1953-04-10

Hon. Brooke Claxion (Minister of National Defence):: Mr. Speaker, I rise on a question of privilege. Yesterday the hon. member for Kamloops (Mr. Fulton) asked me a question about the conduct of the deputy minister of national defence, Mr. Drury. In view of the fact that other references have been made to that matter and that these all seem to be based upon a misapprehension, in fairness to the deputy minister, who cannot speak for himself here, I think I should make the matter more plain.


Mr. Fulton:: His letter appeared in Saturday Night.


Brooke Claxton: The letter to which reference was made was a letter from Mr. Drury addressed to Mr. Stevenson, not to Saturday Night; and it was Mr. Stevenson who chose to publish it. I might also draw attention to the fact that in the final paragraph of his letter of reply Mr. Stevenson said this:
I propose to ask the editor of Toronto Saturday Night to publish this correspondence between us.
That is the end of the paragraph and of the letter. That paragraph was not included in the edition of the reply published by Saturday Night or Mr. Stevenson, in the correspondence to which the hon. member referred.


Mr. Diefenbaker:: Mr. Speaker, the minister having read an excerpt from the letter, possibly he would now table and put on the record the whole letter.


Brooke Claxton: I should be glad to do so. I was waiting for the opportunity.


John George Diefenbaker: I am waiting. Put both letters on the record.


Brooke Claxton: I think I should also read, from the article by Mr. Stevenson in Saturday Night of March 14, 1953, the passage to which Mr. Drury took exception quite properly because of the gross inaccuracy of the article.


John George Diefenbaker: Quite improperly.
68108-234J


Brooke Claxton: In this passage Mr. Stevenson says:
In the sessions of the select committee on defence expenditures, the persistent efforts of its chairman, Mr. Croll, and his henchmen to smother damaging evidence of governmental waste and mismanagement has not availed to prevent the opposition members from unearthing some very damning material to sustain their case. They are now licking their chops over some candid reports by important officials-[DOT]
And I stress those words "important officials".
-and their severity can be gauged by the following two quotations:
"However, I could not fail to be impressed by the fact that for such a tremendous administrative machine there appears to be very little fighting strength", and "a high percentage of the construction and other contracts were awarded on a cost-plus basis, which the department itself has declared to be wasteful, inefficient, and an incentive to extravagance."
That is the end of the quotation and of the paragraph. The last quotation is from an article by Mr. Arthur Blakely, and the deputy minister of national defence, having charge of the personnel of national defence, thought it was only proper to call to Mr. Stevenson's attention the fact Mr. Blakely was not yet in the employ of the Department of National Defence; he is not an important official. After references like these, the opposition talks about having horses on the payroll.


Edmund Davie Fulton: Mr. Speaker, I rise now not to debate this matter, because I know that under the rules the time for that will be when we get to the estimates of the minister. I can assure you it will be debated at that time.
I understood the minister was going to read certain letters so that the whole of them might appear on the record. I point out to you that he read a part of one of the letters and then made certain personal and inaccurate comments and did not complete the reading of the letters. I suggest to you, sir, that the full letters should now appear completely on the record side by side.


Brooke Claxton: What I was asked to do was to produce the letters. I have done so. I will be very glad to take up the time of the house to read them. I suggest they are available to any hon. member who wishes to read them.


Mr. Casselman:: Table them.

Privilege-Mr. Claxton


John George Diefenbaker: Now, Mr. Speaker, this
is not Mr. Drury he is dealing with, and I am not taking any directions. These letters must be tabled, since excerpts have been read from them, and they should become part of the record.


Brooke Claxton: They have been tabled, and
I said that twice already.


John George Diefenbaker: No.


Brooke Claxton: If the house will permit, I
will read the letters.


Mr. Speaker:: Order. There is no provision for tabling these letters. The only documents that can be tabled are public documents. If the minister wants to have the letters read, or if the house wants them to appear in Hansard, I have no objection.


Brooke Claxton: Let them appear in Hansard as an appendix.


Edmund Davie Fulton: May I suggest that they
should appear in Hansard.


John George Diefenbaker: That is what we want.


Some hon. Members:: Agreed.


Mr. Speaker:: Is it agreed?


Some hon. Members:: Agreed.
(For text of letters, see appendix, page 373S.)



REPORTS OF COMMITTEES


[Stage Direction]
Mr. W. A. Robinson (Simcoe East)
presented the second report of the special committee on broadcasting, and moved that the report be concurred in.
Motion agreed to.


[Stage Direction]
Fifth and sixth reports of the standing committee on miscellaneous private bills.- Mr. Winkler.


Hon. J. J. McCann (Minister of National Revenue):: With your permission, Mr. Speaker, I wish to make a short statement with reference to shortwave broadcasts to Poland. I wish to announce that the government has decided in principle to place an item in the supplementary estimates which will be submitted later this session and to ask the house to vote the necessary funds to provide for shortwave broadcasts to
fjHr. Casselman.]
Poland by the Canadian Broadcasting Corporation international shortwave service similar to broadcasts now being made to other countries in eastern Europe.



ANNOUNCEMENT OF INTERNATIONAL AGREEMENT

Mr. G. J. Mcllraiih (Parliamentary Assistant to the Minister of Trade and Commerce):: On behalf of the minister of Trade and Commerce (Mr. Howe) I should like to make a short statement.
Hon. members will have read or heard that the international wheat council, which has been meeting in Washington, has made recommendations to governments for a renewal of the wheat agreement. The following is the text of the press statement made yesterday by the chairman of the council:
The international wheat council decided by a substantial majority today to recommend to member governments that the international wheat agreement, which was due to expire on July 31 of this year, be extended for a further three-year period at a new price range of $2.05 maximum and $1.55 minimum to replace the present range of $1.80 maximum and $1.20 minimum.
The United Kingdom delegate informed the council, however, that while his government desired a renewal of the agreement it was not prepared to accept a maximum price above $2 per bushel.
Details with regard to the guaranteed imports and exports that would apply under the new agreement have not yet been decided. These will be announced as soon as this question has been settled.
In the course of the negotiations which began at the end of January, the council has also agreed to recommend to governments a number of textual amendments to be incorporated in the new agreement. These are being introduced largely on the basis of the experience gained in the operation of the wheat agreement since 1949 and are intended to clarify certain parts of the agreement and to improve its operation. None of these recommended changes, however, alter the basic principles on which the agreement was originally established.
A provision of the new agreement will permit the council, under certain conditions, to select an expert advisory panel to give the council an advisory opinion before taking a decision on any dispute arising on the application or interpretation of the agreement. The present position under which the council is the final arbiter on all disputes is unaffected.
Arrangements are being made for a formal signing ceremony which will be held within the next few days, after which the agreement will remain open for signature for a period of 14 days. Copies of the new agreement will be made available to the press at that time.
The Minister of Trade and Commerce is out of the city today. He will give a further explanation of the situation on Monday next.


John George Diefenbaker: In view of the fact that
the parliamentary assistant pointed out that the British representatives were not agreeable to that maximum, can he tell us what maximum price the British representatives were prepared to accept?


George James McIlraith: The statement I have
quoted-and this is the statement of the chairman of the council-contains this paragraph:
The United Kingdom delegate informed the council, however, that while his government desired a renewal of the agreement it was not prepared to accept a maximum price above $2 per bushel.
I might say that there will be a full statement on this subject by the minister on Monday.



ARMED FORCES


[Stage Direction]
On the orders of the day:
Mr. G. R. Pearkes (Nanaimo):: May I
direct a question to the Minister of National Defence? Is the department enlisting Dutch musicians as bandsmen for the 27th brigade?


Brooke Claxton: Yes, and also for service with the Canadian forces in Canada. Arrangements have been made whereby a limited number are being taken on strength.


George Randolph Pearkes: Are they being placed on
the payroll as set-geants?


Brooke Claxton: I will have to look into that.



INCOME TAX ACT

Hon. Douglas Abbott (Minister of Finance) moved: the second reading of Bill No. 228, to amend the Income Tax Act.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Robinson in the chair.
On section 1-Premium on redemption of shares.
Mr. Macdonnell (Greenwood):: Mr. Chairman, I do not propose to make more than a word of comment on the budget as such. I do however wish to make a few comments on the question of dominion-provincial-municipal tax problems.
As regards the budget itself, all I wish to say is that I think the public has been able to realize the truth of what I said in reply to the minister, that the minister has thought of everyone except the people; that 75 per cent of the people get little or no benefit from it; and that instead of his bringing in a social dividend, he brought in an antisocial dividend.
I wish now to turn to the question of dominion-provincial-municipal taxation problems. It is interesting to note that the great nation to the south of us is grappling with this problem in no uncertain way.
Income Tax Act
Their position, of course, in principle is very much the same as ours. The President has announced a project of inquiring into taxing and spending functions of the various taxing authorities. A commission is to be set up to stake out the proper areas for each authority. I should like to say in passing that that is what the Leader of the Opposition and other hon. members in the house have been asking repeatedly. It is also what the premier of Nova Scotia, Mr. Angus Macdonald, has been asking. And in this connection I would put on the record only a sentence from the Ottawa Journal of April 6 which, in commenting on this American proposal, says:
Why such a step has not been taken in Canada when its need is starkly imperative, all but passes understanding.
I would have liked it better if the words "all but" had been left out; because certainly I am unable to understand it. I can only imagine it is just another instance of that overholding power of people who have been in office for a long time, who lose touch, and who do not act in the way which ordinarily one would expect reasonable persons to act.


Douglas Charles Abbott: I do not want to interrupt my hon. friend, because I am keenly interested in what he has to say. I think, however, that technically he is completely out of order in discussing on section 1, which amends certain sections of the Income Tax Act, such problems as federal-provincial-municipal taxing relations. If we were to proceed to discuss matters of that kind at this time, then frankly I do not know how any hon. member could be prevented from discussing any other matter which he might consider he wished to bring before the house.
I am sorry my hon. friend did not see Tit to make his comments in the course of the budget debate, or at some other time when, in doing so, he would have been within the rules of the house. I am in your hands, Mr. Chairman, of course; but I submit the hon. member is completely out of order in discussing this matter at the present time.


James MacKerras Macdonnell: My understanding is that in the debate on section 1 of a bill we have been allowed considerable latitude. It seems to me this question is one of great practical importance, because it goes to the very root of taxation. As I have said, and now repeat, the range of discussion allowed on section 1 of a bill has been wide. If it will relieve the minds of hon. members at all, I might mention that I shall not be long in what I have to say.

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I realize however that that does not go to the question of principle.


The Deputy Chairman:: Order. I quite agree with the hon. member for Greenwood when he says that we have allowed a wide range of discussion on clause 1 of a bill. But I would point out that that range is limited to the principle of the bill itself. I would ask the hon. member to confine himself to general remarks on the principle of the bill which, in this instance, is an act to amend the Income Tax Act.


James MacKerras Macdonnell: With deference, Mr. Chairman, I submit that, among other things, this is a bill to raise money. I do submit that questions affecting the dominion's need for revenue, which I am trying to discuss when I open up this whole question of the distribution of responsibilities between the dominion and the provinces, is within the scope of the bill.


Douglas Charles Abbott: I must differ with my hon. friend. I have a keen interest in his views, and I am sure they would be well worth listening to. But if we do not adhere to the rules of the house, then I just do not see how we can have any sort of orderly debate.
The question my hon. friend is raising is a very important one. I dealt with it at length in my budget speech. In his reply my hon. friend did not deal with it at any great length. But I suggest that was the time to deal with this general question of the financial relationships between different levels of government in Canada, and that it is not properly debatable when section 1 of a bill to amend the Income Tax Act is called.


Mr. Graydon:: Mr. Chairman, while the
minister may have no intention of curtailing debate in the matter, it seems to me the income tax is so closely related to and interwoven with the question of dominion-provincial relations that it might properly be discussed at this time. The income tax is one of the major tax fields, and it has been under discussion many times in dominion-provincial discussions.
It seems to me that, on that basis, the hon. member is not asking too much when he asks for the opportunity to finish his remarks on this point. I suggest that he be given that opportunity. It may be that Mr. Chairman may wish to give a ruling on the point. I am sure however that the hon. member for Greenwood is not one who makes it a habit to encroach upon the rules of the house, for any purposes whatsoever. I suggest that he be given the opportunity to finish his remarks.


William Alfred Robinson: I am sure hon.
members will realize that I have no wish to curtail debate in any way. But as has been pointed out by the Minister of Finance, under our rules there are proper occasions upon which the debate on certain subjects should take place.
I must agree with the point of order taken by the Minister of Finance when he says that the remarks of the hon. member for Greenwood are too broad in scope. I would therefore ask the hon. member to co-operate by adhering in his remarks to the principle of the bill before us.


James MacKerras Macdonnell: Well, Mr. Chairman, that was the one subject I wished to talk about. If that is ruled out of order, the committee will not have the pleasure of hearing me at all.
I suggest, with deference, that my whole understanding has been that when section 1 of a bill has been called there has been a wide-open opportunity for discussion. It seems to me that when the minister suggests this matter was discussed by him in his budget speech, and that then, and then only, was the time to discuss the matter further-


Douglas Charles Abbott: Not necessarily the only time.


James MacKerras Macdonnell: I say that
when the minister suggests that this is not the proper time, his interpretation is too narrow. However, if that is your ruling, Mr. Chairman, I shall have to defer to it.


Douglas Charles Abbott: As I say, I am always anxious to hear what my hon. friend has to say. I think however that there may be another opportunity for him to speak on this subject when my estimates are under consideration. I think there are some items in the estimates of the Department of Finance which should afford him the opportunity to make the observations he wishes to make-but not today.


Gordon Graydon: As an experienced legislator in this chamber, the minister knows that the practical result, when debate is curtailed as it is now suggested it should be, is that it breaks out on a motion to go into supply. If we are going to get this house closed in reasonable time early in May I should think the minister will have to take a different course than to suggest to the chairman that this be not proceeded with. I think that will only add to confusion in the end. I can only hope that the hon. member will be allowed to finish.


Douglas Charles Abbott: 
Mr. Knowles:: I wonder if I might offer a
suggestion. This problem comes up often, and I recognize the validity of the point which the Minister of Finance seeks to make. This is a bill amending an existing statute. I think the confusion arises by reason of the fact that sometimes bills that come before us are brand new. When that happens it is the usual practice that a general discussion is allowed on section 1, which is usually the short title. But when we get a bill amending an existing statute, such as this bill, section 1 usually amends some section down the line in the statute and that right of general discussion is not usually extended. I think that that is the reason for the confusion.
However, it does seem to me that the remarks which the hon. member for Greenwood was trying to make would have been in order on the second reading of this bill while Mr. Speaker was in the chair. If that is correct, it might therefore be argued that the same remarks would be in order on third reading. I offer that as a suggestion. If it is not acceptable to have this speech made now the hon. member might be allowed to make it on third reading.


Douglas Charles Abbott: If it is within the rules I
would not have the slightest objection.


James MacKerras Macdonnell: The trouble with me is that I am too co-operative and I did not stand up while Mr. Speaker was in the chair because I thought that that might slow up matters. I am not going to press the matter further. I was going to make the suggestion which the hon. member for Winnipeg North Centre has been good enough to make, and perhaps I shall deliver my remarks on the third reading of the bill.


Mr. Green:: I should like to ask the
minister one or two questions on the first section. The other day we had a discussion with regard to allowing the cost of reforestation as an operating expense. It will be found in Hansard of March 20. The Minister of Resources and Development entered into the discussion and said in effect that there had been some arrangement made within the last few weeks whereby these expenses would be allowed. On further questioning he admitted, as will be found on page 3149 of Hansard, that this allowance would be made only where the taxpayer had what is known, in British Columbia at least, as a forest management licence. I would ask the minister to explain just what this new provision covers. There are comparatively few firms which hold forest management licences. Practically all of them are quite large concerns and I am worried whether
Income Tax Act
this provision will be applicable to the small operator who does not hold a forest management licence.
My other question has to do with the possibility of obtaining an exemption to cover the costs of nursery and child care incurred by a mother who is working. The minister will remember I dealt with that in my budget speech. I would ask him to let us know whether any consideration has been given to my request and if there is any possibility of obtaining that exemption.
My third question has to do with out-oftown travelling and living expenses of persons engaged in the building and construction trades. This matter also was raised during the budget debate and I should like to know what stand the government is taking.
Finally I should like to know what changes are being made with regard to pension funds. The minister stated during the budget debate, and I quote from page 2129 of Hansard as follows:
Special provision will be made to alleviate the tax on refunds paid out as a result of reorganizations of pension plans. This will apply, of course, in the case of the Canadian National Railways pension plan reorganization which has been of interest to many hon. members.
Complaints have been made that because this reorganization plan will mean the payment of lump sums to the recipients the Department of National Revenue is taking the position that the whole payment will be taxable in the year in which it is received. That seems to be a most unfair arrangement and I would ask the minister to explain in what manner the problem is being dealt with by this bill.


Douglas Charles Abbott: I shall answer the last question first. It is dealt with in a section a little later in the bill, but in essence the payment which is being made as a result of the reorganization of the Canadian National pension fund will result, as I understand it, in quite substantial lump sum payments being made to pensioners.


Stanley Howard Knowles: Are we on section 12?


Douglas Charles Abbott: My hon. friend is taking exception.


Stanley Howard Knowles: The minister suggested that we should follow the rules.


Douglas Charles Abbott: As a matter of fact, the hon. member for Vancouver-Quadra was completely put of order with the questions he asked on section 1, but I thought that as the questions related directly to the Income Tax Act perhaps it would not be stretching the rules too far to answer them at this time. Every one of the questions he asked

Income Tax Act
was out of order under section 1. I am quite willing to give information on this section as I think perhaps that would be within the spirit of a discussion on section 1. What I objected to strongly was discussing general philosophic principles on section 1 of the bill. If the committee wants to adhere strictly to the rules, needless to say I will be delighted to do so.


Howard Charles Green: It is a pretty well established practice that there is wide discussion permitted on section 1 of a bill.


Douglas Charles Abbott: Perhaps I could answer that question when we deal with section 12 which relates directly to the Canadian National pension plan. I will give this information when we reach that section because some other hon. members may have questions to ask.
As to this matter of the cost of reforestation, I am not exactly clear as to what my colleague may have been referring to as I was not in the house at the time. I am informed that it is a question of fact in each case. If the expense incurred by the taxpayer is an operating expense, if it can be considered as an operating expense, it is deductible. On the other hand, if it is of a capital nature then it is a capital charge and would be subject to capital cost allowances and written off over a period of years.
Then the hon. member asked about the cost of nursing. I understand he is referring to the practical nurse who might be brought in to look after children while the mother is out working. There again we have never felt that under the Income Tax Act we can allow deductions from salaries and wages as expenses. Salaries and wages, with certain exceptions with which my hon. friends are familiar, are considered as income. It is difficult, if not impossible, to draw a line between what expenses might be allowed and what expenses cannot be allowed. While this arouses a good deal of sympathy it is not a matter on which we feel we could breach the important principle which is involved.
Then the third point was the expenses of construction workers on out of town jobs. I must say that we gave that matter a tremendous amount of anxious consideration because I realize that these days, with active construction programs going on in a great many parts of the country, it is necessary for construction workers to move from one part of the country to another and in doing so maintain their permanent homes wherever they may happen to be resident. But here again, on this basic principle to which we have adhered, salaries and wages are taxable

income by definition and the taxpayer is not entitled to deduct living expenses. He can, in the circumstances set out in the act, deduct expenses when he is in travel status as defined in the act, but unfortunately in a good many instances that does not meet the cases to which my hon. friend refers.
All I can say is that, after a great deal of careful consideration and discussion with my officials and the officials of the Department of National Revenue, we felt we could not make this further exception in the law. I had discussions on the matter with representatives of the trade unions who put their case before me very fully and fairly. I should have liked to be able to grant it but it just was not possible.


Howard Charles Green: Are there not other groups who are already getting that exemption? Their travelling and living expenses are being allowed, and I think that the men in the construction trades could be brought in under the same category, or perhaps it would require an amendment to the act. Then there is the further fact that the consxruction industry is of vital importance to Canada today, and I know that it is becoming difficult in British Columbia to get men to go to projects in the more remote parts of the province. I believe there is some danger that developments which would otherwise take place may be held back because this exemption is not allowed. The question came up there in this form. The unions actually entered into an agreement with management under which these costs would be paid by the employers, but then they were taxed so that the agreement did not help at all. I think this merits a further check by the Department of Finance and the Department of National Revenue.


Douglas Charles Abbott: The union agreements to which my hon. friend referred were not exactly on the basis he outlined. What happened under the union agreements was that it was provided that the worker would be paid a certain sum of money in lieu of travelling and living expenses. It is perfectly open to the employer to reimburse his workers for their actual out of pocket travelling and living expenses, but apparently that involves some added expense and difficulty, and as you know we have a very strict rule against lump sum expense allowances. Consequently we did not feel that an addition to the per diem or per hourly rate to compensate for out of pocket expenses could be allowed. I realize that is a simple and perhaps efficient way of handling it, but nevertheless it does breach the principle to which I have alluded.


Howard Charles Green: With respect to the second point, deduction of the cost of nursery and child

care in the case of a mother who is working, would the mother not be in a similar position to a professional man who hires a stenographer to help him earn his income?


Douglas Charles Abbott: No, because he is on a gross basis. He gets fees and he charges his expenses before he arrives at his net. He is not being paid a salary. She is being paid a salary.


Howard Charles Green: The reason she cannot get the exemption is that she is getting a salary?


Douglas Charles Abbott: That is a fundamental distinction in our law. As my hon. friend knows,
I have explained before that salary and wages, by definition, are income. If a man is an independent contractor or a professional man he grosses up his fees, deducts his office rent, salaries, stationery and other expenses and arrives at his net. That is his taxable income. But if he is hired by a corporation for a salary, then presumably the corporation pays those expenses and charges them up as an expense of doing business. For instance, as I pointed out, a man who is a salaried employee cannot get a deduction for the expenses of a maid to look after his children. It is a fundamental principle.


Howard Charles Green: That is a different situation.


Douglas Charles Abbott: Nor could a professional man.


Howard Charles Green: Suppose the mother is carrying on a business of her own such as running a public stenographer's office. Could she then deduct these costs?


Douglas Charles Abbott: No. She could deduct the expenses of running her office but she could not deduct any of her home expenses.


Howard Charles Green: If the minister will investigate the situation further, I think he will find that the working mother is at an unfair disadvantage in so far as these exemptions are concerned. I hope that further consideration will be given to the matter. With respect to the allowance for reforestation, the minister has not yet made it clear to me at least in what manner that applies. Will these tax deductions be applicable to any legitimate forest operation in which the taxpayer is working on a sustained yield unit program?


Douglas Charles Abbott: As my hon. friend knows, the dividing line between what is a capital expenditure and an operating expense is sometimes very hard to draw. Take this case as an example. Suppose by virtue of one of these management licences, or whatever the correct description is, there is taken over a tract of land that has already been cut over and puts into effect a large-scale reforestation program. What is then being done in effect is to create a new capital asset. That would be a capital expenditure and as the timber was cut depletion depreciation could be taken.
Income Tax Act


Howard Charles Green: But the timber would not be cut for many years.


Douglas Charles Abbott: That is quite true. It is the same way when you build a plant. The plant is amortized over a long period of time. On the other hand, in the case of a current operation, where as the operator cuts down some trees he plants new ones as a part of his general operation, my information is that the wages and salaries in that operation can be considered as operating expenses. But as I say, it is very difficult to lay down a hard and fast rule as to what in a given case is capital and what is an operating expense. Almost every case has to be looked at on the facts of the particular case.


Howard Charles Green: Perhaps the minister can deal with it in this way. Will this new arrangement, which apparently was made in February of this year, be applicable to only a handful of the very large operators who have forest management licences from the provincial government of British Columbia or will it be applicable to the forest industry as a whole?


Douglas Charles Abbott: I am told that it applies from coast to coast.


Howard Charles Green: How will it work out in British Columbia? Will it only apply to the dozen or so who have forest management licences or will it apply to the hundreds of smaller men who are carrying on forest operations and in many cases are doing reforestation?


Douglas Charles Abbott: I am told it applies to them all.


Howard Charles Green: If that is right that is satisfactory.


Douglas Charles Abbott: That is my information. The same rule applies to all.


Howard Charles Green: My understanding is that so far the smaller men do not know anything about it. They were quite surprised to hear that an arrangement had been made, and presumably it was made with the big operators.


Douglas Charles Abbott: I am informed by the deputy minister of national revenue that it applies to all of them. There is no distinction between the two groups.


Gordon Graydon: I should like to ask a question or two. The first matter is one on which I have a great deal of difficulty in defending the government when I am in my own constituency, and you can readily realize that is a problem I should like to have solved here. Also people keep asking me why it is that when the wife dies the husband then must go into another status from the point of view of income tax. He cannot any longer claim marital status as a householder operating a self-contained establishment. In most of these instances where they come to me, and

Income Tax Act
where I have to put up as good a case for the government as I can, I find it very difficult to defend that position. That is, of course, not the only instance where I have trouble defending the government but it is true in this case particularly.
In most instances the man of the house has greater expenses by virtue of the change in status than he did before. It may be that something has been done in connection with this legislation and if so I would personally welcome it and ask the minister if he has given consideration to it.


Douglas Charles Abbott: As the hon. member knows, a widower, or even an unmarried man, who is maintaining a self-contained domestic establishment and supporting someone in it who is dependent on him for support, is entitled to the marital exemption.


Gordon Graydon: Yes, but that is not the question.


Douglas Charles Abbott: A widower who has no children and is not supporting anyone and who prefers to live in his house instead of living at a club does not get the $2,000 exemption. He is treated as a single person. A widower who supports children and who lives in a home continues to get the $2,000 exemption.


Gordon Graydon: The problem arises where the widower has children in the home who are perhaps over the age limit. Those are the cases with which I am having difficulty because people cannot see the reasoning. I must confess too that I cannot see why that exemption cannot be allowed to a widow or a widower as the case may be.
I know that you cannot extend this all over the place and allow it to run wild as far as these self-contained establishments are concerned, but surely there must be some definition that can be drawn without getting into administrative difficulty or meeting administrative obstacles which are too great to hurdle. I would like the minister to give some further consideration to the matter because it does seem to me that there are instances where the government might go some distance without infringing too far upon their administrative regulations.
The other point I want to mention is one I raised last year. I know that the minister must have given some consideration to this and it arises out of little people being in business-people who employ perhaps one or two others and who are just managing to get by. These people are finding that they must work for nothing in the collection of these income tax payments, and I do not think that the little fellow particularly ought to carry the government's load without in some way receiving remuneration for it.

I can understand that perhaps this does not mean so much to those who have a big set-up where they can deduct the cost of doing these things; but I could never understand why the government needs to be hitchhiking on top of the little fellow as far as the expense of these collections is concerned. The government has money for other things and it seems to me that the situation is pretty intolerable from the little man's point of view.
I raised this matter last year and I coupled with it the statement that if all of the members of the house were to go into some little business and see just what they would have to do for this government, without getting a five-cent piece in return, they would be astounded. They would have to collect unemployment insurance; they would have to collect these income tax payments; and by the time they got around to answering all the questions asked by the dominion bureau of statistics they would find that they did not have time to look after their own business. I do not think that situation should be tolerated or continued. The minister I think said that it was an instance of good citizenship. Well, you can extend good citizenship pretty far-to the point where citizens are out of business. It is pretty difficult for me to see why some leniency might not be shown at least to some people in the way of relieving them of carrying further burden. I know the minister will have an answer, and it will be one of those answers which have been carefully gone over by the administrative staff. Nevertheless, I think there is a case where at least somebody ought to champion the little fellow who is making so many of these deductions and who is carrying so much of this load. It is pretty difficult to make ends meet in little business today; and I think that what you are doing in many instances is driving little business into the hands of big business.


An hon. Member:: Hear, hear.


Gordon Graydon: I confess that the difficulty I mention does not apply so much to big business and I am, of course, only talking about the little fellow. He is entitled to be given a little break on this, whether you give him the break in some compensatory way here or on something else.


Douglas Charles Abbott: As I told my hon. friend last year, when he raised this question, I share his solicitude for the little fellow; but it does not require any high-priced help to give one answer to this problem. This income tax deducted at the source, and unemployment insurance deductions, must be collected by somebody. If the employer does not do it we will have to hire a few thousand more civil

servants, pay them to do it, and then tax the little fellow among others to pay for that service.
My own belief is that the present system whereby the taxpayer makes the deductions and remits them is about as efficient and cheap a way of doing the job as there is. Under those circumstances I think he makes his contributions through the services of himself or staff rather than as a taxpayer. If he has a bookkeeper he can charge up the expense of the bookkeeper as an expense of doing business. I think that successive governments, this one and those preceding it, have found that this system is about as fair a way of collecting these payments as can be found.


Stanley Howard Knowles: I wonder if I might ask the minister a question on clause 1.


Some hon. Members:: Hear, hear.


Gordon Graydon: Ask it on third reading.


Stanley Howard Knowles: I realize that I am being extraordinary in dealing with the matter before the house.
I have two questions that I would ask. First, will the minister explain why he is bringing in this clause at all? What was wrong with the taxing of premiums received on the acquisition of shares?
My second question is this: Why is a section like this being made retroactive when some other sections such as those dealing with the allowances for children attending university or the change in the level at which medical expenses are allowed, are not being made retroactive?


Douglas Charles Abbott: I will deal with the last question first.
In the amendment to the act in 1949, provision was inserted providing for tax on acquisition of shares at a premium. I do not believe that there was very widespread general knowledge of that amendment which introduced the word "acquisition". What happened was that in the case of a number of companies which proposed to redeem their shares at a premium-and in some cases at a substantial premium-they did it by purchasing shares on the market. A man would buy shares of this company, hold them perhaps a month or two and sell them, not realizing that he was selling to a person who was in fact buying them for redemption by the company. I had some instances brought to my attention where a tax liability of say $10,000 or $12,000 was created where in fact the purchaser and seller of the shares had suffered a small loss on the transaction.
It was quite easy, for anyone who knew the ropes, and who knew those shares were
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being redeemed, to legally avoid the payment of any such tax. The shares are being either acquired by or held by a Canadian tax-exempt organization and as such the tax would not apply. So it seems to me that there was a trap in the law which should not be continued; and it led to an examination of the whole question of the taxation of the premiums on the redemption of shares. It seemed desirable to make a fundamental change and to provide as the law now does, or as the law will provide if this bill is passed, that in the case of redemption of shares at a premium, the premium may be paid out of tax-paid undistributed income if the company is one which has created such a form of tax-paid income. If not, there will be a special tax of 20 per cent of the premium imposed upon the redemption of those shares.
This is fairly technical, I know, but I think it is a satisfactory solution to a problem which, I may say quite frankly, has bothered me for a long time. As I say, anybody who knew the ropes could always avoid the payment of taxes on shares being redeemed at a premium and it was only the people who either did not know how to go about it or who did not know that the redemption was going to take place, who got caught. In this way we will be sure of getting a reasonable tax on the premium on the redemption of shares.
The 20 per cent rate is 5 per cent in excess of the rate at which, it will be recalled, pre-1949 surpluses can be capitalized as tax-paid undistributed income. The committee will also recall that as to profits since that time, if half are paid out as dividends, the other half may be created into a tax-paid surplus. That is the general basis on which this amendment to the law is made. There are two or three other sections relating to it.


Mr. Fleming:: In the light of the explanation which he has just given, may I ask the minister whether it is likely to mean the opening up of a good many returns in the case of taxpayers who have already been taxed on the premiums they received on the redemption of shares?


Douglas Charles Abbott: I think there will unquestionably be reopening of some returns because there were really some hard cases brought to my attention. I was shocked at the inequity of some of them and that is what really prompted the introduction of this measure. I think it will involve the reopening of some of the returns. A number of appeals were taken which I think are still pending. The assessments will be revised. It is pointed out that there will be a reassessment of these

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returns by the department and a revised notice of assessment will be issued.


Donald Methuen Fleming: In all these cases will the department take the responsibility in connection with the reassessment? No doubt the period has passed for entering an appeal against those assessments going back to 1949 income.


Douglas Charles Abbott: I am told it all arose as a result of the reassessment by the department. They picked this up in the returns. I think there are perhaps not a large number of securities involved because there have been a limited number of companies who, during the last two or three years, have acquired shares for redemption.


Donald Methuen Fleming: I should like to be clear on this. In the case of a taxpayer whose assessment was made, let us say, on 1949 or 1950 income, where the file is closed and the usual period for entering any appeal against the assessment is past, do I understand that the department will in that case take the responsibility for reopening the assessment and making the refund for any excess paid, in the light of this retroactive legislation. There is not much use of our passing legislation intended to be retroactive for the relief of a taxpayer if the period for reopening his assessment has passed and the time for appeal is past, unless the department is prepared to take responsibility for reopening the assessment.


Douglas Charles Abbott: As my hon. friend will recall, it applies only to the case of the acquisition of shares, not to redemptions. I think the onus must be on the taxpayer. If the assessment has been made and the time for appeal has expired and no appeal was lodged and the tax was paid, it is up to him to make application for reopening and refund; and that would be given to him.


Donald Methuen Fleming: Even though his period for appeal has passed?


Douglas Charles Abbott: Oh, quite.


Donald Methuen Fleming: The department will allow that?


Douglas Charles Abbott: Oh, yes. Everybody will be treated equally.


James MacKerras Macdonnell: Mr. Chairman, I presume that everyone is presumed to know what the law is but in fact not everybody does. Is it sufficient for the department merely to say that it will not invoke the passage of time for appeal? Is it asking too much that the department will, as I understand the hon. member for Eglinton to say, assume responsibility for reassessment?


Douglas Charles Abbott: The department will, I think, reassess; but I think the onus must remain on the taxpayer of asking to have the assessment reopened and of claiming a refund of the tax which he has paid.


James MacKerras Macdonnell: He may not
know about it.


Douglas Charles Abbott: I think most of them know it. My impression is that a great many of them know about it.


Mr. Adamson:: I gather that this measure refers only to preferred stocks which were redeemed by operations in the open market. It does not apply to preferred stocks which were redeemed at a premium, shall we say, of five points over par?


Douglas Charles Abbott: It does not apply to those retroactively; but it does apply retroactively to preferred shares which were acquired in the open market by the company. But as my hon. friend knows and as the committee know, these shares would be bought in the market in the ordinary way. The vendor would not have any idea to whom he was selling. He might think he was selling to another investor when in fact the purchase was being made by the company. It is that type of case that we are providing the relief for. For the future we have a new system for handling the redemption of preferred shares with this special tax of 20 per cent unless it is paid out of tax-paid undistributed income. But the retroactive relieving part applies only to what I might describe as the cases of the innocent bystanders who did not realize that they were involving themselves in any tax liability.


Agar Rodney Adamson: It refers clearly to the monetary premium?


Douglas Charles Abbott: That is right.


Agar Rodney Adamson: It does not refer, for instance -although I do not know that there were any of these cases-to a preferred stock which was redeemable in terms of common stock or transferable in terms of common stock and the aggregate of the common stock conversion was higher than the selling price of the preferred stock?


Douglas Charles Abbott: It does not apply to redemption at all in the past; purely to acquisition.


Mr. Higgins:: Mr. Chairman, I have one question to ask. I am afraid that it is a little bit out of order but I can see no other section under which I can ask it. The minister has been wandering a little bit in answering some of the other questions and I wonder if he will answer this one. Can the

principle of employee deductions be extended to employees of the American bases? I have been requested to ask whether arrangements could be made.


Douglas Charles Abbott: I shall have to look into this matter. We would be happy to do it.


[Stage Direction]
Section agreed to.
On section 2-Municipal officers expense allowance.
Howard Charles Green: This is the clause which refers to the expense allowance of municipal officers. We had quite a lengthy debate on the resolution dealing with this matter. At that time there was some question as to whether an elected officer would include a member of a school board and of a parks board. Can the minister tell us whether this amendment is meant to cover those officers or only persons elected to council?


Douglas Charles Abbott: It is not intended to cover school boards. It is intended to cover only elected municipal officers and to extend to them the same principle that applies to us as members of parliament or to members of provincial legislatures. There is nothing, of course, to prevent members of school boards from being paid their out of pocket expenses, on an actual basis; that is, being reimbursed the actual out of pocket expenses which they incur as members of the school board. There is not, and there never has been, anything to prevent a municipal officer from being reimbursed his actual out of pocket expenses incurred in the performance of his municipal duties. But, as we know, that involves a considerable amount of keeping track of expenses and so on. Since we ourselves here as elected representatives provided a lumpsum allowance for expenses which it is well recognized we have to incur, it seemed desirable and appropriate to extend that same privilege to the principal elected officials of other bodies. This is for the municipalities. My information is-and it is certainly true in my own province-that very few members of school boards receive anything in the way of remuneration. It should be borne in mind that one can only get this expense allowance if one is voted specifically and it must not exceed one-third of the combined total. But there is nothing to prevent any of these other officials being reimbursed for their actual out of pocket expenses.


Howard Charles Green: The wording of the new clause is:
Where an elected officer of an incorporated municipality has been paid . . .
It does seem to me that a member of a school board is an elected officer, as is a member of a parks board. I do not see why
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they should not get the same treatment. As a matter of fact, when the resolution was before the committee I argued that they should be treated in the same way as the members of the council. I believe that the way the section is worded it is wide enough to cover them. The minister now says they are not going to be covered.


Douglas Charles Abbott: They were not intended to be covered. It may be that the section is wide enough to cover them. I do not think it is, personally, but we certainly did not intend to cover them. This is a new departure and I would certainly not recommend extending it beyond the elected municipal officials. None of the school board officers need be out of pocket. They can get their actual expenses. I do not think many of them are paid remuneration. I served on a school board once; I did not get remuneration for doing it; I do not think most people do. This is a new departure. It is the sort of thing we will look at another year, but it does represent a very substantial concession to municipal officials. Mark you, they have to be voted remuneration plus expenses. They cannot be voted just a lump sum for expenses; it must be a combined sum, and the expense portion of the sum must be not in excess of one-third of the total.


Stanley Howard Knowles: In some provinces of the country, and particularly in the west, school board members are elected officials. In my own city, for example, they are just as much elected officials as are the members of council.


Douglas Charles Abbott: They are in a lot of other places.


Stanley Howard Knowles: And they are paid remuneration for their services. I will not argue the merits or demerits of the general principle of the exemption, but it does seem to me that the two groups should be treated on the same basis.


Agar Rodney Adamson: I should like to ask the minister a question on this because I took the trouble to send copies of Hansard to a large number of municipal officers in my own constituency, and I know there was a great deal of confusion in their minds as to the real meaning of this. The intent is clear, that it is desirable that elected municipal officers who receive an expense allowance for which-


Douglas Charles Abbott: I would not go that far. This is purely enabling legislation. I do not think it is desirable.


Agar Rodney Adamson: It is enabling legislation. In order to benefit from this legislation, does the municipality have to pass a minute of council or a specific bylaw stating that the

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salary shall be so much and the expense shall be half of the salary?


Douglas Charles Abbott: That is right, not more than half the salary.


Agar Rodney Adamson: Not more than half.


Douglas Charles Abbott: Appropriate municipal action must be taken.


John George Diefenbaker: The point in connection with this very attractive looking section is that it is not going to operate fairly among all municipalities, and I am going to point out the significant words. A moment ago the minister admitted with frankness that before anyone could qualify in respect of the retroactive effect of this section it would be necessary for that person to be voted a sum to include remuneration plus expenses.


Douglas Charles Abbott: That is right.


John George Diefenbaker: And that is the significance of this section. That is the point I intend to raise in connection with it because it is not going to be fairly applied everywhere across this country. The section reads as follows:
Where an elected officer of an incorporated municipality has been paid by the municipal corporation an amount as an allowance in a taxation year for expenses incident to the discharge of his duties as an elected officer of the corporation, the allowance shall not be included in computing his income for the year unless it exceeds one-half of the amount that was paid to him in the year . . .
The significant words there are: "has been paid", and a little later on, "was paid". Take the situation in some provinces of this country. There is no provision in the legislation of those provinces for an honorarium to include expenses. Take my own province; take the province of Ontario. These provinces have legislation that permits the payment of honoraria, and have had that legislation over the years, but that legislation does not include any provision for expenses as part of it.


Douglas Charles Abbott: Ontario has now amended its statute.


John George Diefenbaker: I am going to come to that. The interpretation placed on that legislation of Ontario already by some of the officials is that it is not effective. At the current session of the Ontario legislature legislation was passed, and I will come back to that in a moment.
As I understand it, with very few exceptions, there are at the present time but one or two municipalities to which the retroactive feature of this legislation will apply. One is the city of Montreal-


Douglas Charles Abbott: That is right.


John George Diefenbaker: The city of Montreal has its own legislation to the effect that an amount is paid as an honorarium which is to include in addition an allowance for expenses. Other municipalities have not that legislation, and the result is going to be that in so far as the retroactive effect of this legislation is concerned the only ones who would benefit from it are the members of the municipality of Montreal.


Douglas Charles Abbott: I think there is one other, or there may be one or two others. There may be quite a few; I do not know.


John George Diefenbaker: Will the minister tell us who the others are?


Mr. Lesage:: Quebec.


Douglas Charles Abbott: I cannot remember them-the city of Quebec.


John George Diefenbaker: I did not know that.


Douglas Charles Abbott: I do not know about the other provinces.


John George Diefenbaker: All right; the city of Quebec.


Douglas Charles Abbott: I am not familiar with the others.


John George Diefenbaker: This is a very good principle. The city of Montreal and the city of Quebec, which was mentioned by the parliamentary assistant, have this legislation. I did not know that, but they have adopted a very farseeing piece of legislation in making that provision. Others have not done that.


Douglas Charles Abbott: They will now.


John George Diefenbaker: Oh, yes. I am speaking about the retroactive effect. That is the important thing here. Others, not having adopted it, are placed in a position where no municipality other than the one or two that have been mentioned particularly will benefit from this retroactively. I think no one wants to bring in legislation that is going to deny municipal officials all the way across Canada the same equality in its retroactive effect.
A while ago the minister said that Ontario has this legislation. At the current session provision was made for a division of the amount to be paid to elected municipal officials. In addition, within that legislation provision was made that the division should be considered to have been retroactive in effect. The amendment states that one-third of .the salary back to 1946 shall have been deemed to have been paid for expenses. When the minister says that that legislation has been passed, that is true. It was passed at the recent session. But according to the officials administering this legislation, the provision is unacceptable to the authorities administering the income tax. While I do

not have them on my desk at the moment, I have seen documents from the treasury branch stating that it is unacceptable.
The amendment will not be fair and reasonable unless the departmental officials administering it will agree that it shall apply wherever a province passes an amendment to its municipal act, and makes in that act a provision whereby whatever honoraria have been paid shall be considered to have been two-thirds honoraria and one-third expenses. Otherwise an injustice will be done to elected municipal officials, everywhere in Canada, with the exception of two or three urban municipalities.
Municipal officials are a group of public servants who, too often, must shoulder the responsibilities of public office, and have but little of the appealing side enjoyed by members of parliament and of legislatures. There are many people who think there are no compensations in public life. The minister would not be here if there were not. There is the satisfaction in the service performed, and in all parts of the house men are giving their services unselfishly and in a spirit of personal sacrifice, knowing that the monetary returns are not great.
From now on, however, municipal officials are to be extended equality with members of the dominion parliament and of provincial legislatures. However, if the retroactive effect of the legislation is to apply only in the case of two municipalities which, in their foresight, made provision some years ago for an actual division as between honoraria and expenses, then I say the section should be amended so as to allow all municipal officials who have received honoraria since 1946 to be placed in the same position as the officials in those two municipalities. There may be more, but the minister mentioned two of them. While I have no knowledge of them, there may be others.
Certainly an appeal to the minister to make a provision to give equality everywhere is not an appeal to special interests. It is not an appeal for any particular individuals. Rather, it is an appeal that municipal officials everywhere in our country shall be treated with equality under this legislation.
The Ontario legislature decided to meet the situation and, as I said, passed legislation at the present session. However, up until the eighth day of April the authorities had not notified the government of Ontario, or the treasury officials of that province, that the amendment would be acceptable in so far as those municipal officials are concerned.
I should like to ask the minister to elucidate the situation. I noticed that he was at great pains to accentuate the situation where the
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vote that had been made heretofore, and prior to the coming into effect of this legislation, covered remuneration plus expenses.


Douglas Charles Abbott: In answer to my hon. friend I would say only this, that this matter was carefully considered and it was decided to make the section retroactive so as to apply to cases where, in fact, the appropriation or allocation of remuneration and expenses had been segregated, and that we were not going to make it retroactive to other cases.


John George Diefenbaker: That is exactly the point I have made, and the minister supports it. My interpretation of the effect of this section is correct. Now I ask him this question: Legislation was passed by the legislature of Ontario, in its recent session, and in which I believe provision has been made that it shall be considered that since 1946 the amount paid for honoraria to municipal elected officials shall be deemed to be divisible by two-thirds as honoraria and one-third as expenses. Is the minister prepared to say that that legislation will be recognized by his department, and that all municipal officials will be retroactively considered for income tax purposes to have received the amount provided for expenses in the legislation passed by the Ontario legislature? If so, I have no doubt similar legislation will be passed by the legislatures of other provinces.


Douglas Charles Abbott: I have before me a copy of the bill passed in the Ontario legislature, adding a section to the municipal act. It is an enabling section. I do not think I shall take the time to read it. However, it does permit municipal corporations, by an appropriate bylaw or resolution, to provide that one-third of the total remuneration, not to exceed $2,000, may be deemed to be expenses incidental to the discharge of the office. I find nothing about retroactivity to 1946 in the bill before me. In any case it would not be competent for the Ontario legislature to make a provision of that kind retroactive for federal income tax purposes.


Donald Methuen Fleming: It is regrettable that when a sound principle is given recognition, such recognition should be open to the complaint that it fails by reason of omission, especially when those omissions are discriminatory in their nature. My colleagues, the hon. members for Vancouver-Quadra and Lake Centre, have drawn attention to two flaws in the section, both of which it seems to me are in their nature omissions, and both of which are discriminatory in their effect.
I wish first of all to say a word about the point raised by the hon. member for Vancouver-Quadra, because I do not think the minister has answered it adequately. He

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referred to the question of the position of elected members of school boards-or, for that matter, elected members of other boards forming part of any municipal government. The minister made the statement, as I understood him, that members of school boards, or school trustees, could always recover their expenses. Speaking of the board of education in the city of Toronto, which has under its charge the biggest municipal school system in this country, I wish as a former member of it to say now that his statement is not correct.


Douglas Charles Abbott: Why can they not? Will not the school board pay them?


Donald Methuen Fleming: Expenses the trustees incur?


Douglas Charles Abbott: Yes.


Donald Methuen Fleming: No; there is no provision made for the payment of expenses of trustees.


Douglas Charles Abbott: There is nothing to prevent the school board paying the actual out of pocket expenses of trustees, and the member of the school board does not have to include that in his income.


Donald Methuen Fleming: I can tell the minister that no provision is made for the payment of their expenses.


Douglas Charles Abbott: That is up to the school board.


Donald Methuen Fleming: It will be interesting to note what will happen in the light of the discussion here today. I can tell the minister that no provision is made for the payment of expenses to school trustees.
Why should a distinction be drawn between elected members of school boards and elected members of city councils? There is no distinction in principle. It is quite true, as the minister has said, that in many municipalities no provision whatever is made for the payment of any form of remuneration to members of school boards or boards of education. That is a matter for the provincial legislatures. But where provincial legislation does permit the payment of remuneration to school trustees or members of boards of education, whatever form the organization may take, I submit that there is no ground whatever that will warrant this discrimination, that will acknowledge the principle of permitting an exemption in a case of this kind for expenses incurred by an elected member of a municipal council and will deny similar exemption to an elected member of a board of education or, for that matter, any other elective office on a municipal board.
Then on the other point raised by the hon. member for Lake Centre, I wish to say that there is a straight case of discrimination. I submit that where it is clearly the

intention of the provincial legislature to permit municipal councils to pass bylaws or resolutions making retroactive the effect of provisions of the kind contemplated in this section, that determination should be acknowledged by the federal authorities and effect given to it. There is not much use passing legislation here which is pictured as being remedial in nature and retroactive if in fact it is going to be given such a meagre and narrow interpretation that even the intent of provincial legislatures with respect to it is to be ignored or even defeated.
Coming back to the point I made at the beginning, here is a sound principle which is recognized in the section. Why cannot we have an unimpaired recognition of the principle? Why must there be these gaps left in that recognition, especially when the result is discrimination?


Stanley Howard Knowles: The minister said earlier in this discussion that this legislation is based on the fact that there is legislation providing exemption from income tax for the expense allowances paid to members of the House of Commons.


Douglas Charles Abbott: To private members.


Stanley Howard Knowles: The minister is reminding us that it does not apply to him. Of course he gets in addition a motorcar allowance of $2,000 which is free from income tax.


Douglas Charles Abbott: That is right.


Donald Methuen Fleming: More discrimination.


Stanley Howard Knowles: As hon. members know, this was granted first to members of the House of Commons. Then it was extended to members of provincial legislatures. Now it is being extended to members of municipal councils. As all hon. members know, when some of our friends in the press gallery have nothing better to write about they write about the remuneration received by members of parliament. This is a subject that is frequently written about. In view of recent press rumours to the effect that some day there might be a change in the basis of remuneration for members of parliament, perhaps involving the elimination of any exemption from income tax; if that were done, what would be the minister's attitude toward these exemptions to elected officers in other jurisdictions?


Douglas Charles Abbott: I must confess that I have not given it any thought up to the present time and would not want to give a snap answer. I think the whole situation would have to be looked at. Members of the committee will recall that the tax-free expense allowance provided to members of parliament was the

subject of some criticism. I felt that that was unwarranted. I happen to know why it was introduced by my predecessor, Mr. Ilsley.
It was introduced at a time when the income tax rates were just about double what they are now. In order to give members of parliament even a reasonable amount for the added expenses which they were incurring, if it were to be made fully taxable it would have meant raising the indemnity to more than double the $4,000 as it then was. So it was decided to use the method of granting a tax-free expense allowance.
If one were able to get the tax scale down to even more modest proportions than it has been possible to do at the present time I may say-I can only express my personal view-that I would not be unduly enamoured of tax-free expense allowances. When it is possible to do it, I think it is preferable to have the income all taxable and such expenses as are involved paid on an actual basis. That is only my personal opinion and I would not want to feel committed to it. It must depend on the circumstances existing at the time. As members of parliament we must recognize that our remuneration is tied in with the expense allowance.


James MacKerras Macdonnell: Do I understand that the minister is not prepared to make a change?


Douglas Charles Abbott: Not this year.


James MacKerras Macdonnell: There are one or two comments I should like to make. It seems to me that the minister has not answered the criticism of discrimination. He has been less than convincing when he says that the phrase "paid by the municipal corporation" applied only to municipal officials and not to members of school boards. I wonder, with the discrimination and inequality that have been pointed out, if it would not be reasonable, in view of the fact that this has an impact on every municipality in the dominion, to ask the minister to reconsider it. It is not an overwhelmingly important point, but nevertheless it is of great importance. I really feel that the minister has not answered the criticism which has been made.


Douglas Charles Abbott: I have tried to answer it but probably have not done so satisfactorily. I am not prepared to state that there is discrimination. My personal experience is that most municipalities do not pay their municipal officials. This work is done voluntarily as a public service. It is only in the larger municipalities where the practice has existed of paying the municipal officials. As I said before, it has always been open to any
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municipal official to receive from the municipality any out of pocket expenses which he has incurred.
This special privilege of a tax-exempt lump sum allowance is being extended for the first time to elected municipal officials. I would want to know a good deal more about the organization of school boards of one kind and another across the country before I would want to extend this principle still further. I do not think I can add anything to what I have said already.


Howard Charles Green: If a member of a school board is elected in exactly the same way as a member of a council, will he not then be eligible for the benefits of this section? I do not see how in fairness the department can get away from the wording "elected officer of an incorporated municipality." How is the department going to be able to step in and say that an alderman is an elected officer and that a member of a school board is not?


Douglas Charles Abbott: If the member of the school board is in law an elected officer of an incorporated municipality he would benefit from the section. In my province he would not because he would be a member of a completely separate corporation. Perhaps this would apply in British Columbia, but it would not in Quebec.


Howard Charles Green: I think in British Columbia the member of the school board is elected in the same way as the member of the council.


Douglas Charles Abbott: It is a matter of the legal interpretation of the section.


Agar Rodney Adamson: Mayors, reeves and members of municipal councils particularly in the province of Ontario, are probably the most overworked and underpaid people in public life in the whole country. I think this is an extremely good principle and absolutely justified. We must also remember that mayors and reeves of most municipalities have to fight an election every year, which I think is archaic in principle.


Douglas Charles Abbott: As I have indicated, I do not like the principle very much, any more than I like it for ourselves, but if we are going to do it for ourselves we may as well extend it to others.


Agar Rodney Adamson: Apparently this section is repeated in section 47.


Douglas Charles Abbott: That is simply for the revised statutes. In effect half of the bill is a re-enactment of the amending provisions for the revised statutes. In all these taxing statutes we have to have a double enactment of the sections because, as my hon. friend knows, we are amending the new revised

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statutes this year. Therefore the section to which he refers is really an enactment of this provision for the purpose of the revised statutes.


Agar Rodney Adamson: I read it rather rapidly. Is it in identically the same language?


Douglas Charles Abbott: It should be, with appropriate references, if necessary, to the revised statutes, but it is the same provision.


Mr. Montgomery:: In subsection 2 it says that this section is applicable to the 1949 and subsequent taxation years. That is the part which is objectionable in my part of the country. The objection is along the lines that the hon. member mentioned a few minutes ago. In New Brunswick, and I think also in the other maritime provinces, there are a few elected school board members and to my knowledge they do not get any remuneration. Most of them are now appointed and are therefore out of the picture. But if you are going to permit officials of certain cities and towns in the dominion to go back and claim for 1946 I think it is discriminatory and unfair to us in those provinces that do not have that legislation. I feel that part should come out of the act, and I voice my objection to it because it is discriminatory so far as we are concerned. With respect to the future, that is a different matter. I agree with the principle.


Douglas Charles Abbott: I cannot add anything to what
I	said to the hon. member for Lake Centre on that point.


[Stage Direction]
Section agreed to.
On section 3-Employer's contribution to pension funds.
Donald Methuen Fleming: There is a point I should like to raise with respect to pension funds. I should like to urge on the minister that the time has come for some review of the whole position of pension funds in relation to section
II	of the Income Tax Act. The minister has received extensive representations this year with a view to broadening the provisions of section 11 of the act. I am sure there is nothing I can tell him on that subject that he does not already know. I have seen something of the briefs that have been submitted to him. The representations are along this line, that section 11 is much too limited in its scope at present and that the time has come when it should be extended to groups other than simply employees. There is a broad range of people in this country who are members of various kinds of groups who do not fall under the classification of employees, and no provision whatever is made for them at the present time in this law in relation to
TMr. Abbott.]
any pension plan that they as members of professional, labour or business associations may choose to set up.
Representations have come to the minister along this line proposing quite detailed provisions to deal with such cases. These representations come from responsible organizations and quite broadly representative associations. I know of one representation that was made to the minister on behalf of a group of such associations which included the following:	The Associated Dentists
Co-Operative, the Association of Professional Engineers of the Province of Ontario, the Canadian Dental Association, the Canadian Institute of Chartered Accountants, the Canadian Medical Association, the Certified Public Accountants Association of Ontario, the Commercial Travellers Association of Canada, the Daw Society of Upper Canada, the Royal Architectural Institute of Canada and the Toronto stock exchange.
There are ample safeguards that are possible. 1 know the minister has been somewhat concerned about trying to hedge any such extension of the scope of the legislation with ample safeguards. Many safeguards have been proposed, many of them of a quite practical nature which will in my view, after some study of the plans, adequately prevent any abuse of plans of this kind. There is comparable legislation in the United States congress. It seems to me without labouring the point-and, as I say, I am not speaking on it at length because the minister is already fully familiar with it-that effect should be given	to representations of this nature
and that the law should be amended to enlarge the present scope of section 11 so that organizations of the kind I have mentioned, including business associations as well as bona fide professional associations, would have the benefit of it.
Indeed, the scope of the proposed amendment would extend its benefits, according to the submission that has been made to the minister, in these words, to "bona fide agricultural, labour, business, industrial or professional associations, or similar organizations." I am aware that the minister has not said a final no to these representations and I am glad that he has given some indication that he is prepared to give the matter further consideration. For my part I should like to say that I hope as a result of further study a way may be opened up for amendment of section 11 at an early date that will enlarge the scope of its beneficial effects.


Douglas Charles Abbott: I thank my hon. friend most sincerely for raising this most important question because, as he has said, it is one that has been engaging the attention of myself and my

officials for a number of years. I decided that this year I should like, if the occasion offered, to make a considered and somewhat detailed statement as to the progress that we have made up to this time in considering this important question.
During the past year I have received, as my hon. friend has said, quite a number of requests from professional groups urging amendments to the Income Tax Act which would allow a deduction for income tax purposes similar to that now provided for employee contributions to approved pension plans. In effect, the substance of these requests is for tax postponement on savings devoted to the purchase of retirement annuities. This request, although supported by a wider group this year than ever before, is of course by no means new. It has been put forward each year, I think, over a considerable number of years and, as I say, a great deal of attention has been given to it both by myself and by officials of my department. But I have not yet been satisfied that I should recommend to the house this new departure in principle under the Income Tax Act. As I said at the outset, I welcome this opportunity to give the house some of the reasons for the position I have taken on the matter.
First of all I should like to explain how it comes about that employees are given a deduction for their contributions to approved pension plans. Some solution had to be found to the purely technical problem of preventing double tax on pension income. All would agree, I think, with the general rule that income should not be taxed both when it goes into the fund and again when it is paid out. A decision had to be made as to when such income should be taxed. As the committee will recall, following the Ives commission report some years ago we adopted the uniform system of taxing pension income when it is received as a pension out of the fund and freeing from tax, up to certain defined limits, income paid into the fund.
Personally I think that was a wise decision, for the alternative would have meant taxing income when paid into the fund, that is, taxing the employee in a year on income which in fact he never received in that year, the employer having deducted the proper amount from his wage or salary and paid it directly into the pension fund. Likewise, the employee does not receive currently that which the employer contributes on his behalf into the fund. It would have been a still greater anomaly to have required the employee to include in his income for tax purposes this additional amount placed to his credit by the employer in the year in which he actually earned this benefit. These are
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problems which were avoided by the principle of taxing only at the time the employee received his pension.
It is seen, therefore, that tax postponement for employees was introduced to solve the technical problem of removing double taxation and to avoid taxing employees on benefits earned in a year but in respect of which no cash equivalent was received in the year. I might now point out that neither of these problems exists in the case of the professional groups which have asked for tax postponement on savings; that is, their income is not now taxed twice and they are not taxed on income not actually received or receivable in the year. Accordingly, tax postponement granted to them would be a purely gratuitous measure of tax abatement not justified by the necessity of meeting technical problems in the taxing statute.
I think it is fair to say that, although the government is interested in seeing pension plans adopted in industry, the tax postponement feature did not arise out of a policy designed specifically to give positive benefits to taxpayers. Rather it was adopted to remove existing tax obstacles to the reasonable operation of pension plans. In view of these facts it is not very effective, it seems to me, to attempt to argue by analogy that, because employees have tax postponement as a solution to their particular problem, therefore self-employed persons should likewise have it in respect of their voluntary savings.
Much of the discussion of this subject alleges that the existing provisions discriminate unfairly against the self-employed who cannot participate in a pension plan. It might be suggested, I think, that this difference in the relative positions of the two groups can very easily be exaggerated. Some aspects are frequently overlooked. For example, those who devote their savings towards the purchase of endowment policies or annuities receive very reasonable tax treatment in that they are never taxed at all on the interest earned by the funds paid in right up to the date of maturity of the endowment or annuity contract. The employee in a pension plan, however, pays tax on all the interest earned on his payments into the fund right from the day of his first instalment payment. This, I suggest, is an extremely important difference in the two situations, and is one that is rarely recognized by those arguing for the benefits of pension plan legislation. Furthermore, in the case of the employee who put his savings into a pension plan, those savings are com-nletelv locked up and are not available to him in the ordinary course of events. The self-saver, on the other hand, always has his assets in a form available to him for emergency or for convenience. There is, of course,

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no double taxation of funds used by the self-saver to purchase an endowment or annuity because the proceeds of their savings at maturity are tax free whether taken in a lump sum or in the form of an annuity. I suggest that an objective comparison of the relative positions of the two groups raises some question about accepting too readily the view that the self-employed are discriminated against.
Most of the requests which I have received for amendments to allow tax postponement on savings have come from well organized professional groups with national organizations. It seems clear, however, that once the law departed from its present principle of confining tax postponement to employees there would be no logical stopping point short of allowing this privilege to everybody, not merely to the self-employed but also to all employees who are not now covered by pension plans. The fact that certain groups have professional status with well recognized national organizations could not, I think, be regarded as a proper criterion for securing particular benefits under tax legislation. It is, therefore, on this basis of general applicability that I have had to consider this question of allowing tax postponement for savings.
The implications of such a move are extremely far-reaching. It is difficult to know what volume of savings would be attracted by this immediate monetary incentive, but I am inclined to think it would be extremely substantial. Most people, I think, would feel that they could not readily forgo immediate dollar savings of quite substantial proportions in their annual income tax bill if the proposal were adopted. It should be remembered that the funds devoted towards the purchase of retirement annuities would not necessarily have to come out of additional savings, as is the case where employees have contributions deducted from current wages and salaries. In the case of the self-employed person, who generally will have some other capital assets, he could secure the tax saving by merely changing the form of his assets. He could, for example, sell stocks and use the proceeds as an instalment payment on a retirement annuity. Again, it is not easy to estimate to what extent there would be a transformation in the form of capital assets now held by the ordinary citizen. However, whatever the volume of this switching of assets, it would be significant, I think, that under our tax structure monetary incentives would be offered for Canadians to invest their savings in a direction where the persons utilizing them would invest them almost entirely in debt or fixed interest bearing securities. I am not sure that at this stage of Canada's development I would like to take the responsibility

for directing the savings of the Canadian people away from equities into debt securities. To me this would be an ill-advised policy in a country where there is such an enormous demand for risk capital for the development of our country and where the opportunities for participating in the growth and development of our country are so important.
Now, Mr. Chairman, these are some of the reasons which have caused me to hesitate about accepting the representations which have been made to me on this question. As my hon. friend from Eglinton has pointed out, I do not regard myself as in a position to be dogmatic about the matter, but I do feel that the implications of allowing tax postponement which encourages savings in special directions are such as to warrant the most careful study. As I said at the outset of this statement, I have not felt that I wanted to take the responsibility for such a far-reaching move at this time.


Donald Methuen Fleming: I am sure the house appreciates that the minister in his statement has been as comprehensive as he has in the review of the problem. However, I may say that I am disappointed in the attitude it indicates, because I had hoped the minister was more open-minded on the subject.


Douglas Charles Abbott: I have not taken a final position but the difficulties, the inequities, still appal me.


Donald Methuen Fleming: I did not say there were no problems attached to it, but the emphasis is laid on the problems and the minister minimizes the desirable objectives attached to it. The statement does leave me with some sense of disappointment and I wish to mention very briefly several of the points which the minister has made. I am not going to attempt a detailed refutation of all the points he has made-


Douglas Charles Abbott: I put them forward for consideration, as my hon. friend will appreciate.


Donald Methuen Fleming: Quite. In the first place, the minister has sought to distinguish the position of the employee because whatever is paid into the pension fund as his contribution does not come into his own hands in the form of income. I think that is not an accurate statement. It may well be that the money does not come into the hands of the employee and flow through those hands into the fund, but by arrangement with the employer the employee's pension contributions go directly from the employer into the pension fund. Surely that distinction is a matter of form only and not a matter of substance. There is no essential distinction in that regard between the case of an employee's contribution to a pension fund and that of a self-employed person.

Then there is the point made by the minister with regard to discrimination. I think, in the light of the discussion this afternoon, that I am just as allergic to any form of discrimination as the minister is, but, Mr. Chairman, if the principle is sound that the type of remedial legislation which I have been advocating should not be confined to members of bona fide associations or organizations, all right. Then let us have that wider recognition of the principle-but I do say that the principle is sound.
The reason this matter comes before the minister in the present form, namely a request on behalf of certain bona fide types of organizations, is that it was possible through such organizations to guarantee that there would not be abuses and to assure that the pension funds that would be established would be bona fide pension funds, that the contributions would be made into those funds and that the benefits would be such as were indicated by those responsible for the administration of the funds.
There is nothing unusual about that. That is part of the web and woof of the whole recognition in section 11 of the Income Tax Act of the pension fund; because it is not every pension fund existing today, even as between employer and employee, that is recognized for the purposes of section 11 by the minister. It is only those that are approved. This is not a question of discrimination at all. It was a question of guaranteeing the existence of such factors as will win the approval of the minister, just as you have provision made for approval by the minister under section 11(g) in the present act.
Let us consider further for just a moment the scope of the type of recognition that is being asked. It was proposed that it should be extended to bona fide agricultural, labour, business, industrial or professional associations or similar organizations. Let us take the case of a labour union today. If a labour union, within its own organization, decides to set up some form of pension or annuity scheme for its own members, their contributions thereto are not treated as exempt under section 11. Then let us take an agricultural organization. If a group of farmers in a bona fide organization decide to set up a pension plan, their personal contributions to that pension plan do not win any form of exemption under section 11 today. But the employee of an employer finds himself in a favoured position, notwithstanding what the minister had to say-which I think is a matter of form and by no means a matter of substance- because the contribution does not go into the hands of employees but goes direct from the employer into the pension fund. That is no basis of distinction in principle at all.
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Douglas Charles Abbott: My hon. friend wants to be fair. My real basis of distinction is why should one form of saving be singled out for tax postponement. That is the fundamental consideration.


Donald Methuen Fleming: That is the basis upon which the minister started his statement. I took the key struck by the minister in the opening part of his statement. I think there is no basis of distinction between the pension fund created by employer and employee on the one hand and the pension fund created by bona fide organizations on the other.
The recognition given by the act today, which the minister has defended in its limited terms, is confined to this particular situation, employer-employee pension funds-and not even all of those because they still must meet certain yardsticks laid down by the department before it will give its approval.
I do not wish to use the word "discriminatory" as applied to the present legislation. It is a very limited form of recognition of a principle that I think the government ought to encourage, namely the provision by people for their needs in the case of retirement. It is a very sound form of security that uses fiscal methods that are open to the minister in the form of the income tax to encourage people to provide for their old age, the days when after retirement they cease to be earning an income for their own support.
Here is a method at hand, it seems to me, not on the basis of discrimination but on the basis of the extension of a provision that has been recognized today and is fully established within the scope of the Income Tax Act. So far as I know, nobody has questioned the principle involved in section 11(f) and (g). It has never been questioned. It is accepted by everybody. It is fully established. If that principle is sound-and I think every member of this committee would say it is sound-I think there is no adequate answer to the plea that that sound principle now ought to be more widely extended.
I wish therefore to urge it again. I hope that the minister will see more merit in the proposal and fewer difficulties than he indicated in his comprehensive statement today, and that very soon we shall see an effort made, which will take the form of an amendment to this section, to give the kind of encouragement I have spoken of to pension funds established by bona fide agricultural, labour, business, industrial or professional associations or similar organizations.
I read earlier an enumeration of certain organizations who were parties to the submission of the brief to the minister. I want to make it quite clear to the committee that

Income Tax Act
they did not ask it for themselves alone. They were not seeking any discriminatory advantage for themselves. They were simply putting before the minister a case for the recognition, within this principle to which I have referred, of all organizations within the type of bona fide organizations to which I have referred. Let there be no thought in the mind of any hon. member that these organizations were seeking some selfish or discriminatory advantage.
Mr. Chairman, I submit that the principle Is sound and that it is worthy of extension. Many of these problems which the minister raised in his statement this afternoon it seems to me are capable of being dealt with by the application of the ingenuity that exists within the Department of Finance and the Department of National Revenue on the administrative side. They have overcome many other problems. This one is not free from difficulty, but I am convinced that, if there is a will here, a way will be found to overcome any administrative difficulties that the minister's statement may have conjured up.


Douglas Charles Abbott: May I just add a word here. I made my statement today in the hope that it would be subjected to close critical analysis not only by members of the House of Commons but by members of the legal and accounting professions and those who are as interested in this question as I am. I hope that it will be given that kind of analysis.


James MacKerras Macdonnell: I just want to add a word. I am impressed by the difficulties outlined by the minister, but I share the feeling of the hon. member for Eglinton in the picture as he just presented it of this being purely a technical question by reason of the fact that the money did not go into the hands of the pensioners. That seems to me to be technical. The more substantial difficulty does seem to be that of distinguishing between the various kinds of funds.
The one point I wish to make is as to the reality of the problem. With the steeply graduated income tax we all know how difficult it is, even for people with substantial incomes, to save. When the minister spoke about the position of the class that we are talking about now, and mentioned their shares, their bonds and the difficulty of administration because of the changing about of those, may I say that after all that applies to only a small fraction of those we are talking about. We are really talking about people who, as things stand now, find it extremely difficult, as the hon. member for
[Mr. Fleming.)
Eglinton has said, to provide for their security, but who would like to do it notwithstanding the fact that the difficulties are great. I take it from the minister that he is pursuing the inquiry and that it is going to be earnestly pursued.


Douglas Charles Abbott: As my hon. friend knows they have a similar problem in the United States, because their system is somewhat similar, and they have not been able to solve it either. I have asked myself, if we are going to do that, why we should not allow the deduction of premiums on endowment policies and some of these other things. The thing is filled with complexity. I can assure the committee that it is far from one of those simple open and shut cases.


Edmund Davie Fulton: I think we should all approach this matter in the spirit in which the minister has left it; that is, he has given us a statement on which he is going to welcome suggestions and analysis. Perhaps it is a little premature to be suggesting that we are offering a detailed consideration of the matter, because we have not had the opportunity of studying it. I should like to ask the minister whether he himself will not give more consideration- to, and perhaps indeed a further elaboration of, the statement he made at the beginning or near the beginning of his presentation, that to extend the principle of tax postponement on payments into pension funds to those who are self-employed would be a new departure in principle.
I would ask him to consider that very carefully because it seems to me it is important to be clear as to whether it is in fact a departure in principle or merely an extension of an already established principle. The mere fact that money paid into a pension fund in the case of approved pension plans under an employer-employee arrangement is paid directly by the employer into the fund instead of going through the hands of the employee to me is not really a differentiation in principle from the -case where a selfemployed person receives the income and then pays into a pension or retirement fund which he is trying to set up for himself. The fact is, and I am sure the minister will not question this, nor anyone else, the portion of his wages which is paid on behalf of the employee into the pension fund is nevertheless wages.


Douglas Charles Abbott: That is right.


Edmund Davie Fulton: Surely no one would deny that it is wages; and if it were not for the provisions of section 11 it would be taxable income as wages or salary or earnings.

Well, now, in the case of a professional or a self-employed person-let us not confine it exclusively to the professions-a person who is carrying on a small contracting business is certainly not a professional man, but he is not very far removed from the status of an actual wage earner. He is in fact contributing to the development of the country, and he is providing employment for others. Yet just because he is self-employed, his payments into the pension plan or retirement plan which he is trying to build up for himself are not tax-postponed. I cannot see that there is any distinction in principle, because the moneys he pays into the fund form part of his general earnings at the beginning, and then are paid out by him. I cannot see any distinction in principle there from the fact that the moneys paid into an approved pension plan on behalf of the employee are in fact part of his wages, but instead of being paid by him are paid into the pension plan.
I think that is an important hurdle to overcome. That is why I think it is worth while doing some fairly close reasoning on it. I would ask the minister to do some more, because it seems to me if it could be agreed that this is not a departure in principle, as he suggests, but merely an extension of an already established principle, perhaps the first and most important hurdle would have been overcome.
As to one of the other difficulties raised by the minister himself, namely that to make this extension would perhaps open up very wide fields of conversion of savings into interest-bearing securities rather than into equity capital, I would ask the minister whether he does not think a practical solution and one not causing very great difficulty would be found by placing the same limitation on the amount that might be paid into selfemployed persons' pension funds as I understand is now placed on the amount of employees' earnings; that is, a ceiling on the amount that may be paid into the pension fund and thus on which the tax is postponed. Surely the difficulty seen by the minister and stated there would be very real if there were no limitation on the ceiling, so that all savings might eventually be channelled into a new form of investment. But if you placed a ceiling on it-and I believe all the plans that have been suggested do envisage a ceiling-it seems to me it cuts down that difficulty very considerably.
May I just add a word on that one point. It does seem to me hardly a valid objection for the minister to raise that difficulty in the way of making a tax exemption for payments
Income Tax Act
into pension funds by self-employed persons, when in fact he does not appear to view with alarm the present situation with respect to the investment of pension plan funds which are established for employees. In other words, the point I am trying to make is that the pension funds established under an employer-employee relation on which there is a tax exemption are invested now, as I understand it-certainly a great majority of them are- in interest-bearing securities. I should doubt very much whether any one of these approved plans would be open to investment in equity capital or common stocks. If the minister is prepared to contemplate that form of investment in interest-bearing securities, then why is he so horrified at the idea that this type of pension plan might also have its funds invested in non-equity capital? It seems that what is fair for one is fair for the other, and the difficulty is greatly diminished when you realize and place on the new proposal the same relative ceiling that now applies to the old one.
I want to express realization of the fact that there are difficulties, and that no one can ask the minister to make any sudden or snap decision. It is obvious that the matter has been considered by him most carefully for some time. Perhaps, however, one might be permitted to express here the hope that, as the minister himself has indicated, he may not be occupying the position he now holds for very much longer-


Douglas Charles Abbott: A little new blood would do no harm.


Edmund Davie Fulton: -he too will be concerned about leaving for himself a lasting monument in the affections of the Canadian people by taking at least one forward step along the lines that we are now urging.


Douglas Charles Abbott: I thank my hon. friend for his generous reference. I do not think I shall attempt to discuss this admittedly very difficult problem any further today. He has raised one or two very relevant points. If such a plan as he was discussing were to be introduced it would be necessary to impose a ceiling. I think what has been asked is double the present ceiling, because the selfemployed would be providing not only his own contribution but the employer's contribution as well.
With respect to the question of trustee funds, I am told that in the United States some of them are now deciding to invest the pension funds in equities. There are all these factors; but the problem which has caused me the great difficulty is what particular type of savings we would single out for this tax

Income Tax Act
postponement. I tried to make clear in my statement that the discrimination against the self-saver is not as great as it might appear to be on the surface. I hope we shall have a further discussion about this at some other time. The purpose of my statement was to put forward certain considerations which I believe are very relevant to this matter, and that they should be subject to careful and serious critical analysis.


James MacKerras Macdonnell: As a matter of interest, are approved pension funds now required to be invested in trustees' security?


Douglas Charles Abbott: If they are trustee plans I am told that is the case, yes.


Mr. White (Middlesex East):: I do not know whether this is the exact time and place that I should ask this question, but on the budget debate I pointed out that there were a number of concerns and firms that were adopting profit-sharing plans, and the problem arises of deferring the payments to employees for some considerable time. To encourage some firms to introduce this type of plan some suggestions were made to the minister. Will he comment at this time?


Douglas Charles Abbott: Those plans, as I recall it, are not plans where there is any pension element at all. It is merely, as my hon. friend said, profit sharing. But the shareholder does not get profits in cash. They are accumulated to his credit on the books of the company. Under those circumstances we have never given tax postponement for deferred profit sharing. I think that would be a real departure in principle which it would be difficult to justify in respect of other taxpayers. The plans are probably very desirable plans. But, whatever they may be, we do not feel we could justify recommending taxation postponement in connection with them. The immediate sharing of profits is not paid out in cash, but it is paid out at a later date.


[Stage Direction]
Section agreed to.
Section 4 agreed to.
On section 5-Amount received by broker to be included.
Douglas Charles Abbott: I have some amendments. Perhaps before moving them I might give a brief explanation, unless some other hon. members would wish to speak first.
The actual form of the amendment is somewhat technical because two or three sections are involved, but what the section in the bill intended to accomplish was this: As the committee knows, brokers carry stocks in street names, and receive dividends on those stocks. They do not know at the time

to whom the dividends belong. They set them up in their books as liabilities. The section as contained in the act provided that they would have to pay tax on the dividends in the future, and the right to claim deduction-


James MacKerras Macdonnell: What has happened in the past in this connection?


Douglas Charles Abbott: I am told that in the past they have just been carried on the books, and in some cases have been taken into the incomes of the firms. The original proposal was that in future these dividends would have to be taken into the firms' incomes and be subject to tax, but that when paid out to the real or actual owners, deductions could be claimed.
We have now received representations from some of the leading members of the profession, and from officers of the stock exchange, in which they tell us that, in fact and in law, they do not consider these funds to be their funds. They carry them on their books as a type of trust fund, but they do not consider that they can ever go into their accounts as income to the firms or to the brokers.
They have been informed by their legal advisers that there is no statute of limitations applying with respect to these receipts, and that there is always a claim there. Under those circumstances the proposed amendments will provide that they will take the full amounts standing on their books as being income held for undisclosed principals. They will deduct 25 per cent as a withholding tax at the source. Then they will continue to hold the moneys to their credit in the books. When an undisclosed principal comes forward, if he ever does, and claims a payment of dividends accruing to his credit, he gets them and he takes credit for the 25 per cent which has been withheld at the source. And if by any chance his effective rate of tax were less than 25 per cent he would get a refund.
That is the plan being substituted for what is contained in the bill now before the committee. It seems to me that it meets the position taken by the recipients of these dividends, that they have never belonged to them. On the other hand it is clear that they are income belonging to someone. So it has seemed reasonable to provide for a withholding tax of 25 per cent, which the real owner can claim as a credit if and when he gets the dividends.
That is the way in which it will operate. As I say, that withholding tax will not be exigible until the 1954 period. And, if one may use a slang expression, if it should

develop that there are some bugs in this thing which we do not now see, there will be ample opportunity to correct the inequality. But the essential thing we are trying to do is to be fair in these matters, but at the same time to get a tax on what admittedly is income subject to tax.
That is the purpose. I have a number of amendments to move but, before doing so, I would be prepared to listen to any questions hon. members may have to ask.


Donald Methuen Fleming: May I suggest it might be better if we could see the amendments before we attempt to ask questions. The changes involved in the amendments, as outlined by the minister, will have to be considered carefully. It is now two minutes to five and, as no doubt we will proceed with the discussion of public and private bills at five o'clock, perhaps the minister would be prepared to let this section stand until this evening, so we could examine the amendments in the meantime.


Douglas Charles Abbott: I think that is an excellent suggestion. I shall ask one of my colleagues to move the three amendments. The first of these is that section 5 of Bill 228, to amend the Income Tax Act, be deleted. That is the section we now have under consideration.
Then the second amendment is that sections 6 to 19 inclusive be renumbered as sections 5 to 18, respectively. That is purely a clerical change.
Then the substantive amendment is as follows:
That the following clause he inserted as clause 19 thereof.
"19. (1) Section 44 of the said act is amended by adding the following subsections thereto:
' (4) Where an amount has been received by a broker or dealer in securities in the period of twelve months immediately preceding a taxation year as or in respect of dividends or shares the beneficial ownership of which is unknown to him at the end of the taxation year, the broker or dealer shall remit an amount equal to 25 per cent thereof to the Receiver General of Canada at such time as may be prescribed on account of the beneficial owner's tax under this part or part II for the taxation year in which the dividend was received by the broker or dealer.
(5) Where an amount has been remitted to the Receiver General under subsection (4), it shall for all the purposes of this act be deemed,
(a)	to have been received by the beneficial owner of the dividends, and
(b)	to have been deducted or withheld from such amount as would otherwise be payable by the broker or dealer to the beneficial owner in respect of the dividends.'
(2)	This section is applicable to the 1954 and subsequent taxation years.
(3)	Where an amount has been received by a broker or dealer in securities in the 1952 or a previous taxation year as or in respect of dividends on shares the beneficial ownership of which is unknown to him at the end of the 1954 taxation year, that amount shall, for the purposes of section
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44 of the Income Tax Act as amended by this section, be deemed to have been received by him in the period of twelve months immediately preceding the 1954 taxation year."
I shall ask one of my colleagues to move these amendments. At the same time I would ask him to move the corresponding amendments to comply with part II of the bill, the sections covering the revised statutes.


Mr. Fournier (Hull):: I move accordingly. I also move:
That the following clause be added to the bill as clause 64 thereof:
"64. (1) Section 47 of the said act is amended by adding the following subsections thereto:
' (4) Where an amount has been received by a broker or dealer in securities in the period of twelve months immediately preceding a taxation year as or in respect of dividends or shares the beneficial ownership of which is unknown to him at the end of the taxation year, the broker or dealer shall remit an amount equal to 25 per cent thereof to the Receiver General of Canada at such time as may be prescribed on account of the beneficial owner's tax under this part or part III for the taxation year in which the dividend was received by the broker or dealer.
(5) Where an amount has been remitted to the receiver general under subsection (4), it shall for all purposes of this act be deemed,
(a)	to have been received by the beneficial owner of the dividends, and
(b)	to have been deducted or withheld from such amount as would otherwise be payable by the broker or dealer to the beneficial owner in respect of the dividends.'
(2)	This section is applicable to the 1954 and subsequent taxation years.
(3)	Where an amount has been received by a broker or dealer in securities in the 1952 or a previous taxation year as or in respect of dividends on shares the beneficial ownership of which is unknown to him at the end of the 1954 taxation year, that amount shall, for the purposes of section 47 of the Income Tax Act as amended by this section, be deemed to have been received by him in the period of twelve months immediately preceding the 1954 taxation year".


The Chairman:: It being five o'clock, we shall proceed to the consideration of public and private bills.



PRIVATE BILLS


[Stage Direction]
Bill No. 317, for the relief of Joyce Elizabeth Purves Jones.-Mr. Winkler.
Bill No. 318, for the relief of Marjorie Euretta Adams Mattinson.-Mr. Winkler.
Bill No. 319, for the relief of Myrtle Norma Epps Stewart.-Mr. Winkler.
Bill No. 320, for the relief of Joseph Alexandre Hyppolit McLish.-Mr. Winkler.
[Stage Direction]
Private Bills
Bill No. 321, for the relief of Taschereau Pierre Charles Joseph Rodier.-Mr. Winkler.
Bill No. 322, for the relief of Berniece Gertrude Doran.-Mr. Winkler.
Bill No. 323, for the relief of Florence Mildred Fine Crelinsten.-Mr. Winkler.
Bill No. 324, for the relief of Gerard Richer. -Mr. Winkler.
Bill No. 325, for the relief of Thomas John Rivet.-Mr. Winkler.
Bill No. 326, for the relief of Dorina Perel-roizen Wallerstein, otherwise known as Dorina Perlraizen Wallerstein.-Mr. Winkler.
Bill No. 327, for the relief of Gabriele Laure Josephine Girard Steinbach.-Mr. Winkler.	.
Bill No. 328, for the relief of Reine Cesarine Berthe Laborgne Deyglun.-Mr. Winkler.

[Stage Direction]
The house resumed, from Tuesday, April 7, consideration in committee of Bill No. 189, to incorporate Mid-Continent Pipelines Limited-Mr. Larson-Mr. Robinson in the chair.
Sections 1 to 5 inclusive agreed to.
On section 6-Power to construct and operate pipe lines.
Howard Charles Green: Mr. Chairman, would you read the amendments which were made to this section in the standing committee on railways, canals and telegraph lines?


William Alfred Robinson: In line 14 the words "or outside" have been deleted; in line 19 the words "and/or international" have been deleted; in line 26 the word "all" has been added after "that" and the words "the main" and "line or" have been deleted.


Edmund Davie Fulton: Is the effect of the amendments to the section such as to require the construction of the whole line within Canada?


William Alfred Robinson: I am afraid I cannot give an opinion on that. The most I can do for the hon. member would be to read the section as amended.


Howard Charles Green: I do not think there is any need to do that. I moved these amendments in the committee and they were accepted. The purpose was to provide that all the pipe lines installed by this company would be entirely within Canada.


[Stage Direction]
Amendments agreed to.
Section as amended agreed to.
[The Chairman.!
Sections 7 to 11 inclusive agreed to.
Bill reported.
Mr.   Baler@for Mr. Larson: the third reading of the bill.


Mr. Fullon:: By leave.
Motion agreed to and bill read the third time and passed.



CANADA ELECTIONS ACT


[Stage Direction]
The house resumed, from Friday, March 27, consideration of the motion of Mr. Adamson, for the second reading of Bill No. 224, to amend the Canada Elections Act.
Agar Rodney Adamson: The Minister of Citizenship and Immigration (Mr. Harris) moved the adjournment of the debate. I do not know whether he wishes to proceed, and I am entirely in his hands. Otherwise I am perfectly willing to have this stand.


Mr. Harris:: On a point of order, I would prefer to let the matter stand.


Mr. Speaker:: Stands.
The business under private and public bills having been exhausted, the house will continue with the business which was interrupted at five o'clock.



INCOME TAX ACT

[Stage Direction]
The house resumed consideration in committee of Bill No. 228, to amend the Income Tax Act-Mr. Abbott-Mr. Robinson in the chair.
On section 5-Amount received by broker to be included.
James MacKerras Macdonnell: May I remind the minister of the arrangement whereby section 5 was to stand until eight o'clock.


Douglas Charles Abbott: That was our arrangement to enable the committee to study the amendment.
Section stands.
On section 6-Interest on bonds.


Donald Methuen Fleming: I am aware of the difficulty which necessitated this section, and I am not going to quarrel with the method of solving the problem presented by the purchase of securities in the middle of the interest period, as proposed by the new section 19A. However, a question does arise with respect to subsection 2, which provides that the new section is applicable to the 1952 and subsequent taxation years. It is to be made

retroactive, in other words, for only one year, and that creates the problem.
It seems to me that the retroactive provision should not be limited to the year 1952, because there are others in years prior to 1952 who have undoubtedly consistently filed and reported their income by including accruals on sales and deducting accruals on purchases of interest-bearing securities. I would submit to the minister for that reason that the retroactive effect of this remedial legislation should not be confined to the year 1952 but should be extended further back. In other cases in the bill we have retroactive provisions extending back even to the year 1946, so I do not think there is any problem at all in the way of extending the retroactive operation of the new remedial section 19A to an earlier year.


Douglas Charles Abbott: In point of fact it was not possible to introduce this provision prior to 1952, and it did not affect anybody on an accrual basis. I am informed that by making it applicable to the 1952 period, which is last year, it will cover all proper cases.


Donald Methuen Fleming: What the minister has said may offer a practical solution to the problem. Can we have the assurance that no attempt will be made to go back of the year 1952 in order to assess income in the form of accruals of interest on the basis on which they have been in process of being assessed within the past few months in the light of a certain decision, against the effect of which the new section 19A is devised?


Douglas Charles Abbott: I am informed that the problem will not arise in practice, that up to 1951 that was the way it was handled.


Donald Methuen Fleming: In other words we have the assurance that if we pass the legislation in the present form there will be no attempt to apply to 1951 and earlier years the effect of the decision against which this new section is intended to relieve the taxpayer.


Douglas Charles Abbott: That is my understanding. It is to ensure continuity.


[Stage Direction]
Section agreed to.
Section 7 agreed to.
On section 8-Dependent children.
Stanley Howard Knowles: Clause 8 is one that we all welcome. It provides that the exemption for a child attending a school or university shall continue even when the child is over the age of 21 years. When we were on clause 1 of the bill the minister indicated that he was making the provisions of that clause retroactive because in his view an inequity had been suffered. May I ask why that same principle is not applied to this clause? Some of us feel that parents have suffered an inequity for a 68108-235i
Income Tax Act
number of years because they have not been allowed this exemption where the children concerned were over the age of 21 years. Why is it that an inequity in one place is taken care of by retroactive legislation but not in another?


Douglas Charles Abbott: This is a new provision. It is being put in the act as a new provision. We are making progress in this case. In the other case to which my hon. friend refers, that provision was made because the people who incurred the liability were really misled. Nobody was misled about this provision. I am personally affected. If it were made retroactive I would get an extra $400 exemption last year, but I am not going to make it retroactive. It starts with the current year.


Mr. Browne (St. John's West):: During the discussion at the resolution stage a question was raised with the parliamentary assistant with respect to whether there are any regulations defining what attendance at a school or university is going to mean. There are some cases where the person is attending a conservatory of music and he is not there all day long because he has to spend most of his time practising.


Douglas Charles Abbott: It will be a matter for the courts to determine if there is a difference of opinion between the taxpayer and the taxing authorities. I would not attempt to interpret it. It is intended to have a very broad application, but the person must be in fulltime attendance at a school or university.


[Stage Direction]
Section agreed to.
On section 9-Medical expenses.
Stanley Howard Knowles: Assuming that it is not possible to persuade the minister to make a further change in this matter at the present time, I rise to serve notice on him, or whoever may be minister of finance when he lays down that portfolio, that I for one intend to keep up the effort to get the floor under medical expenses allowed as deductions for income tax purposes wiped out altogether. Naturally we welcome the change that is being made in that the floor is being reduced from 4 per cent to 3 per cent. We welcome that change even as we welcomed the change back in 1944 when Mr. Ilsley saw fit to reduce the floor from the original 5 per cent to 4 per cent after considerable agitation on the floor of the House of Commons.
I still find it impossible to follow the argument of the Minister of Finance that there is anything sacred about what he calls the average of medical expenses, as though that average should provide a floor of this kind. When a Canadian taxpayer is hit with medical expenses-and when these expenses hit they

Income Tax Act
are usually quite substantial-it is no consolation to him to be told that the extra bills with which he is confronted are just the average, up to 3 per cent of his income. The plain fact of the matter is that when such expenses hit, particularly when they come unexpectedly, the average Canadian is not in a position to meet them. I think it is pretty generally held that it would be only fair to wipe out the floor altogether and grant medical expenses right from the first dollar as deductible for income tax purposes.
I should throw in the qualifying sentence that I do not disagree with the ceiling the minister has placed on this exemption, even as he has a ceiling on charitable donations, but to me there is no justification whatsoever for the present floor. I did not happen to be here at the time the budget debate was in process. It was unfortunate; but it so happened that because I was not able to be here, because I was back home, I was able to get right away the reaction of the man in the street to the budget as a whole and to its various items. I can tell the minister that there was a great deal of disappointment on the part of ordinary Canadians that he only reduced the floor from 4 per cent to 3 per cent instead of wiping it out altogether.
Canadians have not forgotten the fact that a year ago the House of Commons supported a motion which went as far as a private member's motion could go in asking that consideration be given .to the complete removal of the floor, and that the minister did not see fit to remove it.


Douglas Charles Abbott: Because the minister allowed that motion to be put to the house.


Stanley Howard Knowles: We have been over that.


Douglas Charles Abbott: He will not make that mistake again, I can assure you. It has been misrepresented ever since.


Stanley Howard Knowles: The minister must have known what he was doing when he allowed his parliamentary assistant to speak in favour of that motion.


Douglas Charles Abbott: Of course he knew what he was doing.


Stanley Howard Knowles: I submit the newspapers of the country were not all wrong in the view they took as a result of the decision on that occasion. At any rate, even if the minister thinks he made a mistake, he helped to bring about the realization on the part of the Canadian people that here was a reform that was needed; here was an injustice that should be removed; and I am quite satisfied that it is held far and wide throughout Canada that there should be no floor of this kind at all. Our efforts across the years

have paid dividends to some extent in that we have had this floor reduced, first from 5 per cent to 4 per cent, and now from 4 per cent to 3 per cent. I can tell the minister that we shall keep up our efforts. I hope that in another year it will be wiped out altogether, and that it will be recognized that medical expenses right from the first dollar up to the ceiling set under the act should be allowed as deductible for income tax purposes.


William Joseph Browne: I would like to ask the minister how this works out. Does it apply at all to 1952, where medical expenses were incurred in 1952 but not paid until 1953?


Douglas Charles Abbott: It is on a paid basis. Subsection 3 points out that fact. The 3 per cent floor applies to the 1953 tax year; and if the expense is paid in 1953, whenever it was incurred, if it is in excess of 3 per cent it is allowable. The taxpayer can select a 12-month period which ends in 1953 in which to apply the 3 per cent floor.


[Stage Direction]
Section agreed to.
On section 10-Dividends received by a corporation.
James MacKerras Macdonnell: Will the
minister give a little addition to the rather brief explanation here?


Douglas Charles Abbott: This is a very technical amendment. The committee may recall that two or three years ago when we introduced the system of permitting 15 per cent tax to be paid on undistributed surpluses, we put in what might be colloquially described as a block. We did not allow surpluses in controlled companies to be gotten out through reorganization in a way that would in fact provide an evasion of the intention of the act. The block was a pretty rigid one, and it was found that in a certain number of cases a perfectly legitimate reorganization of the corporate structure between parent and subsidiary was prevented by this rigid block.
This section has been worked out by the officials of my department after a study of circumstances in particular cases in order to remove those inequities. I have been assured, and I am satisfied myself, that it does remove the discrimination which existed with respect to those particular concerns of which there are a fairly limited number.
The section is self-explanatory, and it provides that under the circumstances set out a corporation may deduct from income all dividends received from a controlled subsidiary corporation.


[Stage Direction]
Section agreed to.
Section 11 agreed to.
On section 12-Payments out of pension fund.
Stanley Howard Knowles: This is the clause on which the minister was going to give the explanation of the provision he has made for Canadian National Railways pension refunds.


Douglas Charles Abbott: The provision would apply, of course, to any similar circumstances. As will be seen from the section, the words which have been added provide for cases where a payment is received by a pensioner by virtue of an amendment to the plan, although he continues to be an employee to which the plan is applicable; and that was the case with respect to the Canadian National Railways refunds. As a result of an amendment to the plan an employee may have received a fairly substantial lump sum payment. In the absence of this provision that lump sum payment would be taxable in its entirety in the year received and it would be taxed at the taxpayer's very highest bracket.


Stanley Howard Knowles: The minister might have
explained that these lump sum payments are simply refunds in view of a change in the plan.


Douglas Charles Abbott: I should have explained that they come as a result of a change in the plan. The provision which is made here is that they will be treated as lump sum payments and will be taxed only at the average tax rate for the three preceding years. They will have the option of being taxed as a lump sum payment at the average rate applicable during the three years preceding receipt of the payment. In effect it is the same as any other lump sum payment. My information is that this is considered to be satisfactory by the employees who are affected. I think it provides a happy solution to what admittedly would have been an inequity if it had been allowed to stand.


Mr. Gillis:: Has any consideration been given to the position of the widow of a serviceman who may happen to pass away while in the permanent service owing to a condition that was not pensionable? The minister may remember that I took the matter up on several occasions, and I cited a case in point where a young man had served for ten years, contributed to the superannuation fund and then passed away due to a heart condition. The widow was not pensionable, and she was too young for the veterans' allowance. When the refund of the man's superannuation contributions
Income Tax Act
was made to the widow the income tax department took $600 away from her out of that money.
Has any consideration been given to amending the act to meet such a case? I think that superannuation payment to the widow should have been made without any tax. I was just wondering whether the minister's department has ever given any consideration to removing what I consider to be a pretty rank piece of injustice.


Douglas Charles Abbott: I would have to have a look
at the facts. Was this a service pension or was it a payment out of the civil service superannuation fund?


Clarence Gillis: It was a service pension.


Douglas Charles Abbott: Not a disability pension but
a service pension?


Clarence Gillis: That is right.


Douglas Charles Abbott: I am told that would be
covered by the armed services regulations, and I am afraid that at the moment I am not familiar with what they are.


Clarence Gillis: It certainly is not covered by
the armed services regulations because when we went over K. R. (Can.) a couple of years ago and amended it I raised the matter in the committee. The military people said they knew nothing about it, and that it had been turned back as a problem for the income tax department. They informed us that the Income Tax Act provided that the amount was deductible, and that any amendment to remove the injustice would have to be made by the income tax department.


Douglas Charles Abbott: I will have to look into the
case and I am afraid that I could not give an answer offhand. It sounds as though it should be looked into.


Howard Charles Green: May I ask the minister
whether this provision for refunds under pension plans applies to refunds made last year, or does it apply only to those made in 1953?


Douglas Charles Abbott: This would apply to 1952 and subsequent years. I do not think the particular case which arose with the C.N.R. pension fund has arisen before. I do not recall that it did, anyway.


Stanley Howard Knowles: That plan was amended as
of January 1, 1952.


Howard Charles Green: As I understand it, at least in some cases the refunds were payable in the calendar year 1952.


Douglas Charles Abbott: Then the section applies.


Howard Charles Green: They will get the advantage
of this amendment?

Income Tax Act


Douglas Charles Abbott: Subsection 3 makes that
provision.


[Stage Direction]
Section agreed to.
On section 13-Credit for dividends.
Douglas Charles Abbott: I have an amendment here.


Stanley Howard Knowles: It had better be good.


Douglas Charles Abbott: This is to remove any possible doubt that in the unusual case of the dividend credit being sufficient to offset the complete tax liability, in other words if all the income of the taxpayer is from dividends received from a taxable Canadian corporation, nevertheless the tax payable under the Old Age Security Act, not under the Income Tax Act, will not be affected. I must say that I do not think it would be and it would be payable anyway; however, this is a legal opinion. I would therefore ask one of my colleagues to move:
That Bill No. 228, an act to amend the Income Tax Act, be amended
(a)	by deleting lines 35 and 36 on page 8 thereof and substituting the following therefor:
(2) The said section 35 is further amended by adding the following subsections thereto:"; and
(b)	by inserting immediately after line 42 on page 8 thereof the following:
"(4) Notwithstanding subsection (4) of section 10 of the Old Age Security Act, the amount deductible under this section shall be computed as though that subsection had not been enacted.
This doubt could be covered either here in the Income Tax Act or by inserting a provision in the Old Age Security Act; but since we were dealing with the Income Tax Act, it seemed appropriate to put it here.


Agar Rodney Adamson: Do you want to move that amendment now?


Douglas Charles Abbott: Will my colleague the Minister of Public Works make the motion?


Alphonse Fournier: I so move.


Douglas Charles Abbott: If I might be permitted to do so, at the same time I should like to include the corresponding amendment in part II, the revised statutes section.


Louis-René Beaudoin: Is it agreed?


Some hon. Members:: Agreed.


Louis-René Beaudoin: It is moved by the Minister of Public Works (Mr. Fournier):
That the said bill be further amended
(a)	by deleting lines 1 and 2 on page 41 thereof and substituting the following therefor:
"(2) The said section 38 is further amended by adding the following subsections thereto;" and
(b)	by inserting immediately after line 8 on page 41 thereof the following:
"(4) Notwithstanding subsection (4) of section 10 of the Old Age Security Act, the amount deductible under this section shall be computed as though that subsection had not been enacted.
(Mr. Green.]


Agar Rodney Adamson: Mr. Chairman, I gather the purport of this amendment is that, irrespective of what may happen, no taxpayer can escape the payment of the old age security tax.


Douglas Charles Abbott: That is correct.


Agar Rodney Adamson: 
Douglas Charles Abbott: My only comment would be
this. I take it my hon. friend is not against this provision. It is encouraging equity investment, and that perhaps will have some effect on the interest rates on fixed interestbearing securities.


Agar Rodney Adamson: I would not say I am
against it. My objection to it in this case is that it is going to make municipal financing extremely difficult, and in my opinion it is going to add very greatly to the burden the small home owner will have to carry. The owner of a residence will have to pay first of all either through the down payment on his home or, if the municipality itself raises the money, through the tax rate, because the cost of money to the municipality can do nothing but go up owing to this clause.


Douglas Charles Abbott: I suppose the same provision
must exist in the United Kingdom, because they have a tax credit; they have always eliminated double taxation on business profits in the United Kingdom.


Agar Rodney Adamson: They have an entirely
different system of financing housing.


Douglas Charles Abbott: It is more generous than
this is.


Agar Rodney Adamson: It is quite different.


Stanley Howard Knowles: Naturally we welcome this
change. Perhaps that is too strong a word to use for this small amendment which the minister has moved to clause 13. However, we shall support the amendment; but even after it has been accepted by the committee I want to make clear that we are still strongly opposed to section 13 of this bill and to what it does.
May I make clear, as I see it, what this amendment does in terms of the example which my leader, the hon. member for Rosetown-Biggar, gave to the house on February 24. He indicated at that time, and the Minister of Finance was present and seemed to accept the figures as having been worked out properly, that a married tax-

Income Tax Act
payer receiving $9,760 in income derived from dividends of Canadian corporations-


Douglas Charles Abbott: Taxpaying corporations.


Stanley Howard Knowles: -of taxable Canadian corporations, would by virtue of this 20 per cent credit against tax-not deductibility for income tax purposes, but by virtue of this credit of 20 per cent against actual tax-be relieved of paying his entire income tax which he otherwise would have to pay. My leader pointed out that the total tax which he would have had to pay on $9,760 income but for this relief would have been $1,952. As my leader pointed out, that is what this budget was doing, giving to this particular class of taxpayer a tremendous exemption, namely tax relief to the extent of $1,952.
All that this amendment which is now before us does is to make sure that that particular taxpayer will pay $60. He will still save $1,892, which he would pay otherwise but for this provision. Therefore, Mr. Chairman, though we accept the amendment for the slight change it makes, in that this taxpayer will pay $60, because in such a case he is still relieved of $1,892 we are opposed to the clause even though it is amended.


Mr. Quelch:: We welcome the amendment which assures that all taxpayers will at least pay the $60 of old age security. I was interested in the remarks of the hon. member for York West. He took the stand that this would have the effect of making municipal financing more difficult. He may have a point there. The logical solution therefore would be to do away with section 13. That would be the best way to make sure that it would not have that effect upon municipal financing. Personally I do not like section 13. I am a strong believer in taxation based firmly upon ability to pay. I think that is the basis-


Douglas Charles Abbott: Not double taxation.


Victor Quelch: So far as the individual is concerned he is paying the one tax. It is a debatable point whether or not it is double taxation.


Douglas Charles Abbott: Tell your Labour friends that in Great Britain.


Victor Quelch: In the final analysis the consumer pays the tax of the corporation, not the investor. I cannot see any justification for allowing anybody in this country to get away from paying income tax. In this case where a man has invested in a corporation's stocks the income from which is taxable in the hands of the corporation, he is now allowed an exemption of 20 .per cent of the dividends he receives on his investment. I 
cannot see any justification for such legislation being on the statute books.


Douglas Charles Abbott: My hon. friend did not voice similar views when I started this program.


Victor Quelch: There may be a point in that, but this is twice as bad.


Douglas Charles Abbott: The principal is the same. We have not gone as far yet as the British have gone.


Victor Quelch: We all realize that perhaps there is some desirability of encouraging risk capital, but to go up to 20 per cent does not seem right to me. Maybe the minister will suggest 30 per cent next year. Some members have said that this is an election budget. It can only be an election budget so far as these people are concerned, and the result may be that they will be willing to donate handsomely to election funds. That is the only effect it could have so far as I am concerned. It is certainly not an election budget so far as the ordinary individual is concerned.


Douglas Charles Abbott: I did not call it an election budget; I said it was an honest budget.


Victor Quelch: An honest budget?


Douglas Charles Abbott: Yes.


Stanley Howard Knowles: Do those terms mean something different?


Victor Quelch: Does the minister not consider that this is a change in the principle of taxation on the basis of ability to pay?


Douglas Charles Abbott: No, not at all. I made perfectly clear when I introduced this measure in the first place that I was following the same principle that was followed under the British income tax act, on which our act is based, in an endeavour to eliminate double taxation of the same profits. That is all I am doing. I said at that time that I hoped when circumstances permitted it would be possible to extend that principle, and I have done it. I have done what I said I would do.


[Stage Direction]
Amendment agreed to.
Louis-René Beaudoin: Is the section as amended
agreed to?


Stanley Howard Knowles: On division.
Section as amended agreed to.
Section 14 agreed to.
On section 15-Deduction from corporation tax.


James MacKerras Macdonnell: Will the
minister say a word concerning the explanatory note which says:
That the deduction from tax equal to 5 per cent of the taxable Income of corporations earned In a prescribed province be increased to 7 per cent of

taxable income earned in the province on or after January 1, 1953, by corporations that are not subject to certain special provincial taxes.


Douglas Charles Abbott: I shall be glad to do that.
This section will apply to the extent of the full 7 per cent only to ordinary corporations which are taxed in the province to the extent of 7 per cent of their profits earned in that province.
The committee may recall that last year when we incorporated into our own Income Tax Act the 5 per cent tax we had required the provinces to impose, and to be credited against the provinces-that is, those provinces that had tax rental agreements-I said the effect of doing that would not be to increase the tax on corporations in the non-agreeing provinces. In fact, in some provinces certain types of corporations are taxed on some other basis. In the case of railway companies, they are taxed so much per mile, and in the case of certain other companies the bases are different. That is in lieu of the profits tax.
In the light of the statement I made in my budget speech I recommended that we maintain the status quo for certain companies by continuing to allow the 5 per cent tax credit.
In extending the provision to 7 per cent I shall have limited that added benefit to corporations which are in fact being taxed to the extent of 7 per cent in those provinces on profits earned in the provinces. In other words I will not give an added benefit of 2 per cent to corporations which are not in fact paying that tax.


James MacKerras Macdonnell: In connection with the expression "by corporations that are not subject to certain special provincial taxes," to what does that refer?


Douglas Charles Abbott: The ones to which I have
alluded, the railway companies, telegraph companies and so on.


James MacKerras Macdonnell: The minister made the educational tax in Quebec deductible.


Douglas Charles Abbott: That has nothing to do with
this at all. They are taxes which are deductible as expenses.


James MacKerras Macdonnell: I understand that it has nothing to do with this. The educational taxes are not deducted from their tax, but they are deductible from the taxable income.


Douglas Charles Abbott: Yes, they are deductible from the taxable income. In practice about 49 per cent would be at the expense of federal
10, 1953
Income Tax Act revenue, and the other 51 per cent would be an added tax by the province.


[Stage Direction]
Section agreed to.
On section 16-Foreign tax.
William Joseph Browne: What is
meant in the explanatory note where it says:
The new subsection (5) will permit a taxpayer under conditions to be prescribed by regulations to claim a deduction from tax in respect of certain taxes, other than taxes on income, that are paid to a foreign country.
Would the minister give an illustration?


Douglas Charles Abbott: As a matter of fact this
applies to only one or two Canadian corporations operating in foreign countries. In those countries, instead of imposing a tax on income they have imposed a tax on the gross capital employed in that country. This is to adjust an anomaly which appeared to exist.


William Joseph Browne: Does it also apply to the individual taxpayer who has that kind of income?


Douglas Charles Abbott: No. It applies only to
corporations doing business in those countries.


Agar Rodney Adamson: Does it apply to a company such as the Brazilian Traction Company?


Douglas Charles Abbott: I believe it does not. At least it has no significance so far as that company is concerned.


[Stage Direction]
Section agreed to.
On section 17-Averaging for farmers and fishermen.
Victor Quelch: As there may be some discussion on this item, would you call it six o'clock?
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at eight o'clock.
Louis-René Beaudoin: We were considering section 17, but section 5 had been allowed to stand until eight o'clock. Shall we revert to section 5 now?


Some hon. Members:: Agreed.
On section 5-Amount received by broker to be included.


Douglas Charles Abbott: I did not think there was any controversy about this section. An amendment had been moved, and some interested members wanted to consider it.


James MacKerras Macdonnell: This is drastically different from the clause as it was before, and which was objectionable because

Income Tax Act
it created a problem for brokers in forcing them to pay the tax with the chance that perhaps afterwards they would find that they would be recouped at a lower rate. As I understand it, this amendment operates quite simply. It just says that out of the amount held for an anonymous client, 25 per cent shall be deducted. It is just like a deduction at the source. Then the section provides further that the payment is deemed to have been received by the beneficial owner and to have been deducted or withheld from such amount as would otherwise be payable by the broker. In other words it is the broker's justification for doing what he does.
But nothing is said here about what happens afterward. I assume from the silence that what is really intended is that when an anonymous person turns up he will be in the position of having had 25 per cent deducted at the source. What happens then is a matter of calculating what his income has been and he will either be entitled to reimbursement or be called upon to pay more, according to the state of his other income.


Douglas Charles Abbott: I think that is very accurately stated.


James MacKerras Macdonnell: That is a great step forward. Moreover, as the minister pointed out this afternoon, this section does not really become applicable until next year, so that in the minister's phrase if there are any bugs in it they can be discovered.


Douglas Charles Abbott: It was done purposely in order to make sure.


Louis-René Beaudoin: The first amendment was to delete clause 5.


[Stage Direction]
Amendment agreed to.
Louis-René Beaudoin: The second amendment was to renumber clauses 6 to 19 inclusive as clauses 5 to 18 respectively.


[Stage Direction]
Amendment agreed to.
Louis-René Beaudoin: Then the next amendment was to insert a new clause 19.


Donald Methuen Fleming: May I ask a question by way of clarification. Subsection 2 states that the section is applicable to the 1954 and subsequent taxation years. Does that mean that payment is to be made in 1954 in respect of dividends received during the preceding year, or does it mean that you start the whole new system in 1954 so that on the dividend payments received in that year, the 25 per cent deduction would take place in 1955?


Douglas Charles Abbott: No. My understanding is that the dividends carried by brokers for unknown or undisclosed clients in the 1954 taxation year would have 25 per cent deducted at the

source in that year. That will remain in that position until the dividends are paid over to the clients when it is developed later who they are. Then, as the hon. member for Greenwood put it, the client will either have had his tax fully paid by the 25 per cent deduction, or if it is overpaid he will get a refund. If there is any further tax payable, he would have to pay that on a personal basis.


Donald Methuen Fleming: Then the section will apply only with respect to dividends received during 1953?


Douglas Charles Abbott: No, it will be all dividends accrued and carried up to that time.


Donald Methuen Fleming: All dividends standing in the account?


Douglas Charles Abbott: That is right; on the basis, of course, that the broker who holds them takes the position, I think quite correctly, that it is not his income, that it belongs to someone whom he is not able to identify. As I said this afternoon, it is income which should be subject to tax.


Donald Methuen Fleming: Is that the effect of the opening words of the subsection which are:
Where an amount has been received by a broker or dealer in securities in the period of twelve months immediately preceding a taxation year,-
Does not that mean the amount received within a period of twelve months?


Douglas Charles Abbott: I think subsection 3 picks that up. It may be another year in which he would find the client with respect to whom the dividends are payable or for whom the dividends were receivable.


Donald Methuen Fleming: The undisclosed client turns up later and claims credit for the 25 per cent deducted against that year. As far as he is concerned, will that be applied to the year in which he receives the dividends or in which the broker paid the dividends?


Douglas Charles Abbott: It would.


Donald Methuen Fleming: Which would be the year before the payment of the 25 per cent by the broker?


Douglas Charles Abbott: I think that is correct.


Donald Methuen Fleming: This may produce some strange results in years when there is a change in the taxation rates.


Douglas Charles Abbott: That may be, but the 25 per cent rate is fairly moderate, and since there is an adjustment either up or down I do not believe that any injustice will result. From the discussion we have had this would seem to be the most practical way of solving this problem. As I say, if between now and 1954, as a result of examination of the way

these accounts are actually handled, it appeared that some other system would be better, an amendment could be made and there would not be any prejudice suffered in the meantime.


Donald Methuen Fleming: There is no doubt that if a missing client happened to be a deceased person and there was no tax payable on his behalf, there would be no difficulty in obtaining a refund?


Douglas Charles Abbott: There would be a refund of the full amount under those circumstances.


[Stage Direction]
Amendment agreed to.
On section 17-Averaging for farmers and fishermen.
Victor Quelch: I think this is an improvement in the act and we certainly support it. There is one matter I should like to have clarified. On page 10 of the "Farmer's Guide" we find the following:
An election to average income form must be filed on or before 30 April following the fifth year.
Apparently many farmers do not get a copy of the Guide and therefore do not understand the full meaning of that clause. Instead of filling in that form they merely write a letter asking the department to average their income over the past five years. That is sent in before April 30. Then perhaps a couple of months later, in June, they get a letter telling them that they should have signed this election form, and having failed to do so they will not be able to average their income.
It seems to me the department is being a bit sticky about that. As long as the department gets a letter which states clearly that the farmer has decided to average over the past five years it should be allowed to stand. A form should be sent to him with instructions to fill it out. Apparently they just tell the farmer that he did not send in a form and therefore cannot average his income.


Mr. Fair:: I have had similar complaints, and without taking the time to repeat the argument made by the hon. member for Acadia I want to support what he has said. I think it should be understood by this time that farmers are not a bookkeeping class of people. They are too busy working at good, honest work on the land. We find that many of them hire people, in some cases lawyers, to make out their returns for them, and apparently the lawyers do not know the rules either or they are more interested in building up an account so they can charge $10, $15 or $25 for making out the farmer's return. I think the department could relax some of the red tape a little. I think they might 68108-236i
Income Tax Act
accept a letter where a letter has been sent in instead of insisting on the prescribed form. Failing that, they should send the prescribed form to the farmer so he may fill it in.


Douglas Charles Abbott: It is essentially an administrative problem, and I can assure both the hon. members who have spoken that the deputy minister of national revenue, taxation branch, has been following their remarks closely.


[Stage Direction]
Section agreed to.
Sections 18 to 22 inclusive agreed to.
On section 23-Dividend from personal corporation.
Douglas Charles Abbott: I apologize for having to make all these amendments, but as the committee will realize this is a very technical bill. We have been trying to remove some inequities and anomalies, and since first reading of the bill our attention has been called to certain cases in which we had not covered what we intended to cover. This is a pretty technical amendment, but it has been drawn to our attention that we have provided in the act already for a credit in the case of the ordinary personal corporation. This amendment will make provision for a similar credit in the case of a foreign tax credit through several personal corporations. The amendment is rather long. Perhaps you might read it, Mr. Chairman, instead of my doing so, but that is the point that it is intended to cover.


Louis-René Beaudoin: The amendment reads as follows:
2. That the said bill be further amended
(a)	by deleting lines 35 and 36 on page 14 thereof and substituting the following therefor:
"23(1) Subsection (6D) and (6E) of section 61 of the said act are repealed and the following substituted therefor"; and
(b)	By inserting immediately after line 6 on page 15 thereof the following:
" (6E) Where a dividend is deemed by this section to have been received from a personal corporation on the last day of a taxation year of the corporation by an individual or another personal corporation, the person by whom the dividend is so deemed to have been received shall, for the purpose of section 38, be deemed to have income on that day from sources in a foreign country equal to that proportion of the dividend that he is so deemed to have received that
(a)	the income of the personal corporation (from which the dividend is so deemed to have been received) for that taxation year from sources in that country, is of
(b)	the income of that personal corporation for the year;
and he shall be deemed, for the purpose of section 38, to have paid income tax thereon to the government of that country equal to that proportion of the tax paid or deemed to have been paid to that government by the personal corporation (from which the dividend is deemed to have been received) on its income from sources in that country that

Income Tax Act
(i)	the dividend he is so deemed to have received is of
(ii)	the income of that personal corporation deemed to have been distributed to its shareholders on that day."


Alphonse Fournier: I so move.


Douglas Charles Abbott: I apologize for the seeming complexity of these amendments. It is true that the case to be covered affects only a very few taxpayers, but it is a very real inequity. In essence, where there are two personal corporations, this provides that the foreign tax credit may pass through one personal corporation to the other. There may not be more than half a dozen of these in the country, but there is an inequity and this covers that difficulty. As usual, I should like to move a corresponding amendment to part II, which is the revised statutes section of the bill.


Louis-René Beaudoin: Is it agreed?


Some hon. Members:: Agreed.


Donald Methuen Fleming: I wonder if we could have a moment to look this over and go on with something else.


Mr. Gibson:: Take a couple of months.


Donald Methuen Fleming: There is a real problem here, and if the minister would not mind letting it stand and going on with another item-


Douglas Charles Abbott: That is quite agreeable. I have no objection.
Section stands.
Sections 24 to 27 inclusive agreed to.
On section 28-Benefits to employees.


Douglas Charles Abbott: Here again I must ask the indulgence of the committee. This is a new section which relates to benefits to employees as the result of stock option agreements. It has been given a great deal of attention since the provision was first put in, and I should like to make the following statement before asking one of my colleagues to move an amendment.
During the last week or so since the bill received first reading I have had numerous representations regarding this clause in the bill which is designed to take care of a loophole which now exists in our law with respect to stock option plans. While the provisions of the clause now before us were designed to cover the relatively narrow field of stock option plans, the proposed legislation does bring into perspective the more general problem of how to treat the more usual type of employee stock purchase plan as distinct from stock option.
The amendment which I am going to ask one of my colleagues to move deals with the
[The Chairman.)
two subjects under one general provision. Where, under the existing law, benefits to employees under the ordinary stock purchase plans were potentially taxable under section 5 (1) (a) of the act, the amendment here proposed introduces a specific taxing provision for these benefits. The benefit to be taxed under both the stock purchase plans and the stock option plans is the difference between the purchase price of the share to the employee and its value at the time he acquired it. This benefit need not be included along with other income for tax purposes and thus put the employee in a higher tax bracket than would otherwise be the case. It will be open to him to have the benefit treated as a lump sum and taxed at a rate determined by the relationship between tax and income of his three previous years. The amount so determined will be reduced by 20 per cent of the benefit.
I might explain why this 20 per cent abatement against tax appeared to be a reasonable degree of relief. Section 5 of the law, while defining generally the scope of the tax on wages and salaries, provides that certain of what I might call fringe benefits need not be included in income. For example, the benefits obtained under group insurance plans need not be included in income. Neither is the employee required to include in his income the dollar value of his benefits under medical service plans. These facts suggest that it would not be unreasonable to exclude by some device moderate benefits received under stock purchase plans, for example.
A further point in this connection is that although the benefits received by the employee under stock purchase or stock option plans are regarded as income from office or employment, that is, it is regarded as remuneration, the corporation providing remuneration in this form to its employees does not charge it against its profit and loss account for purposes of corporation income tax. Thus it might be said that we are getting corporate income tax in a larger amount because the corporation decides to benefit its employees in this way.
These facts suggested that a degree of abatement equal to the low bracket of corporate tax might be a reasonable measure of relief to adopt. Accordingly, as I stated above, the tax as calculated on the effective average rate for a three year period will be reduced by 20 per cent, which is the minimum rate of tax on corporations.
I should add that it was not the intention in introducing this legislation to interfere with normal employee stock purchase plans which

have been introduced by a number of corporations, but it was felt that it was necessary to prevent an abuse of these stock option devices through allowing employees, perhaps executives of a corporation, to get very large benefits which would not be taxable.
I would ask that my colleague, the Minister of Public Works, move another long and very carefully drafted amendment which gives effect to the policy I have just enunciated and, as well, the corresponding amendment for part II.


Alphonse Fournier: I move:
That subclause (1) of clause 28 of Bill 228, an act to amend the Income Tax Act, be amended by striking out section 75A and substituting the following therefor:
75A. (1) Where a corporation has agreed to sell or issue shares of the corporation or of a corporation with which it does not deal at arms length to an employee of the corporation or of a corporation with which it does not deal at arms length,
(a)	if the employee has acquired shares under the agreement, a benefit equal to the amount by which the value of the shares at the time he acquired them exceeds the amount paid or to be paid to the corporation therefor shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he acquired the shares;
(b)	if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the shares to a person with whom he was dealing at arms length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he made the disposition;
(c)	if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arms length, become vested in a person who has acquired shares under the agreement, a benefit equal to the amount by which the value of the shares at the time that person acquired them exceeds the amount paid or to be paid to the corporation therefor shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which that person acquired the shares; and
(d)	if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arms length, become vested in a person who has transferred or otherwise disposed of rights under the agreement to a person with whom he was dealing at arms length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which that person made the disposition.
(2)	Where a benefit is deemed by paragraph (a), (b), (c) or (d) of subsection (1) to have been received by an employee by virtue of his employment in a taxation year, the employee shall, if he so elects, pay as tax for the year under this part, in lieu of the amount that would otherwise be payable, an amount equal to the aggregate of
(a)	the tax that would be payable by the employee for the year under this part if no benefit were so deemed to have been received by him in the year, and
(b)	the amount, if any, by which
Income Tax Act
(i)	the proportion of the benefit so deemed to have been received that the aggregate of the taxes payable by the employee under this part for the three years immediately preceding the taxation year (before making any deduction under section 32, 33, 35 or 38) is of the aggregate of the employee's incomes for those three years,
exceeds
(ii)	20 per cent of the amount of the benefit so deemed to have been received.
(3)	Where an employee who has elected under subsection (2) to pay as tax for a year under this part an amount determined under that subsection was not resident in Canada throughout the whole of the three years referred to therein, the tax payable under subsection (2) is an amount equal to the aggregate of
(a)	the tax that would be payable by the employee for the year under this part if no benefit were deemed by paragraph (a), (b), (c) or (d) of subsection (1) to have been received by him in the year, and
(b)	the amount, if any, by which
(i)	the proportion of the benefit so deemed to have been received that the aggregate of the taxes that would have been payable by the employee under this part for the three years referred to in subsection (2) (before making any deduction under section 32, 33, 35 or 38), if he had been resident in Canada throughout those years and his incomes for those years had been from sources in Canada, is of the aggregate of his incomes for those three years,
exceeds
(ii)	20 per cent of the amount of the benefit so deemed to have been received; and, in such a case, the election is not valid unless the employee has filed with his election a return of his income for each of the three years in the same form and containing the same information as the return that he would have been required to file under this part if he had been resident in Canada in those years.
(4)	Where a share is held by a trustee in trust or otherwise, either absolutely, conditionally or contingently, for an employee, the employee shall be deemed, for the purposes of this section, to have acquired the share at the time the trustee commenced so to hold it.
(5)	Where a corporation has agreed to sell or issue shares of the corporation or of a corporation with which it does not deal at arms length to an employee of the corporation or of a corporation with which it does not deal at arms length,
(a)	no benefit shall be deemed to have been received or enjoyed by the employee under or by virtue of the agreement for the purpose of this part except as provided by this section, and
(b)	the income of the corporation for a taxation year shall be deemed to be not less than its income for the year would have been if it had not conferred a benefit on the employee by the sale or issue of the shares to the employee.


Alphonse Fournier: And I move:
That subclause (1) of clause 73 of the said bill be amended by striking out section 85A and substituting the following therefor:
"85A. (1) Where a corporation has agreed to sell or issue shares of the corporation or of a corporation with which it does not deal at arms length to an employee of the corporation or of a corporation with which it does not deal at arms length.
(a) if the employee has acquired shares under the agreement, a benefit equal to the amount by which the value of the shares at the time he

Income Tax Act
acquired them exceeds the amount paid or to be paid to the corporation therefor shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he acquired the shares;
(b)	if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the shares to a person with whom he was dealing at arms length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he made the disposition;
(c)	if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arms length, become vested in a person who has acquired shares under the agreement, a benefit equal to the amount by which the value of the shares at the time that person acquired them exceeds the amount paid or to be paid to the corporation therefor shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which that person acquired the shares; and
(d)	if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arms length, become vested in a person who has transferred or otherwise disposed of rights under the agreement to a person with whom he was dealing at arms length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which that person made the disposition.
(2)	Where a benefit is deemed by paragraph <a), (b), (c) or (d) of subsection (1) to have been received by an employee by virtue of his employment in a taxation year, the employee shall, if he so elects, pay as tax for the year under this part, in lieu of the amount that would otherwise be payable an amount equal to the aggregate of
(a) the tax that would be payable by the employee for the year under this part if no benefit were so deemed to have been received by him in the year, and
(b)	the amount, if any, by which
(i)	the proportion of the benefit so deemed to have been received that the aggregate of the taxes payable by the employee under this part for the three years immediately preceding the taxation year (before making any deduction under sections 33, 34, 38 or 41) is of the aggregate of the employee's incomes for those three years, exceeds
(ii)	20 per cent of the amount of the benefit so deemed to have been received.
(3)	Where an employee who has elected under subsection (2) to pay as tax for a year under this part an amount determined under that subsection was not resident in Canada throughout the whole of the three years referred to therein, the tax payable under subsection (2) is an amount equal.to the aggregate of
(a)	the tax that would be payable by the employee for the year under this part if no benefit were deemed by paragraph (a), (b), (c) or (d) of subsection (1) to have been received by him in the year, and
(b)	the amount, if any, by which
(i) the proportion of the benefit so deemed to have been received that the aggregate of the taxes that would have been payable by the employee under this part for the three years referred to in

subsection (2) (before making any deduction under sections 33, 34, 38 or 41), if he had been resident in Canada throughout those years and his incomes for those years had been from sources in Canada, is of the aggregate of his incomes for those three years, exceeds
(ii) 20 per cent of the amount of the benefit so deemed to have been received; and in such a case, the election is not valid unless the employee has filed with his election a return of his income for each of the three years in the same form and containing the same information as the return that he would have been required to file under this part if he had been resident in Canada in those years.
(4)	Where a share is held by a trustee in trust or otherwise, either absolutely, conditionally or contingently, for an employee, the employee shall be deemed, for the purposes of this section, to have acquired the share at the time the trustee commenced so to hold it.
(5)	Where a corporation has agreed to sell or issue shares of the corporation or of a corporation with which it does not deal at arms length to an employee of the corporation or of a corporation with which it does not deal at arms length,
(a)	no benefit shall be deemed to have been received or enjoyed by the employee under or by virtue of the agreement for the purpose of this part except as provided by this section, and
(b)	the income of the corporation for a taxation year shall be deemed to be not less than its income for the year would have been if it had not com ferred a benefit on the employee by the sale or issue of the shares to the employee."


Louis-René Beaudoin: Shall the amendment carry?


Some hon. Members:: No, just a moment.


Douglas Charles Abbott: I would be very happy if you would care to have it stand for a few moments. I can only say that it has been carefully drafted by the Department of Justice to implement the policy which I have endeavoured to explain. I do not want to hurry the committee, and perhaps we could distribute copies of the amendment and allow this section to stand while those who are particularly interested may have a chance to read it through.
There is a further amendment to this section which concerns the question of special reserves held by insurance companies. Following discussions with the superintendent of insurance he has suggested that the section as now contained in the act on page 21, reserve for unearned premiums, would be awkward for the companies to comply with. I now would ask my colleague, the Minister of Public Works, to move the amendment. Again I apologize for the necessity of moving these amendments, but after all these are very technical statutes and it is important, when special points are brought to our attention, that we should be sure the amendment is satisfactory.


James MacKerras Macdonnell: I suggest that in future where we have complicated things of this kind it should be possible to let us look at them before the last moment.


Douglas Charles Abbott: In this case I do not wish to hurry the committee, but there is no change in the principle. If my hon. friend will look at the amendment I think he will see in a couple of minutes that it is a very minor one.


James MacKerras Macdonnell: It was really the others I was referring to.


Alphonse Fournier: I move:
That the said subclause (1) of clause 73 be further amended by striking out subsection (5) of section 85B and substituting the following therefor:
"(5) Paragraph (c) of subsection (1) does not apply to allow a deduction as a reserve in respect of insurance, but an insurance corporation, other than a life insurance corporation, may, in computing its income from its insurance business for a taxation year, deduct as policy reserves such amounts as have been approved for the purposes of this subsection by the superintendent of insurance.''


Donald Methuen Fleming: I wonder if we could have some elucidation of the concluding words. As I understand the proposal, insurance corporations, other than life insurance corporations, are not permitted to deduct reserves in the same way that other corporations are; but they are allowed to deduct such amounts for their policy reserves as are approved by the superintendent of insurance. What is to guide the superintendent of insurance?


Douglas Charles Abbott: We attempted to spell out formally under this section what was desired, but the insurance companies told us that they did not keep their records on a day to day basis in this way. After consultation with the superintendent of insurance it was agreed that the section should be amended in this way, leaving necessary flexibility for the superintendent of insurance to approve the basis upon which reserves could be set up. I am told that he has to do that for the purposes of the Insurance Act now, so he would be combining the job he has to do under the Insurance Act with the determination required in this section. I am also informed that there is no intention to change the practice which has prevailed in the past.


Donald Methuen Fleming: I wished to be clear on that point. As far as the non-life insurance companies are concerned, first of all there is to be no change in the practice imposed on them by the superintendent of insurance in the method of calculating reserves; and in the second place, this does not involve any additional taxation because there is no change in their tax position?
Income Tax Act


Douglas Charles Abbott: I am told that my hon. friend has correctly stated the position in both cases. There is no change.
Amendments stand.
Section stands.
Sections 29 to 34 inclusive agreed to.
On section 35-Tax on premium.


Donald Methuen Fleming: Has the minister an amendment on this question to meet the problem of the non-resident-owned investment corporation?


Douglas Charles Abbott: Yes. This was a point which was called to our attention by the hon. member for Eglinton. It was a point that was well taken and I will ask my colleague, the Minister of Public Works, to move the following amendment:
That the said hill be further amended by inserting
(a)	immediately after the word "corporation" in line 23 on page 25 thereof, and
(b)	immediately after the word "corporation" in line 16 on page 57 thereof,
the words "other than a non-resident-owned investment corporation".


Alphonse Fournier: I so move.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
Section 36 agreed to.
On section 37-Interest on bonds.
Douglas Charles Abbott: There is a minor amendment here which results from a point we overlooked in apportioning interest in the case of sales by a non-resident of Canada to a resident; and the amendment which I am going to ask my colleague to propose to section 4A will provide that in the case of a non-resident who sells a security to a Canadian resident, the 15 per cent tax will apply only in cases where it would have applied had the non-resident not sold the bond.


Alphonse Fournier: I move:
3. That the said bill be further amended by deleting lines 7 to 12 on page 27 thereof and substituting the following therefor:
"(4A) Where paragraph (a) of section 19A would, if part I were applicable, require an amount to be included in computing a non-resident person's income for a taxation year, if the transferee of the securities is a person resident in Canada, that amount shall, for the purposes of this part, be deemed to have been a payment at the time of the transfer, to the non-resident person by the transferee of the securities, of interest on which tax is payable under subsection (1) of section 96 to the same extent as tax would be payable thereunder if that amount had been paid as interest under the security to the non-resident person by the person by whom interest is payable under the security".

Income Tax Act


Donald Methuen Fleming: I think we shall have to ask to have a look at that one.
Amendment stands.	[DOT]
Section stands.
Sections 38 to 44 inclusive agreed to.


Louis-René Beaudoin: Hon. members will have noticed that in part XI sections 46 to 87 inclusive are merely repetitions of sections 1 to 42 inclusive of part I. I take it that hon. members will agree with those clauses and their corresponding amendments.


Some hon. Members:: Agreed.
Sections 46 to 87 inclusive agreed to.


Stanley Howard Knowles: Will the minister explain to us what there is in part II that corresponds with section 43 in part I? As you, sir, have just pointed out, sections 46 to 87 do correspond clearly with sections 1 to 42. When you get to section 43 of part I we need some explanation.


Douglas Charles Abbott: Section 43 only applies to agreements made before the coming into force of this act. But part II, of course, is the revised statutes which will apply in the future, so it is not necessary to carry forward that provision into the continuing law. This is really a special provision to deal with cases which are governed by agreements entered into before the adoption of the bill which we are now considering, and it is not necessary to make that permanent provision in the revised statutes.


Stanley Howard Knowles: I have two more questions. What does section 88 in part II correspond to in part I? Then another question would be this. What is there in part II to correspond to section 44 in part I?


Douglas Charles Abbott: I will enlighten my hon. friend in a moment, I hope. Section 44, I am told, is to correct a printing error and we need to correct that only once.


Stanley Howard Knowles: My question previous to that one was this. What in part I corresponds to section 88 in part II?


Douglas Charles Abbott: I am told that section 45 in part I is the corresponding section, the section which provides for deductions for oil and gas exploration.


Stanley Howard Knowles: The minister says that section 45 in part I is the equivalent of section 88 in part II. I suppose the minister has noted the fact that section 45 takes four pages but that section 88 takes only about a third of a page.


Mr. Fraser:: There does not seem to be any connection there at all.


Douglas Charles Abbott: I am told that all the provisions which are in section 45 in part I are covered in section 53 which is referred to in section 88 which we are now discussing. Instead of spelling it all out, it is incorporated by reference.


Stanley Howard Knowles: Why could it not have been done that briefly in section 45?


Douglas Charles Abbott: I will have to consult the draftsman, I think, and find out why he did not do it that way. We have to spell it out once, but we do not need to spell it out again.


Stanley Howard Knowles: If you can say it all in a third of a page, why do you take four pages?


[Stage Direction]
Section agreed to.
Louis-René Beaudoin: Shall we revert to clause 23 and its amendment which was allowed to stand earlier?
On section 23-Dividend from personal corporation.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
Louis-René Beaudoin: Section 28 was also allowed to stand. Shall the amendment carry?


Donald Methuen Fleming: I really think we should have more time on section 28, Mr. Chairman. It consists of two and one-half printed pages of foolscap.


Douglas Charles Abbott: It is mostly repetition from the previous section. The change in principle is the one to which I alluded.


Donald Methuen Fleming: Perhaps if the committee could go on with the other sections in the meantime, it would meet our convenience.


Douglas Charles Abbott: That is all right.


Louis-René Beaudoin: Section 28 stands. We are now considering section 37.
On section 37-Interest on bonds.


Louis-René Beaudoin: Shall the amendment carry?


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
Louis-René Beaudoin: There is only one section left, namely section 28.
On section 28-Benefits to employees.


Douglas Charles Abbott: I might add a word here. This amended clause was drafted after getting fairly complete information concerning the stock purchase plans of a number of companies. It perhaps would not be invidious to say they included such companies as the Bell Telephone Company and the Maritime

Telegraph and Telephone Company, which have had the stock ownership plan for a good many years. I am personally satisfied that the amendment deals fairly with the cases of the stock purchase plans, and that it provides a reasonably generous basis for stock option arrangements but does impose some tax with respect to employees who may be in the higher income brackets and who get quite substantial stock options. -
The 20 per cent tax credit device, which was worked out by the officials in my department, I think-in fact I am satisfied-will be found to be satisfactory in employee stock purchase cases and I think should be quite satisfactory in the case of stock option arrangements. My personal belief is that it is fairly generous. While I think it is desirable within limits to encourage these plans, I do not think one can allow them to be abused. Since we have not in this country any capital gains tax, if employees of a company are given substantial benefits through a stock option arrangement on which no tax is paid there could be, I think, real grounds for criticism.
Admittedly the section as drafted is extremely complicated, but it has been drawn by the assistant deputy minister of justice who has been responsible for the drafting of the original Income Tax Act and the subsequent amendments. I am free to say that I have the greatest confidence in his capacity as a draftsman, and from experience I have found that his drafting always stands up.
The statement which I gave to the committee indicated as simply and as clearly as I could the basis upon which the benefit would be taxed, namely as a lump sum payment; and that when that tax was determined there would be a credit of 20 per cent of the benefit.


James MacKerras Macdonnell: I have one question with respect to the wording, on page 1 of 75A(1), paragraph (a), line 3, "a benefit equal to the amount by which the value of the shares". The question is as to the word "value". Is that definite enough? Is that the price?


Douglas Charles Abbott: That would be a question of fact. If the option was given, let us say, at $10 a share and the market value of the shares at the time the option was taken up was $20 a share, the benefit would be $10 a share. If it were not a stock which was quoted on the market, the value at the time the option was exercised would be a question of fact; and if there were any difference of opinion between the taxpayer and the taxing authori-
Income Tax Act
ties, that would be a matter for determination by the income tax appeal board or by the courts.


Donald Methuen Fleming: The minister indicated the extent to which regard had been had to some well-known and major employee stock option plans. Has this long and involved amendment been submitted to those concerned in such plans for their comments?


Douglas Charles Abbott: No, it has not, but I think the general basis followed has been discussed with them. I think my officials felt that it was not appropriate, before the amendment was submitted to the House of Commons, to indicate exactly the basis upon which it would be done. But I think the principles were outlined to them. Of course, as the committee will appreciate, this provision is considerably more generous than the section as found in the bill now. But when we examined the facts in connection with some of these employee ownership plans it seemed that we had been unduly strict in the original proposal here, and that it might interfere with the operation of long-standing employee stock ownership plans which had been carried on for years.
I think it is quite appropriate that a corporation should offer its stock to employees at a price which is appreciably below the going market value because those values fluctuate. There is a certain amount of risk involved, and it is a way in which employees can obtain a benefit. So long as that is not excessive I do not think we should attempt to tax that modest benefit, because it is not charged by the corporation as an expense.


Donald Methuen Fleming: Can the minister indicate more fully how the election under subsection 3 of 85A (1) is to work out?


Douglas Charles Abbott: It is the same as any other lump sum payment. An employee would have the option of taking the benefit into his ordinary income and paying tax on it; and if he had no taxable income that year it might be to his advantage to take it in and pay the lower rate of tax. He has the option however of either including the benefit as a part of his income for the taxation year in which the benefit is realized or treating it as a lump sum payment in that year and paying tax accordingly at the effective rate of tax over the past three years less the 20 per cent credit. He would obviously select the option which was to his advantage.


Donald Methuen Fleming: Under subsection 4 we have this provision:
Where a share is held by a trustee in trust or otherwise, either absolutely, conditionally or contingently, for an employee, the employee shall be

Income Tax Act
deemed, for the purposes of this section, to have acquired the share at the time the trustee commenced so to hold it.
How will that work out in the case of an employee who is a minor?


Douglas Charles Abbott: That had not been thought of. That clause was inserted to meet the case, and there may be others, of one telephone company-I have no objection naming it, the Maritime Telegraph and Telephone Company -and its employees, who acquire shares which are held in trust for them by the trustee. I understand, subject to correction, that the shares are turned over to the employee when he leaves the employ of the company. It was to meet that case that that section was inserted.


Donald Methuen Fleming: I can understand the effect of the provision in the case where the beneficiary, the employee, is sui juris, but what about the case of the employee who is not sui juris?


Douglas Charles Abbott: This relates only to employees. I do not suppose an incompetent could acquire the shares, could he?


Donald Methuen Fleming: Take the case of a 20-year old employee.


Douglas Charles Abbott: I do not know. That would depend on the law in the particular jurisdiction in which he was, but I do not know whether an employee could acquire shares under those conditions. Perhaps he could, I do not know.


Louis-René Beaudoin: Shall the amendments
carry?


[Stage Direction]
Amendments agreed to.
Section as amended agreed to.
Donald Methuen Fleming: Before we leave this very complicated subject I should like to ask whether perhaps, looking at it from the point of view of future years, the time may not have come when a bill as technical and involved as the annual income tax amendments bill is becoming might not better be referred in the first instance to one of the select committees of the house, for example the banking and commerce committee, for review before coming to the house. It might enable us to cope better with a situation like the one encountered several times today where quite lengthy, involved and sometimes quite abstruse amendments are submitted to the committee with perhaps less time to study them than members feel they ought and would like to give to the subject.
We appreciate that the minister did not try to force the pace on this. When we asked that they stand he has been quite ready to accede to the proposal, but there is a limit

to what one can attempt to digest in the way of very involved amendments such as some of those extending, each of them, over several pages. I offer that suggestion while at the same time acknowledging with appreciation the fact that the minister this year did assist us by arranging to let the officials talk to the members about these questions that gave them difficulty. I am thinking particularly of these amendments that have been put before us.


Douglas Charles Abbott: I think the suggestion is well worth exploring. I again apologize for bringing in these amendments tonight as I had to do. But in the amendments to the Income Tax Act this year we have attempted to do quite a number of things. We have attempted to tidy up quite a lot of situations which I think needed tidying, perhaps rather more so this year. But, as my hon. friend has said, this is a highly technical bill. It is one that does require very careful study. It might be well and it would be useful, certainly, in cases where there are a great many of these amendments, to have them considered in detail in a committee such as the banking and commerce committee. But granted that, with this type of bill it is clear that amendments to it, since it is a money bill, could only be moved by the minister in committee. However, it might be useful to examine this suggestion. It certainly can be considered.


Donald Methuen Fleming: I quite appreciate the point the minister has made that amendments could not be introduced in the banking and commerce committee any more than here by anyone other than a minister of the crown. A similar situation arose before the banking and commerce committee when the Income Tax Act was first introduced for adoption in the house. I am thinking about the opportunity that would be afforded members to understand the bill they are dealing with, particularly in the case of the amendments introduced in the course of the discussion.


Douglas Charles Abbott: I shall certainly see that the idea is considered.


Gordon Francis Higgins: I am not going to delay the consideration of this measure, but unfortunately at five o'clock I thought private members' legislation was going to take longer than it did. I should like the privilege of taking one minute on section 11. I would have asked the minister certain questions at five o'clock, but he himself was a bit late.
I would ask the minister to consider the position of those who are on fixed pensions, or who are living on receipts from insurance policies or pension plans. I would ask him to think over the idea of increasing the exemption for such people, because the cost of living has gone up out of all proportion to

the conditions when they were put on pension. I am not going to labour the point, but I think he knows what I am talking about. I would ask him to bear these people in mind and to see if it is not possible to increase the exemption of these people from $1,000 to $1,500 for single persons and from $2,000 to $2,500 for married persons.


Mr. Balcom:: May I say a word. If the section we have been dealing with had gone through without the amendments made by the minister, our company, the Maritime Telegraph and Telephone Company, would have been very seriously affected in so far as their plan is concerned. This company has over 1,000 employees, and the plan has been in operation for several years. Had the section gone through as it was originally drafted, in all probability the plan would have been abandoned. We should like to thank the minister and his advisers for the kind consideration they have given us.
Bill reported.


Mr. Deputy Speaker:: When shall the bill be read the third time?


Stanley Howard Knowles: At the next sitting of the house.


Mr. Deputy Speaker:: Is it the wish of hon. members to have third reading now?


Douglas Charles Abbott: No; next sitting, Mr. Speaker.



PUBLIC SERVICE SUPERANNUATION ACT


Douglas Charles Abbott: that the house go into committee to consider the following resolution:
That it is expedient to introduce a measure to revise the Civil Service Superannuation Act and to provide, amongst other things, for payment out of the consolidated revenue fund, as a matter of right, of annuities and other benefits to persons and to widows and children of persons who, having paid contributions into the consolidated revenue fund while employed in the public service of Canada, cease to be so employed, and to continue payment out of the consolidated revenue fund, as a matter of right, of allowances granted under the Civil Service Superannuation Act.
Motion agreed to and the house went into committee, Mr. Beaudoin in the chair.


Douglas Charles Abbott: Mr. Chairman, the bill to be founded on this resolution is to consolidate, revise and modernize the legislation governing pensions and retirement allowances for members of the public service of Canada.
The first provision of this sort was enacted by parliament in 1870. In succeeding years there were numerous changes and revisions.
10,	1953
Public Service Superannuation Act Broadly speaking, the present pattern of contributory superannuation benefits was established under the Civil Service Superannuation Act of 1924.
In the nearly 30 years that have elapsed since then the 1924 act has been amended by parliament on ten separate occasions. The present legislation thus consists of the 1924 act plus ten amending acts. Moreover, there has been a great deal of experience gained in the administration of our act, and there has also been a steady and continuous development of pension policies and practices in private industry and in government employment, both in this and in other countries. There is, therefore, a very strong case for consolidation, revision and modernization at this time.
This will be a rather lengthy and technical bill. In making a statement at this resolution stage I propose to limit myself to an explanation of the important new principles which have been incorporated in the bill.
The first important new principle is that in future the benefits under the plan will be a matter of right rather than a matter of grace. Hitherto all payments of superannuation and related benefits have, as a matter of law, been grants by the governor in council *-rewards for good and faithful service. Even pensions to widows under the present law are dependent upon their "worthiness" to receive them. The new bill will depart from this somewhat archaic concept, and will establish the benefits clearly as a matter of right.
A second principle, which is closely related to the first, is that the bill will go just as far as is practicable in incorporating in the act itself all the rules governing contribution, calculation of length of service and benefits. The old act, based on a concept of grants and awards, naturally and perhaps inevitably gave very broad regulation-making powers to the governor in council and required that every award should be approved by the governor in council. Some regulation-making power, some element of discretion must be given to the governor in council, because the human factors and circumstances are so varied that it is quite impossible to cover every possible combination in an act of parliament. But when the bill receives first reading hon. members will find that it covers a much wider field in much greater detail, and that the regulationmaking power, while requiring a somewhat lengthy description, is restricted to dealing with exceptional and unusual cases or combinations of circumstances, and with that
3728	HOUSE OF
Public Service Superannuation Act degree of discretion which must be given if genuine hardships and practical injustices are to be avoided.
A third new principle, and the one which will have the greatest practical and beneficial results, is the proposal to extend the coverage of the plan to the great majority of all regular full-time public servants. Broadly speaking, the old act covers only those government employees of so-called permanent status. I estimate that the new bill will bring at least an additional 60,000 employees under the act; that is, it will probably almost double the number of employees covered by the plan. Our proposal is that in so far as it is practicable every regular full-time government employee will begin to build up superannuation rights from the commencement of his employment. The bill will not cover, of course, casual or part-time employees, nor is it possible at this time to apply it to the majority of prevailing rates or seasonal employees. But with these and a few other exceptions the intention is to provide a scheme of the broadest possible coverage.
The new bill will provide improved benefits in certain and rather limited sets of circumstances. The rates of contribution will be evened out to a straight 5 per cent for women and 6 per cent for men. The improvements in benefits are not major in character but are designed to smooth out the pattern of benefits and to remove some anomalies. Care has been taken to keep the fund actuarially sound, on the basic principle that the employees' contributions, plus an equal amount contributed by the employer, that is, the government, plus the accumulating interest on the total fund, shall be fully adequate to meet the calculated liabilities of the fund.
As I said earlier, this will be a rather lengthy and technical bill. I am sure hon. members will not want to have two overlapping debates. It seems to me that the appropriate time for a useful general debate will be on the second reading of the bill when its text will be before us. When I come to move second reading I shall be able to give some further information and explanations, but even then I shall not attempt to cover details or go into purely technical points. I suggest that the most effective way to deal with this bill in all its detail will be to refer it to the banking and commerce committee for study and report, and as soon as the bill has received second reading I shall so move.


James MacKerras Macdonnell: Mr. Chairman, I shall be brief. I think everyone welcomes a measure designed to do what the


minister has described. We are pleased to note, first of all, that it will classify these pension rights as rights, not as ex gratia payments. As a matter of fact, to tell the truth I had not quite realized that that was the law.
For reasons that I think are historical rather than justifiable, employees of the Department of Veterans Affairs-the old department of soldiers' civil re-establishment -have been in some measure subject to disability. From what the minister has said I would understand that the large numbers of regular employees being taken in would also include these people, and that any discrimination which may have existed will be removed.
As the minister has said, this matter will go to the committee on banking and commerce, and I think I need say nothing more at this time.


George James McIlraith: Mr. Chairman, I am particularly pleased that this resolution has come forward. I have been one who has been rather appreciative of the civil service superannuation legislation. Canadians generally can be very pleased with the superannuation provisions for the public service and that they compare favourably with those in other jurisdictions. Indeed I hold the view that they are the best of any of which I am aware in any jurisdiction.
I have always felt there was not sufficient appreciation of the splendid work done on this subject by the committee in 1923 under the chairmanship of the late Hon. James Malcolm. The report of that committee was the basis for the present superannuation legislation, and the 1924 act was based upon it.
Then in 1944 there was an amendment which could be considered quite important in that for the first time it removed the discrimination against permanent civil servants who were paid other than by a stated annual salary. It opened up the right of great numbers of long-term civil servants to come under the act. Prior to 1944 not only was it necessary that a civil servant, before coming under the act, must be permanent, but also that he be paid a stated annual salary. That had the effect, of course, of excluding employees in the printing bureau where the pay was on a weekly salary basis similar to that in the printing trades. It also excluded prevailing rate employees who were paid on an hourly or daily basis. Again in 1947 there were further substantial changes liberalizing the act.
As I interpret the words of the minister, this bill will have the effect of permitting all long-term employees in the service to

come under the provisions of the superannuation act. An unfortunate terminology is used in connection with civil service matters in that some employees are classed as permanent while others are classed as temporary, although the latter may have been employed for a great number of years. The use of those terms has had a most unfortunate effect in discriminating against some longterm employees. As I interpret the remarks of the minister, I take it that this discrimination is now being removed. If I heard him aright, some 60,000 new employees will now have the right to come under the act.


Douglas Charles Abbott: Additional.


George James McIlraith: I certainly welcome that, because I think the superannuation act is an excellent one. I also note that after second reading the bill is to be referred to the banking and commerce committee where it can be given detailed study. I hope that suggestion commends itself to the house.
There is one point bothering me. I noticed that in his remarks the minister made no reference to opening up the right of election to come under the act. I can see nothing in the wording of the resolution on that point.
I would hope that the right to elect to come under the act will be again extended for a period of time, and that an injustice which was done to some permanent employees who have lost the right to so elect will be removed.
A rather curious situation exists, mainly in the Department of Veterans Affairs but also affecting some of those who were in the old department of the interior. There may be employees in other departments in the same position. When the first act was passed in 1924 there was a group of civil servants with permanent status under the Civil Service Act who elected to come under the superannuation act in the ordinary way. They were permanent employees, before the 1924 act was introduced and they would have had the right to have their superannuation based on the average salary for the last five years of their employment.
The permanent employees of whom I am speaking elected to come under the act. It is rather hard to get accurate information, but as best I can understand the situation a legal opinion was given that since the department of soldiers' civil re-establishment was not a permanent department, civil servants who had come from other departments, even though they had the old permanency certificates issued under the Civil Service Act, were not eligible to come under the superannuation act. Although they had permanent status and had elected to come under the
Public Service Superannuation Act act, their election was cancelled out and they lost that right.
Later on permanent status was given to the department that succeeded the department of soldiers' civil re-establishment, and of course they then had the right to come under the superannuation legislation. But the consequence of being permitted to come under the legislation only at that time was that their superannuation was based on the average salary for the last ten years of their employment instead of the last five years of service. The result is that this small group of men and women although many of them have been contributing for 30 or 40 years will receive a much smaller superannuation than other civil servants who had permanent status at the same time and who have contributed the same amount of money.
It seems to me that a substantial injustice has been done, particularly when you bear in mind that by the very effluxion of time as affecting this legislation and the ruling to which I referred, these men and women are now about due for superannuation. These people came through the period of the thirties -I do not want to get into a party controversy -but I think it will be admitted that employment conditions were not good for civil servants then because there were no promotions and that sort of thing. They have only got their increased classifications and pay rates in the last five years of their service.
I would hope that the minister will elaborate upon what he proposes to do with respect to this group. I have always felt that there was an injustice done. I am not going to argue the legal point as to whether or not the ruling, that they were not entitled to come under the 1924 act, was sound because the old act, being based on the principle of ex gratia payments, makes the point irrelevant. I have always held the view that they were legally entitled to come under the 1924 act and that their election made at that time was valid. However, as I say, there' is not much point in arguing that legal point. I have felt that an injustice was done to this small group, and I hope that it will be corrected in the bill.
I look forward to seeing the bill and I hope it will contain not only the beneficial provisions to which the minister has referred but other provisions to remove a number of small but nonetheless important administrative injustices in the act. The existing legislation and the principle behind it I think is thoroughly beneficial. I can speak only in congratulatory terms of it and express appreciation to the minister for bringing forward this much-needed amending bill at this time.
3730	HOUSE OF
Public Service Superannuation Act


Stanley Howard Knowles: Mr. Chairman, we too welcome the introduction of this legislation. The minister will recall that he said it was his intention to introduce legislation of this nature at an earlier session, I believe he indicated, either at the last session or the session before, that when the legislation was brought in any of its benefits which would have become effective at that time would be made retroactive to the earlier date. I hope that undertaking will not be overlooked.
We too welcome the fact that after second reading this bill is to go to the committee on banking and commerce so it can be thoroughly studied by the members of that committee. I hope that committee will exercise the right which all standing committees of this house have to hear witnesses or delegations that may wish to make representations or suggestions. I am glad to see the minister nodding his head affirmatively. I am confident that if he gives the nod the committee will go along with him. I am sure the various civil service associations will be most anxious to appear before that committee to express their appreciation of the improvements that are forthcoming and make their representations where there are other changes that should still be made.
Since both the previous speakers, the hon. member for Greenwood and the hon. member for Ottawa West, have referred to one particular group, I should like to say a word about that group as well. The reference is to that small number of employees who were in the old department of soldiers' civil re-establishment after world war I and who for some reason or other have been denied the right to transfer to part II of the Civil Service Superannuation Act. The denial of that right has had the effect which the hon. member for Ottawa West has pointed out, and it does seem to me that it is most unfair.
As the last speaker has indicated, the number affected is very small, but I suggest that the fact that the Department of Veterans Affairs employees' national association has made substantial representations on their behalf indicates that those who are working together with them feel very strongly the justice of the case being put forward by these employees. Like other members of the house,
I have corresponded with the Minister of Finance about this matter. I have before me his letters to me and I have also seen copies of letters that he has written to other people on this question. If I may sum it up, it seems to me that he has based his decision thus far not to meet this request simply on the ground that a negative decision was made back in 1925 and again in 1926 or 1927.


1 agree with the hon. member for Ottawa West that the decision was unfair and unjust, and surely that is no reason for that unfairness and injustice being continued. Now we are confronted with what amounts to a new bill. If the previous decision was simply a matter of interpretation, surely that can be corrected now by legislation so as to give to these employees the right to transfer to part II which is enjoyed by other employees of the government who have worked for a comparable period of time. I earnestly hope that consideration will be given to these representations even before the bill is brought in. If a change is not provided for in the bill, I am sure that if the committee will hear delegations on behalf of these employees there will be very strong representations made on this point.
Another group whose case I hope has been taken care of in the drafting of the bill is that known as the ex-Wrens, ex-members of the Women's Royal Canadian Naval Service. I understand that perhaps through some oversight the same right to count service during the war for pension purposes that is enjoyed by members of the women's division of the Royal Canadian Air Force and the women who served in the army is not enjoyed by those who served with the Women's Royal Canadian Naval Service. I hope that anomaly, the discrimination against that group, will be corrected in the bill when it is brought before us.
We welcome the fact that so large a group, an additional 60,000, will be permitted to come under the provisions of the Civil Service Superannuation Act, but I hope it will not be long until some of these other groups are also brought under the act. I find it difficult to understand the minister saying on the one hand that the aim is to bring in practically all the regular full-time government employees, and then telling us on the other hand that prevailing rates employees are not to be included. After all, prevailing rates employees are just as full-time and regular government employees as classified civil servants. The only real difference is in their basis of pay, and it would seem to me that the job is not fully done until these other groups are brought in as well. I hope that question will be gone into by the banking and commerce committee when it considers this important piece of legislation.
There is one other group which some of us had hoped might receive consideration when legislation of this kind was being introduced. I refer to federal civil servants who are already retired. The hon. member for Ottawa West has just made reference to the difficulty that still exists in some cases because

of the lower salaries that obtained during the thirties. Many retired employees of the government are today having a difficult time in getting along on their low pensions. Whether these low pensions arise from conditions in the thirties or from other reasons, it seems to me we should not go on any longer without providing some increase for our retired civil servants, particularly those in the lower brackets. I am sorry that there seems to be no indication in the resolution that any such provision for superannuated civil servants is being proposed in the bill.
Again, if that is the case I hope this matter can be dealt with in the banking and commerce committee. I hope the committee will permit any organizations of retired civil servants that would like to make representations to appear and state their case. I am sure if a committee of this house could hear a statement of their case from these people and the difficulties they are having, in the light of today's cost of living, in getting by on the small amount of pension some of them have, the committee would certainly want to recommend that something be done for these people.
I agree with the minister that most of the details as to this matter can be left for further study when we have the bill before us, and still further study when it goes before the committee. In general we welcome the introduction of the legislation. We are glad to note the improvements that are forthcoming, and we hope the door is not closed to still further improvements that may be suggested while the legislation is going through the House of Commons.


Mr. Richard (Ottawa East):: Mr. Chairman, I too welcome this legislation. For a number of years X have tried to bring to the attention of the house that it would be in the interests of the civil servants to have a committee to discuss such matters as superannuation, salaries, conditions of work and so on in the civil service. I am glad that at last we have a concrete result of all the representations that have been made to the government over the past few years with respect to one feature at least, namely the superannuation act. What I welcome most is the fact that the minister said that in future the benefits derived by civil servants will be benefits of right and not of grace. We want our civil servants to be the best in the world. We want them to be loyal, honest, and faithful. We want them to be satisfied with their lot and to give the best of their time and their lives, although in most cases it is not with the hope of much promotion or advancement.
A civil servant is in the true sense a servant of the crown, and in most cases he cannot hope that his lot throughout his life
Public Service Superannuation Act will be one of advancement and promotion. That is why the benefits to be derived when the time comes for his retirement should be the best that can be devised under present methods. I have been hoping that the legislation will give more and better benefits to the civil servants of Canada.
The second feature of the minister's announcement is that there will be proper regulations for the awarding of pensions, and that it will not be a matter of discretion. That discretion will be reserved for certain cases such as those of hardship. The third feature of the announcement is that the superannuation act will extend to all full-time employees.
The last speaker made a good point when he stated that full-time employees are included as well as prevailing rate employees who are on a full-time basis. They are servants of the crown just as well as those who are temporary clerks, and so on. I did understand the minister to say that some prevailing rate employees might not be included but he stated that some or at least most of the prevailing rate employees will be covered by this act from the commencement of their employment.
Now, Mr. Chairman, I do not want to repeat what has been said by the hon. member for Ottawa West, the hon. member for Winnipeg North Centre, and the hon. member for Greenwood about employees of the soldiers' civil re-establishment department and the situation which occurred in 1924. I do not need to repeat that I am in agreement with them that the minister, either under this act or through some amendment, should see that it is possible for those people to get the benefits of which they were deprived by the passing of the act in 1924.
There is another class of employees, too, who suffered greatly; that was the group from the department of the interior. I shall not go into that situation at this time, but everyone will remember that a large number of employees were released from that department in the 1930's. Some were fortunate enough to preserve continuity of employment and others were re-employed later by the government. They were kept from receiving the benefits of the superannuation act. There were those who for certain reasons- on account of the depression and so on -could not get employment with the government and received an immediate pension, were later re-employed and started on another pension scheme. There are those who receive a pension for service up to 1932 and then another pension for service starting after their re-employment. They would, of course,
3732	HOUSE OF
Public Service Superannuation Act have received much more benefit if their employment had been continuous through the years.
I do not wish to go into greater detail but I would like to repeat what I have said through the years, although I do not know that I will be successful, that a number of superannuated civil servants should have been considered for increases in their pensions. Their pensions are very low and they were unfortunate in being retired at an early date and before the recent increases in salaries. I have said before that other countries such as England and the United States have seen fit to give a cost of living bonus to some of their superannuated civil servants in cases where the pensions were too low. I am still hoping that this government and this parliament will see its way clear to consider that matter. This is not solely a business proposition; and this is not the case of an insurance company balancing its books according to the contributions. The government has a certain responsibility which is different from the responsibility of the ordinary corporation to its employees. The government should give the best lead and the best example in the treatment of its employees, and I hope the minister will consider the case of superannuated civil servants just as he has given consideration to others in these amendments.
Now, Mr. Chairman, I know this bill is going to a committee, and we will have an opportunity of examining officials of the department and perhaps suggesting amendments which I hope the minister will see fit not only to consider but to accept.


Mr. Drew:: Mr. Chairman, the operative words of the resolution before us are:
That it is expedient to introduce a measure to revise the Civil Service Superannuation Act . . .
The words which follow define in some measure the additional features that are suggested. In explaining this the minister has referred to the full-time employees, and certain other references have been made. We shall presently have the act before us in detail and that will be the opportunity to discuss that act.
There is, however, one aspect of this problem which should be borne in mind in considering the nature of the bill that is to be introduced and the purpose of a revision of this kind. In addition to any statutory provision for adjustments which will improve the general provisions of the superannuation act, every reference to "full-time employees" draws our attention to one unsatisfactory aspect of the present situation which should be borne in mind in presenting this act; and having been borne in mind in presenting this act, it should be carried forward into other


legislation relating to those engaged in serving the people of this country.
There are too many people who are actually full-time employees and who are not so regarded in the records which establish their entitlement either to superannuation or to other rights. It is perhaps a natural tendency under all governments to carry forward various types of temporary employees to a stage where they have in fact been permanent employees, in many cases for a considerable number of years. That produces inequalities and injustice, and above everything else it denies to those who find themselves in that position a sense of security. It denies that peace of mind and comfortable assurance as to the future which in itself contributes so much to the efficiency of the service that is given in this way. In a very large measure the continuing business of this country under one government and another depends upon a high standard of civil service and upon that feeling of assurance that is given by legislation which avoids any feeling of unfairness or unjustness.
Canadians have every reason to be proud of the standard of our civil service. The members of this government, and of every government, should at all times be careful to preserve the great traditions of that civil service. Above all, they should be sure that under any system that is devised the measure of security that is offered is in fact extended to everyone who offers a service to the people, no matter what the description of that type of service may be.
Mention has been made of the difficult circumstances of some people who received pensions at a time when those pensions were thought to be adequate. With the changing value of the dollar pensions that were adequate a few years ago are not adequate today. It does seem that those who have served their country well in that capacity deserve recognition of that service and due consideration for the years they have spent in serving Canada generally.
I feel that all members of this house agree that it is expedient to introduce a measure of this kind. I feel also that there is general agreement that the adjustments should be made to extend in every way possible uniformity of treatment of those who serve this country, no matter in what category that service may be rendered.


Mr. Dickey:: I do not want to delay the committee in passing this resolution, Mr. Chairman, but I wish to support most warmly what was said earlier by the hon. member for Ottawa West with respect to a group of civil servants who, under present arrangements, will not fully enjoy the benefits of the

excellent superannuation legislation that we have in this country for our public servants. It is true that these individuals will enjoy part of the benefit of this superannuation act -even on that basis it is a good act-and they will be reasonably well treated.
However they feel, and I think with a great deal of justification, that for reasons over which they had no control they are not in a position fully to enjoy the benefits to which many of their fellow civil servants are entitled. As to these particular civil servants, I think almost every one of them is a veteran of the first war. They have been employed for many years in the service of the veterans of this country, both of the first war and the second war.
I know the minister has given this matter careful consideration. He has on many occasions proved to us the effective way in which he considers the difficult problems that are placed before him. We had an example of that earlier this evening in the amendments he proposed to certain provisions of the Income Tax Act. I see his desire to maintain the principle of not shifting cut-off dates and not giving rise to any unfair advantage to civil servants who might at one time have had an opportunity to make an election but failed to do so, and who now want to come in and make that election. I do not think that what is being requested would amount to creating that kind of precedent. These particular employees on whose behalf I am speaking were prevented, through no fault of their own, from making the election at the time required, and those who did make the election in good faith found later that they were legally not entitled to make that election and the certificates which they actually held were withdrawn.
I know the minister will consider these matters carefully, and that the committee also will consider them. However, I wanted to add my voice in support of the plea that was made so eloquently this evening by the hon. member for Ottawa West and supported by the hon. member for Winnipeg North Centre and other members.


Mr. Maclnnis:: Mr. Chairman, I wish to add my voice to those of hon. members who have already welcomed this resolution preceding the bill to extend the benefits of the superannuation act. I think this extension of the benefits of the act to so-called temporaries is long overdue; but it is better late than never.
I also wish to add my voice to those of the hon. member for Ottawa West, the senior member for Halifax and the hon. member for Winnipeg North Centre in the matter of
10, 1953
Public Service Superannuation Act those former employees of the soldiers' civil re-establishment department and the soldier settlement board. It was only this afternoon that I had a long letter from the minister with regard to this matter, and I wish to thank him for going to the trouble, with all his other duties, of writing quite a long letter to explain the various points of the situation.
It seems to me that the strongest point in the case for these civil servants is, first of all, their long service and second, the fact that they had paid their superannuation contributions back to 1919, I believe. There are so few of them left now that I think a departure could be made and that as they are about to retire there could be extended to them the benefit of basing their pension on the last five years of their service.
I do not know, and I will not know until we have the bill before us, to what extent the staff of the House of Commons may be covered in this measure. Perhaps it may not be the intention at all that they should be, but if it is not the intention I hope the matter will be considered. I am thinking at the moment of the stenographic pool. I know that in that pool there are many women who have given probably 25 or 30 years' service in the House of Commons. They are now getting to the age where they can no longer give efficient service, but members of the house do not like to dispense with their services when they have no other means of livelihood.
In private employment during the past few years there has been a terrific increase in the amount of pensions, sick benefits and that kind of thing that have been provided by employers. It seems to me that the lower the wage or salary and the more intermittent the service, the more important it is that these people should be helped to make provision for the time when they have to retire. Whether a person is legally in the service of this country-I was going to say "of this government"-and whether they are legally permanent or whether we call them temporaries or part-time employees, I believe they all should participate in the same benefits.
It may be a little bit difficult to arrange for it, but I am sure that a person who could draft and understand the amendments that were made to the Income Tax Act this evening would find it quite simple to deal with this matter of superannuation. I am just going to leave my case at that, knowing full well that the Minister of Finance will be equal to the occasion.


Mr. Harkness:: Mr. Chairman, I want to say a word on behalf of a group of civil servants whom everyone has described as

Public Service Superannuation Act having suffered a certain amount of discrimination and injustice over the years. I refer to the civil servants who were employees of the old soldiers' civil re-establishment department and of the soldier settlement board.
As I understand this matter, these people never had the opportunity of electing to have the last five years of their service counted rather than the last ten years for superannuation purposes, entirely owing to the fact that the soldiers' civil re-establishment department was looked upon as being only a temporary department following the first great war. Therefore these people were not able to get the status of permanent civil servants, and they could not make that election. In other words it was through no fault of their own.
All those who have spoken here, from all sides of the house, have expressed the desire that the superannuation should be changed so that the comparatively small number of people affected should have that right of having their superannuation benefits based on the last five years of service. The minister's statement was not clear as to whether the proposed legislation covers this point; but I would take it from the tone of the speeches made, particularly from the government side of the house, that the legislation does not deal with this point.
What the minister said, I think, was that the rates will be smoothed out to 5 per cent for men and 6 per cent for women.


Stanley Howard Knowles: The other way around.


Douglas Scott Harkness: Was it? I was not quite sure what that meant, but in any event it did not seem to me that it was going to meet this particular point. That was the only thing I heard the minister say which might be interpreted as applying to it, namely that the rates would be smoothed out, and therefore presumably all people would be on the same basis.
As I said, the desire has been expressed by hon. members speaking from all sides of the house that this injustice should be corrected. Perhaps the minister can tell us whether the present legislation which he is introducing in actual fact will correct that injustice, and whether there is any definite provision in the legislation as now drafted to look after this matter.
Then I think the house would be very pleased if the minister would give an assurance that amendments which might be introduced either by himself or in the banking and commerce committee will look after this particular matter so this long-standing discrimination might be done away with.


Mr. Thatcher:: The minister stated this evening that this legislation is going to reform the Civil Service Superannuation Act. Quite a few reforms are needed. One of them which has not been mentioned tonight is the compulsory retirement age of civil servants. If my understanding of the legislation is correct, civil servants have the option today of retiring at 60 and are forced to retire at age 65. In view of the increased life expectancy in recent years that compulsory age of 65 is outmoded. It is wrong, and it is financially dangerous to the country.
When we pick up our newspapers today we find that it is very difficult to get help in Canada. I came back from the west the day before yesterday, and I picked up the Toronto Star. I found in that paper page after page of help wanted ads. Farmers, chemists, bookkeepers, machinists and others were wanted. There were eight pages of help wanted ads in that particular paper, and the same is true of every paper from Newfoundland to British Columbia today. You just cannot hire people in Canada. That being so, is it sensible to force our civil servants to retire at the age of 65 if they do not wish to? I personally do not think it is. I was reading an article in a United States magazine not long ago which said that the chief of the United States public health service, when speaking on this question of forced retirement at the age of 65, said that it is costing the United States every year 1,250,000 workers who would earn $4 billion. If these figures are correct, and if Canadian figures are somewhat similar, I suppose it must be costing us across the country, industry and government, at least 150,000 workers, and perhaps a national production of about $400 million a year.
Time and again the government has suggested to private industry that it would be well advised to keep its employees beyond the age of 65. It seems sensible to me to suggest that the government should give industry an example. When this legislation is being reviewed the government should consider extending the compulsory age of retirement of civil servants from 65 to at least 68. There are a good many civil servants who would welcome a reform of that nature, because they find it very difficult to retire with the cost of living as high as it is. Another aspect is that when a man retires he usually deteriorates physically and mentally. That kind of reform would also save the taxpayer a good deal of money.
Today the taxpayer is being forced to pay a large share of the retirement pensions of civil servants rendered non-productive usually against their own desires. When this matter goes to the committee I hope the government will give consideration to the reform I have suggested.


Mr. Brooks:: I do not wish to delay the committee. This matter we are discussing, particularly with relation to the soldiers' civil re-establishment department and soldier settlement board, has been discussed on quite a number of occasions before. I remember that in the veterans' committee away back in 1947 and 1948 the matter was brought up, but at that time unfortunately our terms of reference were not broad enough to enable us to discuss the matter at any length. However, I wish to say that I am in hearty accord with what has been said by hon. members here tonight. I think the veterans in the soldiers' civil re-establishment department and in the soldier settlement board received very shabby treatment over a long period of years. I do hope that when this legislation goes before the committee, of which I am a member, the injustice will be corrected.
I have nothing further to say in this connection, but I do feel the time has arrived when this matter should be adjusted and I hope an amendment will be made to the legislation which will do justice to this particular group of worthy men.


Howard Charles Green: Can the minister tell the committee how many civil servants are under the superannuation act at the present time, and also whether it is the intention to cover these two groups that have been referred to tonight, first those who served in the old soldiers' civil re-establishment department and the superannuated civil servants?


Douglas Charles Abbott: I shall be happy to do that. I am afraid I have not the number of civil servants under the act at the moment. That is readily available and I can get it in a few minutes. In any event I can do it on second reading.
I had not intended to make a statement at the committee stage about this particular problem of those civil servants who were in the old department of soldiers' civil re-establishment, but we have a few minutes before ten o'clock and it may be helpful to consider it. It is a matter which can be discussed in committee, but in its consideration it might be helpful if I were to outline the facts in connection with these particular civil servants.
When the Civil Service Superannuation Act was passed in 1924 it was provided that those who were permanent civil servants within the meaning of the act on July 19, 1924, should be given the advantage of the average salary over the last five years of their service in the calculation of any allowances which might be granted to them. On the other hand any temporary employee on that date, or anyone else who subsequently became a permanent civil servant, was to be subject
10, 1953
Public Service Superannuation Act to a ten-year average salary provision instead of five years.
While ten years was determined in 1924 as a necessary factor for actuarial reasons in the benefit formula for future contributors, the five-year provision was put in primarily for the benefit of those who would be retiring shortly after 1924, after having gone through a recent period of low salaries which were supplemented by a cost of living bonus. The use of the five-year period instead of ten would be some compensation to that group, those who it was expected would be retiring very shortly after 1924.
The question which has now been raised concerns the department of soldiers' civil reestablishment employees appointed prior to July 19, 1924, when the superannuation act came into force. Prior to that date, the department of soldiers' civil re-establishment act provided that the minister, under regulations, might employ "such technical and special temporary staff as may be required . . ." It was also provided that the regulations should contain provision for the issue of certificates by the civil service commission in respect of the positions.
An amendment to the department of soldiers' civil re-establishment act which came into force on July 19, 1924, altered the power of appointment by removing the reference to temporary staff and at the same time expressly exempted the positions and staff from the operation of the Civil Service Act. The amending statute was expressed to have force and effect from November 10, 1919. The effect of this would be to exclude the positions and staff from the operation of the Civil Service Act as of that date and, as the deputy minister of justice expressed in an opinion of October 13, 1924, made it possible to give permanent status to employees of the department by regulation with retroactive effect to that date.
Prior to giving this opinion, however, the deputy minister of justice on September 24, 1924, expressed the opinion that all appointments made under the department of soldiers' civil re-establishment act prior to the amendment in 1924 were temporary only, there being no power in the minister to make a permanent appointment under the terms of the original act. The opinion of Mr. Edwards, who was deputy minister of justice at the time, continues:
I am of the opinion, in view of the terms of the statute, that such employees have only a temporary and not a permanent status. It follows that they are not eligible to become contributors under the new superannuation act.
In the light of the amendment and the opinion of the deputy minister of justice on

Public Service Superannuation Act October 13, 1924, a proposed regulation was considered by the treasury board in February, 1925; but the board on looking into the circumstances did not approve it.
When the Civil Service Superannuation Act was amended in 1927 the case ot these and others who had been excluded in one way or another was again raised. In speaking of these groups in general the then minister of finance stated that the act was not intended to include any employees whose sudden withdrawal from the service would impose unexpected demands on the fund. These demands would arise from the abolition of office provision which at that time carried with it the benefit of the grant of an allowance for life on the same basis as if the person concerned had retired because of age. The government therefore was not satisfied that the positions in this department were permanent and the employees therefore could not become contributors to the superannuation account.
Of course all the employees of the department would not necessarily have become permanent had the treasury board approved the regulation proposed in 1925. The department, however, hoped until 1927 to have the position altered, and on its own deducted amounts equivalent to the contributions which those of its employees who might have become permanent would have made to the superannuation account. The department forwarded these deductions to the superannuation branch of the Department of Finance. This branch, acting on the opinion of the deputy minister of justice of September 24, 1924, did not accept these payments but consistently returned them to the department. The department held them in a trust fund until 1927, and then returned them to the employees.
The employees of the department were, with some exceptions, blanketed in in 1929 under the department of pensions and national health act. Thereupon under the provisions of the act they were deemed to be permanent and were dealt with properly under part I of the superannuation act.
While it is true that these civil servants will not obtain the same advantages in the way of pension benefits as those who were permanent employees within the meaning of the act at that time, yet they are in the same position as that of any one of the 14,000 temporary employees in 1924 who may now be still employed.
Since that time thousands of decisions have been taken, allowances granted, and payments made on the basis of the decision of the treasury board in 1925 and, in effect, the


confirmation of parliament in 1927. To try to undo all this would lead to a hopeless tangle, and to grant special privileges now to those who are still employed would be absolutely unfair to those in a similar position who may have retired or to the widows of those who have died.
Any decision as to whether an employee should be regarded as permanent or not has to be made on the basis of the situation at the time the decision is made. Many functions and services of a department of government are not obviously of a permanent nature until a number of years have elapsed; and until that is accepted as evident the persons filling those positions have not been able to enjoy the privileges attached to permanency. That was the position of the department of soldiers' civil re-establishment up to 1929 when, as I say, it was blanketed in with the department of pensions and national health.
Happily, of course, we are taking steps to get away from any repetition of such an admittedly unsatisfactory situation, under the bill which is to be based upon this resolution. The old distinction between permanent and temporary is being removed, as well as the special abolition of office allowance, the existence of which made that former distinction necessary.
As I say, these questions can be discussed properly in the committee on banking and commerce, when officials of the superannuation branch and of my own department will be available to give any explanation which may be required. I propose to make a considerably more detailed statement on the motion for second reading, when I shall deal with the various provisions of the measure. However, it may be useful to have this factual statement on record tonight with respect to these employees of the old department of soldiers' civil re-establishment.


Howard Charles Green: I take it that neither of those two groups is covered in the bill as it stands.


Douglas Charles Abbott: That is right. And there are a number of other groups which in my opinion have a better claim than this particular one, which 1 still do not think should be included. But they would have a better claim than the employees of the department of soldiers' civil re-establishment.


Stanley Howard Knowles: Was I correct in assuming the minister agrees with me that it would be all right for the committee to hear representations from organizations representing these people?


Douglas Charles Abbott: That should be a matter for the committee to decide, but speaking personally I have no objection to it.


Stanley Howard Knowles: That means a lot.
Resolution reported, read the second time and concurred in.
Mr. Abbott thereupon moved for leave to introduce Bill No. 334, to provide for the superannuation of persons employed in the public service of Canada.
Motion agreed to and bill read the first time.



BUSINESS OF THE HOUSE

Alphonse Fournier: On Monday we shall consider the following measures: The third reading of Bill No. 228, to amend the Income Tax Act; Bill No. 331, to amend the Fisheries Research Board Act; Bill No. 330, to amend the Trans-Canada Air Lines Act, 1937; then two resolutions in the name of the Minister of Veterans Affairs, which stand as Nos. 6 and 7 on today's order paper; Bill No. 100, to prevent discrimination in regard to employment and membership in trade unions by reason of race, national origin, colour or religion; Bill No. 329, to amend the Emergency Gold Mining Assistance Act; Bill No. 333, to amend the Prairie Farm Assistance Act, 1939.
The house sits at eleven o'clock on Monday. Most of these are amending bills.


George Alexander Drew: I should like to ask the government leader when it is intended to bring in the estimates of the Department of National Defence.


Alphonse Fournier: I expect the return of the Prime Minister (Mr. St. Laurent) over the week end; but my thought was that on Tuesday we would move to go into committee of supply at eleven o'clock and I would call three departments, which would be allowed to stand. Then we would take up the estimates of the Department of National Defence all day Tuesday and all day Wednesday. I do not know if we can go any further because I understand that three ministers are to leave during that week end to attend NATO meetings in Paris. That is what I was thinking at the moment.


George Alexander Drew: That was my reason for asking the question. I understand that the Minister of National Defence is to leave at the end of next week. There is no single department of
Business of the House
government that calls for such attention as does the Department of National Defence. We all recognize that under that one department half of all the money to be taken from the taxpayers during the current fiscal year will be voted. That department should be dealt with in a manner that recognizes the amount of taxation involved and the importance of the questions and answers that will be asked and given. I think I must express my own opinion that there is nothing more important for the Minister of National Defence than to be here for a continuous examination of the estimates of his department.


Alphonse Fournier: I have given the only answer I can at this time. On Tuesday we shall move to go into supply but if there are speeches on agriculture all day I will be in a bad fix to get into national defence. I ask hon. members for their co-operation to let me get into supply on that day. I might wait until Thursday, but that would be late in the week. That is why I propose to move on Tuesday.
As to the importance of the department, everybody agrees with the Leader of the Opposition, but I have noticed that discussion does not always go according to importance. I took three days for just a small fraction of the amount to be spent on national defence.


George Alexander Drew: That is exactly the point. Can the minister inform us as to when the Minister of National Defence will be returning?


Douglas Charles Abbott: He will be away for a week, I think.


Alphonse Fournier: I gave that information without being sure. I shall have to consult my colleagues before giving a definite answer. The Leader of the Opposition may rely on my willingness to be co-operative and to help.


George Alexander Drew: I can only say that the skill and dexterity with which the minister handled his own estimates is still apparent in his discussion of this subject. I understand from him that after the motion to go into supply on Tuesday is dealt with it is the intention to call the Department of National Defence?


Alphonse Fournier: And go as far as
possible.
It being five minutes after 10 o'clock, the house adjourned, without question put, pursuant to standing order.



APPENDIX


[Stage Direction]
March 12, 1953.
John A. Stevenson, Esquire,
Editor,
Saturday Night,
Toronto, Ontario.
Dear Mr. Stevenson:
In your column entitled "Ottawa Letter" in Saturday Night of March 14, you make the following statement:
"In the sessions of the select committee^ on defence expenditures, the persistent efforts of its chairman, Mr. Croll, and his henchmen to smother damaging evidence of governmental waste and mismanagement have not availed to prevent the opposition members from unearthing some very damning material to sustain their case. They are now licking their chops over some candid reports by important officials, and their severity can be gauged by the following two quotations:
'However, I could not fail to be impressed by the fact that for such a tremendous administrative machine there appears to be very little fighting strength', and 'a high percentage of the construction and other contracts were awarded on a cost plus basis, which the department itself has declared to be wasteful, inefficient, and an incentive to extravagance. *
It is very distressing when reputable journalists mislead the public, either through distortion or failure to take the trouble to ascertain the facts.
In your first quotation you may have some special knowledge not in my possession, but to describe the author of these remarks as "an important official" is stretching the truth beyond the breaking point.
With regard to the second quotation, its author is Arthur Blakely of the Montreal Gazette, writing in -that paper under date of
February 27. So far as I am aware, the government has not, as yet, appointed Mr. Blakely to any important office.
Yours sincerely,
C. M. DRURY, Deputy Minister


[Stage Direction]
Ottawa, March 18, 1953.
Dear Mr. Drury,
You are the latest of a line of individuals ranging downwards from the late Lord Bennett and the late Mr. Mackenzie King, who have been "distressed" by my writings and I can only regard your distress over my reputation as a piece of childish condescension.
In respect to such strictures upon my work as yours I have always followed the maxim adopted by Disraeli in his dealings with women-"Never complain, never explain". But I will depart from it to the extent of referring you to the story written by Mr. Richard Jackson in the Ottawa Journal of March 16th and the admissions of the Prime Minister on the same day, which seem a complete answer to your charges about distortion and misleading the public.
I propose to ask the editor of Toronto Saturday Night to publish this correspondence between us.
I am,
Yours faithfully,

[Stage Direction]
Mr. C. M. Drury,
Deputy Minister of National Defence,
Ottawa.
P.S. Your letter was held up in Toronto and only reached me today.

[Stage Direction]
Monday, April 13, 1953