in a better position to look after herself, can qualify under certain circumstances. I suggest that even yet the minister should consider preparing a regulation which would wipe out that kind of discrimination.
Then, I am also concerned-and I use that word advisedly-about decentralization of administration. I have known the minister for a long time, and I have never had any difficulty in arriving at a fair arrangement under the legislation. I have found in many cases however that when one gets down to the provincial level, where the act is administered, there is difficulty. I should like to have my mind clarified as to whether decentralization means that the minister wants to divorce himself from certain responsibilities and if, on the other hand, this change would


pave the way for more jobs, more patronage and a more inefficient administration at the provincial level.
It is my view that the minister should retain as much power as possible to direct and supervise this legislation. I do not believe decentralization will make for better administration; I believe it will mean greater inefficiency. It will divorce the minister and the board in Ottawa from many decisions which will be made provincially, and in my opinion this move will not react in the best interest of the veteran.
I have agreed with the minister on many occasions. We have agreed to have certain things done, but when these matters have reached the provincial level it appeared that officials at that level had more authority than the minister had, or than the department in Ottawa had. The result has been a good deal of confusion-and I am not referring to veterans allowances, but to other problems.
I would ask the minister to clarify my mind as to the meaning of decentralization of administration as it is applied here. I should like to see the minister responsible to the House of Commons, where the basic legislation is written, placed in a position where he can come to the house and accept responsibility for any decision made by his department at any time and at any level.


Howard Charles Green: Mr. Chairman, I do suggest the minister should answer the various suggestions that have been placed before him. When the resolution was under consideration two weeks ago tonight I raised several points, and I have no intention of repeating them now. Toward the end of the sitting, however, several of us did suggest that further consideration be given to the eligibility of the widow of the imperial veteran.
Thinking the matter over during these two weeks I am convinced we were right when we said everyone thought the test would be whether the veteran came here twenty years ago. If he came here in 1930 or before, then he should be considered as qualified. As a matter of fact I do not know why we should insist upon his having been here for twenty years. But if that time is set, then surely the test for the widow should be whether the husband came here in 1930 or before. If he did, she should be considered eligible. Otherwise there are many of these widows who cannot qualify for the allowance. In my judgment that would be a most unfair situation.
I believe it is the wish of the house and certainly of all veteran members in the house that the legislation should be made to include the widow of any imperial veteran who came

here at least twenty years ago, as was suggested by the hon. member for Comox-Alberni.
Then, I hope the minister will explain whether or not these payments are to be retroactive. I suggested two weeks ago that they be dated back to December 10, when the parliamentary assistant made the announcement. I would point out that for many months now investigations have been under way in the department. All imperials who were thought to be eligible have been asked to fill out forms and to give information. I would hope the allowance would be made retroactive at least to the date of the announcement last December.
I should like to have some clarification on the proposal to decentralize the administration. It has been explained that this means that decisions will be made out in the districts as to whether or not veterans or widows are eligible for allowances. Personally, I believe this is a wise change. But what is to be the position once a veteran is granted that allowance in the district? Will it then be possible for the war veterans allowance board in Ottawa to upset that decision, if it is favourable to the veteran?
I submit that if the veteran can qualify before the district officer or the district board, or whatever body is set up, then he should get the allowance without being placed in danger of having it upset by a board of review here in Ottawa. It is all right to have a board of review in Ottawa to look into the cases where veterans have lost out; but I hope we will not have a condition whereby many of these veterans will receive their allowances in the local districts and then be faced with the possibility of having them taken away by the board of review in Ottawa who have not seen the veteran and who could not possibly have the same understanding of the conditions he faces. The minister has not made clear what the position will be with regard to this review board and I hope he will do so this evening.


Mr. Maclnnis:: Mr. Chairman, before this resolution is carried I should like to say a word or two. I have received many requests from veterans' organizations in my constituency and I wish to add my voice to those that have been raised already and urge the minister to include the widows of imperial veterans in this amendment. I am not going to enlarge on the subject because matters affecting veterans are always well taken care of by the veteran members in this house and it is not necessary for one who is not a veteran of either war, like myself, to deal with matters with which perhaps I may not be as familiar
War Veterans Allowance Act as with other matters. But I do urge the minister to give favourable consideration to this request. I do not believe the cost would be great, and even if it were he would simply be doing justice to those widows whose husbands passed away before the government extended these war veterans' allowances to imperial veterans.
While I am on my feet I should like to refer again to a case I have mentioned on many occasions, particularly during the last session. I had considerable correspondence with the minister and with the war veterans' allowance board in connection with this case. This was a case where the income was not revealed and it was necessary ultimately to take the case to court and prosecute the war veteran concerned. I am glad that the case has been settled and I want to tell the minister that I appreciate very much what in my opinion has been a generous settlement. It was the wife of the veteran rather than the veteran himself who corresponded with me. She told me that the lawyer prosecuting was on her side as well as on the other side. Again I wish to thank the minister for the satisfactory settlement that has been made of what I believe was a somewhat difficult case.


George Alexander Cruickshank: I should like to say one further word if I may. I heartily approve of the grant of the $500,000 that was provided last year to supplement payments under the War Veterans Allowance Act, but I should like to reiterate the objections I have taken to the administration of that act. The parliamentary assistant has done his best to correct many of the mistakes that have been made, but it is my belief that a more simplified form of administration should be brought into effect.
I have seen the forms and I have listened to the investigators questioning war veterans allowance applicants or recipients. I know of one case in my riding of a man eighty-four years of age. I will not say that the advice he received from me was particularly good, but with that advice he had the advice of the Canadian Legion and two lawyers to enable him to fill out the form correctly. If my memory serves me aright he was granted a supplementary allowance of $10 per month until the end of September.
I am urging that the payment of these allowances be made more readily available. It should not be necessary for a veteran eighty-four years of age to have to go through all this red tape in order to secure the allowance until the end of September. At that time he will have to apply again and go to the Canadian Legion or to other people in order to have it extended for another short

War Veterans Allowance Act period. I think it is the wish of this parliament and of the people of Canada that this supplementary allowance should be paid during the remaining lifetime of a man eighty-four years of age in order to bring him up to the maximum of the amount received by an old age pensioner in my province.
The regulations should be more reasonable. This particular veteran served in three wars. I do not believe in calling this a burnt out pension; I believe it is something to which these men are entitled as of right and the amount they receive should at least be equal to that given our older citizens who receive it without having to go through all this red tape.


Mr. Mott:: Mr. Chairman, I believe there are nineteen returned soldier organizations and auxiliaries in my constituency and I do not think it is necessary for me to say how many requests I have received in connection with the payment of these allowances to widows of imperial veterans. I cannot help but support what has been said already in regard to this matter. I realize there are some complications and it may be difficult to find the proper solution. After listening to the discussion of a week ago I have reached the firm belief that a veterans committee should be set up so that we may go more thoroughly into this question and have more information than we are able to get in the house itself.
The Department of Veterans Affairs has done a wonderful job and the minister is to be congratulated. I have no complaints to make because I have been welcomed by all officials in the department. I feel that everything possible should be done to carry out what is an obligation to a certain extent to the widows of imperial veterans or of other allied forces who fought with us in the first war. Take a widow fifty-five years old. If she has been working at all she may be able to draw unemployment insurance, and that department will have to pay. If she cannot secure help from that particular department there is the widow's pension for which she may be able to qualify. If she can, naturally another department will have to pay. Then there are the social services of the municipalities towards which both the dominion and provincial governments contribute. She may be able to qualify for help there. In one way or another she will have to receive help from some government source. I think it is only right and proper that we should take this matter under consideration and do everything possible for the widows of imperial veterans and their allied associates.


Mr. Jones:: As an imperial veteran who has had a good deal to do with imperial veterans
[Mr. Crulckshank.l

in Canada for a number of years I should like to endorse what has been said by the last two speakers, particularly the member for Fraser Valley, as to the plight of widows of imperial veterans. I do not know how many are in distress but I assure you that several of them need assistance. I think it is rather degrading that the widows of men who served so nobly in the 1914-18 war must resort to charity or to the support of city councils in our smaller towns in order to live. As long as that blot remains it is most difficult for those who served in both wars to feel honestly and sincerely happy that everything possible is being done for these people. Our comrades who married these women have now passed on. I feel it is up to us who remain to fight for their widows. I am proud and pleased that the Canadian Legion women's auxiliaries right across the dominion have taken up the cudgels on their behalf. I appeal to the minister before it is too late to incorporate some protection in the bill for these widows that will place them at least on an equal basis with the widows of Canadian veterans since the service of their husbands burnt them out before their time.
As to the $10 bonus that has been given, in common with all other veterans I have noticed the small number who actually receive it. I feel that the red tape attached to the giving of the bonus should be lessened somewhat and that there should not be quite so strict an investigation into the needs of the person applying. I feel that many of these veterans are denied the extra $10 merely because they own a little home or get the odd job as a janitor and so on to help them struggle along. I did not think it was ever the intention of the house or the minister to make it so difficult to secure the extra bonus. I ask the minister to consider lessening the strings attached to the giving of the $10 in this measure, and also to look after the widows of imperial veterans.


Mr. Noseworthy:: Mr. Chairman, I had the privilege a week ago of attending a conference of imperial veterans from my riding and many adjoining ridings of western Ontario. I want to assure the minister that there was considerable jubilation over the prospect of this legislation being made effective and the possibility of the imperial veterans receiving the veterans allowance. They felt it was a victory and they thought 'much of the credit for it went to the work which veterans organizations had been carrying on for fifteen years. My information from them was that they had been fighting for at least fifteen years to secure this legislation. They were concerned about the plight of widows, but I think the position they took was a rather

unfortunate reflection on the way in which veterans have been getting assistance. They took the position that under the present circumstances it would be unwise for them to press for any further advantages than were provided in the proposed legislation. They were afraid to press the claims of the widows lest in doing so they should delay the passage of the legislation.
Their one concern was that the imperial veterans should first secure legislation in their favour, and that once it was placed on the statute books they would then push for improvements. The feature of it which struck me as rather unfortunate was the impression that the only way in which veterans can secure such legislation is by continually pushing the government until finally it surrenders to their claims. Their feeling was that they would get this and then they would start pressing the government in order to get something for the widows. As an outsider my suggestion is that from the standpoint of the government it would be much more to their credit to make some of these concessions without veterans having to push the government for a number of years in order to secure what they want.
They raised two questions which I should like the minister to answer. I think I know the answers, which I was able to give to them, but it would be satisfying to have the minister put them on record. There appeared to be some doubt whether imperial veterans who qualify for this benefit in every respect except that they are not sixty years of age, who are incapacitated, in hospital, indigent, without any means of support, would be eligible for veterans allowance under the act in the same way as other veterans. The second question they raised was just what procedure imperial veterans should take in order to be sure of getting the benefits as soon as possible. What procedure are they expected to follow in order to be eligible to receive the benefits at the earliest possible date? Those are the two questions that were raised.


Mr. Gregg:: First of all I should like to acknowledge the suggestions that have been made in the twenty-five speeches made two weeks ago and tonight. A good deal of the discussion has been partly directed at the resolution and partly at the War Veterans Allowance Act. I make no complaint whatsoever about that. I mention it merely as a preface to this suggestion. If the committee is willing, I should like to see the resolution moved forward tonight. I do not think the committee would expect me to deal in full with the many questions
War Veterans Allowance Act raised concerning the act. I shall take a moment to mention a number of the special points made about the resolution. If I miss any that were made two weeks ago or this evening I can assure hon. members that I shall be glad to deal with them at a later stage.
The other evening the hon. member for Nanaimo asked if I could state the number of widows who have resided in Canada for twenty years but whose husbands died before they had acquired that length of residence. I regret to say it is not possible to make anything like an accurate estimate of that number. The survey made by our department and the organizations that have been named dealt primarily with veterans. As hon. members know, in all our veterans legislation any benefits accruing to wives or widows come to them through their veteran-husbands, when alive, or after their death. In that connection, therefore, I reiterate what I said two weeks ago. In this resolution and the bill which will follow it we are placing every British and allied veteran who has been resident in Canada for twenty years on exactly the same footing, for all purposes with respect to war veterans allowance, as the Canadian-born or those domiciled in Canada before they enlisted. If we do that for the veterans then I repeat that we would be creating some inequity if we made some special arrangements on behalf of widows for whom we have no such arrangements under any other of our veterans legislation. I might add, further to what I said in reply to this question, that the understanding of the organizations which have worked with us for at least the last two years in studying this problem, that is the imperial division of the Canadian Legion and the British-Canadian Veterans Association of the Veterans' Council of Canada- headed by that very capable gentleman to whom the hon. member for Wentworth paid tribute the other evening-has been exactly on that basis. That is verified by some suggestions put out by their respective periodicals in advance of this legislation coming into effect.
Then in reply to the hon. member for Cape Breton South I would say that as the act now stands the minister has no authority whatever to influence the award of any war veterans allowance in any degree. I should like to reassure him, and others who mentioned the matter, that there will be uniformity in the administration of the act under the plan suggested. The decision will be reached in the district, but it will be a joint decision where in difficult cases it is necessary for the district authority to consult with one or more members of the
2200	HOUSE OF
Canadian National Railways-Auditors board. There will be no division of authority as between the board in Ottawa and the district authority as far as assessing a claim is concerned.
Then the suggestion was made that the allowance should be retroactive. It was announced that when the act goes into operation it was the intention to have payments begin as of the first of this fiscal year. As has been suggested here, a great many of these applications have come into our district offices, either through calls or in letters, since the parliamentary assistant made the announcement at the end of last session. Perhaps most of them have come in by now. When this legislation receives the royal assent and the districts can then complete the work already started, it is our intention that those who have applied, whether formally or informally, prior to or by April 1, 1950, and whose applications shall be approved, will receive the allowance as from April 1.
I think 1 shall leave the other matters until a later stage, and again I assure hon. members that at that time I shall be glad to discuss them fully.


Howard Charles Green: Would the minister explain a little more clearly what he means by a joint decision? Does that mean that an applicant in Vancouver must go before some board in the Vancouver district, but that such board will not have power to grant the allowance; that he will have to wait for approval by somebody here in Ottawa? If that is the case not very much time will be gained by having these decisions made in the districts. My understanding was that the board in the district would have power to make a decision, one purpose being that in this way payment would be made more quickly. Now, apparently, someone here in Ottawa is to be involved in that decision; someone here will have a part in it. I should like the minister to give us some further explanation as to just how that will work out.


Milton Fowler Gregg: I do not propose to attempt to state in detail what the administrative arrangements will be, but I may tell my hon. friend this. It is the intention that the district authority shall indeed assess and decide upon what one might call the ordinary applications.


Howard Charles Green: And put them in payment?


Milton Fowler Gregg: And put their decisions into effect as soon as they are reached. As I stated the other evening, most of the recommendations sent to Ottawa in the past have been approved. However, there will be borderline cases, which would be those that would make for lack of uniformity, the warning against which has been stressed here this
tMr. Gregg.]

evening. In those cases the local authority will consult without delay with the visiting member or members of the board in order to reach a decision, and when that decision is reached it will be put into effect.


Howard Charles Green: If the local board makes a favourable decision will there be any danger of that decision being upset by the review board here in Ottawa?


Milton Fowler Gregg: Any decision in connection with the war veterans allowance is subject to review at any time, but under this arrangement it will not be any more subject to review than it has been in the past.
Resolution reported, read the second time and concurred in.
Mr. Gregg thereupon moved for leave to introduce Bill No. 180, to amend the War Veterans Allowance Act.
Motion agreed to and bill read the first time.


CANADIAN NATIONAL RAILWAYS
Lionel Chevrier: the second reading of Bill No. 86, respecting the appointment of auditors for national railways.


Howard Charles Green: Is the minister going to make a statement?


Lionel Chevrier: May I make a statement in committee?


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Dion in the chair.
On section 1-Auditors.
Lionel Chevrier: Mr. Chairman, this is the usual bill introduced every year for the appointment of auditors for the Canadian National Railways. It is in the same form as it has been for the last number of years. The bill is based on the Canadian National-Canadian Pacific Act, but that act provides for the appointment of auditors by way of a joint resolution. Since that method has been found cumbersome in the past, it has been thought by the government that the method of appointment should be by bill, as in this instance.
This bill seeks the appointment of George A. Touche and Sons, a firm of chartered accountants whose offices are in both the city of Toronto and the city of Montreal. For all purposes, the bill is in the same form as that of last year.


Howard Charles Green: This is the first year a bill has been brought in in this particular form?


Lionel Chevrier: No, the form is the usual form.


Stanley Howard Knowles: Mr. Chairman, I take it from the smile on the minister's face that he is expecting the question I am going to ask. Has consideration been given since last year, or the year before, to the proposal that has been made by various members in this house, including on one occasion the member for Coast-Capilano, that the auditing of the accounts of the Canadian National Railways be done by the Auditor General?


Lionel Chevrier: Yes, the proposal has been given consideration, but for the reasons given last year and the year before the government has not seen fit to appoint the Auditor General for the purpose of auditing the accounts of the Canadian National Railways.


Stanley Howard Knowles: Wrong again.


Agar Rodney Adamson: What is the fee this company receives?


Lionel Chevrier: The fee is $55,000 per year. It has been increased since 1946 when it was $51,000.


[Stage Direction]
Section agreed to.
Bill reported.
Mr. Deputy Speaker:: When shall this bill be read a third time?


Lionel Chevrier: Now.


Stanley Howard Knowles: By leave.


Lionel Chevrier: the third reading of the bill.
Motion agreed to and bill read the third time and passed.


ONTARIO-MANITOBA BOUNDARY AMENDMENT OF MANITOBA AND ONTARIO BOUNDARIES EXTENSION ACTS
Alphonse Fournier: the second reading of Bill No. 87, to amend the Manitoba Boundaries Extension Act, 1912, and the Ontario Boundaries Extension Act.


Stanley Howard Knowles: Before this bill is read the second time, could the hon. member for Winnipeg South Centre (Mr. Maybank) say whether this bill adds to or subtracts from the province from which he and I come?


Mr. Ralph Maybank (Winnipeg South Centre):: The bill takes away a few feet from Manitoba. More or less jocularly I answered
Ontario-Manitoba Boundary the member for Peel (Mr. Graydon) one day, and told him it took some away frbm Ontario, but it is the other way about.
It arises from this fact, that there was a point established between the two provinces, a point at either end of the line. At a later time a survey was made from the lower point towards the higher point. When the surveyors got up to the point they were a little out of the way from the point that had been originally established. Now, the boundary commission made up of representatives of Ontario, of Manitoba and of the dominion desired to monument that line. It is very much easier to ask that this boundary as now set out in this bill be established and be monumented at a cost of $12,000, rather than go to the very great expense of resurveying to make sure at which place the particular point ought to be. That is about all there is to the bill.


[Stage Direction]
Motion agreed to, and the house went into committee thereon, Mr. Dion in the chair.
On section 1-Construction of certain sections.
Herbert Wilfred Herridge: Would the member for Winnipeg South Centre inform us as to the distance of the error in the survey and the area concerned?


Ralph Maybank: I think it is in the neigh bourhood of about thirty feet.


Stanley Howard Knowles: Linear, square, or cubic?


Ralph Maybank: It is only a few feet, at any rate. Then, of course, that makes one big triangular piece.


Stanley Howard Knowles: There is no pipe line through there?


Ralph Maybank: No, and I do not think it if suitable to build a pipe line.


[Stage Direction]
Section agreed to.
On section 2-Coming into force.
Stanley Howard Knowles: Can the hon. member say whether the two provinces have acted in this matter as yet?


Ralph Maybank: The provinces have indicated not merely their consent, but their desire. I do not think it has come in formally, but the act will not be proclaimed until the formal consent is in. It is for that reason the bill says it will come into force when proclaimed.


[Stage Direction]
Section agreed to.
Bill reported.
Mr. Deputy Speaker:: When shall this bill be read the third time?


Alphonse Fournier: Now.

Business of the House


Stanley Howard Knowles: By leave.


Alphonse Fournier: the third reading of the bill.
Motion agreed to and bill read the third time and passed.



BUSINESS OF THE HOUSE

Alphonse Fournier: Tomorrow is transport day. There is resolution No. 12 on today's order paper concerning the grade crossing fund. There is Bill No. 135, an act to amend the Department of Transport Stores Act, and Bill No. 153, an act to amend the Aeronautics Act.


Howard Charles Green: We have had the latter bill for only a day or two. Could we have a little time on it?


Alphonse Fournier: We shall leave it, but it will be the last one, and we shall probably go into supply.


Lionel Chevrier: If the hon. gentleman wants some time, he may have it.


Alphonse Fournier: We shall go into committee of supply and take up the estimates of transport. If we conclude that we shall go ahead with the estimates of veterans affairs.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
[Stage Direction]
Friday, May 5, 1950