1963-07-22

Mr. Speaker:: I am sure all hon. members will be interested in knowing that we have in the diplomatic gallery the president of the United Nations general assembly, Sir Zafrulla Khan. I know you will join with me in extending a very hearty welcome to him while he stays in Ottawa as the guest of our parliament, and in Canada generally.


Some hon. Members:: Hear, hear.



THE ROYAL ASSENT

Mr. Speaker:: 

FINANCE


Right Hon. L. B. Pearson (Prime Minister):: Mr. Speaker, I should like to make a statement concerning the application to Canada of the proposed United States interest equalization tax. An agreement on this matter was worked out during the week end in discussions between representatives of the United States and the Canadian governments. As the house knows, the agreement was announced simultaneously in Ottawa and in Washington yesterday evening. I should like to table the text of the announcement and ask the consent of the house to it being printed in Hansard.


Mr. Speaker:: Is that agreeable to hon. members?


Some hon. Members:: Agreed.
28902-5-1551
[Editor's note: For text of document referred to above, see appendix.]


Lester Bowles Pearson: The agreement has, I believe, important effects and implications. The spirit of co-operation in which it was worked out is encouraging. That spirit enabled agreement on a most complicated matter to be reached quickly, and I am sure this prompt and decisive handling of difficulties will be greatly reassuring to the public, including the financial communities, on both sides of the border.
When I say "handling of difficulties" I do not mean either that the difficulties were all solved or that they were glossed over. I mean that the representatives of the two governments were able to deal with this problem in the spirit of the Hyannis Port meeting of last May, when the communique included this paragraph on balance of payments problems:
The President and the Prime Minister stressed the interest of both countries in the balance of payments between them and with the rest of the world. The Prime Minister drew particular attention to the large United States surplus in the balance of current payments with Canada and noted the importance of allowing for this fact in determining the appropriate policies to be followed by each country. It was agreed that both governments should always deal in a positive and co-operative manner with developments affecting their international trade and payments.
In accordance with that spirit, we on our side fully appreciate the United States government's desire to improve its own balance of payments position. It would not, of course, be appropriate for us to express views about the general policies adopted by the United States for this purpose, but it was clear from the behaviour of financial markets at the end of last week that the proposed interest equalization tax could have unintended and serious effects on Canada.
We accordingly made representations on the subject through diplomatic channels and arranged for representatives of the Canadian government to go to Washington over the week end. We are extremely grateful for the promptness with which the United States government considered the problem. When it was pointed out to them that they had underestimated the effects of their proposed measure on Canada, they promptly joined in seeking to correct the consequences.
The modification of the United States proposal which was announced yesterday does not solve all the problems. The tax is still intended to apply to purchases by Americans

U.S. Tax on International Capital of outstanding Canadian securities. This will pose some continuing problems, and the government of Canada will continue to seek exemption for such transactions.
The two governments readily agreed at the week end, however, that the major and immediate problem arose from the proposed tax on new issues of Canadian securities. The two governments were able to find at once an approach to a solution of this problem.
The United States government has recognized that Canada's case is different from that of other countries in that, while capital moves from the United States to Canada, it thereby only helps to finance the excess of Canadian purchases of goods and services from the United States compared with American purchases from us. In the final result we are suppliers of exchange to the United States, not removers of exchange from the United States. In recognition of this the United States government has recorded its hope and expectation that new Canadian issues can be entirely exempt from the proposed tax. We have stated that we will not use exemption from the tax to give us an advantage by borrowing in the United States aimed at increasing our currency reserves.
The unlimited exemption for Canada is to cover all new security issues by business and all levels of government; under this exception there would be no question of rationing access to the United States capital market.
This modification of the United States proposal is a most helpful result. I should like to follow what the Minister of Finance said yesterday by expressing on behalf of the government and, I am sure, Mr. Speaker, on behalf of the house, my appreciation of the co-operative spirit of the United States government and also of the work done in this matter by the governor of the Bank of Canada and by the Departments of Finance and External Affairs.
While the immediate result is most helpful and goes a long way toward removing the immediate difficulties, I must repeat what I said earlier about the underlying problem. The whole incident underlines the importance to both countries, as was recognized at Hyannis Port, of taking constructive, long term action to lessen the problems of the balance of payments. For that reason I am hopeful that, in the same spirit of co-operation as was demonstrated over the week end, we will shortly be able to arrange a fruitful meeting of the joint economic committee of ministers of the Canadian and the United States governments.
From Canada's point of view the objective must be a further substantial reduction of our

current account deficit in the balance of payments. This government has made clear on numerous occasions that the correction of our balance of payments position, with its favourable effects on employment, is a central objective of our economic policies.


Right Hon. J. G. Diefenbaker (Leader of the Opposition):: Mr. Speaker, I certainly join with the Prime Minister in expressing appreciation to the United States for showing consideration to Canada. The relationship between Canada and the United States has at all times been such in my memory. Indeed, in the days of former president Eisenhower the closeness of that relationship denied the difficulties that subsequently arose.
The Prime Minister speaks in fulsome terms of the Hyannis Port idyll and the ideal agreement arrived at there, but may I add that while the Prime Minister was patted on the head at Hyannis Port by the President, Canada was kicked in the economy. The Prime Minister says that as a result of representations made the difficulties which would have followed the continuance of the policy enunciated by the President have now been alleviated to a greater or lesser degree. This still leaves, as I see it, a veto with the President of the United States with regard to the expansion of Canada's economy, which is something that is not in keeping with the sovereignty of this nation.
I am surprised that following this fine relationship to which the Prime Minister referred the United States saw fit to bring into effect an economic plan which could only hurt Canada and damage this country economically more than any other of the 22 or 23 countries included in the plan. As I see it, there was no reason for the application of this plan to Canada. Our balance of payments position has at all times been favourable to the United States. These other countries to which the plan is being applied are in a different position.
As far as our trading relations are concerned, we recall very well that in 1956, in the palmy days of the former Liberal government, the commodity deficit between the two countries and adverse to Canada was about $760 million. In 1961 and 1962 during our period in office we were able to bring about a favourable balance in this regard. Furthermore, there was a pronounced reduction in the balance of payments problem in general during the days we were in office, and I hope that what took place in 1961 and 1962 will continue in 1963 and in the following years.
Our relations with the United States should have caused that country to give some notice to Canada, and to consult with Canada before

taking this action. When the government now surrounds itself with a halo of self praise, may I suggest that in addition to parliament speaking out firmly and strongly on Friday, the major reason for the change was that the financial people in New York took a strong stand, as did financial interests in our own country.
While it is too early to say that this action will alleviate the results that would have flowed from the plan enunciated by the president, at least it is a step forward. Consultation beforehand, however, would have prevented this action being taken. It is not as though Canada found itself in a position very much better than most minor countries, for the members of the press were fully briefed on Thursday and on Friday morning the government of Canada was told what the action would be. This is not consultation in the true sense of the word.


Mr. R. N. Thompson (Red Deer):: Mr. Speaker, speaking on behalf of the Social Credit party may I say that we, in common with all Canadians across the country, are happy with the announcement that has just been made; because certainly the situation that was in prospect for us as we saw it last Thursday and Friday was not a pleasant one, particularly in the light of the many financial problems that we face.
However, I believe there are two observations which arise from this situation which come emphatically to mind. The first is the financial confusion surrounding the general situation relating to government financing both in the United States and in Canada. This comes back to the problem of the balance of payments difficulty, which has been increasingly critical for both countries. Certainly the United States cannot continue with the tremendous deficits that they have had, both in terms of trading dollars and of gold. Neither can we in Canada.
And second, I trust that out of this crisis there will be a realization that the old approaches we are using to meet these problems are inadequate to meet our present needs. Certainly this becomes increasingly evident as we see the turmoil in which we have been since our own balance of payments crisis a year ago, as well as the budget crisis of the past few months. As we look at these financial problems we begin to wonder whether the tail is wagging the dog or the dog is wagging the tail. However, we are glad that this quick action has been taken. I hope it will lead to the conclusion that something more drastic is going to have to be done in the near future if we are to find any permanent solution to these problems.
22, 1963
U.S. Tax on International Capital


Mr. Colin Cameron (Nanaimo-Cowichan-The Islands):: Like the others who have spoken before me, Mr. Speaker, we in this party welcome the report of the Minister of Finance and the Prime Minister on this question. I hope I will not be considered too Cassandra-like if I suggest that perhaps we are not out of the woods yet, in spite of the move that has been made or is proposed to be made by President Kennedy.
I understand, for instance, that the tax is still to be imposed on outstanding issues, and this may have a decisive effect on interest rates in this country as a result of the fact that the outstanding issues will be subject to a great deal of downward pressure on price and upward pressure on interest. This is almost bound to affect interest rates on new issues from Canada.
There is also the question as to whether it is going to be accepted by congress. We can only hope it will be; but if congress has been convinced, as it well may have been, that it is necessary for the United States to take drastic steps to curb the outflow of American dollars, it may be somewhat hesitant to accept this generous treatment of Canada as a special case. I suggest to the government that it might well be in the interests of Canada if it could be arranged that financial witnesses from Canada could be called before whatever congressional committee may be studying this matter.
As I said earlier, I can well believe that congress will be convinced of the necessity of the United States taking some drastic action. After all, sir, they cannot very much longer sustain a continued weakening of their net reserve position, which will result in a continued outflow of American dollars. If the channels that lead to Canada are to be kept open, then it may well be that the United States will have to take drastic steps to block the holes which lead to an outflow of American dollars in other directions, which again will cause repercussions that may catch us. In fact the Canadian government may have succeeded in warding off a clip on the jaw only to leave us liable to be sandbagged on the back of the head later.
One of the most useful steps which the Canadian government could take at the present time would be to press for an international monetary conference on the question of international exchange, perhaps on the lines of a royal commission before which the various financial and monetary experts who have voiced their opinions and views on this problem could be summoned. Otherwise we are going to experience continuing exchanges crises in one form or another.
2440	HOUSE OF
Biculturalism Commission Appointed ARTS. LETTERS AND SCIENCES



PERSONNEL OF ROYAL COMMISSION ON BICULTURALISM

Lester Bowles Pearson: Mr. Speaker, I would like to make a short statement on the commission on bilingualism and biculturalism. The co-chairmen will be Andre Laurendeau, editor in chief of Le Devoir, Montreal, and Davidson Dunton, president of Carleton University.
Other members of the commission will be Rev. Clement Cormier, president of St. Joseph's University, Moncton, New Brunswick; Mr. Royce Frith, a lawyer in Toronto; Jean Louis Gagnon, a journalist and broadcaster in Montreal; Mrs. Gertrude Laing, a housewife in Calgary; Jean Marchand, general president of the confederation of national trade unions of Quebec; J. B. Rudnyckyj, chairman of the department of Slavic studies at the University of Manitoba; Frank R. Scott, dean of law at McGill University in Montreal, and Paul Wyczynski, director of the French Canadian literature research centre and associate professor of French literature at the University of Ottawa.
The members of the commission, whose names I have just given to the house, cannot, of course, and are not intended to represent every point of view of every group in our country. Nevertheless, through the diversity of their backgrounds and interests and their broad experience, they do represent a varied and important cross section of our people. They are all deeply interested in the subject of this inquiry and are all fluent in our two national languages. They are all aware of the dual cultural and racial basis of our confederation and of the important contribution made by other cultures and traditions.
I am sure the members of the commission will enjoy the support and good will of all members of the house as they examine into a vitally important aspect of our national life and our national development.


Mr. Herridge:: Can nobody in B.C. speak French?
(Translation):


Robert Norman Thompson: Mr. Speaker, today is a memorable day that will mark, I hope, the beginning of a new era of co-operation between the two great ethnic groups that make up our country.
The only road to progress for Canada resides in mutual understanding of the need to work together to attain that aim.
(Text):
Mr. Speaker, we are pleased indeed that the announcement for which we have waited so long regarding this vital royal commission has now been made. At this point it is not in


order to make any remarks regarding the men and women who have been appointed to this commission. Certainly they have assumed one of the most important challenges that has been given to any group of Canadians in recent years. The development of Canadian unity and the development of our nation as a whole is something which is a more critical problem than most of us understand or realize at this time. I look forward to seeing this commission expressing the genuine will of the Canadian people toward the Canadian unity and the national purpose of Canada about which we all speak, and which we all feel is imperative to the survival of our nation, yet which so often is very difficult to grasp or to actually put into effect.
We are just four years from our centennial, and perhaps at no time during these past 96 years have we faced such a critical problem and an important challenge as we now face. As I speak for members of our party here in this house and across the country, I believe it is the hope and desire that this royal commission will lead to the greater understanding, co-operation and spirit of unity that we need in these difficult and troubled times.
Therefore, Mr. Speaker, we are pleased that this long awaited announcement has been made. There will be ample opportunity to say more about it in the future, but we do look forward to some constructive progress as a result, with the hope and prayer that Canada will become the united nation, as far as purpose, understanding and genuine co-operation are concerned, that we must be if we are to be the nation we want to be and which the world expects us to be.


John George Diefenbaker: Mr. Speaker, the house has been looking forward with anticipation to the setting up of this commission. I think the house will be in general agreement with the words of the hon. member for Red Deer, though it would have been interesting to have questioned him as to the degree to which he and others associated with him accepted the recent words of Premier Manning of Alberta in regard to this very important matter. I hope that the setting up of the royal commission will be beneficial.


Robert Norman Thompson: That is politics, which is not at all necessary when dealing with this announcement.


John George Diefenbaker: Mr. Speaker, I do not know what the interruption was, but I have always thought that Premier Manning spoke, as it were, for the Social Credit party generally across the country. However, I do not want to bring about any discord in that party which has been so united in the past.

I want to say immediately that we feel the setting up of a royal commission is not an effective way in which to meet the problem that we face. It can only operate as an educational body, and all of us would benefit from that. It can only operate, too, as a postponement of any effective action being taken for several years.
The royal commission will sit, elicit facts and listen to arguments; but in no case, of course, can it determine the results of its recommendations. No action can be taken until there has been agreement between the dominion government and the provincial governments on the question of the amendment of the constitution in order to meet this problem. I know that leading members supporting the government have from time to time come out with the rather doubtful plan of two flags for Canada. That plan will not work as far as the constitution is concerned. There can only be one constitution for Canada, and if changes are to be made to that constitution they will have to be determined on the basis of final agreement between the federal and provincial governments.
We in this party stand where we have always stood throughout the years, for an equal partnership between the founding races and without infringement on the rights of other Canadians. Whatever may be the views on the compact theory, the British North America Act is more than a constitutional and legal document; it is the legal, spiritual and fundamental essence and conscience of the Canadian way of life, and there are sections in it that are ageless and cannot be changed by the people of Canada excepting by unanimity among all the provinces.
I would like to have heard the Prime Minister tell how this commission is supposed to work and how it will operate. We cannot change the constitution, as they do in the United States from time to time by interpretation of the courts. The supreme court of the United States in its interpretations through the years has altered some of the concepts inherent in the ideas and views of the fathers of that country. We had our constitution rewritten by interpretation during the 1880's and 1890's by the privy council. However, that is no longer possible.
As far as this commission is concerned, I am not fully aware of the powers it will have, but it must give consideration to fiscal matters. We believe that the provinces must have a larger share of the total taxes collected in this country than has been the case previously. When we came into office the provinces had a 10 per cent share of corporation income tax under the 1956 agreement. We increased that through parliament by 3 per cent. Finally, in the last agreement that was
22, 1963	2441
Biculturalism Commission Appointed entered into, the amount of that share was increased to 16 per cent, with an escalating provision each year until 20 per cent will be available to the provinces within five years.
These are problems that must be faced. The royal commission will merely discuss; the determination will have to rest upon the federal and provincial parliaments. I have stated the view we take, that there should have been convened a conference of federal and provincial government representatives on the questions of the constitution, biculturalism and bilingualism. At such a meeting there would have been representatives of all the national political parties, and a full and complete study could there have been made and agreement reached, without postponement, as to the means to repatriate the constitution, to carry out immediately the recommendations of the Therrien report and to endeavour to come to agreement on those other kindred matters, by those who alone have the power to bring about such changes. At the same time such a national meeting would give Canadians a forum, with the power to act to round out and restate, if agreed to, Canada's national goals before this nation embarks upon its second century. We endeavoured to bring this about on February 8 when as prime minister I suggested to the various provinces the calling of such a conference, which we still say is necessary for this country. That suggestion was replied to. Five provinces, Ontario, Saskatchewan, Nova Scotia, Manitoba and New Brunswick agreed with it. Quebec and Alberta asked that the matter be delayed until after April 8. Newfoundland and Prince Edward Island gave no reply, and British Columbia gave an acknowledgement.
Sir, as far as this royal commission is concerned which the Prime Minister has now announced, we say, first, that it is not sufficiently representative. To be effective it should have strong provincial representation. I feel it would have been the course of sound judgment and statesmanship-and I am asking that this still be done-that the provinces be given an opportunity of representation on this most important royal commission.
Second, the Prime Minister, when speaking in Winnipeg on March 8, as reported in the press, said that all ethnic groups would be included in the proposed study of biculturalism. I feel that the very important ethnic groups in Canada will ask why it is they have no representation. I think, for instance, of those of German and Dutch origin who represent one and a half million of Canada's population. They have no representation. I think as well of the Indian population of our country. They have no representation on a commission which is most important to them.
2442	HOUSE OF
Biculturalism Commission Appointed Even yet I ask the government to give reconsideration to providing direct provincial representation. The premiers will be meeting here during the latter part of this week. Certainly they should have the opportunity of recommending the names of two or more representatives for this royal commission, where the consideration of matters which come within provincial jurisdiction is implicit.
Now, sir, I need not say what our attitude is on the subject of biculturalism or bilingualism; our actions during the period we were in office showed that. When confederation took place a new nation was created in the partnership of two basic nationalities and origins. I believe that when an important commission such as this is set up every endeavour should be made to secure the views of the provinces as well, with representation on the commission. This is a body which is looking at a national problem, the legislative power of which in those matters that affect biculturalism and bilingualism, such as education rests in the provinces, along with all those rights which are guaranteed under the constitution.
For that reason I have felt, and this party feels, that there should have been a meeting held, a great congress of the people's representatives both federal and provincial. The government, having decided on a royal commission, should make it an effective body by securing the appropriate and necessary membership of the provinces.
(Translation):


Mr. Andrew Brewin (Greenwood):: Mr. Speaker, we are happy to hear the Prime Minister's statement. We are sure that the distinguished Canadians appointed to the commission are entirely qualified to do the very important task that awaits them. We hope that the commission will get going almost immediately. It is quite possible that the future of confederation rests to a large extent on its studies and recommendations.
(Text):
Mr. Speaker, I should like to add a few words in what the Prime Minister described the other day as the other official language. I will not attempt to follow the right hon. Leader of the Opposition into a discussion of constitutional amendment, important and interesting though that subject is, but I too would like to say a word of caution. Royal commissions, Mr. Speaker, as this house well knows, have sometimes been used as an excuse for lack of action rather than for action. The contribution of this particular royal commission, however important it maj' be, will not absolve Canadians of both nations from a real effort of will and understanding.


If I may, for a moment, mention my own riding, it is one in which nearly all my constituents are of English and Scottish origin. There have been times, I believe, when they were rather less than interested in the good will of the other nation in Canada. However, today I believe there is a very great fund of good will not only in my constituency but throughout English Canada. But, Mr. Speaker, if I may lapse into my not too good French for one sentence
(Translation):
unfortunately we are strangers in our own country.
(Text):
I should like to say, Mr. Speaker, that I believe our dual culture-our more than dual culture-if we have the will within us can be a source of mutual enrichment and not embarrassment. We in this party will wish the members of the commission the very best success in their task. We shall follow their deliberations with a close interest and with sincere good will. We too could suggest additional members, but we are impressed with the members who have been named and, as I say, we wish the commission the best of luck. It will make a great contribution to Canada if it has the good will and interest of Canadians in every part of Canada.


Mr. Speaker:: It is not usual or customary for more than the representatives of each of the four parties to make short comments at this time, but in view of the importance of the announcement I wonder whether hon. members would agree to short comments from other representatives of the four different parties, if that is desired at this time?


Some hon. Members:: Agreed.


Mr. Gilles Gregoire (Lapointe):: Mr. Speaker, in view of this formation of a royal commission on biculturalism, I think you are completely right to ask some hon. members from French speaking Canada to express their own ideas on the matter.
(Translation):
Mr. Speaker, we cannot but congratulate this government for establishing a royal commission on biculturalism. This commission will be responsible for a survey of the present situation and for a definition of the policy for the years to come. In other words, we urgently needed some kind of a manifesto so that all Canadian citizens belonging to our two great cultures would know in the future how matters stand with regard to the two great nations which make this country.
Since I have come to this house Mr. Speaker, I have ascertained that it is possible to have

understanding between our two great nations provided we know each other, but we have to know exactly what each of these two great nations wants and desires. Two hills never meet, but two human beings, two men, can meet. Such a meeting necessarily implies discussions and discussion means occasional differences but also agreements and concord. In a family, two brothers may fight once in a while, but their friendship will endure and their mutual assistance will continue.
When we talked about bilingualism and bi-culturalism in this house, we never did so with hate, we never said anything against the other great nation in this country. We have always met with sympathy and a desire of achieving some understanding from the members of that other great nation, but on the other hand, a manifesto is necessary to define the position of these two great nations.
In my opinion, that will be the responsibility of the royal commission on bicul-turalism. The commission will have to provide for that manifesto.
In conclusion, I hope that all Canadians, all public bodies, all associations and all the various groups in our country will lend a hand. I also hope its recommendations are not too long in coming and that they prove satisfactory for all Canadians.


Mr. Guy Marcoux (Quebec-Monlmorency):: Mr. Speaker, the Prime Minister's announcement is in no way disappointing and can only be approved. The gesture had been expected for a long time and quite a few people might consider it as the means of solving the problem which Canada's two great nations know today.
That is far better than nothing. As the hon. Leader of the Opposition (Mr. Diefenbaker) mentioned earlier today, a royal commission does not always give results. He is an expert in the matter himself, as seventeen royal commissions have been set up under his rule to study certain problems, with more or less indifferent results.
Neither should that commission be an elegant way of delaying the solution of the problem, the seriousness of which is known to every Canadian. The commission would serve more accurately to define the wishes of the two different nations which form this country, and that is why recommendations in this respect should not be delayed, and it should more particularly not be said that the commission can not give any immediate results.
Moreover, the fiscal issue, which is also very important and does not come under the commission, should also be settled at an early date. Indeed, the commission will generally
28902-5-156
22, 1963	2443
Biculturalism Commission Appointed give no satisfaction to French Canadians throughout Canada, and more particularly in the province of Quebec, as long as the question of fiscal relations is not settled.
The appointment of some French Canadians to the commission was hardly a surprise for anybody. Following certain recent statements or interpretations in connection with the problem concerning our two great cultures several had already expressed a certain prejudice, which we thought would result in their imminent appointment to the commission. As far as I am concerned, and with the exception of Rev. Father Cormier whom I did not know, the others were from the start candidates for appointment by the Liberal party. And quite a few among the French Canadians of Quebec will be somewhat disappointed.
We must trust in everybody's good will and, in view of present happenings, more particularly hope that the present problems will be dealt with objectively and that the inquiry will bring some results at an early date.
(Text):


Mr. Harold E. Winch (Vancouver East):: We
all welcome the announcement concerning the appointment of a commission on biculturalism. I do not intend to repeat what has already been said, but I do want to express one hope; that is, that the terms of reference as affected by the meaning of the word "biculturalism" are not too narrow. I say this because although basically Canada is a country of two ethnic origins, English and French, there are many hundreds of thousands of people who make up, and who contribute to Canada who come from other countries also. I direct attention, if I may, to the constituency of Vancouver East where there are many thousands of people whose original homeland is Italy. Others in their thousands are Chinese. Still others are Germanic or Slavic in origin. These are Canadians who have also made their contribution to our nation and who have a culture which must be tied in with that which is French and with that which is English.
I wish to express the hope that this basic term "biculturalism" will enable the commission to consider the various cultures of the other countries which go to make up what we call Canadianism.

On the orders of the day:


Mr. L. J. Pigeon (Jolielle-L'Assomplion-Montcalm):: I should like to address a question to the Prime Minister. Can he tell us who

Statement on Marine Casualties will be the secretary of the royal commission which was announced a few minutes ago?


Some hon. Members:: Mr. Pigeon.


Louis-Joseph Pigeon: You may be sure the commission will be a success, then.


Lester Bowles Pearson: There will be joint secretaries, French speaking and English speaking. I hope to be able to give their names in a day or two. They have not been appointed as yet.


Mr. Eldon M. Woolliams (Bow River):: May
I ask a supplementary question of the Prime Minister. Were the provincial premiers consulted with regard to the persons appointed to the royal commission on biculturalism?


Lester Bowles Pearson: No, Mr. Speaker.


Mr. Joseph Slogan (Springfield):: Mr. Speaker, I have a question for the Prime Minister. Will the Prime Minister inform the house whether the commission on biculturalism will have within its terms of reference authority to make recommendations regarding a distinctive national flag and a distinctive national anthem?


Lester Bowles Pearson: Mr. Speaker, the terms of reference of the commission have already been made public and an order in council passed embodying them.



SHIPPING


Hon. G. J. Mcllrailh (Minister of Transport):: Mr. Speaker, I regret to have to report to the house a series of marine casualties that occurred late last week in the St. Lawrence river below Quebec. Throughout the period visibility was reduced by fog. Three sets of collisions took place and one ship was sunk with heavy loss of life. Damage to the other ships varied from heavy to minor.
The first collision took place about 10 p.m., Thursday, July 18, near Murray Bay. The vessels involved were the hydrographic survey vessel Cartier of the Department of Mines and Technical surveys and the cargo ship Seven Skies, understood to be of Swedish register. Damage was light; no personal injuries were sustained; both vessels proceeded under their own power.
The second occurred at the entrance to Quebec harbour about 5.45 a.m., Friday, July 19. The Canadian canal-type cargo vessel Calgadoc upbound and the Liberian-registered Bariloche downbound came in contact, with minor damage resulting. Thereupon occurred a further collision involving the Bariloche


and a second upbound ship, the Canadoc, a large Canadian laker. More extensive damage resulted in this case although no personal injuries were suffered. All three ships proceeded to repair berths under their own power.
Shortly before 2 a.m. on Saturday, July 20, the third set of collisions occurred in the vicinity of He aux Coudres. The vessels first involved were the Bermuda registered ore carrier Tritonica, upbound loaded from Havre St. Pierre to Sorel, and the Northern Irish cargo vessel Roonagh Head, downbound. The Tritonica sank immediately. The Roonagh Head suffered extensive damage but anchored nearby and launched boats to pick up survivors from the Tritonica. The Roonagh Head herself suffered no personal casualties. Our latest report indicates that of a crew of 50 and one pilot aboard the Tritonica, there are 17 survivors, 18 known dead and 16 missing. The master was among the survivors but the pilot, Armand Lachance, 62, has not yet been found. It is understood that the ship's company of the Tritonica included four Caucasian officers, the balance being Chinese. I am sure the house will wish to join me in expressing sympathy for the families of the bereaved.
Shortly thereafter the Canadian laker Halifax appeared on the scene and assisted with rescue operations. She was not involved in the collision and suffered no damage or casualties.
About two hours after the sinking the outbound Spanish cargo ship Conde de Fontanar entered the area at slow speed and came into light contact with the superstructure of the sunken vessel. She thereupon picked up over the bow further survivors who were clinging to the funnel of the Tritonica, which protruded above the water. The Halifax continued on her way, the Conde de Fontanar returned under her own power to Quebec for inspection of possible damage, and the Roonagh Head remained at anchor awaiting assistance for the return to Quebec for repairs. The survivors from the Tritonica are now in the veterans military hospital, Ste. Foy.
On the report of this incident being received, Foundation Maritime were advised and dispatched their salvage tug. The Canadian coastguard ship Saurel also sailed to mark the site with the customary wreck marking buoy.
A preliminary investigation in accordance with the provisions of the Canada Shipping Act is being undertaken immediately to report upon the circumstances of the Tritonica sinking, and I fully expect that this will be followed by a formal inquiry also in accordance with the provisions of the Canada Shipping Act. Departmental investigations are proceeding with respect to the other collisions. It is

Questions
understood that pilots were aboard all the vessels in collision except the Calgadoc and the Cartier.
The wreck of the Tritonica is in 10 fathoms of water and at this point the channel is some two miles wide. Thus other shipping will not be completely obstructed.


Mr. J. A. McBain (Elgin):: Mr. Speaker, with regard to the announcement just made by the Minister of Transport, may I say that I am sure we in this party appreciate having a report on the tragic accident that occurred in the St. Lawrence river. We wish to express our sympathy to the bereaved. We hope the Department of Transport will take every precaution necessary to see that further tragic accidents do not occur. We know that at a time of fog these extra precautions sometimes do not work as effectively as they should. We appreciate the fact that the minister has given us a full account of the tragic accident, and I am sure all hon. members of the house wish to express their sympathy to the bereaved.
(Translation):

On the orders of the day:


Guy Marcoux: Mr. Speaker, I should like to direct a question to the Minister of Transport following the statement he made a while ago about the maritime tragedy that occurred during the week end. Could he suggest or recommend to the owners of the damaged ship that they have her repaired in shipyards in the Quebec area?
(Text):


George James McIlraith: Mr. Speaker, I will have to take that question as notice. I can understand the hon. member's interest in the subject.
(Translation):



LABOUR RELATIONS


Hon. Lionel Chevrier (Minister of Justice):: Mr. Speaker, last Thursday I announced that in order to implement the recommendations contained in the Norris report, lawyers would be appointed to make a detailed study of all the facts and to see if legal action is warranted. I take pleasure in announcing to the house that Mr. Jean Martineau, Q.C., of Montreal, and Mr. J. J. Robinette, Q.C., of Toronto, agreed on Friday to perform this task. Copies of the report have been sent to them immediately and measures are being taken to allow them to go over the evidence.
28902-5-1561
(Text):



QUESTIONS

['Mr. Speaker, the discussions were held in a friendly atmosphere and I would not hesitate to say that they were also fruitful.\n(Text):']
Hon. J. W. Pickersgill (Secretary of Slate):: Mr. Speaker, the following questions are being answered today: Nos. 777, 778, 846, 847, 848, 865, 907, 918, 921, 923, 924, 927, 929, 944, 945, 946, 949, 958, 960, 966, 967, 968, 971, 974, 979, 983, 985, 986, 989 and 990. There are no questions to be made orders for returns, and I would ask that all other questions stand except starred question No. 676.


Mr. Lambert:: On a point of order, Mr. Speaker, I appreciate the desire of the Secretary of State to expedite the business of the house but I am wondering whether he can assure the house that the practice he is now following conforms with standing order No. 39, which applies to the replies as well as to the questions.


John Whitney Pickersgill: I think an order of the house was made last week with the approbation of the hon. gentleman's leader-probably the hon. member was not here at the time-


Marcel Joseph Aimé Lambert: I was here.


John Whitney Pickersgill: -on an experimental basis to last until such adjournment as we may have for the summer. It seems to me that would supersede any technicalities in the standing order.
(Questions answered orally are indicated
by an asterisk.)



Mr. Fisher: 1.	What office does Richard O'Hagan hold in the government?
2.	What is his age, place of birth, institutions of education attended and educational qualifications, governmental or business experience (position held, length of experience, name of firm or employer) and initial and present salary with the government?
3.	What length of time has this gentleman undertaken to serve the government and/or what engagement in length of time was given to him?
4.	In brief, what particular qualities of Mr. O'Hagan led to his engagement?
Answer: 1. Special assistant to the Prime Minister.
2.	Thirty five; Woodstock, N.B.; primary and secondary schools, Woodstock, N.B., St. Mary's College, Halifax, N.S., Fordham University, New York, N.Y.; editorial staff, The Telegram, Toronto, 1949-56; New Brunswick Liberal association (3 months), 1956; Mac-Laren Advertising Co. Limited, September 1956 to January 1961 (manager, public relations department from January 1959); special assistant, Leader of the Opposition, January 1961 to April 22, 1963; $10,000-$10,000.
3.	No specific period.
4.	Capacity to discharge required duties.

Questions TOM KENT

Question No. 778-Mr. Fisher:
1. What office does Tom Kent hold in the government?
2.	What is his age, place of birth, institutions of education attended and educational qualifications, governmental or business experience (position held, length of experience, name of firm or employer) and initial and present salary with the government?
3.	What length of time has this gentleman undertaken to serve the government and/or what engagement in length of time was given to him?
4.	In brief, what particular qualities of Mr. Kent led to his engagement?
Answer: 1. Co-ordinator of programming, Prime Minister's office.
2.	Age 41. Bom in Stafford, England. Wolstanton grammar school and University of Oxford. M.A. (Oxon.). Positions:	1943-45,
junior administrative officer, U.K. foreign office. 1945-50, Editorial assistant, Manchester Guardian. 1950-54, assistant editor, The Economist. 1954-59, editor, Winnipeg Free Press. 1959-60 assistant to the president and 1960-61 vice president, Chemcell Limited; director, Chemcell Properties Limited and director, Chemcell Securities Limited. 1961-63, special consultant to the leader of the Liberal party and the national Liberal federation. Initial and present salary $20,000.
3.	One year.
4.	Appropriate abilities and experience.


MONTREAL
Mr. Orlikow: Did the R.C.M.P. participate in a series of 15 detentions and imprisonments which took place on or about April 12, 1963, in the city of Montreal and, if so (a) did they have warrants for search and arrest (b) did any of the arrests take place between 4:30 a.m. and 5:00 a.m. and, if so, did the R.C.M.P. consider it necessary to conduct these operations at this hour of the day (c) did the R.C.M.P. seize copies of the N.D.P. program and Cit6 Libre magazines, course notes and other educational items and, if so, on what grounds were such items seized (d) what were the names of the persons detained or imprisoned, and for what period was each held in custody (e) has the R.C.M.P. laid any charges against any of the persons detained or imprisoned
(f)	did the R.C.M.P. inform any of these persons that questioning is a voluntary matter, and that they did not have to go to a police station unless they were willing to do so (g) were any of these persons permitted to call counsel and, if not, did the R.C.M.P. give any reasons for refusing this protection (h) have any superior officers of the R.C.M.P. or the Minister of Justice received reports of these detentions or imprisonments or in relation to the alleged unsanitary conditions under which some of these persons were detained (i) have any charges been laid against any of the R.CM.P. officers who may have participated in this operation and, if so, what are the names of any such officers?
Answer: (a) The R.C.M.P. did not obtain search warrants or warrants to apprehend.

Search warrants were obtained by the Montreal city police.
(b)	R.C.M.P. made no arrests.
(c)	Members of the R.C.M.P. did not effect any seizures.
(d)	The R.C.M.P. did not detain any persons.
(e)	No.
(f)	No. Requests to proceed to the Montreal city police offices for interviews were not made by members of the R.C.M.P.
(g)	No request made to R.C.M.P. for counsel as R.C.M.P. made no arrests.
(h)	Superior officers of the R.C.M.P. were advised of the part taken by members of that force, but did not receive any reports relating to alleged unsanitary conditions.
(i)	No.


ARREST OF EDOUARD CLOUTIER, MONTREAL
Mr. Orlikow: Did the R.C.M.P. participate in the apprehension, arrest or detention, on April 12, 1963, of Edouard Cloutier, 725 boulevard Saraguay, Pierrefonds, district of Montreal and, if so (a) in what capacity did they participate (b) did the R.C.M.P. tell him that he would be questioned for approximately 15 minutes at the police station (c) did the R.C.M.P. search Mr. Cloutier at the police station (d) did the R.C.M.P. hold him incommunicado (e) did they allow him legal counsel (f) on what warrant, and for how many hours did they hold him (g) was his counsel allowed access to police files and reports concerning his detention or arrest?
Answer: (a), (b), (c), (d), (e), (f) and (g)-Answered in part by the reply to question 846. Other than assisting the Montreal city police in conducting the search, members of the R.C.M.P. were not otherwise involved in the interview or detention of Edouard Cloutier, 725 boulevard Saraguay, Pierrefonds, P.Q.


ARREST OF JOSEPH LA RIVIERE, MONTREAL
Mr. Orlikow: Did the R.C.M.P. assist in the apprehension, arrest or detention of Joseph La Riviere, official reporter, superior court, Montreal, on Friday, April 12, 1963, and, if so (a) in what capacity did the R.C.M.P. act (b) were they equipped with a search warrant (c) was any literature of a religious nature confiscated by the R.C.M.P. (d) were any personal letters seized by the R.C.M.P. (e) did the R.C.M.P. consider that any of the items seized were of a subversive nature
(f)	where did the R.C.M.P. hold Mr. La Riviere
(g)	were the accommodations provided him sanitary
(h)	was he questioned at any time by the R.C.M.P.
(i)	was Mr. La Riviere permitted legal counsel?
Answer: (a), (b), (c), (d), (e), (f), (g), (h) and (i)-Answered in part by the reply to question 846. Other than assisting in the search, members of the R.C.M.P. were not otherwise involved in the interview or detention of Joseph La Riviere, official reporter, superior court, Montreal.


FEDERAL PROJECTS, THAMES RIVER, ONTARIO
Mr. Danforlh: 1.	What work has been carried out by the federal Department of Public Works on the Thames river, county of Kent, Ontario (a) before 1940, and (b) since 1940?
2.	What was the approximate cost of each of these projects?


Mr. Badanai:: 1.-(a) and (b)-Construction and repairs to Chatham retaining wall and dredging in the area.
2.			
Fiscal			
Years	Construction	Repairs	Dredging1884-1939	$100,289.80	$65,613.26	$100,751.571939-40	5,590.321945-46	229.001946-47	32,508.951947-48	60,297.141955-56	91.51	1956-57	26,346.83	1957-58	817.90	1958-59	11,102.79	810.00	1959-60	123.75	1960-61	167,200.75*	1961-62	4,928.09*	317.69*This was a joint project by	the federal
and Ontario governments. In addition to federal share listed above the contribution by the province of Ontario in 1960-61 was $152,914.42 and in 1961-62 was $4,382.87.


TEACHERS IN NORTHWEST TERRITORIES
Mr. Prittie: 1.	How many teachers are employed in the Northwest Territories by the Department of Northern Affairs and National Resources?
2.	What has been the annual turnover of teachers in the N.W.T. during 1962, 1961, and 1960?
3.	How many native Indian or Eskimo teachers, or teachers' aids, are employed by the department in the N.W.T.?
4.	How many native Indians or Eskimos are in training to become teachers?
5.	Apart from teachers, how many native Indians or Eskimos are in the employ of the department in the N.W.T.?
6.	Apart from teachers, how many persons are working in the field of adult education in the N.W.T.?
7.	What steps are being taken to encourage local manufacturing by native Indians and Eskimos in the N.W.T.?
Answer: 1. As of June, 1963, 226 teachers.
2.	School year 1959-60 per cent resignations 33.0, 1960-61 per cent resignations 33.1, 196162 per cent resignations 30.5, 1962-63 per cent resignations 24.4.
3.	Teachers, 1 Indian; teachers' aides, none; classroom assistants, 5 Eskimos.
4.	While a few known Indians from the N.W.T. attended university last year, and a number of Indians and Eskimos are expected to attend in the coming academic year, the
Questions
department has no way of estimating how many of these students may eventually choose teaching careers.
5.	As of July 1, 1963, 330 known Eskimos and 76 known Indians.
6.	1 full time civil servant. Local persons when available are used occasionally as resource leaders for evening courses and are paid on an hourly basis.
7.	Craft specialists, project officers, and cooperative development officers are stationed in the north to help develop local business ventures and cottage crafts. The department operates an Eskimo loan fund to assist local enterprises. In more than 20 settlements, small operations have been organized to process food, produce crafts and clothing, produce lumber and manufacture boats.


RUSSIAN SUBMARINES, BOMBERS AND MISSILES
Mr. Churchill: What is the approximate number of (a) U.S.S.R. ocean-going submarines (b) U.S.S.R. bombers capable of reaching half way across the North American continent (c) U.S.S.R. intercontinental ballistic missiles capable of reaching half way across the North American continent?
Answer: As any approximations or estimates made by this government of the numbers involved in the question raised are based on information given to us from various sources on a classified basis, it should be appreciated that it would be neither appropriate nor in the public interest for the government to release such information.


FEDERAL PAROLE OFFICERS
Mr. Matheson: 1.	What are the qualifications for a federal service parole officer class one?
2.	What salary is paid to such an officer at the present time?
3.	Has the government had difficulty in obtaining and retaining qualified people for such appointments?


Lionel Chevrier: 1. The specification issued by the civil service commission for parole service officer 1 reads as follows:
Qualification requirements:	Graduation
from a university with a post-graduate degree or diploma in criminology, law, pedagogy, psychology, social work or sociology. Ability to communicate effectively both orally and in writing. Personal suitability. Satisfactory physical condition.
2.	The salary range for the classification of
parole	service	officer	1	is as	follows:$4380	4560	4740	49205160	5400	5640	5880(increases semi-annual	to $5640)3.	Some difficulty has been experienced in obtaining qualified persons for employment
Questions
as parole service officers. However, there has not been too much difficulty in retaining such employees.


STRIKING POWER OF RUSSIAN BOMBERS
Mr. Cameron (Nanaimo-: Cowichan-The Islands):
1.	As of January 1 each year from 1957 to 1963, approximately how many Soviet bombers by types, have been estimated capable of making at least a one-way attack on the main industrial areas of southern Canada and the northern United States?
2.	Can each of these Soviet bombers carry H-bombs and, if so, (a) approximately how many H-bombs can each type of Soviet bomber carry (b) what approximately is the estimated total megatonnage of the H-bomb or H-bombs that can be carried by each Soviet bomber of each type?
3.	What approximate percentage of these Soviet bombers is it estimated that the active air defences of NORAD would destroy (a) before they reach their target or bomb release position (b) before they reach the 54th parallel (c) before they reach the 60th parallel (d) before they reach mainland Canada?
Answer: 1, 2, and 3. As any approximations or estimates made by this government of the numbers involved in the questions raised are based on information given to us from various sources on a classified basis, it should be appreciated that it would be neither appropriate nor in the public interest for the government to release such information.


STRIKING POWER OF RUSSIAN MISSILES
Mr. Cameron (Nanaimo-: Cowichan-The Islands):
As of January 1 each year from 1957 to 1963, approximately how many Soviet intercontinental ballistic missiles have been estimated capable of striking the main industrial areas of southern Canada and the northern United States?
Answer: As any approximations or estimates made by this government of the numbers involved in the question raised are based on information given to us from various sources on a classified basis, it should be appreciated that it would be neither appropriate nor in the public interest for the government to release such information.


RUSSIAN SUBMARINES, BOMBERS AND MISSILES
[Stage Direction]
Question No. 927
Mr. Churchill:: What is the estimated number of (a) Soviet ocean-going submarines (b) Soviet bombers capable of reaching half way across the North American continent (c) Soviet intercontinental ballistic missiles capable of reaching halfway across the North American continent?
Answer: As any approximations or estimates made by this government of the numbers involved in the question raised are based on information given to us from various sources on a classified basis, it should be appreciated that it would be neither appropriate nor in the public interest for the government to release such information.


RAMA, SASK., POSTMASTER
Mr. Korchinski: 1.	When was the final date for the acceptance of applications for a postmaster at Rama, Saskatchewan?
2.	If no appointment has been made to date (a) what is the reason for the delay and (b) when will the appointment be made?
3.	What were the names and addresses of the applicants for this position?


Mr. Denis:: 1. There is no date limit.
2.	(a) Making inquiries about applicants.
(b) After completion of inquiry, exact date
cannot be forecast.
3.	Mr. Alex Malowany, Rama, Sask., Mr. Jack Krawetz, Rama, Sask., Mr. Edward Kos, Rama, Sask., Mrs. Annie Melnyk, Yorkton, Sask., Mr. Owen Gunn, Lintlaw and Rama, Sask., Mr. Peter Woroniuk, Rama, Sask.


FEDERAL BUILDING, WALLACEBURG, ONT.
Mr. McCutcheon: 1.	Has any preliminary work been done during 1963 in Wallaceburg, Ontario, relative to providing a new post office in that municipality?
2.	Are there plans of a specific nature for the construction of a new federal building in Wallaceburg?
3.	At what date will construction commence?


Hubert Badanai: 1. Yes, a site has been acquired on William street between Elizabeth and Wellington streets.
2.	Yes, preliminary design studies are under way.
3.	It is planned to include an item for this project in the 1964-65 estimates.


LION'S HEAD, ONT. POST OFFICE
Mr. Loney: Is it the government's intention to proceed with the construction of a new post office building in the village of Lion's Head, Ontario?


Hubert Badanai: No, not at the present time.


R.C.A.F. STATION, SUMMERSIDE, P.E.I.-LEASE OF PROPERTY FOR SHOPPING CENTRE
Mr. MacLean (Queens): Has a lease been granted on Department of National Defence property at R.C.A.F. station, Summerside, for a shopping centre and, if so, what is the name of the lessee?
Answer: No lease has been granted on R.C.A.F. property for purposes of a shopping centre.


REPORTS ON UNIDENTIFIED FLYING OBJECTS
Mr. Kelly: Does the R.C.A.F., or any other government department or agency operate a centre for the compilation, collection and investigation of reports of unidentified flying objects and, if so (a) who operates the centre (b) are the reports of the investigations available to the public (c) how may these reports be obtained?

Answer: Yes, the R.C.A.F. While it is not the policy of the department to deny the public information on unidentified flying objects such reports are not produced in published form. Investigations to date have classified the sightings as of either man made objects of which we are aware, or of natural phenomena well known in scientific circles but unfamiliar to the general public.


RESTORATION OF H.D.-4 HYDROFOIL
Mr. Muir (Cape Breton: North and Victoria):
1.	What progress is being made on the restoration plan for the H.D.-4 hydrofoil?
2.	How soon will actual work take place on this project?
Answer: 1. Substantial progress has been made on the plans for the restoration of the H.D.-4 hydrofoil. All the field work has been completed and the reports, drawings and cost estimates, are now being prepared by a consulting naval architect. These should be completed this summer.
2. It is planned to begin the structural restoration work on the H.D.-4 in 1964.


COST OF LIVING INDEX
Mr. Maiher: What is the relationship, percentage-wise between the June 1, 1963 cost-of-living index and that of June 1, 1939?
Answer: The consumer price index was 62.6 in June 1939 and 132.8 in June 1963 (1949=100). The index rose 112.1 per cent between June 1939 and June 1963.


C.B.C. HEADQUARTERS, OTTAWA
Mr. MacEwan: Has a contract been awarded for a new C.B.C. headquarters at Ottawa and, if so (a) what is the name of the contractor and (b) when is it expected that the work will be completed?


John Whitney Pickersgill: I am informed by the Canadian Broadcasting Corporation as follows:
Yes. (a) Dell Construction Limited (b) December 1963.


C.B.C. HEADQUARTERS, MONTREAL
Mr. MacEwan: Is it the intention of the Canadian Broadcasting Corporation to call tenders for a new site for its headquarters in Montreal during the fiscal year 1963-64 and, if so (a) when is it expected that tenders will be called and (b) what is the estimated cost of this construction?


John Whitney Pickersgill: I am informed by the Canadian Broadcasting Corporation that the answer is in the negative.


C.B.C. HEADQUARTERS, TORONTO
Mr. MacEwan: Is it the intention of the Canadian Broadcasting Corporation to call tenders for a new site for its
Questions
headquarters in Toronto during the fiscal year 196364, and, if so (a) when is it expected that tenders will be called and (b) what is the estimated cost of this construction?


John Whitney Pickersgill: I am informed by the Canadian Broadcasting Corporation that the answer is in the negative.


CHALK RIVER, ONT.    DEATHS FROM RADIOACTIVE EXPOSURE
Mr. Peters: From 1952 to 1963, how many deaths have occurred at Chalk River as a result of exposure to radioactive materials?
Answer: None.


HOWSE PASS ROUTE THROUGH ROCKIES
Mr. Horner (Acadia): Has the government received representation from persons and/or parties promoting the Howse pass as the second trans-Canada route through the Rockies?


Hubert Badanai: Yes, such representations have been received by the Department of Public Works.


MAIL CONTRACT, R.R. 2, AMHERST, N.S.
Mr. Coates: 1.	Are tenders to be called by the Post Office Department for mail delivery on R.R. No. 2, Amherst, and, if so, for what reason?
2.	How many years has the present contractor, W. W. Embree, carried out the service of contractor for R.R. No. 2, Amherst?


Azellus Denis: 1. Yes. To secure a new contract to commence on October 1, 1963.
Present contract due to expire September 30, 1963.
2. 40 years.


FOX RIVER, N.S., POSTMASTER
Mr. Coates: Has a postmaster been appointed at Fox river, Cumberland county, Nova Scotia and, if so, what is his name?


Azellus Denis: No.


FISHERIES GUARDIANS, CUMBERLAND COUNTY, N.S.
Mr. Coates: What are the names of the fisheries guardians appointed for Cumberland county to patrol the areas, Maccan river, Shinimikas river, Tidnish river, and the river Philip, Wallace and Pugwash rivers?
Answer: Maccan river, Charles Blenkhorn; Shinimikas river, Arthur Pipes; Tidnish river, Norman F. McPhee; river Philip, Wallace and Pugwash rivers, Keith Parker.


EMPLOYMENT OF CARLSON NELSON, FISHERIES DEPARTMENT
Mr. Coates: 1. Were representations received by the Department of Fisheries from any persons or associations

Questions
for the removal of Carlson Nelson as cook-deckhand, on the fisheries patrol boat MYA 11 and, if so, what are the names of persons or associations making these representations to the department?
2. Was Carlson Nelson given the understanding when taken on strength by the department that he would be employed for the period April 16, 1963 to December 15, 1963?
Answer: 1. No.
2. This tjrpe of employment is at pleasure.


WHARF ADDITION, BADDECK, N.S.
Mr. Muir (Cape Breton: North and Victoria):
What consideration is being given to the addition of an extension and an ell to the public wharf at Baddeck, Nova Scotia, to easier facilitate the loading of pulpwood at that port?
Answer: This matter is now being investigated by department engineers.


AGRICULTURAL DEFICIENCY PAYMENTS
Mr. Korchinski: Does the government intend to provide deficiency payments which will protect farmers in seasons of price declines by calculating payments on a quarterly, instead of an annual basis, and, if not, what if any, difficulties prohibit the making of such payments?


Mr. Hays:: The government does not plan to provide deficiency payments under the Agricultural Stabilization Act to farmers on a quarterly instead of an annual basis. Studies have shown that on the average deficiency payments on a quarterly basis, since this would also involve the use of a quarterly base price, would not provide any advantage from the standpoint of the producer. On the other hand payment on a quarterly basis would greatly complicate the administrative problem from the standpoint of both the producer and the government.


* SECRECY OATH, PARLIAMENTARY SECRETARY TO FINANCE MINISTER
Mr. Fisher: 1.	Has it been the practice to administer an oath of secrecy to parliamentary secretaries upon taking office?
2.	Was the oath administered to Mr. E. J. Benson because he was assisting with the budget?
3.	Has an oath been administered to other parliamentary secretaries in the new government?
4.	Was Mr. Benson's assistance with the budget a new departure for the parliamentary secretary to the Minister of Finance?
5.	Does the administration of the oath to Mr. Benson mark a change in the status of the office of parliamentary secretary?
6.	Does the administration of the oath mean that the parliamentary secretary is now a member of the ministry?


John Whitney Pickersgill: 1. No.
2.	Yes.
3.	Yes, to the parliamentary secretary to the Secretary of State for External Affairs on July 4, 1963.

4.	No.
5 and 6. The status of parliamentary secretaries is set out in Chapter 15, S.C. 1959, the Parliamentary Secretaries Act.
(Translation):


DOMINION-PROVINCIAL CONFERENCE REPORTED MEETING WITH PREMIER OF QUEBEC
[Stage Direction]
On the orders of the day:
Gilles Grégoire: Mr. Speaker, I should like to direct a question to the Minister of Justice. Did the minister accompanied by several other members of the present federal cabinet go to Quebec city yesterday to meet the premier of the province of Quebec?


Lionel Chevrier: Mr. Speaker, the answer is yes.


Gilles Grégoire: A supplementary question, Mr. Speaker. Is it true that the talks dealt primarily with the federal-provincial conference to be held this week and that they ended in complete disagreement?


Lionel Chevrier: Mr. Speaker, the discussions were held in a friendly atmosphere and I would not hesitate to say that they were also fruitful.
(Text):



LABOUR RELATIONS


[Stage Direction]
On the orders of the day:
Mr. T. C. Douglas (Burnaby-Coquiilam):: Mr. Speaker, may I direct a question to the Prime Minister. Having regard to the serious situation in the great lakes shipping industry, may I ask the Prime Minister when he will be making some announcement as to what action the government intends to take regarding the implementation of the Norris commission report?


Lester Bowles Pearson: Mr. Speaker, we will be making an announcement at the earliest possible date, but it is quite clear that the announcement will not cover the implementation of all the recommendations or, indeed, decisions with regard to all the recommendations. However, we are proceeding with this matter with all possible speed.


Herbert Wilfred Herridge: supplementary question, Mr. Speaker, in view of my long standing interest in this problem. Will the Prime Minister assure the house that we will have ample opportunity to debate the contents of the Norris report and all the related circumstances?


Lester Bowles Pearson: There should he ample opportunity when the Department of Labour estimates are before the house.


Hon. Paul Martineau (Ponliac-Temisca-mingue):: A supplementary question to the Prime Minister, Mr. Speaker. In view of his previous answer would he tell the house whether the government intends to implement immediately, without awaiting the interdepartmental committee report or the reports of any other committees that may be established, the recommendation to set up a three man trusteeship to assume temporary control of the S.I.U. and the other unions mentioned in the Norris report?


Lester Bowles Pearson: Mr. Speaker, it surely would be foolish to set up an interdepartmental committee to advise the government on this matter and then announce now that we are going to act before that committee's report has been received.


Paul Raymond Martineau: Does the Prime Minister not admit the urgency of this particular situation?


Lester Bowles Pearson: Of course I do, but I am also conscious of the necessity of acting with wisdom in this matter.



INQUIRY AS TO MEETING WITH U.S. SECRETARY OF LABOUR

[Stage Direction]
On the orders of the day:
Mr. A. D. Hales (Wellington South):: Mr. Speaker, I wish to address a question to the Minister of Labour. In view of the minister's announcement that he was going to meet with the United States secretary of labour, Willard Wirtz, following receipt of the Norris report, would he advise the house whether he has held this meeting with the secretary of labour and, if so, what was the outcome of the meeting.


Hon. A. J. MacEachen (Minister of Labour):: No, Mr. Speaker, such a meeting has not yet been held. It was understood, following previous meetings, that a further meeting would be held after presentation of the Norris report. We have not pressed from this end for an immediate meeting because of the present preoccupation of secretary Wirtz in his own country, but we hope a suitable time will be available in the near future for such a meeting.



BRITISH COLUMBIA


[Stage Direction]
On the orders of the day:
Mr. Barry Mather (New Westminster):: should like to direct a question to the Minister of Labour. In view of the potentially grave
Inquiries of the Ministry situation in the lower mainland area of British Columbia because of the waterfront dispute, the fishermen's strike and so on, can the minister give the house some report on that situation and tell us what the prospects are for settlement?


Allan Joseph MacEachen: I can report to the house on the situation existing on the waterfront. In so far as the longshoremen's union is concerned, I understand that normal operations on the waterfront were undertaken on Saturday last, and I expect the present negotiations will continue between the shipping federation and the British Columbia longshoremen's union. I think, in the light of the very lengthy negotiations that have taken place between the parties, there is still some expectation that a resolution of the dispute will be reached in this way.



FINANCE


[Stage Direction]
On the orders of the day:
Marcel Joseph Aimé Lambert: Mr. Speaker, I should like to direct a question to the Minister of Finance. Would the minister advise the house whether the negotiations of last week end with respect to the special excise tax on foreign investment proposed by the President of the United States involved any concessions by the Minister of Finance related to the withholding tax proposals in his recent budget?


Hon. Walter L. Gordon (Minister of Finance):: No, they did not, Mr. Speaker.


Mr. G. H. Aiken (Parry Sound-Muskoka):: Mr. Speaker, I have a question for the Prime Minister in connection with the announcement he made today concerning exemptions. Is the exemption which he mentioned applicable to all companies by regulation, or will the President consider each bond issue as it arises?


Walter Lockhart Gordon: Perhaps I might answer that question, Mr. Speaker.
There is no suggestion, as was pointed out in the Prime Minister's statement this afternoon, that there would be any rationing against individual purchases in the way the hon. member has suggested.


Gordon Harvey Aiken: May I ask a supplementary question. Do I understand, then, that the power of the President in this matter would enable him to decide which Canadian company or issue should be exempt from the regulation?


Walter Lockhart Gordon: There was no suggestion whatever of that kind.
2452	HOUSE OF
Inquiries of the Ministry


Mr. A. D. Alkenbrack (Prince Edward-Lennox):: Mr. Speaker, may I direct a question to the Minister of Finance. Who were the men who represented the Canadian government in the financial negotiations with the United States government, as announced this day by the Prime Minister?


Walter Lockhart Gordon: Well, Mr. Speaker, the names were mentioned in the communique which was issued last night at six o'clock here in Ottawa and in Washington. For Canada they were Ambassador Charles S. A. Ritchie; Mr. Louis Rasminsky, governor of the Bank of Canada; Wynne Plumptre, assistant deputy minister of finance, and Mr. A. E. Ritchie, assistant secretary of state for external affairs.


Mr. J. H. Horner (Acadia):: Mr. Speaker, may I direct a question to the Minister of Finance. In view of a report in this morning's Globe and Mail in which the minister is reported as saying that the United States administration has agreed that its proposed tax legislation will provide power for the president to establish exemptions from time to time on new Canadian securities issues floated on the United States market, does this give the President of the United States unprecedented power and control over the economy of Canada?


Walter Lockhart Gordon: I would suggest, Mr. Speaker, that my hon. friend read the whole communique. If he does he will see that there is another statement, which perhaps I might read for his benefit:
It is the hope and expectation of both governments that by maintaining close consultation it will prove possible in practice to have an unlimited exemption for Canada without adverse effect on the United States.


Gordon Harvey Aiken: Mr. Speaker, I have a supplementary question which is also supplementary to the earlier question I asked of the Minister of Finance. By way of clarification, and in order to ask the question, I would just like to read an item in the Gazette which is taken from his press conference-


John Whitney Pickersgill: On a point of order, Mr. Speaker, it seems to me that we are not now on the question period at all but are embarking on a debate on a matter that is not before the house at the present time. The rules should be observed so that we can get on with the business that is prescribed for today.


Mr. Speaker:: I must say I agree with the Secretary of State. If the hon. member has a question that is supplementary, would he make it short?


Gordon Harvey Aiken: Well, Mr. Speaker, I want to get some clarification because I asked two original questions which are at variance with this report of the press conference, and I would like for clarification-


John Whitney Pickersgill: This is a debate.


Mr. Speaker:: I am sorry, but I must interrupt the hon. member. This is the question period and we are, as has been suggested, entering upon a debate. Has the hon. member for Acadia a supplementary question?


John (Jack) Henry Horner: Mr. Speaker, I have a question supplementary to my original question, and I will make it brief. With regard to the unlimited exemptions wished by the Canadian government, can the minister assure us that an official statement will be issued soon by the United States government that unlimited exemptions will be made on behalf of Canada?


Walter Lockhart Gordon: Mr. Speaker, the communique that was issued in Washington and in Ottawa last night made it clear that the United States authorities plan to include the provision that is set out in this communique in the proposed legislation to congress. I do not know whether 1 should add to that, except to say that the Canadian government proposes to be in continual touch with the United States government on this matter. I think most hon. members will agree that quite a lot has been accomplished to relieve the situation as it was announced at noon on Thursday of last week, and certainly the reaction of the security markets bears out that statement.


Gordon Harvey Aiken: May I ask a supplementary question, Mr. Speaker, having regard to the reply that has just been given. Did the Minister of Finance in a press conference state that a ruling would have to be made by the President of the United States on each bond issue?


Walter Lockhart Gordon: I have no record at the moment of the transcript of the press conference, but I have already stated in this house that that was not the intention and was not discussed at the conferences over the week end.



SPECIAL ASSISTANTS


[Stage Direction]
On the orders of the day:
Mr. Stanley Knowles (Winnipeg North Centre):: Mr. Speaker, may I direct a question to the Minister of Finance based on sessional paper No. 39D, which was tabled on Friday, July 19, and in which it is indicated that no written contracts were entered into with the minister's special budget assistants. In view of earlier statements made to us I am sure the minister will agree that I might

have made a question of privilege out of this, but I will leave that until later and will confine myself today to a question.
In view of the stipulation in section 32 of the Financial Administration Act, that payment for work under a service contract cannot be made until the deputy minister of the department concerned has certified that the service was rendered and that the price charged was according to the contract, may I ask whether the deputy minister of finance issued such a certificate before payments were made to the minister's special budget assistants?


Walter Lockhart Gordon: Mr. Speaker, I cannot answer that question today, but I will be glad to take it as notice and get an answer just as soon as I can.



EXTERNAL AFFAIRS


[Stage Direction]
On the orders of the day:
Mr. H. A. Olson (Medicine Hal):: I should like to direct a question to the Secretary of State for External Affairs arising out of an announcement today claiming that a treaty respecting a ban on nuclear testing in the atmosphere, in outer space and under the water has been agreed to in final form in Moscow. I should like to ask the minister if this final stage actually has been reached in the negotiations.


Hon. Paul  Marlin@Secrelary of Stale for External Affairs: Mr. Speaker, when I came into the house today I made some inquiry. I am not aware that any definite agreement has been reached. However, the hon. gentleman may have obtained news of this over the wire since we came into the house. I think it would be preferable for me to postpone any statement until I have had an opportunity of examining the situation. Perhaps I could make a statement tomorrow.


HAILE SELASSIE
[Stage Direction]
On the orders of the day:
Robert Norman Thompson: I should like to direct my question to the Secretary of State for External Affairs. In view of the fact that the recent conference which resulted in the setting up of the organization of African unity was held in Addis Ababa, and that His Imperial Majesty Haile Selassie assumed the leading role in the calling of this first allAfrican conference; and in view of the fact that it has been publicly announced that the emperor will visit the United States in October, has the government given consideration to extending an invitation to Emperor Haile Selassie to visit Canada at that time?
Inquiries of the Ministry


Hon. Paul Martin (Secretary of State for External Affairs):: Mr. Speaker, the house will recognize the hon. gentleman's interest in the proposed visit of the Emperor of Ethiopia to the United States, because of the hon. member's long association with the public service of that country. I am happy to be able to announce that Emperor Haile Selassie of Ethiopia has been invited to visit Canada at the conclusion of the visit which the emperor will be making to the United States early in October.
I am sure all members of the house will join me in expressing the hope that the emperor, whose courageous leadership of his country has commanded world wide respect, will be able to accept this invitation.



WEST GERMANY


[Stage Direction]
On the orders of the day:
Herbert Wilfred Herridge: Mr. Speaker, may I address a question to the Secretary of State for External Affairs. In view of a statement by a representative of the West German government that it is granting military assistance to African countries with the agreement of its NATO allies, and in view of the fact that this was a subject of discussion at the recent meeting of the NATO council in Ottawa, will the minister inform the house whether the Canadian government gave its consent to the arming of African nations by West Germany?


Hon. Paul  Marlin@Secrelary of Stale for External Affairs: Mr. Speaker, my hon. friend was kind enough to give me notice of his intention to ask this question. However, there are some implications of the question I would like to consider further. I shall reply at a later date.



INQUIRY AS TO PAYMENT OF STAFF DURING RECESS

[Stage Direction]
On the orders of the day:
Mr. L. E. Cardiff (Huron):: I have a question for the Secretary of State and government house leader. Is it the intention of the government to retain the services of private members' secretaries with pay during the proposed summer recess?


John Whitney Pickersgill: Mr. Speaker, I do not think this is a matter for the government as such. I think it would be a question for the commissioners of internal economy and possibly for the house, but I would hope that it would be possible to do so.
2454	HOUSE OF
Inquiries of the Ministry NORTHERN AFFAIRS



ST. AUGUSTINE, QUEBEC-REQUEST FOR INVESTIGATION OF PLIGHT OF INDIANS

[Stage Direction]
On the orders of the day:
Mr. P. V. Noble (Grey North):: I should like to direct a question to the Minister of Northern Affairs and National Resources. Will the minister look into the plight of 20 Indians, nine of whom are children, at St. Augustine, Quebec, who I am advised by telegram from a friend of mine who is fishing there are in very bad circumstances?


Hon. Arthur Laing (Minister of Northern Affairs and National Resources):: I will take the question as notice, and I hope to be able to clarify the matter tomorrow.



FLAT RIVER, N.W.T.-CLOSING OF TUNGSTEN MINE

[Stage Direction]
On the orders of the day:
Mr. Gene Rheaume (Northwest Territories):: Mr. Speaker, I wish to address a question to the Minister of Northern Affairs and National Resources. Has the minister any information to give the house relating to the operation of the Canada Tungsten mine at Flat River in the Northwest Territories?


Arthur Laing: Mr. Speaker,
I regret to have to confirm the announcement made by Mr. Hall, the secretary treasurer of the company, that due to economic conditions the mine has had to close down, throwing some 65 men out of work. This was due to the uneconomic price brought about by quotations from the Sino-Soviet block which have reduced the price of trioxide from $18.50 a unit to $7.75 a unit. In fact we have a situation in Canada where Canadian steel firms are buying trioxide from South Korea. The price is abnormally low, and the company in question could only operate at a heavy loss.
I am sure the interest of the house is in the investment which the Canadian government has made in that area, involving some $758,000 in all, in respect of an airfield and a road to the mine; but I am sure the hon. member for Northwest Territories will agree with me that work-surveys and that sort of thing-are going ahead at a very great rate in that area, and not all will be lost. We hope the investment there can be retrieved and that the economic position of this particular metal will return to the point where the mine will reopen.



SUGGESTED EXTENSION OF ROADS TO RESOURCES PROGRAM

[Stage Direction]
On the orders of the day:
Mr. S. J. Korchinski (Mackenzie):: Mr. Speaker, I have a question for the Minister of Northern Affairs and National Resources. I wonder whether the minister would consider holding a joint meeting with the Minister of Public Works on the occasion upon which the Minister of Public Works will hold a conference with the provincial premiers or the ministers in charge in which they will discuss the second trans-Canada highway; and will the minister consider the advancement or the extension of the northern roads to resources program on that occasion, since there are programs-


Some hon. Members:: Order.


Mr. Speaker:: Order. I think the question has already been stated.


Stanley James Korchinski: Well, what are they going to do about it?



NORTHWEST TERRITORIES


[Stage Direction]
On the orders of the day:
Hon. W. G. Dinsdale (Brandon-Souris):: Mr. Speaker, I have a question for the Minister of Northern Affairs and National Resources related to the one asked by the hon. member for Burnaby-Coquitlam but relating specifically to the Northwest Territories. A week ago Friday I inquired concerning the fate of the university training program for the young people of the Northwest Territories. I am wondering whether the minister has any information for the house.


Arthur Laing: Mr. Speaker, I thank the hon. member for Brandon-Souris for having in effect served notice of this question. I am quite sure he is aware that under the territories act as it presently stands, the territorial government can give grants but they cannot extend loans. I am sure he is further aware that the necessary legislation to grant loans to students is dependant upon the early completion of the legislation to which we have now given first reading.
I sincerely hope that he will persuade his followers on that side of the house, when later on this year we come to second reading, to get the legislation on the books quickly. I am most hopeful that the plan, which was initiated by the previous government and not by ourselves, to bring students from that area to the universities of southern Canada will be carried out.


Mr. D. V. Pugh (Okanagan Boundary):: Mr. Speaker, I have a supplementary question. Would the minister consult the house leader, the Secretary of State, and ask him when this legislation is going to be put on the order paper and brought forward?


Walter Gilbert Dinsdale: Mr. Speaker, my question is supplementary. Could not this matter be handled by the Northwest Territories council under the terms of the five year agreement that was made between Ottawa and that body last year? The reason I raised that question while the council was in session was to be certain that it would be dealt with at that time.


Arthur Laing: Mr. Speaker, I am aware of the hon. gentleman's problem, and I will make inquiries.



INQUIRY AS TO INITIAL PRICE

[Stage Direction]
On the orders of the day:
Stanley James Korchinski: Mr. Speaker, I should like to direct a question to the Minister of Trade and Commerce. Because of the approach of the new crop year, is the minister now in a position to tell us if delivery of the initial quotas of all grades of wheat will qualify for the $3 per bushel payment?


Hon. Mitchell Sharp (Minister of Trade and Commerce):: I expect to be able to make an announcement this week on the initial price, Mr. Speaker.


Mr. C. O. Cooper (Roselown-Biggar):: I
should like to direct my question to the Minister of Trade and Commerce, but it was partly answered by the answer the minister gave to the hon. member for Mackenzie. I have had many letters from my constituents concerning the setting of the price of wheat. Many of my constituents thought that the price was set last February and March-


Some hon. Members:: Order.


Clarence Owen Cooper: -when $2 per bushel was promised as the floor price.


Mr. Speaker:: Order. What is the question?


Clarence Owen Cooper: My question is, as our crop year ends on the last day of July, does the minister intend to change this price at this late date?


Mitchell William Sharp: When I make my announcement the hon. gentleman's curiosity will be satisfied.



INQUIRY AS TO AVAILABILITY OF BOX CARS

[Stage Direction]
On the orders of the day:
Mr. Jack McIntosh (Swift Current-Maple Creek):: I have a question for the Minister
Inquiries of the Ministry of Trade and Commerce which has to do with box car allocation on the prairies. As the minister knows, an announcement by the Canadian wheat board as to the quota extension on the prairies to 12 bushels is just idle words when the wheat cannot be moved. The situation is such at the present time-


Some hon. Members:: Order.


John (Jack) McIntosh: -that there are no box cars. Would the minister assure the house that box cars will be available to all these points to take away the quota which the wheat board has now prescribed?


Mitchell William Sharp: Mr. Speaker, I think the Canadian wheat board is well aware of the problem and is doing everything it can to make the 12 bushel quota available to all farmers. May I remind the hon. gentleman that even though a year ago there were no restrictions at that time and now there is a 12 bushel quota, in fact deliveries of grain in this crop year are 200 million bushels more than up to this time a year ago. In other words there is now more grain which has to be handled.


John (Jack) McIntosh: My question had nothing to do with the quota. I want to know if the wheat board is going to be able to move it. The quota means nothing to farmers.


Mr. J. E. Pascoe (Moose Jaw-Lake Centre):: Mr. Speaker, I have a supplementary question for the Minister of Trade and Commerce. In view of the fact that the end of the crop year is only eight days away, will he consider suggesting to the wheat board that the 12 bushel delivery privilege be extended past July 31, to ensure that all farmers throughout the country can have their crop handled?


Mitchell William Sharp: I will be very happy to make this suggestion, but I think the members of the board also read Hansard.



SUGGESTED TRANSFER OF WHEAT BOARD TO DIFFERENT DEPARTMENT

[Stage Direction]
On the orders of the day:
Stanley James Korchinski: Mr. Speaker, I have a question for the Prime Minister. Since there appears to be a huge wheat crop in the offing, would the Prime Minister consider the transfer of the wheat board once more to another department so that wheat sales, which contribute so much to our balance of payments position-


Mr. Speaker:: Order, please. What is the question?

Inquiries of the Ministry


Stanley James Korchinski: -so that it may be under a minister who is prepared to assume responsibility, since the Minister of Trade and Commerce has repeatedly insisted that the wheat board, and not he, is responsible for the sale of grain?


Mr. Speaker:: I did not ask the hon. member to repeat the premise. I asked what his question was.


Lester Bowles Pearson: The answer, Mr. Speaker, is that these matters have never been in better hands.


Mr. Speaker:: The hon. member for Hum-boldt-Melfort-Tisdale.


Mr. Reynold Rapp (Humboldt-Melfort-Tisdale):: Mr. Speaker, I had in mind to direct a question to the Minister of Trade and Commerce pertaining to the price of wheat, but that question was asked by another hon. member. The answer given by the minister is not quite satisfactory to me because I have a reservation about this matter.



U.S. DECISION TO MARK IMPORTS WITH COUNTRY OF ORIGIN

[Stage Direction]
On the orders of the day:
Marcel Joseph Aimé Lambert: My
question is directed to the Minister of Trade and Commerce, Mr. Speaker. Is the minister aware of a recent decision of the senate of the United States that all lumber imports to that country shall bear markings of the country of origin? Does he envisage an adverse effect of this decision on Canada's lumber exports to the United States, in the light of representations that were made seven months ago with regard to curtailing Canada's exports of lumber to that country?


Mitchell William Sharp: I am aware of what has happened in congress, and the Canadian government is continuing to make representations in the hope that before legislation becomes law this particular provision will be removed.



HOUSING


[Stage Direction]
On the orders of the day:
Mr. O. W. Weichel (Waterloo North):: should like to address a question to the Minister of National Revenue. This question refers to the possibility of Central Mortgage and Housing Corporation making loans on old homes, which I believe would be a wonderful thing, as many people have a limited amount of cash. Under conditions as they are now, these people have to buy new


homes. Will the minister advise what his intentions are in so far as present loans are concerned?


Hon. J. R. Garland (Minister of National Revenue):: I am afraid that I cannot satisfy the hon. member's curiosity today. As he knows, there are amendments to the National Housing Act on the order paper, and I am afraid he will have to wait until the legislation can be brought before the house.



HEALTH AND WELFARE


[Stage Direction]
On the orders of the day:
Stanley Howard Knowles: Mr. Speaker, may I direct a question to the Minister of National Health and Welfare. My question is based on a brief addressed to her, under today's date, by the research committee of the Voice of Women, in support of which I understand representatives of that committee sought to see her today. Is the government giving consideration to the recommendations in this brief concerning the monitoring of radioactive fall-out and steps that might be taken to counter the contamination of food?


Hon. Judy V. LaMarsh (Minister of National Health and Welfare):: Mr. Speaker, may I say I have seen neither the delegation nor the brief, but I assume the latter will be somewhere in the department and it will be studied in due course.



NATIONAL DEFENCE


[Stage Direction]
On the orders of the day:
Paul Raymond Martineau: Mr. Speaker, I have a question for the Minister of National Defence. Will the minister state whether the government is considering recalling to Canada the air division operating with NATO forces in Europe for tactical, strategic or other possible reasons?


Hon. Paul Hellyer (Minister of National Defence):: Not at the present time.


Paul Raymond Martineau: Is the minister considering it for the future?
(Translation):



POSSIBLE CLOSING OF RADAR STATIONS

[Stage Direction]
On the orders of the day:
Some hon. Members:: Hear, hear.


Mr. Auguste Choquette (Lotbiniere):: Mr. Speaker, I quite understand the reason for

that applause. This seems to be the last parliament in which the Social Credit party will be represented.
I should like to direct a question to the Associate Minister of National Defence. Has the minister made any plan concerning the radar system which could affect the existence of certain stations, in particular that of St. Sylvestre, in the riding of Lotbiniere?


Hon. Lucien Cardin (Associate Minister of National Defence):: Mr. Speaker, a few weeks ago the Minister of National Defence stated that in view of the developments and technical improvements achieved in the field of radar, the Department of National Defence would have to do an overall study of our detection system to determine whether it would not be possible to make some savings by eliminating any possibility of duplication without, however, reducing the efficiency of our national warning system.
No decision has yet been taken concerning our radar stations.
(Text):



REFUSAL OF INFORMATION RESPECTING RUSSIAN BOMBERS

[Stage Direction]
On the orders of the day:
Gordon Minto Churchill: Mr. Speaker, I have a question for the Minister of National Defence. Since the government has authorized the publication of the estimated number of Russian divisions opposing our forces in Europe, the estimated number of Russian tanks and the estimated number of Russian ocean going submarines, why is it not in the public interest to let parliament and the public know the estimated number of Russian bombers that could reach this continent?


Paul Theodore Hellyer: Mr. Speaker, this matter has been gone into very carefully. As I indicated to the special committee on defence, it was considered that it would not be advisable for the government to confirm or deny specific figures with respect to the threat to North America.


Gordon Minto Churchill: May I ask the Minister of National Defence if it is his intention to discipline the chiefs of the navy and the army who have disclosed information concerning Russian divisions, Russian tanks and Russian ocean going submarines?


Paul Theodore Hellyer: No, Mr. Speaker. The figures they put forward were given with my knowledge, but in future we will not follow this practice of making public even estimated figures on an unclassified basis.
Inquiries of the Ministry



APPEARANCE OF NATO COMMANDER BEFORE SPECIAL COMMITTEE

[Stage Direction]
On the orders of the day:
Mr. A. B. Patterson (Fraser Valley):: Mr. Speaker, I should like to ask the Minister of National Defence whether consideration is being given to having General Lemnitzer, supreme allied commander of the NATO forces, meet with the special committee on defence in the course of his visit to Ottawa this week.


Paul Theodore Hellyer: Mr. Speaker, I do not think provision has been made for that, but I understand he is to deliver a message to the NATO parliamentary association on Wednesday morning, if I am not mistaken, and this will be open to all hon. members of this house. If it is like previous visits by former supreme allied commanders I would recommend that all members who can do so take the opportunity to attend and pose their questions to General Lemnitzer.



ADVERTISING


[Stage Direction]
On the orders of the day:
Gilles Grégoire: Mr. Speaker, I should like to direct a question to the Minister of Trade and Commerce. In view of the question I asked last week as to whether there are some French Canadian advertising agencies among the new agencies of his department, and in view of the answer of the minister that he would take the question as notice, is the minister now in a position to tell us whether there are some French Canadian advertising agencies dealing with his department?


Mitchell William Sharp: Mr. Speaker, I have inquired, and I suggest to the hon. member that if he would state his question precisely on the order paper, it will be answered.


Mr. D. M. Fisher (Port Arthur):: Mr. Speaker, I should like to ask the Prime Minister whether he had the time over the week end to check with Mr. Keith Davey, about whom we were asking questions on Friday, and determine how Mr. Davey came to make the announcement about government advertising expenditures. Could the Prime Minister give us any indication as to whether this was an accurate statement?


Lester Bowles Pearson: Mr. Speaker, Mr. Davey did not make a formal announcement on behalf of the government, and was not authorized to do so.

Inquiries of the Ministry


Hon. Michael Starr (Ontario):: I have a supplementary question, Mr. Speaker. I also directed a question to the Prime Minister on the same subject, in that I asked whether it was the decision of Mr. Davey or the government to increase the expenditure on advertising from $7 million to $12J million. I wonder whether the Prime Minister could now give me an answer to that question.


Lester Bowles Pearson: Mr. Speaker, only the government could make any such increase, but no such increase was in fact made in government advertising expenditures.



PUBLIC WORKS


[Stage Direction]
On the orders of the day:
Mr. Lloyd R. Crouse (Queens-Lunenburg):: Mr. Speaker, I should like to direct a question to the Minister of Public Works. The canal bridge at Chester broke down in late April. It has been temporarily repaired by the provincial authorities, but in view of the fact that heavy tourist traffic now crosses the bridge daily, and it is a federal responsibility, would the minister give consideration to immediately carrying out permanent repairs?


Some hon. Members:: Order paper.


Hon. J. P. Deschalelels (Minister of Public Works):: Mr. Speaker, I will take this question as notice.



TRANS-CANADA AIR LINES WINNIPEG MAINTENANCE BASE-INQUIRY AS TO REPORT

[Stage Direction]
On the orders of the day:
Gordon Minto Churchill: Mr. Speaker, I have a question for the Minister of Transport. Would he give the house today the answer to the question put to him previously by the hon. member for Portage-Neepawa, who is unavoidably absent? The question is of interest to many members of parliament and to all the people in Winnipeg; it deals with the report that is expected concerning the T.C.A. overhaul and maintenance base there.


George James McIlraith: Mr. Speaker, the question appears at page 2338 of Hansard. It was:
-has the report of R. Dixon Speas and Associates been received to date and, if not, has the minister's office any indication when it may be expected?
I immediately had inquiries made on the subject, and regret to have to advise the house that R. Dixon Speas and Associates have advised Trans-Canada Air Lines that
they require a portion of August to assure preparation of a suitable, comprehensive report.



ARTS, LETTERS AND SCIENCES REPORTED GOVERNMENT INTENTION TO SET UP SCHOLARSHIPS

[Stage Direction]
On the orders of the day:
Thomas Clement (Tommy) Douglas: Mr. Speaker, may I direct a question to the Minister of Northern Affairs and National Resources and ask him when we may expect some action to give effect to the announcement which he made in the Toronto Daily Star of May 1 regarding the government's intention of setting up 10,000 scholarships of $1,000 each.


Arthur Laing: Mr. Speaker, I am quite certain that when this policy is announced it will be announced in the house.


An hon. Member:: You announced it.


Arthur Laing: I will continue to do my best to see that the policy is announced at the earliest possible moment.



INQUIRY OF THE MINISTRY

[Stage Direction]
On the orders of the day:
Louis-Joseph Pigeon: Mr. Speaker, I would like to address a very important question to the Secretary of State. In 1943 the government, by order in council, established the Canada medal. Is it the government's intention to award this medal to someone?


John Whitney Pickersgill: Mr. Speaker, as this question has been outstanding for 20 years it does not seem to me to be urgent.


Louis-Joseph Pigeon: A supplementary question. Is it the intention of the minister to award this medal to Mr. Smallwood, champion of human rights?



SUGGESTED STUDY OF RUSSIAN METHODS AND TECHNIQUES

[Stage Direction]
On the orders of the day:
Herbert Wilfred Herridge: Mr. Speaker, I wish to address a question to the Minister of Northern Affairs and National Resources. In view of the fact that United States Secretary of the Interior Udall sent some of his senior hydro engineers to the Soviet union to study their methods of river basin development, hydro plant construction and the long range transmission of power, does the minister consider it would be advisable

that some of our employees in the water resources branch be provided with a similar opportunity to broaden their knowledge in this field?


Arthur Laing: Mr. Speaker, I thank the hon. member for having sent me notice of his question. I believe there has been a great deal of reciprocal work done in hydrology and electrical science generally between the western bloc and the eastern bloc, and I think it is probably a good thing if it continues. But if the hon. gentleman wishes to imply that their techniques are superior to those practised on this continent, I would not agree with him. He will recall that less than a year ago we had a visit in British Columbia from a group of Soviet electrical engineers and they were very high in their praise of what they found in Canada.
I can only tell him that if there is merit in this sort of thing we will certainly take it under advisement and try to obtain the opportunity of sending our own men abroad; but I think it is a matter of giving as much as we are getting in these affairs of the world today.


Douglas Mason Fisher: Mr. Speaker, may I ask the minister of northern affairs whether, in the same vein, he is making any plans to try to get the Quebec water resources engineers back into the fold of co-operative study which Mr. Levesque announced some weeks ago was being ended?


Arthur Laing: I think that with the setting up of the resources ministers council with a secretariat in Montreal we are probably in a much better position to look forward to happier times in respect to the resources in all the provinces.



TRANSPORT


[Stage Direction]
On the orders of the day:
George James McIlraith: Mr. Speaker, on Thursday last, as reported on page 2339 of Hansard, two questions were asked of me in my absence. The first was by the hon. member for Queens-Lunenburg and concerned the procedure used by the company operating the Bluenose when making reservations. I have to advise him that that is a matter of internal operation for the Canadian National Railways, and I have directed the question to them. When an answer comes back I will be glad to pass it on.
Income Tax Act



AIRPORTS


[Stage Direction]
On the orders of the day:
George James McIlraith: Mr. Speaker, the other question was one asked by the hon. member for Port Arthur concerning whether there were changes in policy respecting airport parking facilities at the Ottawa airport since the new government took over. The answer to the question is no, but perhaps I should explain that parking lot charges may be varied from time to time, and that recently changes were made in Ottawa to bring the rates charged here into line with those charged at other airports.



WAYS AND MEANS

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

[Stage Direction]
Resolved,-That it is expedient to introduce a measure to amend the Income Tax Act and to provide among other things:
1.	That with respect to new depreciable property of a prescribed class acquired in the period of 24 months commencing June 14, 1963 capital cost allowances be computed on a straight line basis at a prescribed rate not exceeding 50 per cent per annum if the property has been acquired by a taxpayer in a taxation year for a manufacturing or processing business in Canada and the taxpayer is
(a)	an individual who was resident in Canada for a period of not less than 183 days in the year, or
(b)	a corporation that in the year had a degree of Canadian ownership and control:
and for the purposes of this paragraph,
(c)	a corporation has a degree of Canadian ownership and control in a year if the corporation throughout the 60 day period immediately preceding the year (or if the corporation did not have a preceding year, throughout the 60 day period commencing on the first day of the year) complied with the following conditions:
(i)	the corporation was resident in Canada,
(ii)	either
(A)	not less than 25 per cent of its voting shares were beneficially owned by one or more individuals resident in Canada, one or more corporations controlled in Canada or a combination thereof,
or
(B)	the voting shares of the corporation were listed on a recognized stock exchange in Canada and it is established, in prescribed manner, that no one non-resident shareholder owned beneficially, together with any other person associated with him at any time in the period, more than 75 per cent of the voting shares of the corporation, and
(iii)	where the year commences after December 31, 1964, the number of directors of the corporation who were resident in Canada was not less than 25 per cent of the total number of directors of the corporation;
or complied with the conditions specified in clauses (i) and (iii) and was a wholly-owned subsidiary of a corporation that throughout the 60 day period complied with the conditions specified in clauses (i), (ii) and (iii); and
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Income Tax Act
(d)	a corporation is controlled in Canada at a particular time if at that time it complies with the following conditions:
(i)	the corporation is resident in Canada, and
(ii)	not less than 51 per cent of its voting shares are beneficially owned by one or more individuals resident in Canada, one or more corporations controlled in Canada or a combination thereof.
2.	That a taxpayer whose business in a prescribed area of Canada has been certified to be a new manufacturing or processing business that commenced commercial operations in the period of 24 months commencing with the date on which any enactment based on this paragraph is assented to be exempt from tax on the income from that business for a period of 36 months from the date certified to be the date of commencement of operations, and that the rate of capital cost allowances for new depreciable property of a prescribed class acquired by the said taxpayer in the said 24 months period for such business be computed on a straight line basis at a prescribed rate not exceeding 50 per cent per annum.
3.	That with effect for 1964 and subsequent taxation years section 40A of the act, which provides for a deduction from the tax otherwise payable by a manufacturing and processing corporation, be repealed.
4.	That with respect to expenses incurred after June 13, 1963 a corporation whose principal business is operating a pipe line for the transmission of oil or natural gas be allowed to deduct in computing income the drilling and exploration expenses, including all general geological and geophysical expenses, incurred by it on or in respect of exploring for petroleum or natural gas in Canada and the prospecting, exploration and development expenses incurred by it in searching for minerals in Canada.
5.	That for the 1963 and subsequent taxation years a dividend received by a person resident in Canada from a corporation that throughout its taxation year in which the dividend is paid or credited
(a)	is taxable as a non-resident corporation carrying on business in Canada,
(b)	derives substantially all of its income from sources in Canada, and
(c)	has its shares listed on a recognized stock exchange in Canada be deemed to be a dividend from sources in Canada paid or credited by a taxable corporation within the meaning of section 38 of the act.
6.	That the 15 per cent rate of tax payable by a non-resident person on dividends paid or credited to him by a person resident in Canada be reduced to 10 per cent with respect to dividends paid or credited after June 13, 1963 by a corporation that in its taxation year in which the dividend is paid or credited has a degree of Canadian ownership or control within the meaning or paragraph 1.
7.	That the 15 per cent rate of tax payable by a non-resident person on dividends paid or credited to him by a person resident in Canada be increased to 20 per cent with respect to dividends paid or credited after December 31, 1964 by a corporation that in its taxation year in which the dividend is paid or credited does not have a degree of Canadian ownership or control within the meaning of pargaraph 1.
8.	That where a corporation resident in Canada that in any year before 1967 was not a corporation that had a degree of Canadian ownership and control, within the meaning of paragraph 1, becomes a corporation that in 1967 has such a degree of Canadian ownership and control, a non-resident person shall be entitled to a refund equal to

(a)	5 per cent of any dividends paid or credited by the corporation to him after June 13, 1963 and before January 1, 1965, in respect of which he has paid a tax of 15 per cent to Canada, and
(b)	10 per cent of any dividends paid or credited by the corporation to him after December 31, 1964 and before January 1, 1967, in respect of which he has paid a tax of 20 per cent to Canada.
9.	That where a corporation (other than a nonresident-owned investment corporation) paid or credited dividends during the period commencing on June 14, 1963 and ending on December 31, 1964 in taxation years in which it did not have a degree of Canadian ownership and control within the meaning of paragraph 1, the amount of which dividends exceeds five fourths of the amount of dividends paid or credited by the corporation during that number of days immediately preceding June 14, 1963 that is equal to the number of days in the period commencing on June 14, 1963 and ending on December 31, 1964 that were included in taxation years in which the corporation did not have such a degree of Canadian ownership and control, the corporation shall, on or before January 31, 1965, pay a special tax equal to 5 per cent of the amount of the excess.
10. That with respect to income earned after December 31, 1964 the 15 per cent tax imposed by part IIIA of the act on a non-resident corporation carrying on business in Canada be 20 per cent.
11.	That with respect to income of a non-resident-owned investment corporation earned after December 31, 1964 the present 15 per cent rate of tax be 20 per cent.
12. That any amount paid or credited after June 13, 1963, by a person resident in Canada to a non-resident person, as or on account of a management or administration fee or charge, be subject to the 15 per cent tax on income from Canada of non-resident persons.
13.	That with respect to interest paid by a person resident in Canada to a non-resident person on any obligation issued after June 13, 1963, if the nonresident person
(a)	is exempt from income tax in the country in which that person is resident; and
(b)	has obtained a certificate of exemption from the minister,
the non-resident person be exempt from the 15 per cent rate of tax imposed in respect of such payment.
14.	That for the taxation years ending after November, 1965 a corporation shall during the 12 months period ending 4 months after the close of each taxation year, pay to the Receiver General of Canada
(a)	on or before the last day of each of the first 10 months in that period, an amount equal to one twelfth of the tax as estimated by it at the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(b)	on or before the last day of the eleventh month in the period, an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(c)	on or before the last day of the period, the remainder of the tax
and that for the taxation years ending after November, 1963 and before December, 1964 a corporation shall, during the 11 month period ending 5 months after the close of its taxation year, pay to the Receiver General of Canada

(d)	on or before the last day of each of the first 9 months in that period, an amount equal to one twelfth of the tax as estimated by it at the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(e)	on or before the last day of the tenth month in the period an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(f)	on or before the last day of the period, the remainder of the tax, and that for taxation years ending after November, 1964 and before December, 1965 a corporation shall, during the 11 months period ending 4 months after the close of its taxation year, pay to the Receiver General of Canada
(g)	on or before the last day of each of the first 9 months in that period an amount equal to one eleventh of the tax as estimated by it as the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(h)	on or before the last day of the tenth month in the period, an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(i)	on or before the last day of the period, the remainder of the tax.
15.	That the return of income for a taxation year that is to be filed with the minister in prescribed form and containing prescribed information by or on behalf of a corporation be filed
(a)	for taxation years ending after November,
1963	and before December, 1964 within 5 months from the end of the year, and
(b)	for taxation years ending after November
1964	within 4 months from the end of the year.
16.	That with respect to amounts received after June 13, 1963, where a taxpayer has received an amount in a taxation year,
(a)	as consideration for the sale or other disposition of any shares of a corporation or of any interest in such shares,
(b)	in consequence of a corporation having
(i)	redeemed or acquired any of its shares or reduced its capital stock or
(ii)	converted any of its shares into shares of another class or into an obligation of the corporation, or
(c)	otherwise, as a payment that would, but for this provision, be exempt income,
which amount, in the opinion of the minister, was received by the taxpayer as part of a transaction or series of transactions whenever effected or to be effected, one of the purposes of which was or is to effect a substantial reduction of, or disappearance of, the assets of a corporation in such a manner that the whole or any part of any tax that might otherwise have been or become payable under the act in consequence of any distribution of income of a corporation has been or will be avoided, the amount so received by the taxpayer or such part thereof as may be specified by the minister shall, if the minister so directs,
(d)	be included in computing the income of the taxpayer for that taxation year, and
(e)	in the case of a taxpayer who is an individual, be deemed to have been received by him as a dividend from a taxable corporation within the meaning of section 38 of the act.
Income Tax Act
17.	That for the 1964 and subsequent taxation years where, in the case of two or more corporations, the minister is satisfied
(a)	that the separate existence of those corporations is not solely for the purpose of carrying out the business of those corporations in the most effective manner, and
(b)	that one of the main reasons for such separate existence is to reduce the amount of taxes that would otherwise be payable under the act the two or more corporations shall, if the minister so directs, be deemed to be associated with each other.
18.	That upon any appeal to the Exchequer Court of Canada from an assessment in such case the court may confirm or vary any direction given by the minister as provided in paragraph 16 or 17, or may vacate any such direction where it determines that
(a)	none of the purposes of the transaction or series of transactions referred to in paragraph 16 was or is that specified in that paragraph, or
(b)	none of the main reasons for the separate existence of the corporations referred to in paragraph 17 is that specified in subparagraph (b) of that paragraph.
19.	That for the 1963 and subsequent taxation years
(a)	a business loss incurred in a previous year by a corporation may not be deducted in a taxation year if
(i)	the business in which the loss was sustained by the corporation was not carried on by it in the taxation year, and
(ii)	in the period between the end of the year in which the loss was sustained and the end of the taxation year control of the corporation has changed hands, and
(b)	a business loss incurred by a corporation in a taxation year may not be deducted in computing the income of the corporation for that taxation year if the business in which the loss was sustained by the corporation was wound up or discontinued, and after such winding up or discontinuance control of the corporation passed to a person or persons who did not control the corporation in the year at any time when the business in which the loss was sustained was carried on; but this paragraph is not applicable where the change of the control of the corporation occurred prior to June 14, 1963.
20.	That for the 1963 and subsequent taxation years section 18 of the act, which provides rules in the case of any lease option agreement, hire purchase agreement or other contract or arrangement for the leasing or hiring of property, be repealed, and appropriate transitional provisions be enacted in respect of any such contract or arrangement.
21.	That for the 1963 and subsequent taxation years the benefits received by an employee from his employer's contribution to a group life insurance plan that are at present excluded from income be excluded only if such contribution is in respect of group term life insurance.
22.	That, with respect to any annuity contract entered into after June 13, 1963, that part of the proceeds of the contract that consists of interest accumulated prior to the date on which the annuity commences be included in computing income of the recipient unless such proceeds are received as a life annuity or as a refund of premiums upon the death of the holder of the annuity contract.
23.	That for the 1962 and subsequent taxation years the manner of taxing a bankrupt corporation, a bankrupt individual and a trustee in bankruptcy be revised and in particular
(a) that the trustee be deemed to be the agent of the bankrupt person for all purposes of the act;
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Income Tax Act
(b) that section 63 of the act not apply in the case of any income of the trustee from dealing in the property of the bankrupt person or from carrying on the business of the bankrupt person;
(c)	that the income of the bankrupt person be computed as if upon the occurrence of the bankruptcy the property of the bankrupt person did not pass to and vest in the trustee; and
(d)	that the trustee be liable for payment of any tax payable by the bankrupt person to the extent of the property of the bankrupt person in the possession of the trustee.
Walter Lockhart Gordon: I wonder if paragraph 1 could stand? I will go ahead and make a statement about the next paragraph, tax incentives for new manufacturing and processing businesses in designated areas.


Mr. Monieiih:: Before the minister leaves the first paragraph there are one or two questions of detail I should like to ask. The hon. gentleman mentioned on Friday, I think, that anyone in a United States partnership opening a business in Canada would come under the provisions of subparagraph (a) as is ordinarily the case and be subject, I suppose, to the requirement of 183 days residence a year. But I am wondering how the provision for residence applies in this case. If a large United States partnership came to open a branch in Canada, would the department be considering the residence of the company or one partner alone, or would both partners live in Canada? Would a partner have to own the 25 per cent of the shares? Just how would it apply?


Walter Lockhart Gordon: I apologize to the hon. member but I do not understand his example. I wonder if he would mind explaining it again.


Jay Waldo Monteith: I am thinking of a United States partnership, a large concern which opens a branch in Canada. This is a private company. Would it have to have a resident partner for 183 days of the year and would this partner be obliged to hold 25 per cent of the stock? How would this operate? I am trying to ascertain the residence requirement in the case of a branch of the United States partnership.


Walter Lockhart Gordon: Who is this United States corporation in partnership with? I do not have that point clear.


Jay Waldo Monteith: This is a large United States company which is in the form of a partnership.


Walter Lockhart Gordon: In the United States or here?


Jay Waldo Monteith: In the United States; they open a branch in Canada.


Walter Lockhart Gordon: A branch in Canada would, I think, be treated in exactly the same way as if the United States partnership in the United States were a corporation in that country.


Jay Waldo Monteith: The 25 per cent shareholding qualification would operate.


Walter Lockhart Gordon: I am still not clear as to the situation the hon. member has in mind.


Jay Waldo Monteith: It could come under subparagraph (b) or (a). The minister mentioned the other day that a partnership would normally be dealt with under subparagraph (a) for tax purposes, but how does the provision for a degree of Canadian ownership come into this.


Walter Lockhart Gordon: If a United States partnership opened a branch in Canada, then the branch in Canada would be treated, I suspect, as a wholly owned subsidiary. I find I am not the only one who is having difficulty with the hon. member's example. As I understand it, this is a United States partnership in an American corporation and this partnership opens a branch in Canada.


Jay Waldo Monteith: Right.


Walter Lockhart Gordon: How does this branch qualify? I have suggested that in this case it would rate in the same way as a wholly owned subsidiary in Canada of a United States corporation.


Jay Waldo Monteith: Then 25 per cent ownership would have to be in Canada.


Walter Lockhart Gordon: That is right. Obviously one cannot list the shares of a partnership on the exchange.


Mr. Nowlan:: What about a consortium? What about an arrangement like Wabash mines? Would that come under this provision?


Walter Lockhart Gordon: "Consortium" is one of those words which I am sure the hon. member for Digby-Annapolis-Kings uses more often than I do.


George Clyde Nowlan: My vocabulary is pure.


Walter Lockhart Gordon: It is one of those imported words. I have never known what a consortium is. I am not too clear about the Wabash iron set-up, but I think we all know that in this particular case a high percentage of the total is controlled in Canada, so it would qualify without question.


George Clyde Nowlan: Shall we stand paragraph 1 and go on with the others?


Walter Lockhart Gordon: If that is agreeable to the hon. member for Perth.


The Chairman:: Order. Are we moving to paragraph 2 of the resolution? In other words, we agree that we should postpone or adjourn consideration of paragraph 1.


Some hon. Members:: Agreed.
Paragraph 1 stands.
On paragraph 2.


Walter Lockhart Gordon: Paragraph 2 proposes that new manufacturing and processing businesses in designated areas be exempt from payment of income tax for three years. That part is the same as the provision in respect of new mines and also for accelerated capital cost allowances with regard to certain capital assets. This incentive will be available to individuals and corporations established in designated areas. To claim, businesses will have to get a certificate from the minister of industry certifying that they are new and that they are manufacturing and processing businesses. In order to qualify for the purpose of this concession a business must meet the following tests:
1.	At least 95 per cent of the machinery and equipment used in the business must be owned by the person carrying on the business.
2.	At least 95 per cent of the depreciable property used in the business must be in the designated area.
3.	At least 95 per cent of the depreciable property used in the business other than buildings must have been acquired after June 13, 1963, and this depreciable property must be new; that is, it must not have been used by anyone before its acquisition. This is to avoid somebody setting up a business by buying it from the fellow next door. If there is a newly incorporated company it is not necessary that its business be new in the sense of never having been carried on in the area before.
For example, new manufacturing and processing businesses established in the following ways could qualify. First, a company now operating in a designated area could form a subsidiary company which acquires new assets and carries on in the designated area a manufacturing or processing business that is either the same as or different from the business carried on by its parent company. Second, a company now operating outside the designated area could form a subsidiary which acquires new assets and carries on in the area a manufacturing or processing business that is either the same as or different from the business carried on by its parent company. Third, a company now operating a business either inside or outside the designated area could acquire new assets and establish a new business in the designated area; but in this case, where there is no new incorporation of the new business, the new business must be of a different kind from the other
Income Tax Act
business carried on by the taxpayer. If an unincorporated taxpayer wishes to have a business certified as new it must be a new business different from any other business carried on by him anywhere else. In summary, a new business must be carried on with new depreciable property, and in addition it must be either a new incorporation or a different business from any other business carried on by the taxpayer. The definition of a manufacturing and processing business for purposes of this incentive will be the same as for the incentive described in paragraph 1.
There are three tax concessions proposed for designated areas, and I will be very disappointed if they do not prove to be very productive. First, this paragraph of the resolution proposes that a taxpayer in computing income will exclude the income earned by a certified new manufacturing and processing business during the period of 36 months after it commences operations. In order to qualify, a new business must commence commercial operations during the period of 24 months which commences on the date the legislation based on this resolution is enacted. The date of commencement of commercial operations will be certified by the minister of industry when he certifies a new business.
This paragraph of the resolution also proposes that new property of a prescribed class acquired by a taxpayer for use in a certified new manufacturing or processing business shall be eligible for accelerated capital cost allowances. The kind of property that will qualify is machinery and equipment that would otherwise fall in class 8 of the income tax regulations acquired for use in manufacturing and processing operations. The accelerated capital cost allowances are at the rate of 50 per cent on a straight line basis. In order to qualify for this accelerated write-off the machinery and equipment must be secured in the 24 month period which commences on the date the legislation based on this resolution is enacted. Incidentally, this gives people some time to prepare for this, although I would hope not an unlimited amount of time.
It will not be necessary for a taxpayer to take these accelerated allowances during the first three year tax exemption period. He can take them afterwards, as is the case with new mining properties. They may be deferred and deducted after that period. Unlike the incentive described in paragraph 1 of the resolution, this accelerated capital cost allowance is not confined to individuals resident in Canada or to corporations with a degree of Canadian ownership. It is available to all certified new businesses in a designated area.
I mentioned that there were three incentives. Although it is not a part of the resolution, it was also announced in the budget

Income Tax Act
speech that new buildings acquired by taxpayers in designated areas would qualify for accelerated capital cost allowances at the rate of 20 per cent on a straight line basis. This straight line rate of 20 per cent compares with a normal rate on a diminishing balance basis of 5 per cent for most buildings and 10 per cent for buildings of frame or similar construction. As with the other incentives for designated areas, this right to accelerated allowances will not be confined to individuals resident in Canada or to companies with a degree of Canadian ownership, but will apply to all new buildings in the designated area.
I should perhaps add that this incentive is not part of the resolution because this is entirely a matter for regulations, and requires no amendment to the act. The accelerated capital cost allowance for new businesses is mentioned in the resolution because it is confined to a particular class of taxpayer to be described in the act.
I think those are the main points in connection with paragraph 2 which I thought I should bring to the attention of members of the committee. I will be glad to try to answer any questions that have occurred to anybody.


George Clyde Nowlan: Mr. Chairman, there are one or two points about which I should like to inquire. I think this section operates somewhat differently from the other sections providing incentives, in that it comes into effect after the legislation has been approved by parliament. Usually matters of this kind come into effect when they have been brought down in the budget speech. I was wondering whether there was any particular reason that the clause is phrased in this way. I suppose it might very easily be that some companies might have started operations before the budget came down and they might catch a windfall. However, we do not know what the program of parliament may be. It may be some considerable time before this particular resolution is implemented, if it is implemented, and in the meantime other companies which might be commencing operations would not be entitled to this incentive. Although, as I said, it will probably be in the nature of a windfall, yet there are quite a few windfalls in this which are inevitable, as the minister knows, and I think this is a departure from the usual practice in income tax legislation generally.
The other comment I would make is that I agree with the minister and hope that this provision will be as helpful in developing the economy in these areas as the minister suggested. I think that his announcement today-I did not catch it on Friday until he explained it to me-that the depreciation can be carried forward and does not have to be

taken within the period will tend toward that end, because obviously companies will not be taking the depreciation until such time as it is to their advantage to do so. They will have some latitude in this regard which will be of help. If they are not making money, of course, they cannot write it off anyway; but if they are not making a great deal of money they will wait until such time as it will be most helpful to them to write it off.
I am not at all certain what degree of incentive help is going to result from the three year tax holiday. I know we have a similar provision in the case of mines. It has been a matter of controversy and discussion between officials and individuals for a long while, as to just what benefits flow from that, but it might be helpful and undoubtedly would be to a small corporation starting business in a certain area. But it would appear to me that any corporation of any dimension, any corporation which is really going to make a substantial contribution to a community, an area, a province, is not going to be induced to commence operations simply because it is going to get a tax holiday for the first three years.
I can think of some that have started in Nova Scotia within the last few months. One or two of them are million dollar corporations. I am quite sure they would not have been influenced by the fact that they might or might not get a tax holiday for that period of time. As a matter of fact, they probably do not intend to make a profit during the first few years because the period of organization is a difficult one. The minister knows better than most of us the difficulties that confront them. Therefore I simply suggest that I hope his optimism is justified. I doubt very much that it is in that particular case, although I think it would be with other incentives.


Marcel Joseph Aimé Lambert: Before the minister replies, I have a related question to the first one put by the hon. member for Digby-Annapolis-Kings. Would it be that this phrase "effective date" with respect to paragraph 2 of this resolution, indicating the enactment of the legislation, is related to the provision in the department of industry bill which creates the area development council, and which legislation comes into effect on proclamation rather than the other date? Therefore, you could not get a designated area until the department of industry bill becomes effective?


Horace Andrew (Bud) Olson: There is one point I wanted to mention and on which I should like some further clarification. It concerns this provision for a prescribed area in Canada. Does this mean an area of business, or is it confined to a geographical area? If it is a geographical area to which the minister is referring, what

are the qualifications to establish a prescribed area? For example, how large must an area be? Must there be a certain degree, even though it is difficult to measure, of economic stagnation, if you want to call it that? Would the unemployment level in this area be a factor in determining it?
I think perhaps if the minister would give us a little bit more clarification concerning the qualifications for setting up a prescribed area, that may answer many of the questions I have. Perhaps if the situation is not clear then, I could ask him some more questions.


Walter Lockhart Gordon: Perhaps I should start answering a few of these questions before there are too many of them. The first question was, why wait for the enactment? I think one of the main reasons is that this is a complicated enough resolution because it covers a great many things. I am not just thinking of this paragraph, I am thinking of the whole resolution. It will be followed by a bill which will certainly call for pretty careful study by parliament before it is enacted. I would think it would be unwise for taxpayers to take advantage of this particular proposal until they see clearly in the bill just who is going to qualify and who is not.
The other point, of course, is that the designated areas had not yet been determined when this resolution was drawn. The department of industry bill had not been passed. The hon. member for Digby-Annapolis-Kings mentioned Nova Scotia in a way which led me to think he assumed Nova Scotia would be included as a designated area.


George Clyde Nowlan: Perhaps in part.


Walter Lockhart Gordon: Only in part, then perhaps- no, I will not go into that. I am not yet able to answer your question as to the definition of designated areas, because those will be determined after the department of industry has had a chance to consider the matter with the Department of Labour and the other departments concerned. Certainly, it will be based on geography, and the factors that will be taken into account are the question of economic development in the area, the question of the level of unemployment in the area, and so on. I would hope that the areas would not be too small. They should be substantial areas or else we will get into a great deal of trouble.
The point of this is to induce or persuade new enterprises to locate in the areas where they are needed most. I think it was suggested that this incentive may not be effective. This, of course, is a matter of opinion. There is no way of proving it. I have said before that, in my own personal view, this
Income Tax Act
is probably the greatest inducement that could be given to business enterprises to locate in areas where new businesses are needed most. I hope very much that this will be a sufficient inducement to persuade a number of new enterprises to locate in the Atlantic area, for example. I am not suggesting the Atlantic area is the only one that needs this sort of thing, but it is the one that has been mentioned. I would hope this would be the deciding factor that would enable a number of corporations to establish subsidiaries or branch establishments in that area and, in that way, we could begin to make an effective attack on what is becoming, in some parts of the Atlantic provinces, chronic unemployment.
Now, there is no use trying to persuade ourselves that we can keep obsolescent industries in being indefinitely. Some of them, obviously, are less effective in providing employment now than they were 20 years ago. What is needed is to induce new industries to move in there in their place. The purpose of this paragraph is to do just that. As I say, I cannot promise it will be effective, but I hope that it will.


Horace Andrew (Bud) Olson: I am willing to accept the minister's statement that he cannot give a definition at this point of the qualifications for a prescribed area. However, I believe it would be useful to those people who are considering establishing new industries to give, as quickly as possible, what the qualifications will be, based on the many factors that will be taken in account when these prescribed areas are named. Certainly, we are not going to have industries of any magnitude set up within a few weeks or a few months after the government's intention is known.
I am a little disturbed, however, about one or two of the qualifications the minister did mention. He talked about the tests that would be applied before one could take advantage of the provision. One test was that 95 per cent of the machinery must be owned by the new corporation. Second, 95 per cent of it must be located in the area and, third, 95 per cent of it must have been acquired since June, 1963. There may have been other qualifications that he mentioned.
I think if we are going to give Canada a service, we have to be thinking more in terms of setting up industries that will have some continuity to them. In other words, if these prescribed areas constitute a sufficient inducement to attract industries, for reasons of a tax holiday and accelerated depreciation, that are not adapted to that area and do not carry on after these advantages have been used up, we would not be doing the Canadian economy a favour, or the people who had temporary

Income Tax Act
employment there. In fact we would find ourselves in the position of having to deal with unemployed people who had been drawn into the area because of this provision here.
When we see, for example, that 95 per cent of the machinery must be acquired since June, 1963, and it must be a type of industry that has never previously been carried on in the area, we must agree that we are precluding industries that have not modernized to keep in pace with the cost of production factor, and which could carry on if they were enabled to modernize. This is something at which we should take a long look.
Next, what are we going to do about businesses that have been shut down and which would be able to re-establish themselves by means of refinancing? Such industries would be beneficial to an area and would have a reasonably good chance of carrying on after the advantages given here have been used up.
There is one case which is specifically interesting to me, as it happens to be in my constituency. It concerns a processing plant which became involved in litigation. All of the machinery is new and the plant itself is new; but because of the litigation their sales contracts became no longer valid, or at least the people involved in them were subject to litigation because of patent rights.
The machinery has been sitting there since long before June, 1963, but the plant has not been operating. Now, it might be a little difficult to have the area in which it is located designated to come within the ambit of these incentives, as I do not think its unemployment level is particularly high. However this is a processing plant that is particularly adapted to the area and which could make a tremendous contribution to its economy. There is no similar plant anywhere near it and I am wondering if it could possibly be included to take the benefit of these advantages.
The fact is that if some advantage is not given to it, the plant will not be operating and will not be producing any income tax. Therefore I think this is an opportunity to use some discretionary power, which would be a little wider than what is proposed, to enable industries to become established, industries that will increase local employment and which will not later on have their employees become a burden on the government because they were mislocated as a result of the inducements outlined in this resolution.


Mr. Harkness:: Could the minister tell us whether this provision would apply to a factory where a change in operation takes place and an entirely new product is manufactured? Say, for example, there is a com-

pany manufacturing automobile components; it is sold to some other concern, and then they start the manufacture of electronic equipment. Would the provisions apply in a case like that, and if they apply in a case like that where a sale has taken place, would they apply if the same company merely changed its operation and went into a different type of manufacturing, new to the area?


Walter Lockhart Gordon: I presume that the new company would have to acquire new assets. In fact I am not clear how you can shift from producing automobile parts to electronic equipment without, for all practical purposes, being in a new business. If it is a new business under these definitions, then it would qualify if it were in a designated area. If it were not a new business and were not in a designated area, then it would not qualify.


Douglas Scott Harkness: If there were not a sale to another corporation and the same company switched its operation into a new type of manufacturing, which would involve the buying of new machinery, although it would use the same factory plant and administrative offices, would it qualify then?


Walter Lockhart Gordon: The fact of the sale would not make any difference if it had not changed its nature and became a new business. The sale itself has no bearing on this proposal, and perhaps I might just add a word in a more general vein.
I think members of the committee are aware of the success that has been met in the United Kingdom and several European countries in re-establishing and reviving depressed areas. Now, we do not call them depressed areas in Canada. We call them designated areas, which is a more polite term, although pretty much the same. They are areas where high levels of unemployment have persisted year after year. How does one go about doing anything about that?
The temporary measures are fairly obvious. You try to spend more money on social capital projects of one kind or another, but if you are going to get at the root of the problem it seems to me you have to introduce new businesses into those areas, or alternatively the people are going to get fed up and move away. You can argue from the standpoint of economic theory, and so on, that it is better for people to move away, and that the more mobility there is in the country the better it is. But I suggest that when this happens we lose the investment that has been made in existing towns, cities and villages, which implies houses, schools and everything else, and apart from that people do not want to move away. Therefore, if there is anything we can do to introduce new industries into such areas

it is surely a good thing. Otherwise everybody will end up in either Montreal, Toronto or Calgary.


Marcel Joseph Aimé Lambert: We realize that this provision deals with a specific economic ill, and that we are talking about areas which have been less developed than others. However there is one problem of a rather technical nature that I wish to raise. It has to do with paragraph 1 of the resolution as well, and is a matter to which I referred late on Friday afternoon. We need a definite definition of acquisition of property. We have to get some degree of exactness of what the legislation will mean by the acquisition of property within the prescribed periods.
We realize that one can take outright title and become outright owner; but does the acquisition of property envision, in those provinces outside Quebec, the acquisition of plant by way of agreement for sale, or conditional sale agreement, which may extend in the case of these special areas beyond the three years of non-profit? It may go on for four or five years, during which term payment will be made. We know that under the provisions of conditional sales contracts, title and ownership to property shall remain vested in the vendor. If it is stated that it is on the acquisition of property, with emphasis on the word "property" in its legal sense, then the effect of such a transaction will be a negation by the legislation, or vice versa.
There is another point I should like the minister to clarify. I refer to a method that is becoming more and more popular these days, which is the lease back. How will a lease back, if it will qualify at all, qualify under these provisions? There must be an inducement for investment in a new industry of the plant, the machinery. We know that there are lease back arrangements which could be used, by the terms of which lease, an accelerated lease payment during the initial years which would be comparable to the rate of depreciation that is permitted under this particular, shall we say, incentive. In any event, perhaps the minister could at this stage advise the committee what the thinking of the ministry is in this regard.


George Clyde Nowlan: Mr. Chairman, perhaps I could just add one other question to that, so that the minister could have it in mind. I am not sure that he wants to answer it now, but I think it might be a good thing for him to have in mind when the regulations are drafted. In this matter of acquisition there are problems which might arise. I am thinking particularly, again, of my own province and Industrial Estates, a crown corporation, which on more than one occasion has purchased 28902-5-157
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machinery and equipment for a new entrepreneur and, something along the line suggested by my hon. friend from Edmonton West, there might be a lease back. I think the minister and his officials should take a very careful look at that situation in permitting a write-off, because there are various types of purchases that I know have been made. They have been very successful in some cases. There were 11 new corporations in Nova Scotia this calendar year. I would think it might be advisable to check with the officials of some of the provincial crown corporations which are in that business before definitive regulations are drafted in that particular area.


Walter Lockhart Gordon: Perhaps, Mr. Chairman, I could take these three questions in order. When the hon. member for Edmonton West asked me about this on Friday just at the end of the day, I understood his question to be whether, to qualify for the increased allowance under paragraph 1, a taxpayer had to have the new assets delivered and installed within the 24 month period commencing June 14, 1963, or whether it was only necessary for him to enter into a binding contract within that period.
My answer on Friday was to the effect that the important thing was whether he had acquired title to the property in the 24 months. That was the point we were discussing when we adjourned. My hon. friend is now asking if this means, in the case of a conditional sales agreement under which title may not pass until after June 14, 1965, that the purchaser would not be entitled to the capital cost allowance at the 50 per cent rate. Is that, roughly, what the hon. member is asking?


Marcel Joseph Aimé Lambert: This is it. We are caught in the legal definition at this point.


Walter Lockhart Gordon: I am informed that in these circumstances the purchaser is usually considered by the taxation department to have acquired an ownership interest in the property when he takes possession of it. That is usually the way, as I understand it, the tax department rules for these purposes. If that occurred in the 24 month period, he would be entitled to the 50 per cent write-off. I think the hon. member will have to ask his colleague over here, who used to administer the tax department, whether I am right or wrong; but that is what I am informed as to the way it has been done.


Marcel Joseph Aimé Lambert: I agree; but if I may interrupt here, Mr. Chairman, I think there is a problem in the case where you have a contract for delivery, where you have a fully

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binding contract entered into between a proposed taxpayer and a supplier for the provision of machinery, which cannot be delivered at once. The minister said this provision applied when a person took possession. Possession connotes delivery; yet a taxpayer would be committed under a binding contract although he had not accepted delivery. That is the point.


Walter Lockhart Gordon: In that case, Mr. Chairman, I am informed that the tax department would not give him the depreciation. They will not let him depreciate the machine until it is a machine. The same applies to these lease back deals. I think the suggestion that there may be something special in the case that was mentioned, Industrial Estates, which have been doing a useful job in Nova Scotia-


George Clyde Nowlan: I think there are others in other provinces, but I am not sure.


Walter Lockhart Gordon: I will certainly ask that this matter be looked into. But I think we also have to remember that you cannot get a write-off unless you have bought something. You cannot get a write-off if you have leased something that you are going to pay for over 25 years; you get that write-off when you pay your money. That probably is the distinction. I do not see how you can get any faster depreciation on a lease deal until you pay up.
In the Industrial Estates situation, if Industrial Estates supply machines to a business and the business does not have to pay for them, the only person that we could, presumably, allow the capital costs allowance to would be Industrial Estates, and it would not do them much good. The purpose of this, of course, is to add another incentive separate and distinct from the kind that the Industrial Estates people can give to new industry to locate in these areas. The form of the incentive is reasonably clear, to the extent that it means new construction and to the extent that it means the purchase of new equipment in Canada that will provide work in the plants which produce the equipment, quite apart from the area that is under consideration.


Marcel Joseph Aimé Lambert: I have a further point with respect to plant, Mr. Chairman. What is the critical date there? Must it be the completion of the plant, the complete erection and occupancy, or is there to be recognized a form of commitment between the taxpayer and the contractor under which the plant is being erected and will be occupied, say six months after the critical date? This is the point, because as we know there are various forms of building contracts whereby the property in the building materials passes to the owner on delivery to the site; and there are other 
situations in the province of Quebec where this may not apply, where they have the doctrine of revendication which does not apply in the common law provinces. I admit these are rather complicated problems, but I would like some clarification of them.


Walter Lockhart Gordon: They are complicated in a sense. The Department of National Revenue has established a series of rules and regulations over the years that are generally pretty well known to the taxpayers. In the case of a factory building, if that is referred to as plant, to the extent the factory building is completed, or the portion of it that is completed and paid for and recorded on the books, the taxpayer would be entitled to these write-offs. But he would not be entitled to a write-off on a commitment of a contractor to finish the plant over the next two or three years. That is there now. You could not have a separate set of rules to apply to this special incentive that does not apply to, I was going to say life in general, but I mean corporate life in general. These customs or rules or regulations are generally understood by most taxpayers, and if a taxpayer is anxious to get his new building or new plant recorded on the books within a certain year I presume, if he is ingenious enough, that he can do so up to a point. But he cannot do it merely by entering into a contract with a contractor to build him a plant next year and expect to get a write-off this year.


John (Jack) Henry Horner: Mr. Chairman, I appreciate the incentive the minister is offering for new industry, but it does not appear to me to be large enough to develop any appreciable new industry. First of all the minister suggests that these incentives would be applicable in designated areas, but gives us no knowledge of the designated areas to which he refers. Some mention was made of the maritimes, and no doubt parts of that area would qualify. He said that he hoped the areas would be large enough. Two years ago the previous government brought in double depreciation in similar types of areas and there was a great hue and cry from the then opposition to get the government to name those areas. The opposition of that day said they could not judge the value of this measure unless the government named the areas, and they went to great lengths in promoting that contention. I think we should be given some idea where these designated areas are to be.
Then he suggested that the commencement of a new industry would mean the application to the minister for a certificate of qualification for the 36 months tax free holiday which this measure proposes. To me 36 months is not long enough for an absolutely

new industry commencing operation, when you consider the fact that 95 per cent of the machinery must be bought from June 13 on, and that within a period of 36 months the industry has to get going and produce a taxable income in order to benefit from the tax free holiday. If it has no taxable income in the first two years the 50 per cent writeoff would be of very little value. It may be of some value but not very great.
I think, Mr. Chairman, this proposed legislation would be far more beneficial to companies already established in other parts of Canada which want to establish a subsidiary company, or which are induced to establish a subsidiary company, in a designated area, or what they think would be a designated area. I suggest this would merely mean a different allocation of the working force and not nearly as great an increase of employed persons as would be desired by the minister or the Canadian people generally. I suggest that an absolutely new industry should have a tax free holiday of longer than 36 months and that the 50 per cent write-off should be applied when the industry has established itself and is in a position to pay income tax.
A lot of the measures which will come into force when this bill passes strike a strange theme, it seems to me, because who is to know when the bill will pass? I think the budget resolutions should be approved either on the day the budget is brought down-in fact, most of them are as a rule-or at a later date when the proposals are implemented by the minister, not at the sanction of the house.


Walter Lockhart Gordon: I would be glad to accept that suggestion, Mr. Chairman.


John (Jack) Henry Horner: I should like to see the minister go further than that and allow new industries to go back to the first of the year. If that were done, your machinery date and all the rest of it would have to go back to the same prescribed date in order to make all things equal. This measure will certainly be a big help to industries already established in Canada which wish to start another subsidiary plant in another locality, but I do not think it goes far enough. I do not think the 24-month period or the 36-month period is long enough for an absolutely new industry to finance itself, become operational and start to pay income tax. In most of these areas money lenders are very hesitant about lending money because, perhaps I might say, of the financial worth of such an area or to the risk involved. Therefore they hesitate to lend money for any length of time. It is quite common to spend six or eight months arranging capital to commence a new industry in what might qualify as a 28902-5-1571
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designated area. One would have to know before going too far whether one would qualify, and perhaps receive not formal approval but a nod from the minister with regard to whether one would get a certificate before actually signing the agreement and borrowing the money. Personally, I should like to see the minister name these designated areas. I think particularly of my own area of the east-central part of Alberta. Perhaps the maritimes would also qualify, as well as many areas in Saskatchewan. I know for a fact that many areas in Quebec would qualify. Various governments have from time to time announced their opinions that industry should be decentralized to quite a large extent. This could bring about a degree of decentralization if the designated areas were so distributed and the incentives great enough. I fear they are not and suggest the minister give consideration to lengthening the period of time and increasing the number of designated areas to as great an extent as possible.


Jay Waldo Monteith: Mr. Chairman, I should just like to say that, as I understand it, buildings will be allowed depreciation at 20 per cent on the straight line method, and class 8 at the 50 per cent rate. Various classes of goods must be purchased within 24 months from the date the legislation is passed. Does the exemption apply to 36 months from the inception of the business, that date being set by the minister of industry, in the determination of the date on which the business is considered to have begun operation? I wonder if the minister had any criteria in mind? Does the business start at the time of incorporation? Does it start when the bricks and mortar have been laid, or when the company makes its first sale?


Walter Lockhart Gordon: The date would be the date when the company begins its commercial operation.
On the point raised about the designated area I would remind the committee that these areas have to be established by certificates issued by the minister of industry and, of course, the bill to set up the department of industry has not yet been passed. It has been passed by this house but not by the Senate.


Jay Waldo Monteith: Let us say the company was incorporated in the middle of January and they decided that their year should end on December 31. But they do manage to get their building up and begin operations on November 1. Would they be free from income tax for one year, in which they had only been in operation for two months, and then for two years during which they would be in operation for 12 months a year; or would

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the time be calculated on the basis of two months, 12 months, 12 months and 10 months?


Walter Lockhart Gordon: The latter would be the case, 36 months.


Michael Starr: There is a question I should like to ask about this tax free holiday, as the minister calls it.


Walter Lockhart Gordon: I was careful not to call it that.


Michael Starr: During the term of the last government we set up a criteria by means of which areas capable of qualifying for double depreciation allowances could be designated. Applications came in from a municipality or area and the Department of Labour, together with the national employment service, immediately got to work to ascertain whether that particular area qualified in accordance with the criteria set up. This only applied to areas from which an application was made. It is difficult to see how the government will now be able to designate an area in the absence of a proper survey of all of Canada. Does the government intend to make a nation wide survey of all Canada based on the criteria they have in mind, or which they intend to set up? In other words, does the government intend to designate certain areas without having any means of knowing whether they will be eligible for this type of tax free holiday, or are certain parts of Canada expected to make claim under the criteria in order to be designated. I wonder if the minister would enlighten us on this matter.


Walter Lockhart Gordon: The hon. gentleman knows the difficulty about doing this because he has had experience of this work himself in the past. I do not want to move into an area for which the minister of industry will be responsible. It will be his responsibility to work this out, together with the Minister of Labour and all others concerned; but I can assure the hon. member that he will take into account all the information that is available. The objective is to encourage new industry into areas where unemployment is high.


Horace Andrew (Bud) Olson: There are three questions I should like to put to the minister. In the first place, I should like to ask him what consideration he has given to the re-establishment of businesses which have been shut down. Many such businesses could probably re-open if they had some new equipment and refinancing. In many cases this would seem to provide the most desirable types of industry which could be set up in an area, if only because of the continuity. If the minister intends to provide that in order to get assistance an industry must be one which has

never been carried on in that neighbourhood before there can, of course, be no provision for re-establishing a business which has been shut down.
The second question I should like to ask is this: what is the target date when this scheme will come into being? I ask this so that people who are thinking about establishing an industry can be working toward it and doing some of the preliminary work.
My third question is: how long would the department be prepared to defer or delay the income tax incentive of which the minister spoke. I understood him to say it was not necessary for it to be taken advantage of within the first 36 months.


Walter Lockhart Gordon: First, as to the inquiry about a business which has been shut down. Such a business would qualify if in being set up again it had acquired a lot of new machinery. To the extent of the new machinery it would qualify if it were in a designated area. I cannot be more specific, because I would want to know a lot more about the business. There is nothing in this provision which would provide new capital for a business such as the hon. member mentioned in his example.
When this incentive will become effective will depend upon when the act is passed and proclaimed. I am sure the amendments to the Income Tax Act will be proclaimed immediately after they are passed. Until they are passed, I agree there will be an element of uncertainty because people will not know when they can take advantage of these incentives. There is one other thing:	The
minister of industry will also have to announce the designated areas. He will be planning to do so at the earliest possible date because this will be one of his important responsibilities.
As to how long a taxpayer can defer taking the higher rates of capital cost allowance, I am informed by the officials of the Department of National Revenue that he could defer them as long as he likes. Naturally, he would want to take them as fast as he can because this would save him money. But if he is losing money there is no reason why he should claim this extra capital cost allowance. If he does not turn his business into a profitable one he will probably never take it.


Horace Andrew (Bud) Olson: Did I understand the minister to say in his opening statement that in order to qualify an industry must be a type of industry which had never been carried on in an area before?


Walter Lockhart Gordon: I did not mean that to be a general statement. That is not the case at all. I think it did apply though in one particular

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instance, and I am trying to find it in these notes. It does not apply in general. There is no reason why it should be a new type of industry that is new to the area.


Horace Andrew (Bud) Olson: That is the point that was disturbing me.


Walter Lockhart Gordon: That is not so.


Percy Verner Noble: Did I understand the minister to say that the establishment of a new industry that would qualify would require a new building? I am thinking of an area which I would presume might be a designated area-


Walter Lockhart Gordon: No. I did not mean to give that impression.


Mr. Leboe:: To follow up the point raised by the hon. member for Medicine Hat, I should like to ask the minister about depreciation. Can depreciation appear on the books as a loss and be picked up later? I understand the rate of depreciation is going to be 50 per cent. Can it be shown on the books as a loss and then be picked up at a later date under the Income Tax Act?


Walter Lockhart Gordon: I have not been giving tax advice for quite some time and I should not be doing it now. However, under the regulations, if a company writes off an asset or claims depreciation and writes it off in its books, and makes a loss, it is allowed a five-year tax carry forward of the loss, and it can pick it up in that period and in that period only. But there is no reason why it should write off the capital cost allowance in its books until it wants to and if it does not write it off it can claim it at any time it likes.


Bert Raymond Leboe: I brought up the point because I understand the depreciation is on a straight line basis whereas in my experience with taxation of this type the allowance has been taken on the undepreciated balance each year.


Walter Lockhart Gordon: As the hon. member knows, depreciation used to be on a straight line basis at one time, but in this case for this particular incentive it will be on a straight line basis and taxpayers can claim it any time they like. There is no obligation for them to write it off quickly, but if they do write it off in their books then they are limited as to the period when they can claim it.
(Translation):


Mr. Lessard (Lake St. John):: Mr. Chairman, I should like to ask the minister whether municipalities, that is municipalities in a prescribed area with a high level of unemployment, will be able to apply immediately to the minister of industry in order to get the required approval for this special assistance provided to industries setting up in that area.
For instance, the Saguenay area in particular, which I consider as a whole, where unemployment has been high for several years, would well qualify, it seems to me, to obtain this assistance provided to industries. Therefore, could those municipalities apply immediately to the minister of industry in order to obtain such certification and approval?
(Text):


Walter Lockhart Gordon: I suppose in a technical sense there is no minister of industry to apply to until the act establishing the department of industry has been passed, but I would not think that should restrain any enterprising municipality that feels it would like to get in on this as fast as possible. While I do not want to issue any invitations on the part of the minister who may become minister of industry, this is a free country and I presume anybody can go and see him who wants to do so.


Lucien Lamoureux: Order. Has the committee concluded consideration of paragraph 2?


Some hon. Members:: Carried.


Lucien Lamoureux: Paragraph 3.


Walter Lockhart Gordon: This paragraph proposes the repeal of section 40A of the act. Section 40A of the act is the section providing for the tax concession based on increased sales which was introduced following the 1962 budget. The concession was in the form of a deduction from tax otherwise payable if the taxpayer could show that his sales for a year exceeded his sales in a certain base period.
This particular concession was criticized on a number of grounds, first, that since dollar sales were the measure upon which the concession was calculated the emphasis was upon sales volume rather than upon efficiency. Thus taxpayers have an incentive to increase prices or to achieve increased sales in uneconomic ways in order to obtain some forgiveness of tax. I am sure they would not do that but there was that possibility.


Marcel Joseph Aimé Lambert: That is pretty specious.


Walter Lockhart Gordon: If the hon. member wants something that is not specious, there was the devaluation of the dollar. He will remember that that took place between the time the incentive was introduced in the budget and the time it was enacted. The result was that many people engaged in export businesses did get certain windfalls they were not expecting in the form of increased prices. If the hon. member for Edmonton West recalls the days when he was Speaker, he will remember there was some discussion about that particular point last fall.

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Then there are other points. It provided an incentive for taxpayers to arrange to have high sales in one period and low sales in another, or otherwise to switch business from one year to another. Third, it was so complicated that many taxpayers said it was not worth the trouble to try to qualify. I do not know if I can substantiate that, but I have certainly heard it said. Fourth, the value of the incentive was low in the case of many companies. For example, the illustration used in the 1962 income tax bill showed that a company with sales of $1 million which increased its sales by 10 per cent would receive a tax concession of only $1,230, which is not a great deal on sales of $1 million.
Since this provision did not commence until April, 1962, very few companies have yet had one full taxation year under the scheme. Accordingly, there are no statistics available to indicate the amount of revenue given up or the number of companies deriving benefit under this section of the act. As I say, there can be no doubt that this provision afforded windfall benefits to a number of companies but it is doubtful that it provided a real incentive for any expansion or increased employment. It is proposed that it be withdrawn with effect for 1964 and subsequent taxation years.


George Clyde Nowlan: Mr. Chairman, I do not intend to take the time of the committee in commenting at any length on the dire, funereal record with which the minister has instructed the committee. I simply say in passing that I think almost every budget resolution of every minister is sometimes criticized. I suspect that some of the minister's budget resolutions have been criticized, and the mere fact that this one was criticized does not necessarily impair its effectiveness.
There is no doubt that there was some question as to the degree of incentive contained therein and, as the minister said, the figure set forth in the example perhaps is not one which would encourage a company to tremendous efforts. Nevertheless, I regret that he has seen fit to withdraw this incentive before there has been time for it to be considered on its merits, and I say that because a year has not yet expired. However, this has been a decision of the government and as far as we are concerned I do not see any point in discussing the matter further at this time. I regret that decision has been taken, but its having been taken I am prepared to accept and, subject to what other members may wish to raise, I am willing to move on to the next question.


Jay Waldo Monteith: I should like to say a word or two following what the hon. member for Digby-Annapolis-Kings has said. The minister

mentioned that one of the reasons for this was sales volume rather than efficiency. I hesitate to put much stock in that particular statement simply because no company is going to operate inefficiently if it means an extra dollar of savings. In so far as switching sales from one year to another is concerned, this always catches up with a company and I believe most companies have found that out over the years. The minister also mentioned that the benefits were so low for most companies, that they were not of much value. I should like to point out that some companies which may have enjoyed benefits under this particular piece of legislation will now enjoy no benefits. They will not benefit from any incentives.
I join, too, with the hon. member who has just spoken in voicing my opinion that the measure has not been given a fair trial. It came into force last year and it is being voided as of the end of 1964. I do not believe the rather vague criticisms which the minister made of section 40A justify its deletion at this time.


Marcel Joseph Aimé Lambert: I would certainly echo the statement of my colleague from Perth because I feel that, at best, a great deal of the criticism was theoretical and somewhat specious. I would say that the greatest measure of increased sales is the matter of price, and the measure of efficiency is really the quantum of your sales. I regret that this measure which has been given so little trial has been summarily buried, and especially on the basis of so little evidence.
There is a further point I should like to get clarified, and that is the reference to 1964. Is this the taxation year in respect of any company that wishes to qualify under this particular form of incentive? I do suggest to the minister that people will be sorry to see this provision go, because I think you are merely substituting another form of incentive for one that is already on the books.


Walter Lockhart Gordon: I do not want to repeat myself, and I do not want to go into the criticisms. I expect all hon. members know that this particular incentive was questioned rather seriously at the last meeting of the Canadian tax foundation, not on any political grounds or anything like that, but it was felt by a member of practitioners in this field that it would probably cost more to claim the incentives than it was worth. I do not want to pursue the matter, but that was the feeling of the people who, normally, I suppose would ha'-e been expected to be in favour of it. I do not believe there was enough in it to make it worth while.


The Deputy Chairman:: Does that complete the discussion on paragraph 3?


Some hon. Members:: Carried.


Herman Maxwell Batten: Then, paragraph 4.


Walter Lockhart Gordon: In this paragraph it is proposed that oil and gas pipe line companies be allowed to deduct, in computing income, drilling and exploration expenses they incur in prospecting for oil and gas or minerals, in the manner of the companies in the business of oil, gas or mineral production or exploration, who have for many years been permitted to deduct exploration and drilling expenses. It also permits companies in the business of processing mineral ores or recovering metals or ores or fabricating metals to deduct exploration and drilling expenses of those companies in discovering supplies of oil, gas or mineral ores, since the continuation of their business depends upon the continued existence of supplies of these raw materials. Similarly, a pipe line company depends upon a supply of oil or natural gas, and therefore it should be allowed to deduct the cost of searching for these supplies.


Eldon Mattison Woolliams: I should like to congratulate the minister, particularly since he is dealing with a subject so dear to the hearts of the members of parliament from Alberta, and the petroleum industry. Perhaps I might just take a moment to read the resolution itself, and then I might ask the minister some questions about its wording. Paragraph 4 reads as follows:
With respect to expenses incurred after June 13, 1963-
This is the date of the budget.
-a corporation whose principal business is operating a pipe line for the transmission of oil or natural gas, be allowed to deduct in computing income the drilling and exploration expenses, including all general geological and geophysical expenses, incurred by it on or in respect of exploring for petroleum or natural gas in Canada-
Of course, it includes also other industries engaged in prospecting and exploration of minerals in Canada. In other words, I suppose what paragraph 4 says in a nutshell is that after June 13, 1963 a corporation whose principal business is operating a pipe line for the transmission of oil or gas, who decides to drill or explore for natural gas, shall be allowed to deduct in computing income the drilling and exploration expenses, including all general geological and geophysical expenses.
The first question that comes to my mind is the hope that the minister will be able to differentiate between what was done last year and what is being done this year. I do not say this in any political way. Before answering these questions, I should like to make a short statement on the industry itself. I suppose this provision is tantamount to a
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tax incentive to encourage the exploration of natural gas and petroleum by Canadians or Canadian industry. After all, if we accept the minister's word as contained in the budget itself and now in the resolution, that seems to be his ambition. The budget itself, of course, appears to have run into several shipwrecks in that regard.
In so far as natural gas is concerned in Alberta, it was often found when they had what they call a dry hole. Natural gas was not used or expected to be used for a number of years, and in fact was capped in most wells in southern Alberta and northern Alberta. Sometimes it was burnt off as a waste product. It was for this reason the former administration set up the Borden commission. Then, at that time we ascertained that in the province of Alberta we had known or proven reserves of about 23 trillion cubic feet of natural gas. I do not know whether anyone knows, certainly I do not, what a trillion looks like. However, it is a lot of natural gas. I am sure the minister will agree with me that natural gas does come from the province of Alberta.


Some hon. Members:: Hear, hear.


Eldon Mattison Woolliams: If I may speak seriously for a moment, it was as a result of the Borden commission that the national energy board was established. It was at that time that natural gas was exported from western Canada for the first time. Many people were pressing for this privilege for a number of years, long before the Borden commission was set up. The Borden commission designated the quantity of natural gas that would be needed for home consumption, and the quantity available for export. Of course one could go to the Canada Year Book which showed what our needs were in Canada, amounting to about 10 billion cubic feet per year, and that we had enough reserves for the next 30 years for foreseeable use in Canada. It is a good time to mention this because, coming back to the resolution itself, it has a laudable motive or objective, namely to give incentives to our own citizens to explore for natural gas and petroleum.
This is particularly encouraging because there was a lot of talk in the last few days about Americans controlling our industry. I do not suppose there is any industry which is more greatly controlled by American investment than the oil and petroleum industry. The reason for this is that they have been in that field for so many years and United States companies had the technicians and skill when they came into the province of Alberta. For this reason I say the resolution contains a laudable objective and ambition on the part of the government.

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Also interesting to note is the "Short Term Energy Forecast 1960-66" study, authorized by the national energy board, which I got today for the purpose of making this speech. Quoting from page 8 it says:
Domestic demand for natural gas is expected to increase at an average annual rate of close to 11 per cent in the period 1960 to 1966-
In other words there is an expected increased demand of 11 per cent for each of those years, and there are three years still to go.
-compared with an average growth rate of 18.6 per cent in the preceding decade (1950-60).
I do not say this in an unkind or political way but I would like to point out, Mr. Chairman, that for many years, in fact right up to the previous provincial election, the Liberal party in Alberta, led by my good friend, Mr. Grant MacEwan, was the party opposed to the export of natural gas in Alberta. However there was pressure brought to bear by myself and all hon. members from Alberta, from 1958 onwards, to make certain that we got cracking on the export of natural gas, not only because of what it means to the economy of the province but because it helps Canada with its imbalance of trade, and in money relations with the United States. This study continues:
Natural gas markets in 1950 were restricted largely to the province of Alberta.
At this point I might say that there has been a tremendous development in the province of Saskatchewan in latter years. That development was delayed because of lack of confidence in the government which came into office in 1944, but since that time more confidence has developed and progress has been made in this field.
The rapid growth in the succeeding decade and in the forecast period can be related to vastly increased supply and the construction of large diameter, long distance transmission lines connecting western Canadian reserves to markets from Vancouver to Montreal.
The next part is very interesting:
Exports of natural gas rose from virtually nothing in 1950 to 110 billion cubic feet in 1960. By 1966 exports are conservatively estimated to be in the 400 billion cubic feet range. For the purpose of this study, it was assumed that no additional federal government licences to export gas would become effective in the next three years and that exports would approach the maximum allowed under licence, except for the interruptible volumes licensed for export at Niagara.
In the period 1960 to 1966 natural gas production is expected to grow at an average rate of 15 per cent per annum, compared with an average of 22 per cent per annum in the previous decade.
Just pausing there, Mr. Chairman, I would point out that there have been many plants built in the province of Alberta. Only last year a new $66 million petro-gas plant was

opened north of Calgary, to handle byproducts from this industry. It is these plants that have made the province of Alberta so economically sound. It is the royalties from the petroleum and natural gas industry that allow the government to develop the province extensively.
I am not going to take anything away from the provincial government in this regard. I could talk for a long time about differences of opinion with regard to oil policies, but I think the provincial government from the outset set about encouraging investment in the province, and one has to give credit where credit is due.


Some hon. Members:: Hear, hear.


Eldon Mattison Woolliams: I knew this would cause some excitement on my left, but I say this without any reservations whatsoever.
I am very happy to see the hon. member for Winnipeg South Centre, the former minister of trade and commerce, present in the chamber, because it was under his direction that the Borden commission came out with its report and the national energy board was established. I remember so well, and it seems such a short time ago, when he outlined the objectives and ambitions of the national energy board. We who live in the province of Alberta will always be grateful to him for getting cracking on the export of gas. We at one time went to bed with our coal reserve; we certainly did not want to go to bed with our natural gas reserves. We therefore approved the export of some.
As the minister said in reference to other resolutions, tax matters are very technical. I do not hold myself out as a tax expert in the field, but with reference to paragraph 4 I would like to ask what is the difference between it and the budget resolution passed last session in regard to write-off expenses? I am rather disappointed with paragraph 4 because it says-and here I come to grips with my main argument -
-with respect to expenses incurred after June 13, 1963 a corporation whose principal business is operating a pipe line-
Why cannot a syndicate of farmers in the province of Alberta, or other people with Canadian investments, have this write-off privilege against business expenses if they want to wildcat for oil and natural gas? It is these people whose fathers or grandfathers first started the great petroleum industry on the road in Alberta, at Pincher Creek and other places. They gathered in groups and said, "We will take a gamble; we will put up so many thousands of dollars and dig a well." It was afterwards that the big corporations moved in from the south when they smelt the wealth in the air.

If we are really ambitious and anxious to see Canadians take part in the development of their country, this clause should apply to anyone who honestly explores for petroleum and natural gas. I intend to go into this argument fully, but since I see it is six o'clock I shall stop now.


Herman Maxwell Batten: Order. May I advise hon. members of the committee that the committee will resume its work at seven o'clock.
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at 7 p.m.
Eldon Mattison Woolliams: Mr. Chairman, just before the short supper recess I was discussing resolution 4 and I was dealing with the resolution in this regard-if I might repeat myself briefly-that in respect of expenses incurred after June 13, 1963 a corporation whose principal business is operating a pipe line will be allowed to charge off certain geological, geophysical and other expenses. I said that certainly the resolution does not apply to all Canadians, to people living in Alberta and outside Alberta who wish to form a syndicate. I commended the minister on his action to have more Canadians invest in their own industry.
I do not suppose, as I said before the supper hour, that any industry is controlled more by outside, foreign investors than is the oil industry. It is only a month or two months ago that one of the last major Canadian oil companies in Alberta sold out to Shell. I was quite complimentary to the minister when I said that behind this measure, as was behind the policy of the previous government when they brought in a similar resolution with reference to these expenses, is the intention to encourage Canadians to invest in their own industry and to invest particularly in the exploration and discovery of natural gas and petroleum.
Before the supper adjournment I was speaking off the cuff when giving figures in reference to the Borden royal commission on energy in 1957. I have since had an opportunity to check these figures. I said there were 27 trillion cubic feet of reserves in Alberta. That should have been 23.3 trillion cubic feet. I pointed out at that time that the Borden commission stated that Canada needed approximately 10 billion cubic feet of natural gas per year for its foreseeable economic demands either domestic or industrial. I pointed out also that we were the only party that has been consistent in reference to the export of natural gas from the 28902-5-158
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prairie provinces as being not only important to the economy of the west but also to the economy of Canada as a whole, because by the export of natural gas to the United States we would bring about a closer balance of trade relations with the United States and alleviate the imbalance in regard to foreign exchange between our two countries.
I pointed out, also-and I wish to repeat this and put it on record again-that other parties were just as consistent in the opposite philosophy. It was the Liberal provincial party that consistently throughout the years opposed the export of natural gas from the province of Alberta. They opposed it, I suppose, on grounds that they felt were justified in this regard, that we might run out of natural gas for the domestic and industrial use of Canada.
I have also pointed out today that we went to bed with our coal in Alberta. When I first came into the House of Commons, every newly elected Conservative member from the province of Alberta pressed our own government and others for action in the export of natural gas, because when there is a demand for a commodity, that commodity will be produced. When we talk about production of that commodity, then we will really get out and explore for it, irrespective of what the tax incentives may be.
It is rather interesting to put on record once again an article from the December 11, 1957 issue of the Calgary Albertan, which I placed on record on May 25, 1959, when I paid a most deserved compliment to the former minister of trade and commerce, the hon. member for Winnipeg South Centre, the person who finally got the movement of natural gas out of the prairies so we would have a full economy in the west and be able to bring about economic stability not only here in Canada but between the United States and Canada. This is what was said in the Albertan:
Last week end the provincial Liberal party had a meeting ot sorts in Edmonton. Naturally it had to say something about gas. But a more meaningless and cowardly statement it could not have made. The party is still obviously confused, still hopelessly ignorant of the industry and issues.
It called for a "maximum availability of natural gas for domestic and industrial users in the province, having regard to economics involved". Nobody disagrees. Nobody at all. But does the provincial Liberal party realize that the maximum local availability can only be obtained as the result of a vast and thriving export industry.
In other words, when you export a commodity and those people who were exploring and processing that commodity receive revenue from outside the country as well as revenue from industry inside the country, you can use that capital back to explore for that commodity to a greater extent. That is

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what brought about reserves of 23.3 trillion cubic feet of natural gas in Alberta.
But does the provincial Liberal party realize that the maximum local availability can only be obtained as the result of a vast and thriving export industry.
It called for a provincial gas policy-
They had been calling for that for 30 years:
-which would "encourage the establishment of new industries within the province".
There again, evidence is conclusive that the maximum local industrialization will come through a policy of maximum export. If the Liberal party agrees, why is it beating around the bush?
These are words contained in an editorial in the Albertan, which has never been unfriendly to the Liberal party, as the Secretary of State, who I believe just said something, knows. It is the mouthpiece of the Liberal party in the province of Alberta. They were prodding them on. This article continues:
Finally, it says "any policy of gas export from Alberta shall first take into consideration the present and future interests of the province, and especially the matter of protecting the consumers of Alberta in the matter of costs".


John Whitney Pickersgill: Mr. Chairman, could I ask the hon. member a question?


Eldon Mattison Woolliams: I have only a few minutes. Would you save your question until the end of my discussion.


John Whitney Pickersgill: I do not think it will be relevant then.


Eldon Mattison Woolliams: It probably will not be, because many of your questions are never relevant to the issue before the house. I want to compare that article with a passage contained in the Canada Year Book. If I were to quote from some of the newspapers favourable to the Conservative party-and I have to admit that in the last year or so they are sometimes hard to find-then it might be said that that was a Conservative viewpoint. But I want to quote from the Canada Year Book. This is a work by people who have made a study of these things, and this is what they said about our policy as far as petroleum and natural gas are concerned- because we brought about a new national policy for petroleum, and I should like to ask the minister whether his government still favour that policy, and will they decide to continue it in the future? It is a policy which has meant much not only to western Canada but to Canada as a whole. When the Conservative government took office in 1957 following the Suez crisis there had been a rise in exports of crude petroleum from the prairies due to the upset in the oil industry in the Near East. With the straightening out of the foreign situation there was a decline in our markets. The former Conservative

government moved into the breach, and this is what the Canada Year Book says about it.


John Whitney Pickersgill: What year?


Eldon Mattison Woolliams: It is 1962. I do not know whether the 1963 edition is out yet, but I hope it comes out soon, as I know the Secretary of State is going to be interested in it. The Canada Year Book says:
As a result of important new developments, 1961 was an exceptionally good year for many segments of the petroleum and natural gas industries. The production and transportation sectors of the petroleum industry benefited greatly from the federal government's national oil policy announced on Feb. 1, which was designed to achieve increased domestic production on a voluntary basis. Approximately one-half of Canada's crude-oil-producing capacity has been shut-in in recent years; the oil policy set production targets for Canadian producers so that a more favourable production-to-consumption ratio would be established.


John Whitney Pickersgill: Was that the George Hees policy?


Eldon Mattison Woolliams: It may have been. It was certainly the Conservative policy. I know what the Secretary of State is suggesting; he resigned from the former government, but I am not going to get into an argument about that. George Hees was minister of trade and commerce at that time and was putting forward the ideas of the Conservative government; and no one on this side will suggest that during that time he did not do a good job. The Canada Year Book goes on:
Specifically, output goals of crude oil and natural gas liquids were set at 625,000 barrels a day by mid-1961; 640,000 barrels a day for the whole year; and approximately 800,000 barrels a day by the end of 1963.
In other words, when we took office in 1957 the demand was such that we could only get rid of 300,000 barrels a day. Our target was set at 800,000 barrels a day. With our new policy we were able to bring it up to 625,000 barrels a day, and provided the policy is continued and we are able to keep our export arrangements for natural gas and petroleum to the western states of the U.S.A., it will increase. I say that because we made a deal in light of United States interests not only in Venezuela, but other oil-producing countries.
In western Canada we are in a different position. If we can produce 100 barrels a day in one well we are doing pretty well. We are competing against Venezuela which produces 1,000 barrels a day in one well. The cost of production of crude petroleum in western Canada is greater than it is in Venezuela and the near east. This goes to the meat of the resolution, because the idea is to give incentives for greater exploration. But when you have a demand people and corporations will explore the commodity in

demand. The meeting of demand by supply has always been a good Conservative principle.
The Canada Year Book continues:
In Alberta, the large increase in output did not result in a correspondingly large expansion of exploration and development programs during the year since production facilities and oil reserves were more than adequate to meet the increased market demand.
That is exactly what I am saying:
In British Columbia, however, the stimulus of a new pipe line being built to make British Columbia oil available to Vancouver refineries caused a sharp increase in oil development drilling and installation of production facilities. The 1961 value of crude petroleum and natural gas liquids production was $509,834,660 compared with $438,978,707 in I960.
In other words, for two consecutive years the return on petroleum and natural gas production on the part of western Canadian producers increased by $100 million under our national oil policy and because we had developed export markets for natural gas from that area.
Now let us take a look at the natural gas industry. Again, from the Canada Year Book:
The natural gas industry had a highly successful year in 1961, both in terms of production and of capital investment. Production, valued at $63,607,157, amounted to 646,018,204 Mcf., a 24 per cent increase over the 1960 output and an all-time record. Thus, the large annual increases in natural gas production that have prevailed for the past decade continued without slackening, and the year-end completion of the Alberta-Califomia gas pipe line ensures that the rapid expansion of output will continue through 1962.
Reference need only be made to page 496 of the Canada Year Book for 1962 to see that it has been predicted that with this program there will be further explorations and discoveries of petroleum and natural gas which will bring more wealth to the prairies and to Canada, giving us a better chance to balance our economic arrangements with the United States. I should like to ask an important question in discussing this resolution, Mr. Chairman, which is: Is the national oil policy laid down in February 1961 going to continue? This would mean more for production than any other measure we can take. We have only to turn to the northern part of the provinces of Alberta and Saskatchewan for new development, because there is the supply. I am referring to the Athabaska sands. Syndicates and corporations are now willing to spend up to $600 million to develop the Athabaska sands. A recent article which appeared in the Calgary Herald on December 7 stated that a proposed commercial complex which would cost an estimated $356 million would produce 100,000 barrels a day of synthetic crude from the Athabaska tar sands by 28902-5-1581
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1970. The government should give these syndicates and corporations the chance to make this exploration and development, and to process the by-products thereof.
I come back to section 4 of the resolution, which refers to a corporation whose principal business is operating a pipe line for the transmission of oil or natural gas. In other words, as I understand the resolution it applies only to those corporations operating a pipe line for the transmission of oil or natural gas. Why does it not apply to a group of farmers or businessmen who might wish to form a syndicate? These people would like the opportunity of reducing their tax problems and investing in the industry of this country and in the development of oil and natural gas. Only when there is a really solid incentive will we get the requisite Canadian investment. They are the people who should be mentioned in this paragraph. I am not belittling in any way the corporations engaged in the transmission of petroleum and natural gas, but let us give everyone a chance, whether they be a big corporation such as Shell Oil, Standard Oil of New Jersey, Imperial Oil, or whoever it is. It was not long ago that a group of farmers in the Drum-heller area got together and purchased some leases. They wildcatted. They found crude petroleum. They found natural gas. They then sold that enterprise for $400,000 or $500,000. But more than 50 per cent of the income went from that syndicate to the Department of National Revenue by way of taxation because the Exchequer Court of Canada ruled that this was really not a capital gain.


David Vaughan Pugh: Would the hon. member permit a question?


Lucien Lamoureux: Before the question is asked I think I should bring to the attention of the committee the fact that the time of the hon. member who has the floor has expired.


David Vaughan Pugh: We are in committee; I imagine I can ask him a question.


Lucien Lamoureux: If we have unanimous consent that the hon. member may reply. Is that agreeable?


Some hon. Members:: Agreed.


David Vaughan Pugh: Does my hon. friend know, of his own knowledge, that these were Canadian citizens, the people who formed this group?


Eldon Mattison Woolliams: They certainly were. They were born Canadians, most of them in the province of Alberta.


Horace Andrew (Bud) Olson: I do not wish to enter upon a full scale discussion of the development of the

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petroleum and natural gas industry in western Canada or in Alberta in particular. However, the speech to which we have just listened contains so many contradictions not only within itself but on matters of fact that I think it would be well for me to spend a few minutes dealing with some of them.
First of all, the hon. member said the Progressive Conservative party was the only party which had consistently advocated policies which would lead to the expansion of the natural gas industry in Canada. Then, in the course of further remarks, he said-


Eldon Mattison Woolliams: I know the hon. member would not wish to' misquote me. I said we were the only party which had consistently recommended the exporting of natural gas. I did not make such a reference to the expansion of the industry as is suggested. In fact, I told the minister that this was one method of helping the industry to expand.


Horace Andrew (Bud) Olson: I do not see any point of order there.


Eldon Mattison Woolliams: Well, let us get the facts.


Horace Andrew (Bud) Olson: The hon. member also said the building of the trans-Canada pipe line was one of the greatest moves in expanding the natural gas industry in Canada. I waited patiently to hear the hon. member say something about the famous pipe line debate of 1956 and the stand which the Progressive Conservative party took at that time. I was waiting to hear him explain the position his party took then with respect to this pipe line, after saying the Tories were the only people who had consistently advocated the expansion of natural gas through export.
He went on to refer to the Liberal party, particularly in Alberta, as being against the export of gas. I think if the hon. member will turn his memory back to years during which we were talking about the export of natural gas from Alberta he will recall that at that time we were talking about exports from the province, not necessarily about exports from Canada to the United States. Certainly, I agree with him that the establishment of the trans-Canada pipe line was one of the most important developments in expanding those exports. I think it is fair to say that the attitude of the Conservative party, which was in opposition in early 1956, was one of the most obstructive in the history of Canada as far as the export of natural gas is concerned.
I think it is important to remember that the findings of the Borden commission culminated in the establishment of the national energy board, and during the fall of 1957 the then hon. member for Calgary South speaking in this chamber pointed out that there was a need for Canada to study her

energy resources and consider how these resources could best be used to meet the needs of the nation. At that time the then hon. member for Calgary South, pointed to the Alberta gas conservation board as an example for the federal government to follow in establishing the regulations needed to provide for the proper utilization and conservation of our natural resources in this respect. It is also interesting to note that the board was later headed by the man who was then chairman of the Alberta conservation board.
The demand for natural gas and petroleum is certainly increasing on the north American continent. I think there is a greater percentage increase in this field than in the use of any other energy source being used today. In line with this expansion there is a need for more exploration and for greater inducement to prospectors so that our reserves can keep pace with demand. Moreover, as has been pointed out, the export of petroleum and natural gas is one of the most important aspects of our trade with the United States. It earns us United States dollars, and were it not for the contribution of this industry the position in respect to our balance of payments would be much more unfavourable than it is at the present time. So I endorse this resolution to the extent that we do need to provide inducements for exploration because, as the demand increases, we need additional sources of raw material to enable us to keep pace with the need.


Mr. Orlikow:: 
Mr, Gordon:: Mr. Chairman, this is an interesting amendment. I had thought when I listened to the hon. member for Bow River that he might be working himself up to an amendment of an entirely different character. However, if he had the impulse he managed to suppress it.


George Clyde Nowlan: We are very reasonable people over here.

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Walter Lockhart Gordon: The suppression or the impulse? He talked a lot about the export of natural gas from Alberta and there was a time when I thought he was offering himself as a personal exhibit of that kind of policy. I will come to the amendment in just a moment, but there was a time during the speech of the hon. member from Bow River when I thought he had perhaps overlooked-


Paul Raymond Martineau: On a point of order, Mr. Chairman, should the amendment not be put before the committee before there is discussion on it?


Lucien Lamoureux: Actually I must say I was under the impression that the minister was speaking on the amendment but I can read the amendment to the committee. It is moved:
That the income tax resolution be amended by deleting paragraph 4 therefrom and by renumbering the subsequent paragraphs.


Walter Lockhart Gordon: As I was saying, I thought that the hon. member for Bow River, when he was talking so much about various commissions, had overlooked in his reading a study made for another royal commission by the present member for Coast-Capilano who outlined the general policy that apparently the hon. member for Bow River approves.
I quite agree that the oil industry as such has been prosperous. However, I believe the hon. member for Winnipeg North will agree with me when I say that the great expansion, the great development expenditures of this industry, occurred some years ago. There has been an increase in production in recent years, but there has not been an increase in development and exploration expenditures. In fact, there has been a falling off. I have not the figures before me, but I think there is no question that this is true.
I hold no particular brief for this particular class of company. But if it is reasonable that companies in the oil industry should be entitled to explore for gas and oil and to write off their expenditures in this connection against their profits from that industry, then it would seem to me reasonable to include in that general category the pipe line companies that are vitally interested in the oil business. If there is not enough gas discovered, then their business will suffer. It seemed to me that it was reasonable that people or companies who were so directly involved and engaged in this industry should be given the same treatment as other people in industry.
Now, that is the purpose of this paragraph of the resolution. You might say that because this is a prosperous industry, that because it has been one of the successful industries in Canada, there may be an argument, one with

which I would not go along, that steps should be taken to depress the industry, that steps should be taken to make it tougher for the oil and gas industry. I would remind hon. members of the committee, and the hon. member for Winnipeg North, that Canada as a whole, quite apart from Alberta, has gained a great deal from the success of the oil and gas industry in recent years. I do not really believe that it would be in the best interests of this country to do things that would depress one of our most successful industries. I would hate to see that done.
This particular provision, in my opinion, is not a very important one. Nevertheless, it will encourage certain companies that are definitely engaged in this industry and which incidentally, with one or two exceptions, are amongst those controlled in this country, to participate in the future development of additional gas and oil supplies in the western part of Canada. I used to have a better grasp of figures perhaps than I do at the moment. However, the hon. member for Bow River made one statement which I am sure he will correct when he has looked at the blues. I think he said that the production or development of natural gas in Alberta had increased from 600,000 trillion cubic feet to 320,000 trillion cubic feet, but I am sure he did not mean that.


Eldon Mattison Woolliams: I have not looked at the blues, but what I did say if the minister would permit me to interrupt, was that the known or proven reserves were 27 trillion cubic feet and the Borden commission says they are 23 trillion cubic feet.


Walter Lockhart Gordon: I do not want to get into a discussion on statistics, which I do not think would be very profitable. However, the fact is that this is one of the industries which it seems to me first of all, we should be encouraging. We should be proud of an industry that has made a real contribution to our balance of payments problem in recent years and which could make a further contribution in that regard. I should not like, therefore, to see us restrict certain companies that are very definitely involved in this industry and which are in a position to make a contribution to the future development of this industry. I should not like to see the house restrict their opportunities.
As I say, I do not consider this one of the more important paragraphs of this resolution. I suppose that this amendment is to the resolution itself, and it proposes that this particular paragraph be deleted. As I say, I do not think it is the most important paragraph in this resolution by any means. On the other hand, I think it is probably a useful incentive to the oil and gas industry and, to that extent,

it seems to me it should be supported. I am afraid, therefore, that on behalf of the government I could not support the amendment that the hon. gentleman has just moved.


Thomas Clement (Tommy) Douglas: Mr. Chairman, the minister has given two reasons why the amendment should be opposed. He first suggests that this concession of allowing pipe line companies to charge their exploration and drilling costs against their income tax is already enjoyed by oil companies. I would remind the minister that last year we opposed this concession being given to the oil companies. The mere fact that the oil companies enjoy this very special privilege is no reason that we should compound that felony by giving the same privilege to the pipe line companies.
The second argument put forward by the minister is that, while these companies are certainly not poor by any stretch of the imagination, this might increase the exploration program and therefore cause a great impetus in the oil and gas industry. 1 would point out that the greatest period of expansion in the oil and gas industry was when they did not have this particular concession. In other words, the concession is not the thing that spurs oil exploration. What spurs oil exploration is when the company knows it has a market for its product. At the present time the oil and gas industry is not using all the reserves it has, but this is through lack of markets rather than through lack of any incentive to explore. I do not believe that giving these companies additional incentives is going to cause a great flurry of exploration and drilling.
When the minister speaks about this as a rather minor matter, I cannot help thinking of the great plea he made for the tax on building materials, that it was very difficult to get revenue and we must all, therefore, bear our share of the load of financing Canada. Surely if we are going to ask people to carry a very heavy burden by virtue of imposing the 4 per cent sales tax on building materials and production machinery, which will be increased later to 8 per cent and afterwards to 11 per cent, and on the other hand if we give some of the richest companies the incentives provided here, that already have large reserves of undistributed profits set aside for drilling and exploration, which work they are not carrying out, it displays a very poor sense of values?
We feel the very least the government could do would be to cancel this concession to the gas pipe line companies, and I would hope it would even take into consideration cancelling it to oil companies as well. If we are going to ask the little people of the country to carry some of the burdens implicit in the
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minister's objective, then we should not hand out, at the same time, large sums from the public treasury to oil and gas companies.


Eldon Mattison Woolliams: I would like to make a short reply to my hon. friend from Medicine Hat, if the minister will bear with me. Actually it is relevant in dealing with clause 4. The hon. member was talking about the pipe line debate, and all I want to say is that reading the pipe line debate I have found nowhere that this party is on record as opposed to the building of pipe lines.
We were opposed to the method of financing, and as will be found at page 83 of the 1957 royal commission on pipe lines, one of the first things the commission found out was that there were 55,000 shares given to a man named Tanner, former minister of natural resources in Alberta, at an option of $8 a share. At that time no other Canadian could get an option on those shares. He never had to put up any money. If he had put up the money it would have cost him $444,000, but when he unloaded them on the stock exchange at $34.50 he made a capital gain of approximately $1,457,500, and it was on account of that that we made our objection.
I would point out, Mr. Chairman, that in my opening remarks this afternoon I did compliment the provincial Social Credit government on assisting the development of the petroleum and natural gas industry. I want to repeat that. It has done a good job in this regard. I have not always agreed with everything it did politically, but basically it has done a good job when compared with sister provinces.
Now, I would personally go on record as opposing the amendment. Anything that helps the expansion of industry helps everyone. My hon. friend speaks about giving to the rich, but it must be remembered that corporations pay taxes and are economically responsible, and as they develop, more jobs are created.
I have only to draw an analogy to the coal operation in Alberta. When the coal companies could not sell their commodity there was no more exploration and no more new mines developed. In fact the mines closed and, as is the case in Drumheller, many of the men who lost their jobs are still unemployed today.
When a corporation is given an advantage to develop and explore for either natural gas or petroleum it can expand and give more jobs. In this way the country becomes more economically healthy, and on that basis I would oppose the amendment.
There is one question I want the minister to answer. As the law stands today, and as it would be amended by paragraph 4, does it mean that unless a group of people formed

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a company and went into the business of the transmission of oil and gas, they would be denied the privilege of writing this expense off any other business they have? In other words, does this prevent people who want to go into the wildcat business of drilling oil and gas wells? Do they have the same privilege under the law as it now stands and as it would be amended?


Walter Lockhart Gordon: I think the hon. gentleman probably realizes if he has read the amendment, that the people he refers to do not come under it at all.


Eldon Mattison Woolliams: Then this means that those corporations already in the business of transmitting oil and natural gas-even if they are foreign corporations and most of them are-will get this advantage, but a group of Canadians forming a syndicate to explore for natural gas, petroleum and other minerals will not be given the privilege under paragraph 4. If this is a budget to encourage Canadians to invest their own money then I say this provision should encompass everyone, and not discriminate one against the other.


Walter Lockhart Gordon: I do not know if the hon. member really intends this, but it is certainly not the intention of the government to create a class of Texas millionaires in Canada, as has happened in the United States. If one takes seriously the proposal of the hon. gentleman, what he means is that anybody who is in the top income brackets, anybody who is paying say 75 per cent or 85 per cent, can explore for natural gas and oil in Canada; and that he would let them do so anywhere they can by gambling 20 per cent of their own money and 80 per cent of the government's money. If they are lucky they make a fortune, and if unlucky they only lose 20 per cent. So far as this government is concerned it is against that kind of discrimination in favour of the rich.


David Vaughan Pugh: Just carrying on with what the minister has said, I gathered from his remarks that if you operate a pipe line, then you can start in on exploration for oil, gas and other minerals, but how far can a pipe line company go? Is there any geographical limit to it? If there is a pipe line company in Alberta, can it go for minerals in the Northwest Territories or in eastern Canada?


Walter Lockhart Gordon: Anywhere in Canada.


David Vaughan Pugh: Then this would automatically put them in a better position. The first thing to do is get yourself incorporated as a pipe line company and then start work on explorations outside the pipe line business, and you

have a decided advantage over any other type of company in the exploration field. Is that not so?


Walter Lockhart Gordon: I think the hon. gentleman knows that any company in Canada can explore for gas, oil or minerals in Canada and deduct the expenses from the profits earned in that oil, gas or mineral business.


David Vaughan Pugh: I rather gathered from the minister's answer to the hon. member for Bow River that a person, group or syndicate who were in the exploration field were not in as good a position as those who had already incorporated as pipe lines. Was that answer given?


Walter Lockhart Gordon: The hon. member for Bow River was, I think, talking about a syndicate of farmers, although I suspect what he really had in mind was-


An hon. Member:: Lawyers.


Walter Lockhart Gordon: I wonder whether he did not have in mind a syndicate of city slickers who are probably very well off, who are probably in the higher income brackets, and who would be put in the same position as similar people in the United States. There is an argument for this, but I do not find the argument very palatable.


Eldon Mattison Woolliams: May I just add to that little part of the minister's remarks that I think he fails to understand the petroleum and natural gas industry. For a few hundred dollars you can get a lease. That is what these people did in Drumheller. Then they farmed out agreements. They are not in the wealthy class; they are people probably making less than $5,000 a year. They were able to farm out their leases and under these agreements develop their property. It was from that property they made $400,000. I say that if this tax exemption extended to everybody-not the rich, millionaire companies the minister is talking about, but the average guys in Canada-so they could invest their money to develop these resources, the Liberal government would be doing a job for the average Canadian citizen.


David Orlikow: Mr. Chairman, I do not know what the difference is between a Texas millionaire and Mr. Frank McMahon-


Bert Raymond Leboe: On a point of order, Mr. Chairman; I was wondering, if the mover of the motion speaks now, will he not close the debate?


Lucien Lamoureux: That is not my understanding.


David Orlikow: I do not know what the difference is between a Texas millionaire and somebody like Mr. Frank McMahon. I do not

know how many of the poor people who started this oil boom around Medicine Hat are left in it, because if one looks at the figures he sees that 80 per cent or more of the oil industry is now controlled by United States interests. Nothing which I or anybody in this group has said today or at any other time could be taken to mean that we are opposed to the expansion of the oil industry. But what we certainly expect from this industry, as from any other wealthy industry, is that they pay their fair share of the costs of carrying on the business of Canada.
The minister is proposing taxes, as the leader of this group has mentioned, for the building industry, and the Minister of National Health and Welfare is going to propose a tax of 1 per cent of income on everybody, including people with low incomes, to help pay for the pension plan. But here the minister is proposing that we give further concessions to a part of an industry which has done extremely well in this country. He says we ought to do it for these natural gas and oil transmission companies because we have already done it for the oil companies; but it seems to me that what we ought to be doing is correcting the mistake which we made last time, rather than extending the mistake as the minister is suggesting today.
We see no reason why we ought to be making these concessions to these companies. If the minister is right in saying that there has been a slow-down in exploration, I do not believe for a moment that the slow-down has been because there are not enough incentives. If there is a slow-down, it is because there has been a tremendous expansion of this industry not only in Canada but throughout the world. The Soviet union is expanding into markets which were traditionally held by western European companies and United States companies in western Europe. The United States companies are drawing increasing supplies from the South American countries, I suppose because they are worried about the long range political situation in South America more than they are worried about the political situation in Canada. I do not believe this extension of write-off privileges to pipe line companies will achieve any more exploration, and I think it is completely wrong to be giving concessions to these companies at the same time that we are asking for further sacrifices from people in the lower and middle income groups in this country.


Mr. Turner:: Mr. Chairman, I would not have risen on this particular resolution had I not been prompted to do so by the hon. member for Burnaby-Coquitlam and the mover of this amendment, the hon. member for Winnipeg North. I think it ought to be
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considered, when giving these so-called concessions to the oil and pipe line industry and natural gas industry, that one of the prime motives behind it, and a motive I would have thought the leader of the New Democratic party would have supported, is to put the Canadian oil producer and the Canadian pipe line company on a fair and equitable basis with his United States competitor. It was because of the lack of this type of legislation in the past that the United States companies were permitted to acquire about 85 per cent of the Canadian oil industry, because these so-called Texas millionaires were allowed to write off exploration charges, and so on, as an expense, whereas the Canadian competitor could not do so. Last year when a similar, truncated resolution was presented by the hon. member for Digby-Annapolis-Kings we criticized that resolution because it tended to protect the status quo. It was only oil producers and exporters that had been established prior to, I think April 10, 1963 who were given the benefit of resolutions 5(b) and 5(c) under the earlier statute.


George Clyde Nowlan: 1962.


John Napier Turner: Under the 1962 statute. We criticized that because it tended to protect the United States companies which were already there; but the basis of the legislation was surely good. What it tried to do, and what this resolution tries to do, is put the Canadian producer and the Canadian manufacturer in the position whereby he can compete with the larger companies in the United States.


Thomas Clement (Tommy) Douglas: How many of our pipe lines are owned by Canadians?


John Napier Turner: We are talking now about the total philosophy of this question. If hon. members of the New Democratic party are serious about encouraging Canadian ownership, especially of primary resource industries, then the philosophy behind this resolution should meet with their approval.


Bert Raymond Leboe: Mr. Chairman, I would like to say a few words in connection with the amendment. First of all I would like to go on record as saying that it seems to be popular to condemn big business. I do not think it is a matter of popularity. I think we should consider some of the points of big business. Big business is absolutely necessary, the same as large aggregate is necessary when you are pouring concrete; you have to have the fine aggregate and the large. The larger companies we have in Canada today are public companies in which there are shareholders by

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the thousand. The hon. member for Winnipeg North mentioned Mr. McMahon this evening. I can say to the hon. member that Mr. McMahon eats three meals a day, the same as I do; he wears one suit of clothes at a time; he can drive only one car at a time. This is all he can do. He can only take so much out of life, and I am sure the people working in the industry he has built up are very, very happy to get the pay cheques they are getting.
I do not think we should be so narrow between the horns that we cannot see out of our eyes. I think we should be considering this from the broad base of the benefits that will come to Canada as the result of more exploration in the natural gas and oil industries. I come from a constituency that is thriving today on exploration. These people plow back a great deal of the money that is made. The gas and oil companies, as I understand it, are interlocked; they are bound together. In the fact that they are bound together we find that a great deal of the profits of the oil companies come from imported products; they do not come out of the exploration of gas and oil at all, particularly oil. We import oil in great quantities from other countries, and they certainly make profits on this oil as well as on other oils.
My understanding has been for many, many years that these oil companies have plowed back actually more into Canada than they have taken out of the resources they have explored and brought forth from the ground. Therefore I believe that this paragraph should stand as it is in the text. I believe it is a good paragraph. Furthermore, in connection with the oil and gas industries, particularly the gas industry, this paragraph will encourage pipe line companies to bring about the use of the natural gas, which is an expendable resource, while we are in need of this commodity. We hope nuclear fission will be developed to such an extent that we will be able to use it and eventually it will be cheaper than any of these products we have today. I think we should use these to the fullest extent.
Before I sit down, Mr. Chairman, I should like to suggest the possible extension of the principle of this paragraph. I see that the Minister of Forestry is with us and I should like the Minister of Finance to get his ear and talk to him. In the forest industry I think there is a case in principle with regard to access roads, and this type of thing, which are capitalized. As I understand it, today the forest industry is not allowed any concessions in respect to capitalization and giving over of access roads, which in a sustained yield forest become roads which remain more or less permanent after the operators have gone. Years pass by and these roads are continually used to prevent forest fires and to

reach forest fires caused by lightning, or some other phenomenon. I think there is a principle here which should be looked at very carefully, with the idea of extending some relief in this respect on a long term basis.


Lucien Lamoureux: Is the committee ready for the question?


Herbert Wilfred Herridge: I have just arrived at the appropriate moment, Mr. Chairman. As one who has opposed this type of taxation since it was first put into effect, I want to take this opportunity of saying that I heartily support the amendment moved by the hon. member in our group. I did attend this committee during the afternoon but I have been away on official business.
I have been reading about this matter, Mr. Chairman, and I have written some notes on it and I do not want them to be wasted. This amendment contradicts the feeble intentions of the Minister of Finance in his attempt to correct the imbalance of payments through his former takeover tax. In my opinion we should recognize that this amendment to the budget resolution will do more to preserve Canadian ownership and prevent United States companies from gradually increasing their capital in an unseen manner than anything else could at the present time. If a United States company operating outside of Canada wants to invest millions in Canada, it first sets up a Canadian-that is, a United States-company. Then it pays its profits into that company. Such profits are free of tax in Canada and so the entire profits can be invested.
This is what is happening with respect to the application of this resolution, as far as taxation is concerned. Big United States corporations that develop new mines, oil fields, etc., actually pay nothing in many cases for this development because our government allows them to deduct all such costs from their profits. They pay no taxation on that money which is invested in development and promotion. Thus a United States company can go on and on forever increasing its ownership of Canada without paying one penny by way of taxes to our country in this respect.
A brand new United States investment company developing resources in Canada can afford to spend huge sums of money for years on end before it starts producing and making cash profits. We had an illustration, Mr. Chairman, not long ago of a company which had developed a mine in this way, after having spent not one cent of its capital in developing the mine. Then because it was going to be affected by flooding, through some action taken by our provincial

government, it turned round and wanted compensation for all the money it had expended. What do you think of that sort of thing, Mr. Chairman? As I said, a brand new United States company can afford to spend huge sums of money before it makes cash profits. When those profits start to pour in they are cancelled by Ottawa by means of the trick of deducting all the earlier expenses. In that way Canada fails to collect taxes on the fabulous profits made in our country by United States investors.
In my opinion this has been one of the most fortunate pieces of legislation for foreign investors to date. United States companies can set up oil and gas wells and pipe lines in Canada and deduct from their profits not only the things that actually wear out in use-the usual depreciation allowance, which is normal with any taxation system- but they can also make deductions of things they have not even started to use, even things they have not yet built. This unique Canadian device was introduced by Ottawa drastically to cut their taxes, although such methods are strictly illegal in the United States itself. There is no such system of taxation in the United States, and I challenge the Minister of Finance to tell us that there is before this amendment is voted on.
As soon as a United States company begins to make good profits in Canada it can split its stock. For example, with the stroke of a pen a company can create millions of new shares of stock and then sell them to the owners of the company for a small fraction of the market price of that stock. Thus the owners might pay $5 for a share of stock worth $25. This device distributes enormous Canadian wealth to United States company owners, and Canada does not collect one penny of taxes from it. This system is always used in applications of this type of resolution in a budget. United States companies that have large operations in the United States can afford to spend millions in Canada on what might be quite risky developments, such as exploring for new oil fields, drilling large prospective mineral deposits-what are generally termed venture investments. In fact, they are sure of their returns before they start. However risky such things are for Canadians, they involve no possible loss of money for United States citizens. They simply use millions which they otherwise would have to hand over to Washington in taxes on their United States profits. If the ventured money brings no valuable discoveries, nothing has been lost since only United States government funds or taxes were spent. If the venture turns out to be profitable, a tremendous profit can be made; and on the basis of the law of averages a tremendous profit
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is made. These large corporations can undertake this type of development and investment, which is beyond the capacity of any provincial government, because of the worldwide ramifications of these corporations and the application of this kind of legislation.
When United States companies start to develop large Canadian resources they are literally paid for doing this, both by the United States and the Canadian government. First, as they spend millions on mines, oil and gas wells and pipe lines they deduct the amount from their regular United States taxes on their profits made in the U.S.A. So they are actually spending United States government funds on Canadian developments. Second, after their new Canadian operations begin to make a profit, they again deduct all their original investment, this time taking it out of Canadian taxes which could be charged on profits in Canada.
Now, Mr. Chairman, over and above the profits they make from actual production in Canada these United States companies can increase their wealth to an unlimited degree just by proving that the Canadian resources which they have taken over and which they have been given rights to really do exist. And they know they exist in most cases before development has commenced. For example, an oil lease which at first is worth little as a venture property may climb to hundreds of millions of dollars in value. Such miraculous but real increases in wealth are called capital gains. In all countries with a modern taxation system, including the United States, such capital gains are heavily taxed. But not so in Canada. Here the United States owner is not charged one cent of tax on his capital gains, even if they rise to billions of dollars.
The newest American device is to set up an investment trust in Canada. We had an illustration of that in recent weeks in this house. Such a trust does no real investing or developing itself, but purchases large blocks of stock in Canadian-producing companies. United States owners of the trust, no matter how much profit they make, pay no taxes. They are even permitted to take their profits to buy up more Canadian holdings; and so it goes on and on indefinitely, building a pyramid of Canadian wealth to be owned entirely by the United States because, in essence, of this type of budget resolution, and the failure of any Canadian government to implement a capital gains tax.
I just want to express my views briefly. I do not wish to take up the time of the committee unduly. This wonderful system of regulations which has been worked out by successive Canadian governments, whether

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Liberal or Conservative, in intimate co-operation with Washington, I am sure, which has been responsible for the selling out of this country, does not apply to Canadians.


Walter Lockhart Gordon: Is the hon. gentleman suggesting I have been guilty of this.


Herbert Wilfred Herridge: No, Mr. Chairman, not for a moment. I respect the minister as a man of integrity. This is the subconscious result, almost, of the type of association we have in this respect. The results of budget resolutions such as this, together with the fact that we have no capital gains tax, is the reason why United States corporations or their subsidiaries in Canada own 75 per cent of the oil and gas in the country. Canadians are able to accumulate billions of dollars to spend on defence. Why, then, do not Canadians develop Canada instead of the United States? The present tendency is, to put it simply, assured by such income tax laws as this, and by the great advantage which the United States enjoys over us in this respect.
I was told that years ago the principle behind these resolutions was to ensure expansion, to ensure development. What consideration does a farmer get when he clears an acre of land or irrigates an acre of land in order to improve production in Canada? All he gets, usually, is an increase in the taxes demanded of him by the provincial government. He gets no consideration, although he is usually a man with only a small amount of capital doing something to increase the productive capacity of this country. Why should not a small man in this position get the same consideration as do subsidiaries of United States corporations?
In addition, the people who take advantage of these laws bring their own labour with them, very often, from the United States under false pretences and do Canadian workmen out of employment. I have had some experience of them. In my own riding employees were brought in as landed immigrants. One cannot do anything about that under our present milk and water regulations. I thought I would check up on some of these people, so I asked the police to check their automobile licences. Practically all of them had asked for visitors' licences because they knew they would not be in Canada more than six months. The same attitude prevails with regard to our national employment service. I know the field managers of one of these corporations. They simply ignore our national employment service, and similar agencies. One of them told me: "I don't want anything to do with your little outfit. I want a group of men lined up in front of my office every morning seeking employment." He did employ Canadians for the week or so.

Then he let them off and took on some more. The core of his whole organization consisted of United States citizens who had been brought into Canada as landed immigrants incorrectly and immorally. In my opinion, Canadians do not have the opportunity to develop Canada as they might because of a tax policy which stacks the cards against them. Only United States corporations are paid out of our taxes to take our country away from us.
I give wholehearted support to the amendment moved by my hon. friend from Winnipeg North. I urge the minister to give this question some consideration. Such measures as this, represent, on the whole, a handout to subsidiaries to United States corporations enabling them to finance the development of Canada in their own interest by the use of Canadian money.
(Translation):


Guy Marcoux: Mr. Chairman, I only wish to say a few words to show how complex is this matter of taxation and how the royal commission on taxation is really needed.
A few days ago, Canadian citizens were complaining because the United States wanted to impose a tax on American Investments in Canada and then, a few days later, the complaint is heard that the Canadian government encourages foreign investments in Canada.
Also, the N.D.P. members stated that the development of oil and gas industries, as far as drilling and well-sinking is concerned, does not depend on the reduction allowed in the payment of taxes, but rather on the development of the markets where to sell those products. Well, if the corporations are not interested in drilling, they will not do any, exemption or no exemption. The drilling and well-sinking will not be carried out by corporations that are not interested but by those that are.
It is not difficult to see that the majority of oil companies shares belong to Americans. However, we are in a given context and we must give everybody a chance, not in the development of profits but rather in the development of a new construction which shall be a new asset for the country.
Then, even if we do not like granting certain relief measures to the United States, I think we must vote against this motion.
(Text):


Lucien Lamoureux: Is the committee ready for the question?
Amendment (Mr. Orlikow) negatived: yeas,. 10; nays, 107.


Lucien Lamoureux: I declare the amendment lost.
Paragraph 4 agreed to.


Walter Lockhart Gordon: Paragraph 5 of the resolution proposes an amendment to encourage Canadian individuals and companies to acquire shares in companies which, although not resident in Canada, carry on substantially all their business in this country.


George Clyde Nowlan: I take it that this applies to a very limited number.


Walter Lockhart Gordon: Yes. It applies to such companies as the Hudson's Bay Company.


Some hon. Members:: Agreed.


Lucien Lamoureux: Paragraph 6.


George Clyde Nowlan: Mr. Chairman, the minister has stood paragraph 1 and the definition which is incidental to No. 1 applies to 6, 7, 8 and 9. I wonder whether we would not make more progress at the moment if we stood 6, 7, 8 and 9, dealt with the rest and then came back to those four afterwards.


Walter Lockhart Gordon: I agree, Mr. Chairman.


Lucien Lamoureux: Is it the wish of the committee that paragraphs 6, 7, 8 and 9 stand?


Walter Lockhart Gordon: I wonder whether the hon. member would like to include paragraph 10 as well?


George Clyde Nowlan: Yes, I intended to.


Lucien Lamoureux: Is it agreed?


Some hon. Members:: Agreed.


Walter Lockhart Gordon: I am wrong. Paragraph 10 is not quite the same.


Marcel Joseph Aimé Lambert: Paragraph 10 is the surcharge on non-resident corporations.


Walter Lockhart Gordon: Paragraph 10 of the resolution proposes that the tax on branch profits of non-resident companies carrying on business in Canada be increased from 15 to 20 per cent at the same time as the non-resident withholding tax on dividends paid by certain subsidiary companies is increased to 20 per cent.


Marcel Joseph Aimé Lambert: It is a straightforward
increase.


Walter Lockhart Gordon: Yes.


Lucien Lamoureux: Shall we proceed to paragraph 11?


Walter Lockhart Gordon: Mr. Chairman, paragraph 11 proposes that the rate of tax on non-resident owned investment corporations be increased from 15 to 20 per cent at the same time as the
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non-resident withholding tax on dividends paid by certain subsidiary companies is increased to 20 per cent.


Marcel Joseph Aimé Lambert: This is a parallel development to paragraph 10?


Walter Lockhart Gordon: Yes.


Lucien Lamoureux: Paragraph 12.


Walter Lockhart Gordon: This paragraph of the resolution proposes that the non-resident withholding tax imposed on interest, dividends, rents and royalties paid by residents of Canada to non-resident persons shall also be imposed at the rate of 15 per cent on management or administration fees or charges paid to nonresidents.


Marcel Joseph Aimé Lambert: Was this thought by the minister to be a loophole when he was tidying up the administration, or is this felt to be a new source of revenue that the minister wishes to tax?


Walter Lockhart Gordon: Yes. There has been a suggestion that when the rate of the withholding tax was increased to 15 per cent a year or two ago some companies may have avoided it by the payment of management fees. Some questions have been asked concerning the kind of payment that will be taxed as a management or administration fee or charge. It is the government's intention that a management or administration fee or charge is to be regarded as an amount paid for advice or direction pertaining to the operation or administration of a company, not including an amount paid for services to an independent firm and not including specified amounts paid for identifiable services such as transportation, insurance, advertising, accounting and research.
Payments to non-residents will be taxed in circumstances in which the label of management fees is being used as a facade for the withdrawal of profits which should be subject to the full non-resident tax.


Mr.   Mcnleilh@: Mr. Chairman, if this provision has been misused I agree completely with the idea of stopping the misuse. However, I wonder whether the minister has had any indication from certain foreign governments that possibly there might be more of these management fees paid, that possibly they should be larger, that certain companies are not charging any and they should be. Have there been indications that certain companies, according to certain foreign governments, may not be charging enough in this way?


Walter Lockhart Gordon: I have not heard the suggestion that certain companies may not be charging enough. It has been suggested in

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business circles that the incidence of these charges increased subsequent to the imposition of the 15 per cent withholding tax.


Jay Waldo Monteith: I gather that increasing the withholding tax to 20 per cent means that possibly there might be a further increase in the incidence of these charges.


Walter Lockhart Gordon: I think that one step at a time would probably be the right way to approach this problem.


Lucien Lamoureux: Clause 13.


Walter Lockhart Gordon: This paragraph of the resolution proposes that interest paid to certain nonresidents be exempt from withholding tax. The Income Tax Act imposes a tax of 15 per cent on interest paid by residents of Canada to non-residents. This tax is withheld at the source by the Canadian payer. This paragraph of the resolution proposes that non-resident persons such as pension trustees or charitable foundations that are exempt in their country of residence be granted an exemption from this withholding tax. The objective of this paragraph is to broaden the market for Canadian securities in other countries and in this way to help in the policy of keeping interest rates in Canada at as low a level as possible.


Marcel Joseph Aimé Lambert: Can the minister tell us if the proposal by President Kennedy the other day, as modified by whatever agreement may have been reached between the Canadian and American governments, will affect this proposal by the minister in any way?


Walter Lockhart Gordon: When the President's statement was issued on Thursday there was no doubt that it would have modified this particular proposal, although the effect of this proposal would be greater than the offsetting tax proposed by the President of the United States. Since the president's proposal has been modified or clarified or amended, I think that the effect of this proposal will be or should be as great as it was when it was originally proposed on June 13, and it will undoubtedly make it easier to sell Canadian bonds in the United States because the effective market for them will be substantially greater than it has been. The net result will be to help keep interest rates down in Canada.
It will be necessary for the non-resident organization desiring this exemption to make application to the Department of National Revenue in Ottawa. This will be done, of course, through the investment dealers who are approaching these organizations. In its application the non-resident organization will have to show that it is a purchaser of bonds on its own account and that it is exempt from income tax imposed by the government of the country in which it is resident.


George Clyde Nowlan: Mr. Chairman, this was one of the paragraphs in the resolution on which, before the events of the last few days, I was going to commend the minister, which will surprise him mightily. I realize that possibly the situation has changed materially. I think it is a good thing to provide for investment in depth in fixed income securities to provide a flow of money into Canada. This at least meets the minister's view with regard to not having takeovers or anything of that kind. I was going to make a suggestion to him, though possibly it may be a little bit outdated today, that the balance of payments situation was such in another country that they would not welcome any further opening of this kind. I would commend to the minister, as if and when he may have a chance to deal with another budget, that he deal with this situation in respect of pension funds. Now a pension fund, first, is one which does not contain the danger of a takeover, as I understand it, of any corporation. They invest to a very limited extent. There is no danger of any such situation developing as the minister has cause, perhaps, to fear in respect of the purchases of substantial amounts of Canadian equities. I would hope that arrangements might be made whereby we could have widened the section even further than it is today. There may be difficulties in the way in view of events of the last few days.
I would have hoped that pension funds which, after all, are one of the substantial reservoirs of investment funds, might have been permitted to buy equities of Canadian corporations. They do not buy to an extensive extent. They do not attempt to take over control. I think sometimes it might be of interest to Canadian corporations to have a corporation of another country with a certain amount of moneys invested in a pension fund. Obviously, a pension fund is distinct from an operational fund. I could imagine companies might be buying Canadian products-shall we thing of aluminum, nickel and such various corporations-and if there were an opportunity for them to invest in equities to a limited extent as they do in pension funds, this would provide for a reasonable flow of United States capital coming into this country. There would be no danger of any takeover. It might possibly facilitate the operations of the Canadian corporation in a highly competitive market.
I am expressing this thought, although it may be passe at the moment; but I should like the minister's comment, because he may like to have it in there for some future occasion.


Walter Lockhart Gordon: The purpose of this resolution is, of course, to make it easier or make it

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more desirable for pension funds in other Mr. Fisher: Has the minister anything countries to invest in Canadian bonds. As we further to add to the indication he gave on all know, we are primarily interested in and Friday, that he was looking into the problem thinking about the inflow of capital. Certainly, created by this change in so far as it affected, in totals and magnitudes, we are primarily you may say, the lone wolf or single account-interested in the sale of Canadian bonds ant, or people who catered to both indiabroad rather than Canadian equities.	viduals and small businesses?


George Clyde Nowlan: Would the minister permit one question there? Surely he does not distinguish, even for pension funds, between investment in bonds and investment in equities, because they are both to a limited extent anyway?


Walter Lockhart Gordon: When it comes to investment in Canadian equities by pension funds or anybody else, I think it would be difficult to make a distinction. I am not at all sure that it makes much difference from the Canadian point of view whether the United States, British or French individual, or pension fund in one of those countries, invests in our equities, but it does make a major difference when it comes to investment in bonds. The amounts there are very substantial and if the pension funds in other countries find it difficult to invest in Canadian bonds, then for all practical purposes, something like 50 per cent or 60 per cent of the potential purposes or potential markets, certainly in the United States, are denied to the issuers of Canadian bonds. This was the purpose of putting in the provision. I think if you extend it to Canadian equities it could become much more complicated.


Lucien Lamoureux: Shall the paragraph carry?


Some hon. Members:: Carried.


Lucien Lamoureux: Shall we proceed to paragraph 14?


Walter Lockhart Gordon: This paragraph of the resolution proposes that the period within which corporations are required to pay their income tax be shifted forward two months so that they will be on the same basis, and treated in the same way, as individuals. Now, the end result is that in a two-year period the revenues of the government will be increased by this measure by about $200 million. Then, at the conclusion of that period, corporations will pay their taxes at the same' time and in the same way as individuals, with this exception, that they will pay on a quarterly basis whereas the individual wage earners pay it on a monthly basis. However, they will have to pay up the final payment by April 30 as the individual does now.
May I just correct that? I am sorry I made a mistake when 1 said the corporation paid on a quarterly basis. I am wrong: They pay on a monthly basis, too.


Walter Lockhart Gordon: This problem relates to the next paragraph, but perhaps I should say now that I thought the points made by the hon. member for Port Arthur, the hon. member for Perth and a number of other people were very well taken. With the approval of the committee, I would suggest that that be taken care of in the bill.


Jay Waldo Monteith: I should like, Mr. Chairman, to take issue with the minister on one minor matter. He makes a comparison between the corporation and the individual. In this respect, I would point out that the individual is estimated to have his income tax paid 100 per cent by the end of the year, whether it be by tax deduction or quarterly payments, whereas the corporation is still not estimated to have its tax paid until four months following the year end. This may be a minor matter, but I do not believe that they can be put on a completely comparable basis.


Walter Lockhart Gordon: The hon. member is quite right.


Jay Waldo Monteith: I should like to ask the minister if he has ever had any thought that perhaps some minister of finance in the future will move this date two months forward again, or perhaps four months?


Walter Lockhart Gordon: I am not in a mood to forecast the future, Mr. Chairman, but perhaps that might happen.


Lucien Lamoureux: Shall we go to paragraph 15?


Walter Lockhart Gordon: As I said a minute ago, this paragraph covers the date for filing. If it will meet with the approval of hon. members of the committee, I would suggest that the point that has been raised be taken care of in the bill. In this way, the problem that has been mentioned will be looked after.


Jay Waldo Monteith: Is it contemplated that the present six months leeway for filing will be continued?


Walter Lockhart Gordon: Yes, that is the way we are thinking about it at the moment, and that will take care of the problem of getting in these returns within the time limit. This will make life possible-


Jay Waldo Monteith: For the small town accountants.

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Walter Lockhart Gordon: -for the small town accountants, like the hon. member for Perth.


Lucien Lamoureux: Shall we go to paragraph 16?


Walter Lockhart Gordon: This paragraph of the resolution proposes that where undistributed income of a corporation passes from the corporation into the hands of its shareholders in a way which would otherwise avoid tax, the Minister of National Revenue may direct that it be included in the income of the recipient. It is not intended that this provision should be a permanent fixture in the law. It is hoped that within a short time, perhaps with the help of the findings of the royal commission on taxation, a different method of taxing the distribution of the surpluses of corporations can be devised to make unnecessary this particular measure.
In any event in the administration of this provision it is not intended to apply it to cases where the series of transactions in question had commenced prior to budget night. I think this point was raised early in the debate on the budget. As I remember it there were two objections, one that in the original form it could be interpreted as being retroactive in its application, and this was not intended, and the other point which was raised by the hon. member for Digby-Annapolis-Kings was that there should be an appeal from the ruling, and this was agreed to and will be provided for in the bill.
But quite apart from that, the hope is that this particular problem of extracting corporate surpluses without the payment of tax by the individuals who receive them will be dealt with in some more suitable fashion following the report of the royal commission on taxation. Perhaps this is being too hopeful, but I am still hopeful that the royal commission might be able to deal with this particular question in time, so that it could be dealt with in the next budget; but it may take a year longer than that.


Douglas Mason Fisher: I would like to ask the minister a question. I note that at the sixteenth conference of the Canadian tax foundation last year, in the forum on undistributed income, chaired by Mr. R. MacKay, he is quoted as saying:
As you may be aware, discussion of possible solutions to our undistributed income problem at the legislative level has been hampered to some extent by the unofficial knowledge that the Minister of Finance was provided with reports on the subject by four practitioners who have been bound to silence.
I am interested in this particular problem, particularly the part that is called surplus stripping or dividend stripping, because I happened to be in Montreal two years ago-

I think it was Montreal-where a very well known accountant by the name of Stike-man gave a paper on the question of ability to pay. He made reference to the number of ways by which what I term sophisticated accountants were able to find loopholes in the act.
Of course he went into whether this was a moral issue, and whether it was tax avoidance or tax evasion, and he gave some illustrations as to how taxation could be avoided and these surpluses stripped. It was quite apparent that this was a subject which the accountants themselves wanted to bring out in the open.
I noticed, even in the relatively small community in the business sense of the lakehead, that several years ago a number of fairly small companies were changing their corporate organization, and a company that would be, say, Blank Ltd. would become Blank 1961 Ltd. I inquired why this was going on and I was told this was the way in which corporations all across the country were, in a sense, distributing the surpluses that had been built up, and doing it through loopholes in the act.
I was sufficiently intrigued to make inquiries, and I put some questions on the order paper last spring. I put them on the order paper some months after Mr. Stikeman had set out pretty clearly the main ways in which surpluses are stripped under the act, and after someone who is an employee or perhaps a business partner of Mr. Stikeman, Mr. P. N. Thorsteinsson, at the 1962 conference went into great detail in setting out the two main ways in which surpluses are stripped.
Now that I know how much the accountants and the department have been involved in this matter, I am rather critical of the kind of answers I was given. My first question was:
What is the definition given by the Department of National Revenue (taxation division) to the procedure known colloquially amongst taxation accountants as "surplus strips"?
The answer was:
There is no specific definition of the term "surplus strips".
There may not be any specific definition of the term "surplus strips" but it is quite obvious that Mr. Stikeman and Mr. Thorsteinsson know there are surplus strips. The answer went on to say:
It is frequently used to refer to any procedures that have been followed for the purpose of transferring surpluses from corporations to their shareholders with a minimum of tax payment.
My second question was:
What estimate does the department make of the number of surplus strips carried out in Canada in

1961 and 1962, and the estimated amount of money saved by the corporate taxpayers from going into the taxation revenue?
The answer was:
The department can make no estimate of the number entered into in 1961 and 1962. Most returns for 1962 have not yet been filed.
And this is the point I want to bring to the minister's attention:
As regards 1961, it is pointed out that usually no income is reported from these transactions, and that the department could not list them without first investigating to determine the facts of each case.
I want the minister to note that, because I was told by someone who has some experience in taxation matters that the scale of surplus strips in the last couple of years has become very high. I have been told that it was estimated as much as $500 million had been distributed. That, of course, was a guess made to me by someone familiar with taxation matters, but it is an indication of what is in one accountant's mind regarding the scale of the stripping.
My third question was:
Has the department considered appealing any surplus strip to the income tax appeal board and beyond in order to determine the legality of such a procedure?
The answer was-and this is what makes me wonder whether this legislation we have here is necessary:
The department will assess, and carry through to appeal if necessary, for all taxes payable under the provisions of the act.
In other words, judging from this answer the department is not particularly concerned.
My last question was:
If so, what sections of the Income Tax Act and its regulations are considered relevant to the matter?
The answer was:
The relevant sections of the Income Tax Act, depending on the various circumstances are sections 6, 8, 16, 21, 22, 27, 28, 67, 68, 81, 82, 851, 105, 105A, 105B, 105C, 108, 137, 138.
In other words it is an awful big chunk of the Income Tax Act.
Out of this discussion of the problem, and the apparent fact that the tax foundation and certain tax accountants have been both concerned and very explicit on the nature of this business, and because of the fact that there has been some indication that four experts have investigated this as a result of a request by the Minister of Finance, I would like to know more from the minister about the temporary nature of this resolution. How will it really work in blocking this up, and is it going to raise or put in question the processes that have been developed-the kind
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of processes developed by Mr. Stikeman and Mr. Thorsteinsson as outlined in their papers?
If it is going to do this, then the question arises, why would these just be temporary measures? I would like to ask the minister whether he is considering what has been done in the past, that is, making in effect in law some kind of special dispensation at a special dispensation rate, so that you could have these one-shot dispensations of surpluses, say, at the rate of 10 per cent or 15 per cent? If it cannot be done that way-and I would like to know whether the minister has considered it-how does he plan to handle this particular problem of the accumulation of surpluses within corporations and the distaste for distributing them through the shareholders because of the imposition of taxation upon the individual? It seems to me that this is a very real problem. I am interested in it, if I could make a bow to the hon. member for St. Lawrence-St. George, because of the point he raised as to the philosophical question that is involved here, which is very intriguing, in the sense that he indicated there was a real philosophy in connection with pipe line companies. I wonder whether the minister could give us more on the philosophy here.


Walter Lockhart Gordon: Mr. Chairman, I would like to begin by saying that I doubt very much if Mr. Stikeman would like to be referred to as an accountant. He is a distinguished member of the legal profession and is not an accountant. I will not say any more about that. I believe the hon. member at one time enjoyed life as a librarian, and I can assure him that neither the accounting nor the legal profession are very similar to that of a librarian, and they are also very different as distinguished between themselves.
The hon. member referred to a report made to the minister of finance by four experts, and I would like to assure him that they were four experts employed by a former minister of finance. They did make a report on this general subject. I think he referred to the fact that the report was a secret one. I was asked if it might be made available to the Institute of Chartered Accountants of Ontario for them to study. I released it to them and made it public at the time, so there is nothing secret about it.
As to the way to deal with this problem, I think the best answer I can give to that question is that, as the hon. member will appreciate, the budget contained quite a number of provisions designed to plug loopholes. There were a whole lot of them and we will be dealing with them in the succeeding paragraphs of this resolution. One of the big

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loopholes was this question of dividend stripping. I do not know where the term originated. I am informed that it originated in the United Kingdom, where I believe they go in for that sort of thing to a greater extent than perhaps we do here.


Douglas Mason Fisher: Is that what the members who attended the NATO parliamentarians meeting in Paris saw last year?


Walter Lockhart Gordon: I was not on that trip, but I understand from some of those who were that there was none of that sort of thing there. As the hon. member pointed out in quoting Mr. Stikeman and his associates, there are a variety of ways in which surplus funds can be withdrawn from a corporation without attracting tax in the hands of the recipient. There are, as he pointed out, a whole series of sections in the act which in one way or another were designed to stop this. They have proved to be less than successful. It seemed to me that there was no simple answer. I certainly do not know the simple answer to this problem. On the other hand I did not feel that in introducing a series of measures to plug loopholes it would be very realistic unless we did something about this one. So pending the more detailed studies that the royal commission is engaged upon, it seemed to me that the only practical approach for the time being was to suggest to the house that the Minister of National Revenue be given authority to look through these complicated transactions to see if the net result was that money came out of a corporation and into the hands of a shareholder without the payment of tax. I do not like this way of doing things any more than anybody else does, but until we found a solution that will work, I thought it was better for me to recommend to the house that some action be taken, rather than just to let the thing go scot free for another year or another two years.
I have no doubt that the fact the minister will be given power to look through these transactions will put a stop to these things, even if there is an appeal. I think there should be an appeal; I thought that was a good suggestion, because after all one man's interpretation of a set of facts may be different from somebody else's. But as long as there is an appeal on the tax so that the general public is protected, it seems to me that the government revenue should also be protected; and this is a good way to provide that protection until such time as the people who have been asked to study this question in detail can come up with a solution, which may or may not prove to be satisfactory to hon. members.


Marcel Joseph Aimé Lambert: Mr. Chairman, there are one or two features about this question upon

which I would like to comment. First of all, the minister did indicate that he thought the tax should not be retroactive. I think he will agree that it is.


Walter Lockhart Gordon: No.


Marcel Joseph Aimé Lambert: It is, in effect, to the point that the minister may examine any transaction where a payment may be effected. It says in paragraph 16(c):
-which amount, in the opinion of the minister, was received by the taxpayer as part of a transaction or series of transactions whenever effected-
I cannot put any other connotation on that but that it predated June 13-


Walter Lockhart Gordon: Mr. Chairman, may I just answer the hon. member's question?


Marcel Joseph Aimé Lambert: Yes.


Walter Lockhart Gordon: I think that in reading the words the hon. member is entitled to interpret it that way. In my explanation I pointed out -I would like to repeat the words that I used-that, moreover, in the administration of this provision it is not intended to apply to cases where the series of transactions in question commenced prior to budget night. I wanted to put that on the record and to make it clear that it is not intended to make this provision retroactive.


Marcel Joseph Aimé Lambert: Yes, that is right.


Eldon Mattison Woolliams: Mr. Chairman, I just want to say something about the question of appeal. I was glad to hear the minister say it was a good suggestion, particularly because in this paragraph it says "in the opinion of the minister". There are two points I should like to raise with regard to a right of appeal. Supposing you do have a right of appeal? You can never really upset, on appeal, a discretion that has been properly exercised. That is difficult, unless it is spelled out in statute. I hope that goes in. There is a great deal of law on this subject. I have appeared before the appeal board and they have pointed out that if it is an administrative discretion properly exercised, it is difficult to upset. Therefore how can a taxpayer appearing before the appeal board or the exchequer court ever win an appeal before those tribunals that a discretion has been improperly exercised under paragraph 16, unless there is something in the law to this effect? The courts have never said there is anything wrong in law if somebody pays the least amount of tax possible. But I realize the minister is trying to plug the loophole and-


Walter Lockhart Gordon: Mr. Chairman, I wonder if the hon. member will allow me to interrupt him and draw his attention to paragraph 18, which deals with this matter.


Eldon Mattison Woolliams: I realize that, Mr. Chairman, but I still say it is a question of law. There is nothing to prevent anybody appearing before the appeal board; but it is very difficult to prove that an administrative discretion has been improperly exercised.
There is one other matter which makes it difficult. I think we should appreciate it is really not the discretion of the minister but of someone in his department. Some bureaucrat-and I use the word with respect-says that a file will be reviewed. A year or two passes and there is a four-year limitation. What has been done is legal but actually the law has been circumvented. As the hon. member for Port Arthur said, the tax has been cut down and in effect we are legislators unto ourselves. Even though parliament has created the law, in the opinion of a bureaucrat what you have done is to cut your tax position. The amount of tax which goes to the Department of National Revenue has been cut down and a reassessment is ordered with a view to more tax being paid. Not only in this section but all through the Income Tax Act you run into this problem. You cannot upset this discretion in an appeal court or in the exchequer court, as I have tried to do on many occasions.


Marcel Joseph Aimé Lambert: Mr. Chairman, I should like to anticipate the debate on section 18 with regard to the question of the opinion of the minister. This is one of the few areas in which there is a discretion under the Income Tax Act, one which I think historically we could go into at great length. After my connection of three years with the Department of National Revenue, which true enough was not as close as it might have been at times, nevertheless I have sufficient insight to know that discretion is the one thing which the minister does not want. If he has a discretion he is put under intolerable pressure. Be that as it may, no opportunity is given to those assessors to say: "Yes, you reduced your tax liability but we think you should not; therefore we are reassessing you". The minister will also readily understand that he will never appeal under section 18. The person who has a favourable ruling also will not appeal. Therefore only the taxpayer who is disappointed by a ruling or has what he considers an adverse ruling will appeal. The appeal is only to the exchequer court, not to the tax appeal board. I suggest to the hon. member that he is using a mallet to do the job of a tack hammer in many instances. Conversely there is a discouraging of appeals by forcing a taxpayer into the exchequer court. I would have preferred to do away entirely with the question of opinion. It may be administratively difficult to lay down
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the four corners of the rules governing dividend stripping, but I suggest to the minister that in the long run this would be preferable. Even if some people did slip through there is always the chance of coming back next year and plugging the holes.
There is an omnibus type of regulation here which I think goes against the principle of a great deal of the Income Tax Act. We should remember that the onus will be on the taxpayer to prove that the minister exercised his discretion in the wrong way. If the minister has appeared before the courts he will know that this is almost impossible to do, because the courts will not substitute their discretion for the discretion of an administrative official or the minister, provided the discretion has been lawfully exercised. With the greatest respect to the minister and the people who drafted this provision, I do not think the question of appeal means very much, and really the objections in this regard have not been met.


Walter Lockhart Gordon: I should like to say two things. First of all, you can let this thing go, but the government have decided that there are a lot of loopholes in the act which should be plugged. This is one of the most glaring ones. It is fine to say that we should nail down the four corners; but a few minutes ago, in answer to the hon. member for Port Arthur, I said that this was a highly complex issue. Governments have been trying to nail this one down for a long time, without success. If my hon. friend doubts me I would refer him to Mr. Stikeman's dissertations, to which the hon. member for Port Arthur referred. Or if he wants to get through one of these things I might refer him to Mr. Stike-man. It is hoped that the royal commission on taxation will come up with a formula which will deal with this subject. The question is, should we leave the gate open until then, or should we try and close it in this way-because I know of no other way to do it quickly-for the time being?
As far as appeal is concerned, with the greatest respect to the hon. member for Edmonton West, I think that when we come to section 18 he will see that the appeal provisions are much wider and cover much more than just an appeal against the discretion of the minister. I do not know whether I should discuss this now or wait until we get to it, but it is really intended to cover a lot more ground than the hon. member dealt with.


Eldon Mattison Woolliams: Would the minister consider this question; it is a suggestion as well as a question. This can be done in the United States, I believe, but not here. If the taxpayer were able to go to the officials of the

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department and say: "If I move A, B, and C in business, will this be a capital gain or something else?" it might be clear. The trouble is that it is difficult to see whether businesses are taxable because of an honest movement to better the business and to make it more efficient. That is a problem which business runs into.


Walter Lockhart Gordon: Speaking personally, and only personally, I could not agree more with the hon. member. I should like to see the day when any taxpayer or businessman can go to the department and ask for a prospective ruling. I am not suggesting that at the moment because my hon. friend the Minister of National Revenue would point out to me that his department is badly understaffed and simply could not handle it. Perhaps the answer to it is to give him sufficient staff to deal with these matters in the way which has been suggested, but I am afraid that cannot be done right away. It takes trained and expert staff to handle these matters, and such people cannot be picked up off the street in a week or two.


John Napier Turner: Mr. Chairman, having received an invitation on philosophical grounds twice in one evening I find it difficult to resist confessing that I was rather disturbed to find the hon. member for Port Arthur could not remember the name of the constituency which I represent. Because in better days he knew that part of Montreal which I represent pretty well. It embraces, among other parts of the city, St. Catherine Street and St. Lawrence-Main where the strip is not entirely unknown.


Douglas Mason Fisher: What about the Jacques Cartier bridge?


John Napier Turner: No, not quite the Jacques Cartier bridge. In any event, he invited me to provide some philosophical uplift to this debate. I would agree with the minister that this is a loophole which has to be closed, but as long as it remained a loophole in the Income Tax Act the taxpayer was entitled to take advantage of it, if you will, and to exercise his common law right, as expressed by a famous Scottish judge and member of the privy council at the turn of the century, a precept which is still accepted as part of the law of this country, namely that a man is entitled to arrange his affairs so as to involve himself in the least amount of tax. So that while that loophole existed the taxpayers of this country were quite legitimately exercising their common law right to reduce the amount of tax they had to pay to the department.

On the subject introduced by the hon. member for Bow River and mentioned by the hon. member for Edmonton West, I would agree that before resolution 18 was added there might have been something in what he said. Had there been no provision for appeal in the resolution, a taxpayer would have been severely limited because the courts have held that where there is no provision for appeal a taxpayer cannot bypass a minister's discretion unless it has not been rightly exercised, or it has not been exercised honestly and fairly, or the principle of natural justice has not been brought into play. As the hon. member for Edmonton West knows, this is a virtually impossible task.
Now provision for appeal has been made in resolution 18 and there is to be a review of the minister's discretionary power. It may be that the wording of resolution 18 is narrow. It says there is an appeal to the exchequer court, but the court may vacate any discretion of the minister only where none of the purposes of the transaction was to effect a surplus strip. Since every corporate transaction has a number of purposes, the company will have to prove that none of them was for that purpose and it might be difficult for a shareholder or a taxpayer to provide such proof.
While I am on my feet-I notice this is the standard ploy for retaining the attention of the house, or the committee, for a further period, may I ask the minister this: in his opening statement he said that this resolution would not apply to any transaction which came into force prior to the night of the budget. Do I understand the hon. gentleman to mean that it applies to transactions executed or consumated before the budget date? What would be the situation if shares issued as a result of one of these transactions prior to the budget date were subsequently redeemed? If they came within the provisions of this resolution the resolution would, in effect, be a retroactive one.


Herman Maxwell Batten: Does that complete the discussion on paragraph 16?


John Napier Turner: I was wondering whether the minister would direct his attention to those points, then I would possibly wish to ask him another question.


Walter Lockhart Gordon: I do not particularly want to direct my attention to it. I do not think I have any more to say. This provision is not intended to be retroactive, which means it does not apply to any series of transactions which were commenced before budget night. It does mean that if there is anything more than a gleam in the girl's eye, it does apply.


George Clyde Nowlan: How do they assess the gleam in a girl's eye?


Walter Lockhart Gordon: I am too old for that.


John Napier Turner: I must say, in answer to the hon. member for Digby-Annapolis-Kings, that the courts have been inquiring into the state of a man's digestion. The gleam in a girl's eye is just another step beyond that.
This provision applies to any redemption of preferred shares as a result of any bona fide reorganization, whether or not such a reorganization arises out of what is called dividend stripping. I suggest a distinction should be made between a transaction where preferred shares are issued to clear out past surpluses, where you do have what is known as a strip, and a preferred share situation which is built up in order to meet future earnings. The latter situation is a common one and is a standard move for a parent company to take income out of a subsidiary. I submit that this type of transaction should not be caught by the motive behind the resolution.
I believe the Department of National Revenue will be faced with serious problems in dealing with legitimate cases of estate planning where a man tries to pass his business into the hands of his family by setting up a holding company and issuing preferred shares as a consideration for the value of that business. This type of completely bona fide situation might well be caught by the wide drafting of the resolution as it stands at present. I therefore respectfully say to the minister and his officials that care must be taken to draw a line between perfectly legitimate mergers or corporate reorganization plans, and the type of situation which it is sought to combat. If the ordinary estate plan is caught, if the ordinary corporate reorganization is caught, if the ordinary family business is caught, the small town counsel mentioned by the hon. member for Perth, the small business man, are among those likely to be in difficulty. They do not have available to them the more sophisticated advice which may be found in the larger cities. We should be careful in drafting to protect the average small businessman or the family man arranging his business affairs, because these are the people who have recourse only to the type of local advice described by the hon. member for Port Arthur.


George Clyde Nowlan: I think the committee owes something to the hon. member for St. Law-rence-St. George for having dealt with this situation as clearly as he has. I have been advised by lawyers who are dealing with these problems every day that in view of the possible meanings of this provision they cannot
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advise their clients to enter into any transaction of this kind in any circumstances unless they have had a declaration by the department that they would not be liable for tax. Some of us who have had dealings with the Department of National Revenue know how difficult it is to get a ruling in advance as to what may happen. Certainly we are dealing with a situation which is causing a great deal of concern to the learned fraternity, accountants and others. I appreciate the fact that the minister is attempting to deal with this situation and to deal with the criticism which was raised on an earlier occasion; but I wish to emphasize what has been said by the hon. member for St. Lawrence-St. George. There is a very real problem here, with respect, not to any of these huge corporations, though they might become involved, but with respect to ordinary Canadian citizens as well as citizens in the United States I am not sure when the bill is coming in, but I would hope the minister would arrange to delay its introduction until after the discussion on the resolution so that some modifications may possibly be made. I would hope that when the bill comes in there would be changes or some elasticity in the wording of it which would meet the criticism that has just been made.


Douglas Mason Fisher: I should like to return to the question I have been trying to put, probably ineffectually, to the minister. Why does the minister not consider a means of gaining some revenue for the crown, maybe on a one shot basis, from this situation where so many of these corporations are being driven to this dividend stripping process? I notice that Mr. MacKay said in 1952:
The government is therefore now facing a problem, long overdue, of finding some way to allow accumulated income on hand to be distributed without the imposition of such burdens of tax as the shareholders would be unwilling to pay.
He goes on to point out that this problem was met on a number of occasions in the past,^ in 1929, 1939 and 1949, when special provisions were made. It seems to me that this is the logic of an outsider looking at the situation. If you dam the loopholes the accumulation is likely to go on, and that is not going to attain the objective, which I assume would be in the minds of the taxation officials, of getting an opportunity to tax the revenue.
If this is the situation, then is there not some incentive that can be given to have these surpluses disbursed to the shareholders by some particular measure such as has been taken in the past?


Walter Lockhart Gordon: There is provision, of course, that under certain circumstances the surplus can be withdrawn upon payment of the 15

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per cent tax which people are apparently unwilling to pay. That is one of the troubles. The provision is there and it does not apply in all cases, but to a large extent this stripping is to avoid the 15 per cent tax.
I think that the hon. member's point is very well taken and I would hope that the royal commission would come up with a solution perhaps along the line suggested by the hon. member. But in the meantime what should we do? Should we leave the loophole open or should we try to plug it until we find a solution? This is one of the things that the royal commission has been asked to do since this government came into power. I have had conversations with the chairman of the royal commission and have suggested to him that this is one of the things on which we would like an early study and an early recommendation. If I had been confident that we would get a recommendation within a very short time, perhaps it would have been better to leave this, but I do not think we can be certain of that. So it seemed to me that it was better to do something to plug this loophole for the time being, although I admit this is not an appropriate permanent solution. As I expect the hon. member knows, any company that pays a dividend of say 50 per cent of its earnings can distribute the other 50 per cent on payment of a 15 per cent tax, but that is something people do not want to pay.


Herman Maxwell Batten: Does this complete the discussion on paragraph 16?


Marcel Joseph Aimé Lambert: No, Mr. Chairman. I am wondering whether the minister considered proposing as an alternative the charging of a flat rate, say a 15 per cent levy. Thereby those people would carry out their intentions and we would also avoid some of the pitfalls which it would seem to be indicated may be engendered by the resolution, if it is not too well drafted.


Walter Lockhart Gordon: That might be a rough way of dealing with this thing. It may be the proposal that the royal commission may come up with, for all I know; but in this case anyway I thought it might be better to wait until I had the advice of the royal commission, and not make a snap decision of that kind which might appeal to the hon. member for Edmonton West but perhaps might prove to have some weaknesses in it.


Marcel Joseph Aimé Lambert: With the greatest respect, there was no snap decision. I would have thought that perhaps the snap decisions were those of other people, and that one should not get into those troubles.


Herman Maxwell Batten: Does this complete consideration of paragraph 16? Paragraph 17.


Walter Lockhart Gordon: Mr. Chairman, the next paragraph, which deals with associated companies, proposes that the Minister of National Revenue be given the authority to look at the arrangements where a company or an enterprise is split up into a number of companies in order to reduce its income tax. This is another measure to plug loopholes. The need for this amendment arises because the first $35,000 of taxable income of a company is taxed at only 21 per cent compared with a rate of 50 per cent, or 52 per cent in the case of Ontario and Quebec, on taxable incomes in excess of $35,000.
Because of this differential in rates a strong incentive is provided for companies to be split into many smaller companies, each having an income of $35,000 or less. This process has been developed and engaged in by a wide variety of people. It is a loophole. If there are eight or 10 companies that are clearly associated and each one's affairs are arranged in such a way that their profits come to less than $35,000, in the aggregate they only pay a 21 per cent tax, whereas if they were merged as they normally would be they would be paying a 52 per cent tax, or a 50 per cent tax in provinces other than Ontario and Quebec. This would seem to me like a pretty big loophole and there would be a fairly good argument for doing something about it. That is the purpose of this provision.


Jay Waldo Monteith: Is not the determination of this matter made on the basis of whether oi not the companies are at arm's length?


Marcel Joseph Aimé Lambert: There are two things I should like to say. First of all, I still have some objections with regard to a minister exercising his discretion in examining these companies to see whether there is in fact any association. Fundamentally, however, I have a much greater objection to the manner in which taxation is imposed so far as associated companies are concerned. This is no secret. It is not the first time I have expressed my opposition, and I think it arises fundamentally from the distinction between so-called small business and large business, with this wide difference in the level of taxation involving the two rates, 21 per cent and 50 per cent.
I think it would have been far better for the minister to take his courage in his hands and say: All right, we are going to tax at a rate of 18 per cent, 20 per cent or X per cent right across the board on all corporate profits, but then have a rather heavy rate of taxation on withdrawals in the form of dividends, and so on, together with appropriate incentives, on the other hand, to loosen up surplus accounts.

To my mind there is a case for the grouping together of associated companies. The government is simply saying these are various departments of one large business, so let us treat them all as an entity. I do not know what the situation is like in central Canada but I do know that in western Canada this type of taxation has done a great deal to deter equity investment by an individual who takes a portion of a company by associating himself with local capital and local management, and encouraging it. I know of any number of companies which went into a city or town and enlisted local capital with local management to give that incentive of local interest.
Frankly, under this provision it is becoming more and more difficult to do this because everything is deemed to be in the hands of the principal company or the principal investor. I would suggest to the minister that we are taking a retrograde step with regard to this type of taxation, and the sooner we get out of it the better off we will be. I am quite opposed to this idea.


Walter Lockhart Gordon: May I ask a question? Would the hon. member think it would be proper to tax all companies at the 50 per cent level? Is that what he wants?


Marcel Joseph Aimé Lambert: No, not at the 50 per cent rate; I think that is strictly punitive taxation. I would have thought it would be preferable to tax them at some lower rate, and then tax the withdrawal at a much higher rate so that you leave the capital. This, I think, would be an incentive to Canadian capital to build up within the corporation. Frankly, this way we are driving available capital out of our corporate structure. It was for the purpose of allowing smaller corporations to develop and build up that we instituted this lower rate of 21 per cent. This was certainly stated to be the purpose of it. I think we are defeating that purpose now by this business of association.
I reiterate my opposition to it, and I feel that there is a discretion. I do not believe the appeal provision is satisfactory. The onus is still on the taxpayer who has an adverse ruling to take the minister to the exchequer court, and in the case of a small company this is not a light burden.


Mr. Francis:: I understand that by legislation effective January, 1963, a number of companies have been deemed to be associated and some dissociated. Does the minister intend to respect the decisions that have been made concerning associated and dissociated companies?
My second question is, does the minister intend to give any consideration to the fact that some of these companies may be engaged
Income Tax Act
in different types of activities that, in effect, two companies may have very different purposes and be in very different types of business, and will that have anything to do with the decision that might be made?


Walter Lockhart Gordon: Well, in answer to the hon.
member's question, the fact that companies have not been deemed to be associated in the past may have nothing to do with the fact that they are associated now.


Marcel Joseph Aimé Lambert: If in the past the treasury has deemed two or three companies are not associated, and the agreements they have had have been accepted, can the minister now review them?


Walter Lockhart Gordon: In the past an assessor had no right to say any such thing.


Marcel Joseph Aimé Lambert: There were certain regulations in respect of associated companies. Certainly, scores and scores of agreements were made in legal offices throughout the country whereby you worked around your shareholdings so you did not have associated companies within the meaning of the regulations as they stood prior to June 13. Now, if those agreements have been accepted by the Department of National Revenue as not being caught by the net, are they now going to be subject to review by the minister who says: Oh yes, I think they really are and that the true intent is they are associated companies and therefore subject to tax?


Bert Raymond Leboe: Mr. Chairman, I should like to ask the minister a question. Does he make any differentiation between a company that is splitting up its holdings into various companies and a company that is expanding by virtue of the proprietor saying that he will take out the dividends from his stock and take this money out of the company. Then, he puts this money into a new company, a completely separate entity. I think there is a vast difference between splitting up a company for the purpose of avoiding tax and a person taking his money or his profits out of a company and then putting it into a new company. He will become a major shareholder in both companies, but the intentions are vastly different because he is actually expanding the economy, whereas in the other case there is a division of companies to avoid the payment of tax.


Walter Lockhart Gordon: I think we should get back to the original intention when this lower rate of taxation was introduced. The purpose was to help the small businessman, the retailer or small processor, with relatively small profits.

Income Tax Act
I think, originally, the ceiling was set at $25,000, or it may have been $20,000. Then, a year or two ago it was changed to $35,000. The purpose was to assist the smaller businessman by providing a lower rate of taxation than was provided for the larger corporations. The purpose was to help the smaller businessman, not the man who had a lot of capital or the investor in either' one large corporation or a series of corporations.
I think the point has been made that when you have this wide differential in rate of taxation, 21 per cent as against 50 per cent, naturally that difference is an encouragement to people to try to get around it. Perhaps there is something to be said for the hon. member's suggestion that there should be a uniform rate of taxation, but it certainly is not a suggestion that would appeal to the small businessman in this country.


Jay Waldo Monteith: If it is lower than 21 per cent?


Walter Lockhart Gordon: I would remind hon. members it is fairly difficult to get revenues. I do not think if you levelled up the 21 per cent to a higher rate it would really mean that the 50 per cent rate could be reduced appreciably. I could find out.


Jay Waldo Monteith: You would need a terrific amount of research and statistics to ascertain that.


Walter Lockhart Gordon: I think we have the statistics. Here, we have a choice it seems to me of raising the tax for the small businesses in the country that are incorporated or, alternatively, trying to do something about people who are essentially getting around this provision. This is the purpose of this resolution.


Bert Raymond Leboe: Perhaps I am a little thick between the ears, but I do not understand this. We want to expand industry. In my proposition I am not considering the man who establishes a subsidiary company. This is one thing. I am considering an individual who has earnings from a particular company, which is separate from the corporation, and who takes his money out of that corporation. Then he pays his tax on the money he takes out, but he reinvests that money in, say, an apartment block. The question I am interested in is whether this man, if he reinvests in some other enterprise, is going to be on the same plane as a corporation that has a subsidiary? I do not think he should be, and there should be a difference.


Walter Lockhart Gordon: I think the hon. member's example represents a small businessman who is no longer a small businessman. He is two

or three small businessmen. I do not think there is any perfection in this, but I suspect that this man was not the person for whom this lower rate of tax was designed. He is a graduate from that.


Bert Raymond Leboe: I thank the minister, but what I am after here is that a corporation which divides a company for the avoidance of tax is in a different position from a person who takes his savings out and establishes a new company.


Herman Maxwell Batten: Order. Shall I rise, report progress and ask leave to sit again at the next sitting of the house?


Some hon. Members:: Agreed.
Progress reported.


THE ROYAL ASSENT
[Stage Direction]
A message was delivered by Major C. R. Lamoureux, Gentleman Usher of the Black Rod, as follows:
Mr. Speaker, the Honourable the Deputy Governor General desires the immediate attendance of this honourable house In the chamber of the honourable the Senate.
Accordingly, Mr. Speaker with the house went up to the Senate chamber.
And being returned:
Mr. Speaker informed the house that the Deputy Governor General had been pleased to give, in Her Majesty's name, the royal assent to the following bills:
An act respecting the Department of Industry.
An act to amend the Export and Import Permits Act.
An act respecting Canada Permanent Toronto General Trust Company.
An act respecting Confederation Life Association.
An act respecting The Great-West Life Assurance Company.
An act respecting Chartered Trust Company.
An	act	to	incorporate	Baptist Convention of
Ontario and Quebec.
An act respecting The Canada Board of American Missions of The United Lutheran Church in America.
An act respecting The Evangelical Lutheran Synod of Canada.
An act respecting The Evangelical Lutheran Synod of Western Canada.
An	act	to	incorporate	Fidelity Mortgage and
Savings Corporation.
An act respecting General Mortgage Service Corporation of Canada.
An act respecting Quebec Fire Assurance Company.
An act to incorporate Standard Trust Company.
An act to incorporate Ukrainian Canadian Foundation of Taras Shevchenko.
An	act	to	incorporate	The Union of SlavicChurches	of	Evangelical	Christians and Slavic
Baptists of Canada.
An act for approving certain expenditures authorized for the public service, and the application of certain amounts in the accounts, for the financial year ended the 31st March, 1963.

Gordon Minto Churchill: I should like to ask the acting house leader if he has any profound changes in the business for tomorrow?


John Richard Garland: No, Mr. Speaker, no profound changes, simply the business indicated
22, 1963	2499
Business of the House
by the house leader on Friday last. We will proceed with the budget resolutions and then the bills.


[Stage Direction]
It being twenty minutes after ten o'clock the house adjourned, without question put, pursuant to standing order.
28902-5-159


[Stage Direction]
Representatives of Canada and the United States met during the week end to appraise the impact on the Canadian financial markets of the proposed United States interest equalization tax.
The two governments recognized the need for effective action to improve the balance of payments position of both countries and are both equally determined that such action shall not impair the intimate economic relationships between the two countries, nor impede the growth essential for both economies.
For many years the capital markets of the two countries have been closely interconnected, and United States exports of capital to Canada have financed a substantial portion of the Canadian current account deficit with the U.S. This need continues. A portion of these flows must be supplied through the sale of new issues of Canadian securities in American markets. U.S. officials had considered that ample flows for these needs would continue under the proposed interest equalization tax. However, Canadian representatives stated that this would require a very substantial rise in the entire Canadian interest rate structure. It was recognized by both governments that such a development would be undesirable in present economic circumstances.
In the light of this situation U.S. officials agreed that the draft legislation to be submitted to the congress would include a provision
authorizing a procedure under which the President could modify the application of the tax by the establishment from time to time of exemptions, which he could make either unlimited or limited in amount. The President would thus have the flexibility to permit tax free purchases of new issues needed to maintain the unimpeded flow of trade and payments between the two countries, and to take care of exceptional situations that might arise in the case of other countries. U.S. officials made clear that this did not modify their proposals regarding the taxation of transactions in outstanding securities; over the past year such transactions between Canada and the U.S. have not been a major factor.
The Canadian authorities stated that it would not be the desire or intention of Canada to increase her foreign exchange reserves through the proceeds of borrowings in the United States, and it is the hope and expectation of both governments that by maintaining close consultation it will prove possible in practice to have an unlimited exemption for Canada without adverse effect on the United States.
It was agreed that active consultations would continue to strengthen the close economic relations between the two countries and at the same time facilitate measures for making the maximum practicable contributions to economic expansion and the strength and stability of both currencies.
[Stage Direction]
Tuesday, July 23, 1963