1967-02-28

JUSTICE AND LEGAL AFFAIRS

[Stage Direction]
Seventh and eighth reports of standing committee on justice and legal affairs-Mr. Cameron (High Park).

[Stage Direction]
On the orders of the day:
Right Hon. J. G. Diefenbaker (Leader of the Opposition):: Mr. Speaker, information has just been brought to my attention as a result of which I should like to direct a question to the Prime Minister, who may require some time before answering. This question relates to the extraordinary and completely unjustifiable conduct of the Central Intelligence Agency of the United States as revealed recently regarding the secret transfer of large amounts of money to organizations outside the United States. Will the Prime Minister communicate with the administration in Washington to ascertain what moneys, if any, were expended by the C.I.A. to Canadians during the period between May of 1962 and June of 1963? I refer to those amounts of imoney in addition to what was given to one student organization, the facts of which are now public knowledge.


Right Hon. L. B. Pearson (Prime Minister):: Mr. Speaker, I will be glad to look into this matter.



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Mr. T. C. Douglas (Burnaby-Coquitlam):: Mr. Speaker, I should like to direct a question to the Minister of Manpower and Immigration. Has his attention been drawn to the address delivered to the Empire Club of Canada at Toronto by Mr. George Burt, director of the United Automobile Workers, in which he stated that the auto workers laid off
by reason of the auto pact are not being retrained and have not been able to obtain alternative employment? Have steps been taken by the minister's department to remedy this situation?


Hon. Jean Marchand (Minisler of Manpower and Immigration):: Yes, Mr. Speaker. I am sure the hon. gentleman will realize that in this regard there is a problem in relation to the reference of workers to retraining programs because of a lack of facilities in certain areas. We are attempting to solve this problem with provincial co-operation.


Thomas Clement (Tommy) Douglas: A supplementary question, Mr. Speaker. Since it is not possible to ask the minister detailed questions on the orders of the day, I wonder whether he would consider making a statement or issuing a white paper very soon indicating what the government is doing with respect to either the retraining of or finding employment for the several thousand auto workers who have been laid off recently.


Jean Marchand: Mr. Speaker, I am preparing a more detailed statement, and as soon as it is ready I will be happy to make it in the house.



POST OFFICE DEPARTMENT


[Stage Direction]
On the orders of the day:
Mr. Raymond Langlois (Meganlic):: Mr. Speaker, I wish to direct a question to the Postmaster General. Could he tell us what came out of his discussions with the authorities in Washington about the air mail service between Canada and the United States?


Mr. Speaker:: Order. I think that the hon. member for Megantic is now inviting the minister to make a statement which should normally be made on motions.
February 28, 1967

Inquiries of the Ministry



FARM MACHINERY


[Stage Direction]
On the orders of the day:
Mr. H. A. Olson (Medicine Hat):: Mr. Speaker, I should like to address a question to the Minister of Agriculture. It is based on the report from the Dominion Bureau of Statistics that Canadian farmers bought fewer machines in 1966 but paid more money for those fewer implements. I wonder whether the Minister of Agriculture could advise the house whether the royal commission looking into these prices, and so on, will soon be in a position to give the house a report as to the justification for these price increases during 1966.


Hon. J. J. Greene (Minister of Agriculture):: To the best of my knowledge, Mr. Speaker, the royal commission has not indicated any intention to make an interim report of any kind, although I will be pleased to look into this matter. But I will be having a statement for the house very shortly on my personal findings with respect to farm machinery prices, which I made pending the report of the royal commission.


Horace Andrew (Bud) Olson: A supplementary question, Mr. Speaker. I wonder if the minister could advise the house whether he is now prepared to ask the royal commission for an interim report respecting this matter, inasmuch as we now have conclusive evidence that there was a substantial increase during the past year.


John James Greene: I will be pleased to consider this suggestion, Mr. Speaker. The newspaper reports I have read to date do not indicate the extent of the increase except in gross amounts. But I will be pleased to consider this question with the commission.


Mr. Reynold Rapp (Humboldf-Melforf-Tisdale):: A supplementary question, Mr. Speaker. Would the minister not be justified now in putting a moratorium on the prices of farm machinery, in view of the fact that the prices have increased since the commission was appointed?


John James Greene: I know of no authority that the federal government has to put a moratorium on prices, Mr. Speaker.


John George Diefenbaker: A supplementary question, Mr. Speaker. While the minister has no power to fix prices, has he communicated with the


implement companies and asked them not to increase their prices while the commission is continuing its investigation, prices which too often appear to be completely unjust and unjustifiable?


John James Greene: I have had such meetings and I have put the position put forward by the right hon. gentleman as forcibly as I know how. I will have a report for the house very shortly on the results of these meetings and negotiations.


Mr. E. Nasserden (Roslhern):: Mr. Speaker, my supplementary question is addressed to the Minister of Finance. Will he consider the removal of the 11 per cent sales tax on production machinery?


Hon. Mitchell Sharp (Minister of Finance):: Mr. Speaker, the sales tax on production machinery will be reduced by half in April of this year and will be entirely removed a year hence.


Mr. Ed. Schreyer (Springfield):: A supplementary question, Mr. Speaker. I should like to ask the Minister of Agriculture whether he has attempted to enter into negotiations with the provincial authorities with respect to the question of a moratorium on farm machinery price increases.


John James Greene: No, Mr. Speaker.



INDUSTRY


[Stage Direction]
On the orders of the day:
Hon. Michael Sfarr (Ontario):: Mr. Speaker, I wish to address a question to the Minister of Industry. In the light of the announced intention of General Motors to lay off workers both in St. Catharines and Windsor, and in view of the continual permanent lay-offs and stoppages of work, will the minister consider referring the auto pact to a standing committee of the house to study the question of why these lay-offs are taking place?


Hon. C. M. Drury (Minister of Industry):: Mr. Speaker, I think the assumption that these are permanent lay-offs is not well founded.


Michael Starr: It is.


Charles Mills (Bud) Drury: MacKinnon Industries have stated publicly that the current lay-offs are due to the decline by some 20 per cent in the current market for motor cars in the United States. These lay-offs are not permanent.
February 28, 1967	COMMONS



UNEMPLOYMENT INSURANCE


[Stage Direction]
On the orders of the day:
Mr. Guy Crossman (Kent (N.B.)):: I should like to address a question to the Minister of Labour. Has he been made aware of the fact that at least 200 woodsmen in Kent county, New Brunswick, had their unemployment insurance suspended because they refused to work under difficult conditions due to deep snow, and will he have this situation investigated?


Hon. J. R. Nicholson (Minister of Labour):: Yes Mr. Speaker, my attention has been drawn to this complaint. I have tried to get in touch with the chief commissioner but have not yet been able to do so. I will be speaking to the other commissioners later today, if I cannot contact the chief commissioner. I will request a report and reply to the hon. member.



AIR POLLUTION


[Stage Direction]
On the orders of the day:
Mr. Heward Grafftey (Brome-Missisquoi):: Mr. Speaker, my question to the Minister of National Health and Welfare is based on the answer given to my question yesterday to the effect that the government was not immediately ordering anti-pollution clean air packages in cars as has been done in the United States. Today my question is as follows. Was this decision made after verbal or written representations by the motor vehicle industry in Canada, and did the minister contact any United States health officials or experts in Canadian urban centres who take air pollution measurements before arriving at the decision he announced yesterday?


Mr. Speaker:: Order, please. I think the question asked by the hon. member refers to circumstances which have lapsed and therefore the question should more properly be put on the order paper.


William Heward Grafftey: Mr. Speaker, I will rephrase my question. Was the decision announced yesterday that Canada will not get the clean air package as has been ordered in the United States arrived at only after strong recommendations by the Canadian motor vehicle industry? It is most important that we know this.
Inquiries of the Ministry
Hon. A. J. MacEachen (Minister of National
Health and Welfare): I have received no representations whatsoever on this subject matter from the industry.


William Heward Grafftey: Mr. Speaker, may I put a supplementary question to the Minister of Industry. Before arriving at this decision did the government receive any strong written or verbal representations from the motor vehicle industry in Canada?


Mr. Speaker:: Order, please. I have to uphold the opinion I expressed a moment ago to the hon. member, that this question should be placed on the order paper.



LABOUR RELATIONS


[Stage Direction]
On the orders of the day:
Michael Starr: I wish to address a question to the Minister of Labour and ask him whether the government has arrived at any decision on the course it will follow in respect of those railway unions which did not agree to the recommendations of Mr. Goldenberg.


John Robert (Jack) Nicholson: Yes, Mr. Speaker.


Michael Starr: Can the minister say what course of action will be taken to settle the dispute?


John Robert (Jack) Nicholson: First of all the Minister of Labour will be meeting with the representatives or spokesmen for the two groups of unions that have not accepted the results of the mediation proceedings and have not gone along with them. Meetings with them have been arranged for tomorrow, after which I will be meeting the representatives of the railways. It is expected that the board of arbitration will be set up before too long, but I must have these consultations before taking any such action.


Michael Starr: I wish to direct a question to the Minister of Labour, based on his answer to my previous question, which had to do with the selection of personnel to the arbitration board to deal with railway disputes. This will affect those unions which have not adopted the recommendations of Mr. Goldenberg. Will the members of the board be appointed on a basis of their knowledge of economics, the trade union movement and transportation, or will other criteria be used?
February 28, 1967

Inquiries of the Ministry Mr. Nicholson: A combination of qualities Mr. Hellyer: Soon, I hope, Mr. Speaker. It is desirable and the situation will be carefully is my earnest hope that within a few days or considered to be sure we get the best men weeks there will be time for contemplating available.	some of the important decisions that have to
be taken, including this one.



ADMINISTRATION OF JUSTICE


[Stage Direction]
On the orders of the day:
Mr. H. W. Herridge (Kootenay West):: Mr. Speaker, I rise to address a question to the kindly Solicitor General with a great deal of righteous indignation because this matter is of national significance. In view of the fact that Mr. Orville Braaten, a respected trade union leader and a member of our party, was sentenced to jail for contempt of court and was walked off handcuffed for refusing to answer questions on the ground that the instructions from the Solicitor General placed time limitations on questions that could be asked in the inquiry, will the minister inform the house what he intends to do to correct this situation and whether he intends to be represented at any hearings questioning the validity of the public inquiries act of British Columbia?


Hon. L. T. Pennell (Solicitor General):: Mr. Speaker, I am informed no reference was made to the Solicitor General before the commissioner by Mr. Braaten or his counsel in relation to the incidents which led to Mr. Braaten being cited for contempt. Furthermore, I or no one acting on my behalf issued instructions placing general limitations on questions that could be asked at the inquiry, nor would I have any authority to do so. Under the circumstances it is not our intention to be represented at the proceedings now before the Supreme Court.



NATIONAL DEFENCE


[Stage Direction]
On the orders of the day:
Mr. H. Russell MacEwan (Pictou):: I have a question for the Minister of National Defence. Has the minister made a decision on the matter of the hydrofoil program for the Royal Canadian Navy? If so, what is that decision?


Hon. Paul Hellyer (Minister of National Defence):: No final decision has been taken as yet, Mr. Speaker.


Howard Russell MacEwan: May I ask the minister, because many months have gone by, if he can tell the country and the navy when he will be deciding this important question?
[Mr. Starr.l



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Mr. Robert Muir (Cape Breton North and Victoria):: I have a question for the Minister of Manpower and Immigration which presumably would be supplementary to the questions put by the hon. member for Burnaby-Coquitlam with regard to the laid off automobile workers. May I ask the minister if he can advise the house today what is being done by his department and the government to assist the 1100 steel workers who have been laid off at the Sydney steel plant? When he is replying to the hon. member for Burnaby-Coquitlam in detail, could the minister provide further information in detail with regard to this important subject, since some of the men who have been laid off have seniority of 16 years or more?


Jean Marchand: Yes, Mr. Speaker, I have no objection to making a report on that case as well.


Robert Muir: I did not quite catch what the minister said was being done at the moment. He is going to reply in detail later?


Mr. Speaker:: Order. My understanding is that the question has been answered by the minister.


Mr. Donald Maclnnis (Cape Breton South):: I have a question for the Minister of Manpower and Immigration. It is related to the question asked by my colleague from Cape Breton North and Victoria (Mr. Muir), and has to do with the 1100 men laid off at the Sydney steel plant. I ask the minister whether he is in on any plans that will alleviate the situation in Sydney.


Jean Marchand: Mr. Speaker, I have said that I am ready to make a detailed report on this matter. In the meantime the department is doing what it should do. As the hon. member knows we have in Canada manpower centres which try to find jobs for people and which direct people to jobs where those are available. Some people are invited to move if
February 28, 1967	COMMONS
jobs for them can be found elsewhere. There is also a counselling service for workers. This sort of thing is done throughout Canada. If the hon. member wants more details of these matters I am ready to make a report.


Malcolm MacInnis: I will put the question again to the minister. Is he
in on any specific plans-


Mr. Speaker:: Order, please.


Malcolm MacInnis: -to alleviate the situation?


Mr. Speaker:: The hon. member has already asked the question.


Malcolm MacInnis: On a
further supplementary question-


Mr. Speaker:: Order, please.


Malcolm MacInnis: On a
point of order, Mr. Speaker, I think we have the privilege of asking questions in this house about Cape Breton. A Liberal backbencher had the right to put a question about a Canadian fugitive arrested in New York-


Mr. Speaker:: Order, please.


Malcolm MacInnis: -and
we should have the right to ask about 1100 men in Cape Breton.


Mr. Speaker:: Order, please.


Malcolm MacInnis: Mr. Speaker, I rise on a question of privilege.


Mr. Speaker:: Order, please. The hon. member for Cape Breton South on a question of privilege.


Malcolm MacInnis: I rise on a question of privilege, because I seek to ask questions about 1100 men at the Sydney steel plant, and the fact that information available to the government is denied by the minister's answer. I was not allowed to ask my question despite the fact that only a few days ago in this house a Liberal backbencher was permitted to ask questions about a fugitive from justice, on his way either to or from Europe, who was arrested in New York. If questions such as that are permitted, surely questions affecting 1100 people in Cape Breton can also be asked. I wanted information; the situation there shows lack of government planning. The Minister of Manpower and Immigration today failed to give me a concise answer. The Prime Minister has denied his own minister in the house.
23033-857J
Inquiries of the Ministry
I draw the minister's attention to the answer by the Minister of Industry on page 12950 of Hansard, when this was said:


Charles Mills (Bud) Drury: Mr. Speaker, I think the hon. gentleman will recognize that the government is concerned about this problem of continuing job opportunities in the Cape Breton area. He will recall the recent announcement of the intention of the government to establish through legislation a corporation, the specific task of which would be to endeavour to find new job opportunities in Cape Breton to replace those that seem to be in the course of disappearing.
My question of privilege concerns the answers that are available to members of this house. There is the statement of the Minister of Industry, then a denial from the Prime Minister, then evasion from the Minister of Manpower and Immigration.


Mr. Speaker:: Order. If the hon. member will read the citations and precedents he will know that an hon. member cannot raise a question of privilege on the failure of a minister to supply information.


Malcolm MacInnis: They asked about a fugitive.



CANADA ASSISTANCE PLAN


[Stage Direction]
On the orders of the day:
Mr. S. J. Enns (Portage-Neepawa):: My
question is addressed to the Minister of National Health and Welfare, and is in two parts. I should like to ask him first if the regulations supporting the Canada Assistance Plan have been developed as yet; and, if so, when the agreements will be signed with the provinces to give effect to this very worthwhile legislation.


Hon. A. J. MacEachen (Minister of National Health and Welfare):: The regulations have been approved by the governor in council, and agreements have been circulated to the provincial ministers for signature if they find them in order.


EXTERNAL AFFAIRS
[Stage Direction]
On the orders of the day:
Mr. Barry Mather (New Westminster):: have a question for the Secretary of State for External Affairs. Having in mind Canada's efforts to encourage a Viet Nam cease fire, is the minister making fresh representations to
13S58
February 28, 1967

Inquiries of the Ministry the United States following the escalation of	HEALTH AND WELFARE
attacks on North Viet Nam by the United smoking-reported c.b.c. statement by States?	STANLEY BURKE


Hon. Paul Marlin (Secretary of Stale for External Affairs):: Before answering this
question, Mr. Speaker, may I direct your attention to the presence in the gallery of the executive committee of the Atlantic association of young political leaders, representing the 15 partners in the NATO alliance, who are visiting Ottawa at this time?


Some hon. Members:: Hear, hear.


Paul Joseph James Martin: In answer to the question, we have had discussions about the military actions to which the hon. gentleman directs my attention. It is a fact that Canada has encouraged, and is continuing to encourage, a reversal of the course of military events in Viet Nam. We recognize that this will depend on a mutually acceptable basis for a cease fire being found by both parties. Until a basis for a cease fire has been created, however, I am afraid that each side will continue to deploy its military effort in the way which it regards as best calculated to counteract the military efforts of the other side.


Hon. Gordon Churchill (Winnipeg South Centre):: May I ask a supplementary question for clarification. Has the minister received from the hon. member for Leeds certain reports with regard to his far eastern visit that would be helpful in solving some of the problems that so exercise the minister's mind?


Paul Joseph James Martin: Yes, Mr. Speaker.


John George Diefenbaker: Mr. Speaker, we have been led to believe that the hon. member was being brought back in a hurry because he had some information he wished to transmit. Would the minister let us in on the secret so we will be able to understand some of the actions suggested by the hon. member in consequence of his momentous tour?


Mr. Speaker:: Order. What the right hon. gentleman is asking for now is a statement to be made on motions.


Paul Joseph James Martin: Mr. Speaker, may I just reply-


Mr. Speaker:: Order, please.


Paul Joseph James Martin: -to the question, because I think my right hon. friend-


Mr. Speaker:: Order, please.

On the orders of the day:


Mr. Jack Roxburgh (Norfolk):: Mr. Speaker, I have a question for the minister of state. Has it been drawn to the minister's attention, by way of protest or otherwise, that last week Stanley Burke made a most insinuating and non-factual statement on a C.B.C. national newscast to the effect that the average Canadian smokes 14 cigarettes a day and that 32 die from respiratory diseases? I should like to ask the minister whether she is in favour of such a statement being made on a national news broadcast.


Mr. Speaker:: Order, please. I think the hon. member would welcome an opportunity to take this matter up on the adjournment debate.


John Maxwell Roxburgh: Ten o'clock, Mr. Speaker.



CANADIAN CONSTITUTION


[Stage Direction]
On the orders of the day:
Mr. G. W. Baldwin (Peace River):: Mr. Speaker, I should like to ask the Minister of Finance a question. Having in mind his admirable statement yesterday in connection with submitting the details of the Carter commission report for public discussion and debate with the provinces, would the minister use his very best brand of eloquence on the Prime Minister to persuade him to adopt the same course with regard to constitutional changes?


Mitchell William Sharp: Mr. Speaker, I do not think I need give the Prime Minister of Canada any advice whatever. He makes the most admirable decisions for the benefit of Canada.



CANADIAN BROADCASTING CORPORATION


[Stage Direction]
On the orders of the day:
Mr. Lawrence E. Kindt (Macleod):: Mr. Speaker, may I ask a question of the genial Secretary of State, with no citation for contempt. In view of the fact that perhaps only two or three technically trained people in the
February 28, 1967

C.B.C. are qualified to evaluate colour television, what	criteria-and	I emphasize
"criteria"-other than technical ones were used to justify the distribution of 107 colour television sets to ministers and employees reported to need them in their work?


Hon. Judy V. LaMarsh (Secretary of State):: Mr. Speaker, I cannot thank the hon. member for giving me notice of this question because, of course, he did not send me any. However, in this matter of colour television sets I should like to say that from the beginning, when various crown corporations were set up, it has been the practice of members of parliament not to inquire into matters which are purely questions of internal management. That has been the practice, though of course there is no question but that parliament may demand to be given any piece of information it chooses and, if it does demand it, will of course receive it.
None the less, this sort of question is tantamount to asking who has a dictaphone, either at home or otherwise, for use in one's business. It is tantamount to asking questions about any other piece of office furniture.


Some hon. Members:: Oh, oh.


Mr. Speaker:: Order, please.


Julia Verlyn (Judy) LaMarsh: I do not think I can be expected-


Mr. Speaker:: Order, please. I hesitate to interrupt the minister but I do not think she is answering the exact question asked. Perhaps I should recognize that the question should not have been allowed at this time. It is more properly the type of question that should be on the order paper. Certainly the minister is not answering the question which has been asked at this time.


John George Diefenbaker: Mr. Speaker, in view of the statement made by the minister does the C.B.C. take the stand that the distribution -"dispensation" is possibly the appropriate word-of colour television sets paid for by the people of Canada to people outside the C.B.C. is a matter of internal management?


Some hon. Members:: Hear, hear.


Julia Verlyn (Judy) LaMarsh: No, it is not. If the right hon. member refers to his question which is on the order paper, there will be an answer tomorrow.


John George Diefenbaker: Good.
Inquiries of the Ministry


Julia Verlyn (Judy) LaMarsh: The C.B.C. has taken the position that distribution within the corporation comes within internal management. I suggest to the right hon. gentleman that this is a hoax, much like talking about who pays for the furniture in the right hon. gentleman's house, the Prime Minister's house or Government House. All such furniture belongs to the people, and there should be no suggestion of impropriety in having it.


John George Diefenbaker: I suggest to the minister that the choice of the expression "furniture", considering events not far removed, was not very appropriate.


Mr. Speaker:: Order, please.


An hon. Member:: Cheap.


Lawrence Elliott Kindt: Will the Secretary of State join me in the late show and bring with her the answers as to who received the 107 television sets, and the criteria used for the distribution?


Mr. Speaker:: Order, please.



BRITISH COLUMBIA-REQUEST FOR HUNDRED MILLION DOLLAR FEDERAL LOAN

[Stage Direction]
On the orders of the day:
Mr. Howard Johnston (Okanagan-Revelstoke):: Mr. Speaker, my question is for the Minister of Finance. It arises out of the answer given yesterday to the question of the hon. member for Kootenay West. The question is this. Considering the reports that have been circulated in British Columbia within the last year by hon. members opposite, to the effect that large sums of federal money were available to British Columbia for the asking, does the minister not believe that a further explanation on the part of the premier of British Columbia is unnecessary?


Mr. Speaker:: Order. The question is argumentative.



EXPO '67 PROPOSED IMPORTATION OF VESSEL FOR USE AS FLOATING HOTEL

[Stage Direction]
On the orders of the day:
Hon. John N. Turner (Acting Minister of Transport):: Yesterday, Mr. Speaker, the hon. member for Skeena (Mr. Howard) asked me a question having to do with a possible application for the importation of a ship, the Florida, as a hotel ship for Montreal harbour to be
February 28, 1967

Inquiries of the Ministry used during Expo '67. I direct this answer to him.
The Department of Transport has not received any formal application for this purpose. However, persons interested in operating the ship in this manner have met with officials of the department to discuss what would be the department's requirements for the ship when used in such a service. They have been given details of rather extensive alterations that would be required in order to bring the ship up to the standard of safety appropriate to the intended use.



FISHERIES


[Stage Direction]
On the orders of the day:
Mr. T. S. Barnett (Comox-Alberni):: Mr. Speaker, I have a question for the Secretary of State for External Affairs arising out of an answer he gave me yesterday when I asked whether he would let the house know when he would begin establishing base line co-ordinates. He said at page 13502 of Hansard:
I will be glad to do so.
May I ask the minister whether today is the day when he will put these glad tidings in terms of specific calendar dates?


Paul Joseph James Martin: I hope to be in a position to do so very soon.



AIR TRANSPORT


[Stage Direction]
On the orders of the day:
Horace Andrew (Bud) Olson: I wish to direct a question to the Minister without Portfolio who I believe is the Acting Minister of Transport. Has the Department of Transport issued an order respecting the DC-6 and DC-7 aircraft, restricting the altitude at which they may fly and their pressurization?


John Napier Turner: Mr. Speaker, I had better look into that and let the hon. member know the answer.



POST OFFICE DEPARTMENT


[Stage Direction]
On the orders of the day:
Mr. Robert Stanbury (York-Scarborough):: My question is for the Postmaster General.

Can the minister report to the house about the walkout of letter carriers this morning at Weston, Ontario?


Mr. Cote (Longueuil):: Mr. Speaker-


Mr. Speaker:: Order, please. I doubt whether this is a matter of national urgency. If the hon. member feels it is, he may want to discuss the matter at ten o'clock.


Robert Douglas George Stanbury: In view of the history of the walkouts such as this which have spread across the country, I think my question is of national importance.


Mr. Speaker:: Then I invite the hon. member to have the matter debated this evening. That debate is only a matter of hours away, and I am sure he will receive a more satisfactory reply than he would on orders of the day.


Joseph Julien Jean-Pierre Côté: Mr. Speaker, I wonder if you would allow me to say that the letter carriers at Weston were back at work at one o'clock today.


Mr. Speaker:: No.


Some hon. Members:: Oh, oh.


Mr. Knowles:: Just like the Minister of Finance; he says "no" and means "yes".



LABOUR RELATIONS


[Stage Direction]
On the orders of the day:
Herbert Wilfred Herridge: Mr. Speaker, I apologize for rising again, but I have two very important questions to ask this afternoon.


An hon. Member:: Happy birthday, Bert.


Some hon. Members:: Hear, hear.


Herbert Wilfred Herridge: My question is addressed to the Minister of Labour. Mr. Speaker, if you will pardon me, I must say I appreciate your kind congratulations and the kind congratulations of members of the house. After 22 years in the house I find I have something in common with all parties here. I am a bit of a Conservative because I do not like coloured socks and loud suits. I am attracted to the Liberal party because I am very fond of the Liberal lady members on the government side
February 28, 1967	COMMONS
of the house. I have a certain amount of admiration for the Social Credit party because I like the "farmer approach" to parliamentary procedure taken by the hon. member for Medicine Hat. I love the Creditistes because although at times they are in my opinion strictly illogical, they are adorable.


Some hon. Members:: Oh, oh.


Herbert Wilfred Herridge: Someone has asked me to tell about my own party. I am a member of the New Democratic Party and proud that all the youth movements in our party recognize that I am way out on the left as far as economics and the cultural revolution are concerned.
Now I should like to address a question to the Minister of Labour. Has the minister been informed that a seaman, a member of the Seafarers International Union, has been placed on charge by the officers of the union for criticizing the payment of over $20,000 to Mr. Rod Heinekey, former vice president, at the time of his resignation?
Since the trial of this seaman is to take place in Quebec city on March 9, would the minister refer this case to the board of maritime trustees for their investigation and report to him?


Mr. Speaker:: The hon. member is, I am sure, entitled to a reply on this very particular date.


John Robert (Jack) Nicholson: May I join in the congratulations extended to the genial member for Kootenay West on his birthday-


Some hon. Members:: Hear, hear.


John Robert (Jack) Nicholson: May I also thank the hon. member for his customary courtesy in giving notice of his intention to ask the question. In reply may I say that I have already caused inquiries to be made of the chairman of the board of maritime trustees and will report to the hon. member later.



INQUIRY AS TO PERSONNEL OF PROPOSED CROWN CORPORATION

[Stage Direction]
On the orders of the day:
Robert Muir: My question is for the Prime Minister. Would the right hon. gentleman clarify the situation with regard to the Cape Breton development corporation concerning
Inquiries of the Ministry which there have been some questions in recent days? Will the personnel of the corporation be announced prior to the introduction of the legislation to set up this body, or at a later stage?


Lester Bowles Pearson: I cannot add substantially to what I said yesterday. It is difficult to announce exactly when the appointments to the corporation will be made public until we have concluded our discussions with DOSCO itself. It may well be possible to announce the personnel of the corporation before the legislation is dealt with, but I am not sure yet.



BIRTHDAY GREETINGS AND GOOD WISHES TO SENATOR ROEBUCK

[Stage Direction]
On the orders of the day:
Mr. Frank Howard (Skeena):: I should like to ask the Prime Minister whether he would mind extending our most sincere good wishes for continued health and activity to a parliamentarian who I think has earned the respect of everyone by his activities in the past, and who today celebrates his 89th birthday anniversary. I refer to hon. Senator Roebuck.


Some hon. Members:: Hear, hear.


Lester Bowles Pearson: I will be very glad to do that, and I know that my hon. friend in the other place will be grateful to the hon. gentleman for bringing this to our attention, and for the good wishes of the house.
Hon. Paul Hellyer (Minister of National
Defence): Since the hon. senator is the senator for Trinity, the constituency I have the honour to represent in this house, I should like to join in that salutation.


Mr. Speaker:: Perhaps on this pleasant note we can call orders of the day.



INCOME TAX AMENDMENT


[Stage Direction]
The house resumed, from Monday, February 27, consideration of the motion of Mr. Sharp for the second reading of Bill No. C-259, to amend the Income Tax Act and to repeal the Canadian Vessel Construction Assistance Act.
[Stage Direction]
February 28, 1967
Income Tax Amendment
Hon. J. W. Monleilh (Perth):: Last evening the minister outlined in some detail with the contents of Bill No. C-259. He told us that it could really be considered in four categories. The first category would be implementing budget resolution No. 11 of last March, dealing with deferred profit sharing plans, budget resolution No. 12 dealing with the transfer of pension plans or retiring allowances into a deferred profit sharing plan, and budget resolution No. 13 dealing with supplementary unemployment benefit plans.
Then he explained that the second category had to do with the repeal of the Canadian Vessel Construction Assistance Act. The third category dealt with provincial abatements which are necessary to change and extend the abatements of personal and corporation income tax on income earned in a province in accordance with federal-provincial fiscal arrangements. The fourth category he described as consisting of miscellaneous amendments intended, I gather, to tidy up the act and assist in its administration. All in all, this represents a comprehensive package to be contained in one bill.
The bill has been before us since December 21, 1966 and now, as a result of representations, the minister is offering several amendments. The hon. gentleman called this measure a complicated one. Having spent a good deal of time trying to analyse not only the minister's words of last evening but the amendments he proposes to make, I cannot but agree with him. It is most complicated. I should like to thank him, however, for following a somewhat unusual procedure, as he himself said, by giving us advance copies of the amendments he proposes to introduce as we proceed with the clause by clause study.
In his remarks on second reading the minister referred to his budget speech of March 29, 1966 and said he wished to prevent abuse of the provisions dealing with profit sharing plans. I agree that abuses at the expense of the employees must be stopped. I have read the minister's speech very carefully and I must admit that some of his explanations sound reasonable enough. I trust, however, that the circumstances described in "The Tax Corner" of the Globe and Mail of February 24, 1967 will not prevail. I should like to mention that this article does throw considerable doubt upon what the minister is trying to achieve in the bill before us.
[DOT] (3:20 p.m.)
I should like to read one excerpt, which incidentally, is by Mr. H. Heward Stikeman

in the Canada Tax Service Letter and which has been reproduced in this article "The Tax Corner":
In these amendments, the government is indulging its growing propensity for using massive legislation to block relatively isolated and minor abuses. The side-effects of the amendments could be more detrimental to the tax-paying public than the loopholes they seek to close. Also, because of their extremely harsh sanctions and the retroactive effect on profit sharing plans already established which are, in many cases, almost impossible to alter, little incentive is left to the businessman to continue or start plans of this type for his employees. The rules of the game have been once more changed in midstream without warning and incentive legislation has proved a trap for the innocent majority because of the antics of a daring few.
I should like to point out also that the article contains a speech delivered by the hon. member for Kamloops (Mr. Fulton) to1 the Toronto Junior Board of Trade in which he raises doubts and criticizes the retroactive features of this bill concerning profit sharing plans. I assume that the hon. member for Kamloops will be speaking later.
Several matters are brought up in that article which seem to point out that there is discrimination in retroactive legislation here, which is not good. I do not intend to go into details at the moment, but I am inclined to think some of these retroactive and very harsh features of Bill No. C-259 may be somewhat alleviated by the proposed amendments. In endeavouring to apply the proposed amendments to the bill itself I found that time seemed to run out before I could analyse the whole situation. As a consequence I am afraid we will have to leave discussion in this regard until we are considering the bill clause by clause.
There is one inquiry I should like to make of the minister which he may answer later. Has the minister met with representatives of the shipbuilding industry, and are they satisfied with the proposed amendments regarding the Canadian Vessel Construction Assistance Act? Other members will have something to say in this regard, Mr. Speaker; but there is one clause in Bill C-259 which I am assuming the minister includes in category 4, namely "miscellaneous amendments". Possibly he or his advisers consider this to be a tidying up clause, but I view it with some alarm. I refer to clause 21. It seems to me the government is using this amendment to the Income Tax Act, which really constitutes a new section, to continue its progress toward a completely regimented society. They seem to be
February 28, 1967

continuing their trend toward making us all numbers.
If we might recall the history of this numbering business for a moment, I should like to point out that it first came about when a new system of numbering was developed for unemployment insurance purposes. At that time various instructions went out to teachers and others to register, even though they were not obliged by law to do so. They were instructed to register and obtain what was to be called a social insurance number. Subsequently this was extended so the same numbering system would be used for the purposes of the Canada Pension Plan. Back on April 8, 1964 the Prime Minister stated this was not to be used for income tax purposes. This was an interjection by the Prime Minister as the consequence of a question asked by the right hon. Leader of the Opposition. Now this numbering business is to be extended compulsorily to everyone who files an income tax return. So, Mr. Speaker, I am guessing that every new child soon will be registered as a number. Personally I do not like this trend.
Aside from the intent behind clause 21, as the minister has stated the bill is very, very complicated. I do not propose to discuss it further on second reading, but I hope we shall receive full and complete explanation when we reach the committee stage.


Mr. David Lewis (York South):: Mr. Speaker, I have read the minister's speech of yesterday very carefully. I must congratulate him on his lucidity. At the same time I admit that at the end of it I was not much more enlightened than I was at the beginning, but that is not at all his fault; the complexity of the matter which is before the house is responsible. My dullness and lack of experience in the field make it difficult for me to follow the precise terms of what the minister proposes. So my remarks on behalf of this party on second reading will be very brief indeed.
I cannot do other, Mr. Speaker, than say that all of us in our party are happy that the minister has attempted to close holes which were in the law before. I cannot say anything but words favourable to the idea that the use of the profit sharing plan for the purpose of tax evasion should be stopped. I am particularly pleased that the amendments require the vesting in the employee of any allocation or reallocation of funds.
I am equally glad that the minister makes another demand on the employer which I
Income Tax Amendment know from experience to be very important; that is, that the beneficiaries must be informed of their rights. Usually their rights are as complicated as the minister's bill, and it is a difficult for the employees to understand precisely what they are entitled to in many of these profit sharing plans as it is for some of us to understand precisely what these amendments will mean in practice.
Finally I greet with pleasure the fact that the new rules will place some limitation on the kind of investment trustees of such profit sharing plans can make. Obviously those limits are placed there for the purpose of protecting the funds against any possibility of erosion through economic action which might affect the investments.
These are the things which we greet with pleasure. They are necessary. I look forward to the minister's promised explanations on each clause and subclause as they are taken up in the committee of the whole. I hope that any fears I may have in this regard will be dissipated when I understand the details a great deal more than I can honestly say I do now. Because of the general reasons that make the amendments socially desirable we support this bill on second reading. If hon. members hear a shorter speech at this stage I should like to know about it.
[DOT] (3:30 p.m.)


Mr, H. A. Olson (Medicine Hat):: Mr. Speaker, the hon. member for York South (Mr. Lewis) may very soon hear a shorter speech on second reading. I must agree with him and with the Minister of Finance (Mr. Sharp) that this is a complicated bill. Any attempt to launch into a debate at this time in respect of all the facets of the bill would, I believe, be fruitless. Surely it would be better to deal with the various aspects raised when we come to them individually.
There are one or two questions 1 should like to ask and I hope the minister will deal with them during his remarks in closing the debate on second reading. Last night the minister mentioned different categories of amendments, some of which deal with provincial tax abatements. I am wondering whether these amendments result from agreements between the provinces and the federal government and whether we can look forward to this type of agreement on a continuing if not on a permanent basis. On the other hand, perhaps they are necessary to tidy up certain arrangements pending a full scale federal-provincial conference which I presume will be convened
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February 28, 1967
Income Tax Amendment before long. Perhaps the minister would indicate whether these amendments have been prepared to take care of different situations between now and the time the recommendations of the Carter commission are put into effect or until a completely new approach is adopted in respect of federal-provincial tax sharing.
The minister also referred to what he called miscellaneous amendments. On looking through the bill I found several things which might fall into this general category. Last night the minister mentioned certain amendments relating to the Canadian Vessel Construction Assistance Act and indicated that they did not all appear together in the bill. I am wondering whether, during the clause by clause study of the bill in committee, we will consider the various categories of amendments in sequence.
I do not intend to say anything more about the bill at this time except that it would be helpful if the minister would reply to the three general questions I have raised.


Hon. E. D. Fulion (Kamloops):: Mr. Speaker, I regret that I must introduce a rather harsher note than has been sounded by either of the last two speakers representing the New Democratic Party and the Social Credit party, but I find after studying this bill that it contains features which are so objectionable that they render the bill, whatever its primary objective may have been, unacceptable in principle.
The minister has explained that in so far as deferred profit sharing plans are concerned a part of the bill is intended to plug loopholes and to eliminate abuses. One cannot take issue with that objective. If a responsible minister finds that certain schemes introduced to enable taxpayers and their employers to enter into desirable arrangements are, because of some loosely worded legislation, being used for other purposes than those for which the legislation was enacted, resulting in substantial losses to the treasury, I do not think any responsible legislator could take objection to the plugging of the loopholes. Legislation to prevent abuse is one thing, but the enactment of retroactive legislation having the effect of making illegal today a whole arrangement that was legal, proper and approved by the minister yesterday, is another thing. I object very strenuously to the principle of making criminals out of Canadians by retroactive legislation. My very strong belief is that only the courts can decide whether or not Canadians are guilty of criminal offences.

This legislation at least opens the door, if it does not accomplish it in actual fact, to a situation whereby a profit sharing scheme worked out under legislation in effect until now, and approved by the minister and registered, becomes illegal. This legislation does more than plug loopholes which may have existed. I have read the bill several times and have read the minister's statement and it may be that I am wrong in my analysis of the effect of this legislation. If I am I will be blad to have my error pointed out. However, because I believe I am right in this regard I feel I must oppose the bill.
Not only does the bill state that a plan must not in future acquire certain heretofore approved securities and investments, now to be called non-qualified investments it must also divest itself of securities of this type acquired yesterday, notwithstanding the fact that the minister approved of such acquisition. In other words, a plan must not only refrain from making this type of investment in the future, it must dispose now of previous investments, and will be subject to the imposition of tax on parts of the proceeds.
Apparently the minister does not disagree with that analysis of the provisions of the bill. Taxpayers who have entered into this kind of an arrangement, under which certain securities were acquired for purposes of an approved profit sharing plan, are now told that what they have done, notwithstanding the formality of approval, will be illegal as from now on and that what was done legally must be undone. These people who acquired these securities, under arrangements which provided that tax on income would be deferred until the plan went into effect and profits were distributed to employees, are now required to dispose of them tomorrow, and they will be required to pay taxes on part of the proceeds of disposal.
Surely this is an exemplification of an aggressive bureaucracy reaching out to take into the coffers of government the proceeds of the sale of taxpayers' property which they are now compelled to dispose of, although they never had any intention of using this property in this way when their plan was set up and approved under the original legislation passed by parliament. It was for this reason that on another occasion outside the house I characterized this legislation as not just bureaucracy run wild but bureaucracy run hog wild. I believe it is time that we in this house served notice on the government, the minister and the Department of National Revenue that we
February 28, 19G7

are going to oppose strenuously this approach to income tax legislation which has the effect that, under the guise of plugging a loophole, hitherto legal and proper actions are swept in and made subject to tax penalties. After all, Mr. Speaker, Canadian taxpayers have rights too, or they should have rights. That is the principle that should be followed here.
[DOT] (3:40 p.m.)
Legislation may be enacted which has clear and specific effects for the future and taxpayers can study it and be advised as to what they may or may not do, but it is surely not acceptable that taxpayers who have studied existing legislation and taken advice as to what they may or may not do, and have had that advice approved by the minister in the form of registration, should now be told that what was sanctioned by the administration yesterday is improper today, that not only can they not continue to do what they were doing, but they will have to pay a penalty for having done it. I object so strongly to that approach in income tax legislation that I intend to oppose the bill.
Another reason why I oppose the bill is that, if it goes through, as I appreciate it deferred profit sharing plans which are designed to benefit the employees of a company may not be operable in the future except with respect to the larger type of public company. As I understand it, under the legislation or regulations it is intended to provide that these plans cannot be applicable with respect to shares which contain any restriction as to their transferability. In the case of almost every private company, the family type corporation there is a restriction on the transferability of shares. There is a provision which has the effect that if a shareholder wishes to alienate the shares he must first offer them to an existing shareholder at the same price per share as contained in any bona fide offer from outside, and the existing shareholders have the right to exercise that option within a limited period.
That is the nature of a private company. It is incorporated on the basis that a small number of people, having carried on business and being unincorporated, wish to take advantage of the various benefits conferred by corporate structure but they do not want to change the relationship and suddenly find, without notice, some outsider being brought into the corporate enterprise as a shareholder. That is the reason for the restriction on the transferability of shares, and it is a perfectly proper, valid and normal reason. But this is
23033-858J
Income Tax Amendment precisely the type of company that may grow through the enterprise and skill of its managers or owners and eventually employ perhaps 20, 30, 50 or 100 people. It is still a small company. It is desired that those employees will be placed in the position, because of their long and faithful service through which they have established an identity of interest with the company, that when the principal shareholders die, they can, through participation in a profit sharing plan, have an opportunity to acquire ownership of the shares.
This system operates in other ways which represent very direct advantages to Canada. If the employees are not in a position where under a profit sharing plan they have the assets to buy the shares, the shares will probably have to be put on the market and sold to the highest bidder if for no other reason than to meet estate taxes imposed by the federal and provincial governments. It has been the practical experience that all too often in such cases the highest bidder is foreign capital. The profit sharing plan represented a very advantageous means by which Canadian employees were placed in a position where they could acquire these shares on the death of a principal shareholder. Employees who otherwise could not have accumulated the capital required to put them in an ownership position have been able to acquire ownership under this system.
This is surely desirable social progress; we should encourage and assist people to become owners and operators of enterprises. That advantage will be gone under this legislation, and the estate of a principal shareholder will be forced to put the shares on the market in order to pay the succession duties. The shares will be sold and the company will probably come under foreign ownership. That is why it is very important in my view that the benefits and advantages of deferred profit sharing plans, inasmuch as they are to be allowed to continue under the new legislation, should be available to the private corporation as well as the large public company which does not have that kind of restriction on the transferability of its shares.
The other objection I have to the bill concerns clause 21, the "numbers clause". Not only are we invited by this bill to pass retroactive legislation making criminals out of Canadians for having done things which yesterday were perfectly legal but we are invited to join in the process of further reducing

February 28, 1967
Income Tax Amendment society to a grey, numbered mass. I am satisfied that one of the very grave concerns in the minds of Canadian people today, and especially in the minds of younger Canadians, is whether they will be able to maintain any individual identity, any dignity, any personal existence, any personal privacy in the kind of organized society which they see growing up around them. I am satisfied that protest and resentment against the growing, grey anonymity imposed by society and big government on the individual have been the reason for these otherwise inexplicable waves of protest-riots, if you like-that every now and then shake some of our larger urban centres.
Here we have a further extension of this process. I realize that in an age of automation when payments and benefits are calculated by computers, numbers are important, so that perhaps to some extent we are compelled to accept the numbering of recipients of benefits such as old age security and the Canada Pension Plan. But now we find in a bill to amend the Income Tax Act the provision that everyone who files an income tax return shall have a number. I protest vehemently and vigorously against this unnecessary and what I can only describe as attempted stealthy extension of the numbering system into Canadian society.
What is the minister doing? Is he trying to play the numbers game in this house? Why does he introduce a provision of this sort into the Income Tax Act? Let the pensions legislation and other legislation with regard to which numbers may be necessary have such a provision, and let the argument be made there and stand upon its merits. But what right has the Minister of Finance to do this in a bill to amend the Income Tax Act, a bill dealing with the filing of income tax returns? By what assumption of authority does he seek to have this house impose upon Canadian taxpayers, without reference to anything else, the obligation to take out a number when they file their income tax returns? It appears to me that the minister is trying to play the numbers game with legislation here in the House of Commons, and I have always understood that the numbers game is a pretty shady sort of racket.
[DOT] (3:50 p.m.)
For these reasons and for the reasons outlined by the hon. member for Perth (Mr. Monteith) I must oppose the bill because while some of its objectives are desirable except for the social security numbers, in our

view the objectionable principles and features in the bill outweigh its advantages. It is not as though the objectives could not be accomplished by legitimate and acceptable means. The minister could introduce a bill which said that in the future all deferred profit sharing plans must comply with these new provisions, and we could have an honest debate on this matter. However, when he introduces a bill which says that not only must profit sharing plans comply in the future but that those plans which yesterday were legal, legitimate and approved by the minister will tomorrow become illegal, unacceptable and must be subject to a tax penalty on the disposition of the proceeds, then I say that no objective justifies the insertion into legislation of this unacceptable principle.


David Lewis: May I ask the hon. member for Kamloops (Mr. Fulton) a question? Is the hon. member suggesting that it would be socially preferable to have two classes of plans, one class which would benefit from a previous set of rules giving them greater advantages and another class which would benefit from a new set of rules and would not have those advantages? Is it better to have two classes of plans rather than to have legislation which would reduce them all to the same kind of plan?


Edmund Davie Fulton: I think I have made my position perfectly clear. I object in principle to making illegal and virtually criminal something that was legal and specifically approved in detail by the minister. If the only course is to have one class under former legislation and a new type under legislation introduced today, then that is the position we must accept. But I hope that the hon. member for York South, as a lawyer and as a defender of civil rights and liberties, will join me in opposing legislation which seeks retroactively to make Canadian taxpayers criminals and lawbreakers for doing something for which they had the specific approval of the minister. I hope that the hon. member will join me in opposing that type of legislation.


David Lewis: May I ask the hon. member a further question?


Mr. Speaker:: Order, please. Is the hon. member for Kamloops prepared to allow the hon. member for York South to ask a further question?


Edmund Davie Fulton: Mr. Speaker, I think it would be better if that were done in committee.
February 28, 1967	COMMONS


Thomas Speakman Barnett: Mr. Speaker, I have listened with interest to the speech of the hon. member for Kamloops (Mr. Fulton), as I always do. I must say that, like my colleague for York South, I do not pretend to comprehend fully all the details of this bill. I made an attempt to understand the various clauses as best I could but I must say that I was completely unaware of some of the sinister philosophical undertones in the legislation which the hon. member for Kamloops sees in it. It has become obvious to me that when the bill is considered in committee a good deal of the discussion on the clauses of the bill will centre around the different aspects of the legislation. This is to be expected in view of the heading which appears in yesterday's Hansard, preceding the minister's speech on second reading. It appears to put the emphasis on the incorporation of provisions in the Income Tax Act analogous to those contained in the Canadian Vessel Construction Assistance Act.
My only purpose in participating in the debate at this stage is to say a word about an aspect of the legislation which was not touched upon by my colleague from York South, namely, the proposed repeal of the Canadian Vessel Construction Assistance Act.
I have looked at the clauses in the bill relating to the existing provisions of that act and I find myself in agreement with the recommendations of the minister in this connection. In fact I am prepared to go somewhat further and to congratulate the minister on having had the foresight to take a course which in my view eliminates what was largely a piece of political window dressing introduced by a former Liberal administration in the immediate post-war period when a hue and cry was raised regarding the future of our merchant marine and of the Canadian shipbuilding industry.
As I understand the Canadian Vessel Construction Assistance Act, it is really an act which could very well have been incorporated in the Income Tax Act had it not been for what appears now to have been a ploy at the time to give some comfort to those engaged in Canadian vessel construction. Therefore, to the extent to which the minister is in effect rationalizing the legislation on our statute books by putting the provisions of the Canadian Vessel Construction Assistance Act where I think they should have been in the first place, in the Income Tax Act, I am happy to support the minister's move in that direction.
Income Tax Amendment


Mr. G. H. Aiken (Parry Sound-Muskoka):: Mr. Speaker, the remarks I should like to make in connection with this bill are more in the nature of a protest at the method by which the principle is evolved rather than against the principle itself. I am referring to clause 21 of the bill which contains a definite principle that is to a large extent not connected with the bill, and requires every person filing an income tax return to have a social security number. The hon. member for Perth (Mr. Monteith) quoted a statement that the Prime Minister (Mr. Pearson) made as long ago as 1964 in connection with the use of social security numbers. There are a number of other occasions on which members of the government have solemnly assured the house and committees of the house that it was not the intention of the government to make the social security numbers applicable to everyone in Canada for every purpose. My objection is based on the fact that if clause 21 is adopted the process will be completed and practically everyone in Canada will be identified by a social security number, o (4:00 p.m.)
In an automated society such as we have at present we must recognize the need for a certain amount of numbering. In fact, I could not conscientiously protest the use of numbers in plans the government brings forward in connection with social justice measures. One could not do so because such plans could not be operated without a reasonable system. To that extent I have to go along with the fact that numbering is necessary in many of the plans that are brought before parliament.
What I protest most strongly is that all the time the government was stating this was not what it intended to do it was in fact, through a series of four or five pieces of legislation, doing exactly this. If we adopt this bill the process will be complete. I should like to outline for a moment how this has been accomplished through a series of enactments that we have passed. It is the way it was done that I wish to protest. If the government had started out by saying, we are making plans for the Canada Pension Plan, for medical insurance later and for automating the income tax set-up, as well as a number of other things which will require social insurance numbers, then we could have had a debate on this subject. We could have settled the matter.
The government would probably have won such a debate because I suspect it would have had the support of the New Democratic Party. We would possibly have lost the battle if we

February 28, 1967
Income Tax Amendment had chosen to oppose the legislation. However, this is not the point I am trying to make. The point is that all the time the government has been protesting that it was not doing this it has in fact been doing it. From the start of the Canada Pension Plan until today we have been assured time and again that the only reason social security numbers were required was related to the Canada Pension Plan. We were told that the numbering would not extend to everybody in Canada but would cover a limited number of people because there would be many people who would not be included in the Canada Pension Plan. We accepted this statement at face value. The Canada Pension Plan came into effect and social security numbers were adopted.
Social security numbers are being used now in connection with other acts parliament has passed and they are being extended to cover the whole field. Following the adoption of the Canada Pension Plan other acts were passed. The most recent was the bill covering the old age pension supplement. Under the Canada Pension Plan everyone who was employed in Canada was covered by a social security number. The self-employed earning over $800 per year, being the majority of Canadians, were also included. However, there was still a group of people who were not included. Recently the old age supplement was brought into existence and it included all the elderly from those who had no income whatever right up to those who had an income of $720. If they draw an old age pension of $900 a year and have another $720 from other income they are within the taxable area, so all the elderly are included and there is no one left who will not be registered under a social security number. It is possible, Mr. Speaker, that this is why the $720 level was selected in the original plan for the old age pension supplement, so that it would provide a group of persons drawing old age pensions who would be eligible for social security numbers?
The present clause 21 in this bill will take in everybody else because it covers every individual who is required to file an income tax return. There will not be anyone left by the time you include those who have an income of not less than $800 under the Canada Pension Plan and by the time you add those covered by the old age supplement and the medical insurance legislation we have just passed. We will find that everybody in Canada is covered by a social security number. My objection is that the government has sneaked up on us in this matter. I feel that

they have done so by the inclusion of a section in our income tax laws which really covers a fundamental principle in social legislation, and have tucked it away in a bill having to do with the Canadian Vessel Construction Assistance Act. I noted that last night the minister dealt with the other clauses up to clause 19 and then stopped. I do not know if he had any ulterior motive but he never got to clause 21 when he was explaining the provisions of the bill. I do not know whether we were intended to overlook that or what the intention was.
There is a fundamental principle involved here and it is stuck in the middle of a bill making an amendment to the Income Tax Act. This clause should be the subject of a separate vote and the change should have been made three years ago, not in 1967 when the process has been completed. My objection is to the way in which this program has developed. One bill after another has been introduced which included more persons who were subject to public returns and all this time the government has been saying it was not applying this principle to this group or that group. They have by stealth completed the process of implementing a principle on which we should have voted two or three years ago. c (4:10 p.m.)
The unfortunate part, Mr. Speaker, is that having once established this principle and the numbering system it is very difficult now to stop using it. If the government had been forthright with the house in the first place when these social security numbers were introduced and had said that we were going to use them for purposes of all social legislation from now on. including income tax purposes, then we could have made a stand on the matter at the time and settled the principle. Perhaps the principle would have been adopted, but at least the people would have known what they were supporting and voting for in the election which took place in November, 1965. But this has not happened, Mr. Speaker, and it is why I protest strongly at the present time.


Mr. Steven Otto (York East):: Mr. Speaker, my remarks will be brief. I was very interested in what was said by the hon. member for Kamloops (Mr. Fulton). It is a very disturbing thought, as the hon. gentleman put it, that this house is approving a bill which may be
February 28, 1967

inequitable in its effect. What the hon. gentleman suggested was that the element of retroactivity is not fair. He said that it is unfair for the government and for this house to say to any company which has established a pension plan that we have given them a clean bill of health but we are now going to make them pay a tax and possibly a penalty as a result of what they have done in the past.
That may sound very logical, Mr. Speaker, but I put it to the hon. gentleman that there are two kinds of companies which come to the minister. There is the one class which definitely intends to set up a pension plan. These companies have an honest intention to set up a workable and feasible pension plan. However, I think the hon. gentleman will also admit that there is another class that comes to the minister for approval not with the intention of establishing a pension plan but with the intention of avoiding payment of income tax.
I am sure that most of us in this house, Mr. Speaker, have had experience of a pension plan set up by a company to provide a pension for its employees. Under such a plan the contributions are usually made by the company; there is seldom a contributory element requiring participation by the employees. Mind you, Mr. Speaker, this is very generous, but in most cases the vesting period of the plan is 20 to 30 years which means that none of the employees is entitled to draw a pension from the plan until the end of that period. Obviously some employees would never last 20 years.
It is also to be noted that the trustees of the plan who direct the pension fund are often the directors and sometimes the owners of the company concerned. And, Mr. Speaker, lo and behold, after a few years these directors decide that the best investment to make on behalf of the pension fund is in the shares of the parent company. As time progresses the pension fund invests in these shares at what are called reasonable prices, though sometimes they are higher than the market value. Shares owned by the directors of the company are sold to the pension fund.
As I say, Mr. Speaker, seldom does one employee derive any benefit from the pension fund because the employees of the company seldom outlive the vesting period of the fund. By this means the directors of the fund, without any intention of paying out any benefits, have been avoiding the payment of tax in that contributions to the pension fund are
Income Tax Amendment deductible for tax purposes. And this goes on in perpetuity. All those who have practised law, Mr. Speaker, know that this sort of thing takes place, and I think the hon. gentleman for Kamloops would admit it is not fair.
I think it is fair to say that very few companies would object to the retroactivity clause; and I suggest that those who came to the minister in all honesty with the intention of establishing a good pension plan will not be the serious objectors. The companies we are asked to protect are those which sought the minister's and the department's approval of a plan which, though it complied with the rules, was not intended to be primarily a pension plan but a means of avoiding the payment of tax. These are the companies which will object most strenuously.
I put it to hon. members that it would not be fair to allow these people to enjoy the benefits of what could be termed their fraud by protecting the few who might object to the retroactive element in this bill. I put it to the hon. member for Kamloops that this bill is the fairest way of making all pension plans come within the regulations and I repeat that it is my opinion that very few people with honest intentions will have any serious objection to this legislation.


Frank Howard: Mr. Speaker, I have only a few remarks. They have been prompted by the speech of the former leader of the Conservative party in British Columbia, the hon. member for Kamloops (Mr. Fulton). I was very much interested in his denunciation of a proposed piece of legislation which will make something illegal which was hitherto legal. I think that was the force and effect of part of his argument.


Edmund Davie Fulton: My objection is to the retroactive effect not to stopping this being done in the future. My objection is to saying that what was done in the past and which was specifically approved at the time, now becomes, in effect, illegal even at the time it was done and has to be undone.


Frank Howard: Mr. Speaker, this clarification assists me. I must commend the hon. member for Kamloops for his very agile and forceful way of putting up a good fight for a very bad case, if I may put it in that way.
On listening to the hon. member I was reminded of the time in 1960 when the hon. gentleman was minister of justice and piloted through parliament a bill amending the Combines Investigation Act. I submit that at that time the hon. gentleman was author of a

February 28, 1967
Income Tax Amendment piece of legislation which did the very reverse of that about which he now complains. In effect it made something legal which had previously been illegal and by a variety of circumstances authorized an illegal act, namely, a conspiracy to fix prices, especially in the production, distribution and sale of raw fish in British Columbia. Prior to 1960 an inquiry was conducted by the combines investigation branch into the production, distribution and sale of raw fish in that province. This matter was delayed for many years as a result of a number of court actions and to my knowledge the case never did come to trial, though it may have in later years when interest in the subject had died down. In any event the allegation was that the fishing industry as one element and the companies in the industry had entered into an illegal conspiracy to fix prices.
[DOT] (4:20 p.m.)
The hon. member, who was then minister of justice, in introducing amendments to the Combines Investigation Act took the course of saying that what was previously illegal should be made legal. Consequently he piloted amendments through the house and the banking and commerce committee which, incidentally, were supported by the hon. member for Parkdale (Mr. Haidasz).


Mr. Speaker:: Order, please. I will recognize the hon member for Kamloops in a moment. I allowed the hon. member for Skeena to continue along the line he has been following because I thought he wished to establish an analogy between two situations. Certainly, the discussion he is now embarking on is, to my way of thinking not relevant to the bill before the house.


Edmund Davie Fulton: I rise on a question of privilege and not to enter into any detailed debate on the matter to point out that the hon. member for Skeena has completely misstated the effect and the intention of the legislation I introduced in 1960. It did not have, nor was it intended to have, the effect he outlined.


Mr. Speaker:: Order, please. Perhaps it
might be simpler if we returned to considering the bill before the house.


Frank Howard: I am amazed at the sensitivity of the hon. member for Kamloops. Having successfully drawn my analogy, having drawn blood by way of a protest, and having gone far enough to prove the case beyond doubt, in view of your admonition, Mr. Speaker, I shall resist going further into the very poor case

that the hon. member for Kamloops tried to sell the house.


Gordon Harvey Aiken: Talk about agility.


Mr. H. R. Ballard (Calgary South):: Mr. Speaker, I rise to make two serious objections in a general way to some provisions of the bill. I shall be more specific when we consider the bill clause by clause. One point has to do with deferred profit sharing plans and the amendments in regard thereto in the bill. Section 79C of the Income Tax Act and the amendments to that section in this bill must be considered together as dealing with deferred profit sharing plans. The matters dealt with are not necessarily pension plans, as implied by the hon. member for York East (Mr. Otto). A deferred profit sharing plan can be used for a number of different circumstances. It need not be used as a pension plan for employees.
Many taxpayers of Canada have interpreted section 79C in this light. This is shown by what some taxpayers have done since section 79C was introduced in 1961. The original section 79C laid down a number of regulations governing a deferred profit sharing plan. For example, such plans had to be registered with the Minister of Finance. Instructions were given by the minister about the types of plans which could be registered with him.
The act laid down general criteria about how trust funds could be used. Then, as so often happens, a general clause was included. Section 79C, subsection (2) (g) is the catchall part of the act. It reads as follows:
(g) the plan, in all other respects, complies with regulations of the governor in council made on the recommendation of the Minister of Finance.
It is apparent that if the regulations were not broad enough to catch all the situations the minister had in mind he had this particular clause to fall back on when making additional regulations. As a matter of fact he used this clause to some extent in issuing directives to the various income tax offices for their guidance in assessing these plans.
I am particularly concerned about what the hon. member for Kamloops said this afternoon in regard to the retroactivity of the legislation and the fact that quite a number of profit sharing plans will now be more or less discarded. It was apparent to the Minister of Finance, I believe, that a number of profit sharing plans were instituted for the purchase of life insurance on the lives of principals of companies, and that eventually, on the death of the principal shareholders,
February 28, 19B7

the employees would be enabled to buy out the concern without selling its assets. I say that the minister was aware of this because we have this guide line issued by the department. I quote guide line No. 5, as contained in the Canada Tax Service Letter dated January 31, 1967:
Where the funds of the trustee are used to pay life insurance premiums, they must not be directed to the purchase of term insurance. The proceeds of the insurance must always be payable to the trustee.
This, I maintain, proves that the minister was aware that some of these trusts set up under profit sharing plans were buying life insurance on the lives of the principal company shareholders. The effect of the present legislation is to set up new rules governing the purchase of insurance. The new legislation says that only 25 per cent of the money paid in by employees can be used to purchase life insurance. I know there are many plans, some of which I know of personally, where practically all the money paid in by employees is directed to the purchase of life insurance. I suggest that this bill will change the situation to such an extent that a considerable number of acceptable profit sharing plans will have to be dropped.
I agree with the hon. member for York East that many plans were not acceptable. In those cases the Minister of Finance should have established guide lines to enunciate more clearly the situations under which profit sharing plans could be accepted. With the amendments being made we are putting all profit sharing plans into the same category and condemning them all in the same way.
Mr. Heward Stikeman, Q.C., in the Canada Tax Service Letter dated January 31, 1967, has this to say:
In these amendments, the government Is indulging its growing propensity for using massive legislation to block relatively isolated and minor abuses. The side effects of the amendments could be more detrimental to the tax-paying public than the loopholes they seek to close. Also, because of their extremely harsh sanctions and the retroactive effect on profit sharing plans already established which are, in many cases, almost impossible to alter, little incentive is left to the businessman to continue or start plans of this type for his employees.
[DOT] (4:30 p.m.)
The rules of the game have once more been changed in midstream without warning and incentive legislation has proved a trap for the innocent majority because of the antics of a daring few.
In other words, we are condemning the whole spectrum of profit sharing plans so as to trap a few who have abused the privileges
Income Tax Amendment of this procedure. I believe the minister could have brought in amendments capable of trapping the few who are abusing these plans without prejudice to all those who are now participating in the procedure. I think this is a dangerous piece of legislation. It is retroactive. Some of its provisions are applicable to 1966. This is an unusual procedure as far as income tax is concerned. It is not customary to enact income tax legislation which affects prior years. If this were not the practice, how could taxpayers in this country know where they stand at any particular time? They do not if they face the possibility of retroactive legislation at any time.
The other point which concerns me is the further amendment to section 133. It has been traditional in Canada that dealings between the director of taxation and taxpayers should be regarded as extremely confidential. As a matter of fact, until 1965 this area of confidentiality was extremely well guarded under section 133. In 1965 the section read as follows:
(1) Every person who, while employed in the service of Her Majesty, has communicated or allowed to be communicated to a person not legally entitled thereto any information obtained under this Act or has allowed any such person to inspect or have access to any written statement furnished under this Act is guilty of an offence and liable on summary conviction to a fine not exceeding $200.
There was one exception made at that time. When the provinces began to impose income tax, arrangements were made for information to be exchanged between the federal and the provincial departments in order to compare the tax returns reported in each case. This, I suggest, was acceptable. The only other occasion upon which information held by the Minister of National Revenue could be called into the public purview, as it were, was when the courts of justice required its production in a criminal case, there being substantial ground for such a request.
Last year this section was amended in a bill which received royal assent on July 15, 1966. The concept of confidentiality was breached to a large extent by that amendment, the essence of which was that an official or authorized person in the course of his duties in connection with the administration or enforcement of this act could communicate such information to authorized persons, and the act really did not say who these authorized persons were. This matter came to my attention as a result of a case in the Supreme Court of

February 28, 1967
Income Tax Amendment Ontario last fall. I am reading from the Canada Tax Service of November 25, 1966:
Contrary to what had previously been regarded as the rule under the secrecy provisions ol the Income Tax Act, the Ontario Supreme Court on November 23rd in the case of Bazos v. Bazos ordered the taxation division to produce in court Bazos' 1957 to 1962 income tax returns in a civil case involving the contesting of Bazos' will by his nephew.
Under earlier jurisprudence the taxation division had been held entitled to refuse to produce tax returns except in criminal proceedings. However, Mr. Justice W. J. Henderson based his findings on Section 133(4) (c) which was added to the Act last year and which permits the communication of information to "any person otherwise legally entitled thereto."
On the production of the returns the next day the court agreed to relieve the tax official of any penalty for which he might be held liable under Section 133 for communicating the information.
Some time ago I raised a question in the house about the secrecy which attaches to information in possession of the Department of National Revenue and the Minister of National Revenue suggested to me then that the procedure would be amended by the bill now before us. On reading the amendment which is contemplated I find it really does nothing to increase the confidentiality of this information. Indeed, it increases the number of people in the department who can give this information to outsiders, to "authorized people"-and that phrase, as I say, is not defined.
I believe we are departing from the old concept of confidentiality and in my opinion it is not necessary to do so. The minister could spell out in the act itself the people to whom this information is available and not leave it in general terms as is now down. We have seen one case in which income tax files have been used in a civil court. This could set a precedent for future orders by courts for the production of income tax files, possibly for the most frivolous of reasons. We can expect all the records of the department to become a completely open book, and to this I object.


Mr. K. H. More (Regina City):: Mr. Speaker, may I say at the outset that I am disposed to vote against this omnibus bill unless the minister provides very clear explanations of some of its provisions when we come to the clause by clause study. I do not wish to repeat the arguments which have already been made but it seems to me that the clause dealing with section 79C has far reaching consequences so far as profit sharing plans are concerned and the initiation of plans of this nature in the future.
[DOT] (4:40 p.m.)
Very often many small business firms are closely held within a family or between partners or a very limited number of associates. Concerns of this type often have a group of very loyal employees who, because of the attitude of their employer, continue working for that firm. Under section 79C there was a provision that funds could be set aside by the company to enable these employees eventually to obtain an interest in the company for which they worked and in whose growth they were very interested. I believe one of the legitimate purposes of this section was to permit a company to develop a fund of money drawn out of earnings before taxes which would enable the principals of the company to dispose of their interest in the company in favour of employee groups.
I am not a lawyer and am not in a position to argue the matter from a legal viewpoint, but I believe the minister knows from the correspondence I have had with him that I have some knowledge about some plans which unfortunately were not in a position to be registered before the minister put a freeze on them. In particular I have knowledge of a plan involving a locally owned concern with 30 to 40 employees. Because of the age of the principals the company started to develop a plan in 1965. The first draft of the plan was submitted at that time. Its purpose was perfectly legitimate. It would have resulted in these 30 to 40 employees being able to take over this concern and continue to operate it as the principals. Most of these employees have worked for this firm for many years.
As I read the bill it seems to me that it practically eliminates the proposal which would have accomplished what this company and the employees wished to achieve. As I see it, when the time comes that this very good company must dispose of its assets the result can only be that the employees will not be in a position to acquire these assets. This may result in the company being swallowed up by one of the giants in the industry in which it operates, or it could be that this company might become a small base, and it would be a small one, from which foreign interests might get into this field and build a giant.
I have no objection to the intent of this legislation to cure the abuses which arose when these provisions were made use of by some daring individuals, as I believe the tax foundation put it. I do not object to the closing of these loopholes. I feel very strongly, however, that the minister has gone so far in

February 28, 1967

this massive volume of amendments that he has almost eliminated the benefit under this section. I believe that the result will be that very tew companies will even think about profit sharing plans of the type I have outlined.
There is one thing I find very difficult to understand. These plans required registration and there were guide lines which had to be followed. In the case of the company I have particularly in mind their first submission as I say, was in May of 1965. They were asked by the department to make certain changes. They revised the plan, made the changes, met the guide lines and submitted the plan again. There was a delay of six months after their last submission and by the end of 1966 the plan still had not received registration while other plans had. In this case I have every reason to believe that all the requests of the department were met in full. It was a legitimate plan so that the employees would be able to take over the company from the principals involved. I do not know what was the reason for the long deferment of registration but this company did not receive registration and therefore was subject to the freeze.
I have been in communication with the minister concerning this case. When I wrote to him the last time I asked him about the position this company might be in in view of the fact almost two years had elapsed. The minister stated in his letter:
I have received your letter dated January 13 asking about the new rules for deferred profit sharing plans.
I did not ask the minister about the new rules. I asked him whether he could give me some indication of the position this company was in in respect of the proposed plan in view of the fact that at the end of the first year they were permitted to operate as though the plan had been registered. The minister did not really answer the question I put to him. I can only draw the conclusion that this company is now in the position that this plan cannot be of benefit to the employees in the way it had been hoped it would be when the first presentation was made. It may be in their interests to drop the plan completely. I think this is a mistake.
I may have misunderstood the proposed amendments but I cannot see that they do other than eliminate some plans already in force or which may be in the process of being prepared. Surely it is in the interest of the country and the employees that plans of this nature be legitimatized and registered. If the object of any proposed plan is against the
Income Tax Amendment intent of the section, surely because of the registration provision the minister has every opportunity to see that the section is not misused.
With regard to insurance I think we all recognize that the purpose is to provide for the eventuality of the death of one of the principals. One of the purposes of the trustees in investing in life insurance is that in the event funds will be produced through the policy to enable the employees to secure their interest in the company. This was the basic idea in respect of the plan at its inception.
The retroactivity provided for by this bill would seem to have far-reaching consequences. Surely the minister could accomplish what he has in mind in some other way. Improper practices which have been followed up to now could be eliminated from this date onward. It would seem to me that this would close the gap and would not create any undue hardship in respect of present plans. I believe it would have the desired effect. But the minister has gone further than that in his proposed legislation.
[DOT] (4:50 p.m.)
There is another clause which I believe will have much to do with whether a plan will or will not succeed. If a plan is intended for the purpose I have outlined, to enable a group of employees to become the owners of a business, then I agree with it. However, some companies have started in a small way, have retained profits to build up and extend operations, and have not paid dividends. The requirement that they can only pay dividends after five years will eliminate the effect of funds set up for the purpose of employees acquiring ownership of companies and will deny these employees that privilege.
When we reach the clause by clause study of the bill I hope the minister will, in explaining his proposal, remove the fears some of us have in this connection.


Mr. Deputy Speaker:: If the Minister of Finance speaks now he will close the debate.


Mitchell William Sharp: Mr. Speaker, I shall attempt to deal briefly with some of the points raised. Some of them will require an extended explanation and I will reserve such for the committee stage.
I entirely agree with those who have spoken today and said that this is very complicated legislation. Indeed, I was horrified when my officials first placed before me the amendments they felt were necessary in order to

February 28, 1967
Income Tax Amendment enable deferred profit sharing plans to accomplish their purpose. Having gone over those amendments I am satisfied they are necessary and very much in the public interest. Before dealing with that particular subject let me answer some other questions that were raised.
The first specific question asked was whether the government or the minister had met with the shipbuilding industry. The answer is yes. We have discussed with that industry generally, as well as with specific companies, the application of the law as amended by this bill and by other legislation already approved of or announced by the Minister of Transport (Mr. Pickersgill). Perhaps I should give a short statement at this time in respect of the Canadian Vessel Construction Assistance Act and the effects of the bill now before us on that act.
The Canadian Vessel Construction Assistance Act was enacted in 1949 to provide special tax measures to encourage the construction and conversion of vessels in Canada. In January 1966, the Minister of Transport announced changes in the government program to assist the shipbuilding industry. This announcement stated that the provisions of the Canadian Vessel Construction Assistance Act permitting the exemption from taxable income of recaptured capital cost allowances would be discontinued although the rapid depreciation provisions of the act would be retained. Since the Canadian Vessel Construction Assistance Act has to be amended as a result of this new program for shipbuilding assistance and since it is an act which deals entirely with income tax matters it seems sensible to move those of its provisions which are to continue to have effect into the Income Tax Act and regulations. Accordingly, the bill provides that the Canadian Vessel Construction Assistance Act shall be repealed and that its provisions that are to continue to have effect shall be added to the appropriate sections of the Income Tax Act.
Several speakers have referred to clause 21 of the bill in which it is provided that an individual who is required by the act to file a return of his income for a taxation year, unless he has previously been assigned or made application to be assigned a social insurance number, must apply for a social insurance number in order to facilitate the administration of the Income Tax Act. To some degree I understand the objections to the extension of the number state, but I really do not see why there should be any objection to simplifying the system. If we do not use the
(Mr. Sharp.1
same numbers we must use different numbers. For the efficient administration of government legislation these days it is almost a necessity that each of us have a code number. From the point of view of better administration of the Income Tax Act it is more appropriate that the same number should be used for that purpose as for social insurance purposes; otherwise there will be more confusion and more expense.
In this regard, if hon. gentlemen opposite object to each of us having a number then they ought to object even more to each of us having several numbers, and that is the alternative we face. While I understand the objection in principle to the regimentation now upon us as a result of the nature of our modern society, I do not believe that objection can be extended to a single number rather than several.
The hon. member for Medicine Hat (Mr. Olson) asked a question about federal-provincial abatements and wanted to know whether these abatements were consequent upon agreements with the provinces or something now being introduced at this time. Let me say that the amendments have two purposes. The first is to re-enact the abatements that expired at the end of 1966, and the second is to include any abatements which result from recent negotiations with the provinces.
Let me now refer to the deferred profit sharing plans and the very complicated provisions of this bill. Perhaps it would help the house if I were to outline in simple language the nature of the legislation. There is a great deal to be said for profit sharing plans. Indeed, some people look upon them as the answer to employer-employee relations, although they have not been able to convince the whole world in this regard. Neverthless, those who do practise profit sharing plans consider them to be very successful.
[DOT] (5:00 p.m.)
It is my belief that the government was wise some years ago to recognize such plans and provide for their regulation. It is one thing to have a simple profit sharing plan under which the employer each year decides he is going to distribute a share of his profits to his employees. If that were the situation we faced it would not require such complicated legislation. The fact is, however, that profit sharing plans have become more and more complicated, and they have become more and more complicated, I suggest, for three reasons. First of all, it was soon realized that
February 28, 19S7

profit sharing plans would be of greater advantage if they could be used to provide some continuity in the relationship between the employer and the employee. That is why the idea of deferred profit sharing was introduced. Many plans began to emerge in which the profit sharing was not out of current profits but amounts were set aside and were made available after a period to those employees who had remained with the company for the stipulated period. This is the first complication.
The second complication is that these deferred profits when distributed could be used to purchase shares in the company itself. This introduced complications of quite a different kind into the administration of these plans. A third complication is that they became associated with pension plans. In many cases payments were converted into annuities payable at the time of the retirement of the employee from his employment. When my predecessor Hon. Donald Fleming introduced back in 1960 and 1961 the provisions in the legislation relating to these plans he had, I believe, a rather simple idea of the scope of these plans and their administration. The legislation that was presented to the house at that time reflected rather simpler concepts than eventually emerged. It is important that there should be some safeguards in these plans because what is in fact happening is that companies are being relieved of tax on a share of their profits supposed to be paid by them to employees.


David Lewis: Paid to them or allocated to them.


Mitchell William Sharp: Paid to them or allocated to them. They should become taxable when they emerge as part of the income of the employee. I am informed, and I have seen some evidence on this score from my officials, that these plans began to be perverted; they began to be used as means of avoiding tax. That is why it was considered of importance that there should be some sort of uniform and restrictive rules applied to them. Otherwise, as has been related to me, it is possible for an employer to put large amounts of money into these plans upon which tax is never paid, or alternatively to put large sums of money into plans which do not benefit the employees who are supposed to have shared in the profits of the company but which inure to the benefit of friends of the employer who are put on the payroll simply as a means of sharing in the
Division
sum set aside in the trust, which was originally intended for the employees but finally emerged in the hands of special shareholders, the wife of the employer and so on.
It has been suggested that by applying these rules to existing as well as to new plans we are somehow or other being retroactive. I do not think I would bring before this parliament rules that would apply only in the future because in fact these plans are continuing and I could not permit plans to continue under the old rules when I applied the new rules to plans that might emerge hereafter. I do not consider it is retroactive any more than I consider retroactive the changes that are made from time to time in pension legislation which have an effect upon the sums that are set aside in a pension plan by the employer for the benefit of the employee. I am bringing forward, indeed-I hope in a day or so-legislation that will affect pension plans in undertakings that are subject to the jurisdiction of parliament. I do not consider that I will thereby be introducing retroactive legislation. I intend to affect the operation of those plans by making them portable in the future. The provisions will apply not only to existing plans but to those which may be introduced in federal undertakings hereafter. Mr. Speaker, these are the only comments I have to make at the present time. I shall be very happy when we come to the clause by clause discussion to amplify upon this explanation.


Mr. Deputy Speaker:: Order. Is it the pleasure of the house to adopt the said motion?


Mr. Speaker:: I declare the motion carried.


Kenneth Hamill (Ken) More: Mr. Speaker, I was paired. Had I voted I would have voted against second reading.


Mr. Rynard:: Mr. Speaker, I was paired
with the hon. member for Brantford (Mr. Brown). If I had voted I would have voted against the motion.


Mr. Skoreyko:: Mr. Speaker, I was paired with the hon. member for Victoria (B.C.) (Mr. Groos). Had I voted I would have voted against the motion.


Mr. Irvine:: Mr. Speaker, I was paired. Had
1	voted I would have voted in the negative.


Mr. Bigg:: Mr. Speaker, I was paired. Had I
voted I would have voted in the negative.


Mr. Fairweather:: I was paired, Mr. Speaker. I would have voted against the motion.
Bill read the second time.



PROCEEDINGS ON ADJOURNMENT MOTION


Mr. Speaker:: Order. I must advise hon. members of the adjournment proceedings this evening. The hon. member for Charlevoix (Mr. Asselin), Canadian Broadcasting Corporation; the hon. member for Berthier-Maskinonge-Delanaudiere (Mr. Yanakis), Health and Welfare-request for health warning on cigarette packages; the hon. member for Macleod (Mr. Kindt), Canadian Broadcasting Corporation.



INCOME TAX AMENDMENT


Mitchell William Sharp: that the house go into committee to consider Bill No. C-259, to amend the Income Tax Act and to repeal the Canadian Vessel Construction Assistance Act.
Motion agreed to and the house went into committee, Mr. Batten in the chair.
February 28, 1967

On clause 1.


Jay Waldo Monteith: Mr. Chairman, I am assuming that the minister is going to give some explanation of this clause.


Mitchell William Sharp: Mr. Chairman, subclause 1 of clause 1 is intended to make clear what must be included in income as superannuation or pension benefits. It repeals the subparagraph which refers only to "superannuation or pension benefits" and introduces in its place a longer subparagraph which makes clear that income includes a pension or supplement under the Old Age Security Act and the amount of any similar payment under a provincial act. It makes clear that income includes the amount of any benefit under the Canada Pension Plan or a provincial pension plan. It also makes clear that the expression "superannuation or pension benefits" does not include any social assistance payment made on a means or a needs test basis under a prescribed program provided for by a federal or provincial act.
[DOT] (5:40 p.m.)
The important change made by this amendment and that provided by clause 2 is that certain social assistance payments need no longer be included in income. It is expected that prescribed programs would include payments under the Canada Assistance Plan, blind persons pensions, disabled persons pensions and provincial old age assistance payments. Section 10 of the act already provides exemption for a number of payments of this class.


Jay Waldo Monteith: What about the additional $30 beyond the $75 old age security payment?


Mitchell William Sharp: That will be income and will be taxable.


Stanley Howard Knowles: What about payments under the Canada Assistance Plan?


Mitchell William Sharp: Payments under the Canada Assistance Plan will not be taxable.


[Stage Direction]
Clause agreed to.
Clause 2 agreed to.
On clause 3.
Jay Waldo Monteith: I would ask the minister about this clause. Would he comment on the deductibility of interest that may be payable by a taxpayer on grants received by him under the program for the advancement of industrial technology or under the northern mineral exploration assistance regulations?
Income Tax Amendment


Mitchell William Sharp: I am sorry. I did not catch
which clause the hon. member referred to.


Jay Waldo Monteith: I was referring to clause 3, subclause 1.1 refer to clause 3 in general.


Mitchell William Sharp: I am sorry. Have we passed all of clause 1?


An hon. Member:: We are on clause 3 now.


Mitchell William Sharp: Subclause 1 of clause 3 provides for the deduction of interest that a taxpayer may be required to pay when he has to repay a grant received by him under the program for the advancement of industrial technology or under the northern mineral exploration assistance regulations. It is part of the arrangement that a company which receives a grant under the latter program or under the PAIT program shall have to repay the grant if the company sells or uses commercial products resulting from the research project. Grants made under the northern mineral explorations assistance regulations have to be repaid where the exploration project is successful. Interest has to be paid on the amount of the grants in each case to the date of repayment. This provision is for the deduction of such interest.


[Stage Direction]
Clause agreed to.
Clauses 4 and 5 agreed to.
On clause 6.
Horace Andrew (Bud) Olson: Clause 6 appears to deal with payments to dental mechanics. On page 9 of the bill these are the words, "in respect of ... constructing and furnishing of a complete upper or complete lower denture."
I wonder why the word "complete" appears. Nothing is said about partial dentures or about repairs to dentures. Such things are excluded. If my interpretation of this clause is correct, what is the explanation for this? Is this clause not restrictive? It seems to me that sometimes the cost of a partial denture is greater than the cost of a whole denture. It may be a greater burden on the taxpayer. Should he not be allowed payments he has made for partial dentures or for repairs to dentures? This clause seems to exclude everything except a payment for a complete upper or a complete lower denture.


Mitchell William Sharp: The hon. member for Medicine Hat has raised a question that is unprecedented. The only case we have had has been in Alberta. We thought we had dealt with the situation adequately.

February 28, 1967
Income Tax Amendment


David Lewis: The minister could not get his teeth into it.


Mitchell William Sharp: The provision covers both the making and repairing of dentures, of course. We have not had problems about what might be called partial dentures. We were not trying to exclude anything. This particular matter had arisen and we felt we had to make provision for it.


Horace Andrew (Bud) Olson: If that is so then I suggest that the minister move an amendment deleting the word "complete" which appears four times in the clause. I notice the clause says:
to a person authorized under the laws of a province to carry on the business of a dental mechanic, for the making or repairing-
That wording is satisfactory. The clause refers to a complete upper or a complete lower denture and then goes on to say:
-or for the taking of impressions, bite registrations and insertions in respect of the making, producing, constructing and furnishing of a complete upper or complete lower denture,
If the minister accepts my argument the problem can be solved, I suggest, by deleting the word "complete" from the four places where it appears.


Mitchell William Sharp: May I say a word in explanation and also give the background of this amendment. The amendment provides that amounts paid to a dental mechanic for making or repairing dentures shall be classed as a medical expense for purposes of the act. Medical expenses in excess of 3 per cent of a taxpayer's income are deductible in computing taxable income.
Section 27(l)(c) of the act now provides that payments to a dentist qualify as medical expenses. This has covered payments made to a dentist for dentures, bridgework, etc. In some instances dentures are purchased by users from a certified dental mechanic and where such dentures may be supplied only upon the authority of a certificate issued by a dentist or medical practitioner the Department of National Revenue has taken the broad view under the existing law that the certificate was tantamount to a prescription and accordingly the payment to the certified dental mechanic for the dentures qualified under section 27(1)<c)(viid) as being the cost of prescribed laboratory services. If the person purchasing dentures from a dental mechanic does not have such a certificate the cost does not qualify at present as a medical expense.
[Mr. Sharp.1
With effect from March 31, 1965, the certified dental mechanics act of the province of Alberta was amended to delete the requirement that a certified dental mechanic could not make a denture unless the prospective user had a certificate from a doctor or dentist. As a result the district tax offices in Alberta concluded that they could no longer classify payments to a dental mechanic as medical expenses under existing law. It therefore became necessary to amend the existing law.
I give this explanation to inform the hon. member and the house of the purpose of the amendment. It was to deal practically with an issue which had arisen, o (5:50 p.m.)


Horace Andrew (Bud) Olson: I appreciate that explanation, but it seems to me that by leaving the word "complete" in the clause we are attempting to impose medical standards by means of the income tax law. I note what the minister has said about the regulations of the Alberta department of health concerning the certificates required by dental mechanics before they may fit dentures. In my opinion it is the responsibility of the department of health, whether federal or provincial, to impose standards of service upon these dental mechanics. It is unfair and unnecessary to attempt to impose these restrictions by means of amendments to the Income Tax Act.
In my view it is the responsibility of the people in the department of health to enforce the law with regard to what a dental mechanic may or may not do. I know that dental mechanics need certificates from qualified dentists giving a clean bill of health, if I may use that phrase, to their patients, and that these certificates must be presented to the mechanics before dentures are made. I know too that in some cases dental mechanics can and do provide something less than a complete upper or lower denture. They do this to the satisfaction of their patients, sometimes at a substantially lower price.
I should therefore like to move:
That the word "complete" where it appears in lines four, eight and nine he deleted from clause 6 in the paragraph which appears at the top of page 9.


Mitchell William Sharp: I wonder whether the committee would allow this clause to stand? If we happen to have a little time over the dinner hour we might make some inquiries about this point. We are dealing here with the taxation of medical expenses. Ordinarily, dentists provide dental services. However, in this case
February 28, 1967

Income Tax Amendment
it is now found that a certified dental mechanic can provide dentures without a prescription.


Mr. Cole (Longueuil):: Where?


Mitchell William Sharp: In the province of Alberta. We have not encountered any case where a dental mechanic was permitted to deal with the patient directly when providing other than a complete denture. It is important to remember that this concerns medical expenses and is an exception from a rule which has hitherto been in the law. There must be some rules about this as we have found when dealing with many other examples of similar expenditure throughout our tax legislation.


David Lewis: What in fact would be less than a complete denture? Is the minister certain that it has to be a denture including every tooth in the mouth? Is it also a complete denture if the frame is across the mouth? I do not know from personal experience.


Desmond Morton Code: A complete denture is a denture that replaces all the teeth either of the upper or lower jaw. A partial denture replaces only a few of the teeth but is also removable. A bridge is fixed; it is soldered to crowns which are cemented to natural teeth.


David Lewis: I would hope for the same consideration in respect of partial dentures. I do not see why a person should have all his teeth knocked out before he can get this benefit.


Horace Andrew (Bud) Olson: It is possible to have a partial denture which is removable. There are patients who retain some of their original teeth and are fitted with a partial denture which is removable and is not very different from a complete or full denture. I am therefore apprehensive about this provision as it stands. Authorization of dental mechanics to provide these dentures is a relatively recent action as far as some provinces are concerned, notably Alberta. The provinces may or may not have additional means of ensuring that the standard of work will be satisfactory. I am sure they will. In my view it would be a mistake to write into the tax laws something which is completely taken care of by the medical people in the department of health.
However, the Minister of Finance has agreed to let this clause stand. Perhaps we can look at it again after dinner and if there are technical or legal reasons why these words should appear in the clause we can be told what the situation is. In the meantime I
am still of the opinion that the word "complete" wherever it appears should be omitted from this clause for the reasons I have given.
Tha Chairman: Does the committee agree that clause 6 be allowed to stand?


Some hon. Members:: Agreed.
Clause stands.
Clauses 7 to 12 inclusive agreed to.
On clause 13.


Mitchell William Sharp: Last evening during the discussion on second reading I distributed to hon. members copies of certain proposed amendments I intended to have moved. The first of these is to clause 13. These amendments were, I believe, also printed as an appendix to Votes and Proceedings. I have not checked to find out whether this was done.
[DOT] (6:00 p.m.)
The first of these amendments is to make a technical change which refers to the application of clause 13. The present subclause provides that the amendment is applicable to 1962 and subsequent taxation years. The proposed change would make the amendment applicable to the 1962 to 1966 taxation years, each inclusive. Therefore I should like to ask my colleague, the Minister without Portfolio, to move that clause 13 of Bill No. C-259 be amended by striking out subclause 3 on page 14 and substituting therefor the following:
(3) This section is applicable to the 1962 to 1966 taxation years, each inclusive.


John Napier Turner: I so move.


[Stage Direction]
Amendment agreed to.
Clause as amended agreed to.
On clause 14-Definitions.
Harold Raymond Ballard: Mr. Chairman, I should like to put forward two suggestions for the consideration of the minister in respect of clause 14. I refer first to subclause 4 at the top of page 15 where an employer is allowed to make payments into a supplementary unemployment benefit plan within 30 days after the end of the year. I am speaking from memory now but I believe that in section 79B there is a provision that payments can be made into a retirement pension plan up to 60 days after the year end. I also notice that in section 79C the period is 120 days after the year end. I suggest to the minister that in order to make it easier to remember these dates the three dates should be in harmony. In other words, I suggest this clause should be amended to read

February 28, 1367
Income Tax Amendment "60 days" after the end of the year. That is one point.
The other point I have in mind has to do with subsection 3 of clause 14 on page 15. It says that subsections 1 and 2 of section 79A, as enacted by subsection (1), are applicable to the 1966 and subsequent taxation years. To my mind this is certainly retroactive legislation. I am wondering whether the minister would consider changing "1966" to "1967" so that it will become effective on the first of January, 1967?


Mitchell William Sharp: Mr. Chairman, may I deal with the first of these points while my officials are thinking about the second. The reason for the difference in time and for the longer period in clauses other than the one under discussion is that in respect of registered supplementary unemployment benefits the payments are not dependent upon income. So there is no need for any time to elapse before payments are made.


David Lewis: Mr. Chairman, may I ask the minister what practical difference would be made by this clause? I do not object to it. It has always been my understanding that before payments into a fund for supplementary unemployment benefits are deductible for income tax purposes approval must be obtained from the Minister of National Revenue and that it cannot be done without such approval. As I understand it, this really would not change anything in practice except to formalize it. Am I right in my understanding?


Mitchell William Sharp: I do not expect it will make any practical difference. In fact these plans did not have to be approved and we are now bringing them under a process of approval. Now they have to be registered whereas previously that was not the case.


David Lewis: Mr. Chairman, I should like the record to be clear. Perhaps the minister could obtain the information. My experience in respect of one or two cases has been that the employer in negotiations said that before he could agree to such a plan he would have to make certain from the authorities in Ottawa that his payments would be deductible for income tax purposes. He may have done this informally by verbal conversation or through informal letters, but it always has been my impression that he had to obtain such approval.


Mitchell William Sharp: My information is that it would of course be prudent for a taxpayer to do

that. In fact there were no formal requirements for the registration of supplementary unemployment benefit plans.


[Stage Direction]
Clause agreed to.
On clause 15-Profit sharing plan.
Edmund Davie Fulton: Mr. Chairman, first of all I should like to ask the minister whether I am correct in my understanding that from now on a deferred profit sharing plan will not be approved if the arrangements thereunder consist primarily of the use of payments into the plan to pay the premiums on insurance policies on the life of the principal shareholder or shareholders, with a further provision that on the death of that shareholder the proceeds of the insurance policy will be applied by the trustee toward the purchase of the shares of that shareholder and their distribution among the employees who are the beneficiaries under the plan.
I understand from my reading of the act and from discussion with persons who have made a study of this field that insurance in respect of this type of profit sharing plan will no longer be approved in that the insurance policy will not be a qualifying investment and will be so characterized. I am wondering whether I am right in this, and if so on what reasoning this decision is based.


Mitchell William Sharp: Mr. Chairman, the reason I am a little uncertain in replying is that I think most of these provisions come up in clause 19 rather than in clause 15. I hope I do not have to repeat the explanation later.


Edmund Davie Fulton: 
Mitchell William Sharp: Let me direct the hon. gentleman's attention to pages 21 and 22 of the bill and the new section 105K (6) (a). There are references to the acquisition of an interest in or the payment of an amount under a life insurance policy and the disposition of the interest. At page 22 the rules in respect of insurance policy investments are laid down. That might be the more appropriate clause under which we should discuss this subject.
February 28, 1967

Income Tax Amendment


Edmund Davie Fulton: I have no objection to deferring the question until we reach consideration of that part but I should like to relate my other question which is of a general nature, to
clause 15.
Clauses 15 and 19 are the two main clauses in respect of profit sharing plans. At this stage I should like to ask on what basis or principle the minister has rested the position that not only should this legislation provide that profit sharing plans which in the view of the government are being used to evade income tax to an unwarranted extent should not be able to carry on in the future but should also force certain plans to divest themselves of assets previously acquired under government approval. In other words, why does the minister insist on a retroactive effect? Why does he not confine the legislation to the future?


Mitchell William Sharp: I think it is the desire of these profit sharing plans to carry out their obvious intention, to enable the distribution of companies' profits to employees. That is the fundamental purpose of these plans and as such they have a great deal of merit. Some of these plans have been used as substitutes for pension plans. When we regulate in respect of pension plans we are extremely strict. If the hon. gentleman feels we are being too strict about deferred profit sharing plans he need only look at the registration or approval of pension plans to realize that the government in the interest of the taxpayers must be very restrictive as to conditions under which payments to pension plans are deductible from the incomes of taxpayers. Some of these deferred profit sharing plans are being used as substitutes for pension plans, and we cannot permit that to happen without undermining the whole purpose of our program in respect of pension planning. It is in line with that thought that we have laid down rules which, after all, relate to the deductibility of these payments from the taxable income of the company that is earning the profits.
That is the starting point. In the interest of tax equity we have to be sure that if these payments are deducted at one end they come out of the other as being taxable in the hands of the employees. It is perfectly proper that we should do this. I have observed enough of the ways in which these plans can be used to pervert the intention of parliament to come to the conclusion that it is essential to regulate them in such a way. It is also my belief that we should endeavour to change these plans
by imposing certain penalties for non-compliance with the rules.
As the hon. member is no doubt aware, we have provided for transitional periods in order that transactions can be unwound and can be brought into line with the principle the government is attempting to apply.


Edmund Davie Fulton: Mr. Chairman, I submit that the minister has not answered the question I asked. I am not challenging the suggestion that profit sharing plans must be required to conform to the purposes for which they were instituted, or that the legislation under which payments to the plans are deductible from income must be strictly drawn. A responsible minister of finance is constantly faced with the task of plugging loopholes and the institution of legislation to prevent the possibility of abuse. But that is not to say that this legislation which imposes retroactive penalties in respect of approved and registered profit sharing plans instituted some years ago, is not objectionable.
For the minister here is not only saying that these plans must not operate that way in the future; he is saying that they must now divest themselves of those investments they acquired quite legally and with approval in the past. Why does the minister not confine the legislation to the future rather than making it so harshly retroactive?


Mitchell William Sharp: Mr. Chairman, I must return to the proposition I placed before the house earlier. In some cases at least these plans have been used for a purpose for which they were not intended. It is true that the legislation was valid, but because we failed to foresee the ingenuity of taxpayers is not a reason we should not prevent them from continuing to do so. The fact is that plans not operating in accordance with the rules now laid down are not in fact distributing the profits to the employees. They are being used for other purposes, and I believe we should bring a stop to this practice. In order to do so I believe we should now apply penalties to prevent these subversive purposes.
It was not the intention of parliament and certainly not the original idea of profit sharing plans that they should be used to enable someone other than a bona fide employee to benefit from accumulated tax free funds. Some of these funds are being used to the benefit of employers' wives or preferred shareholders. Certainly that was not the intention. If we intend to deal effectively with

February 28, 1967
Income Tax Amendment
this problem we cannot permit plans to remain in existence which have the effect of using the device of profit sharing for such purposes.


Edmund Davie Fulton: Mr. Chairman, again I must say that I have no objection to stopping the use of these plans for that purpose. I do not differ from the minister in saying that now the decision has been made we must stop them indulging in abusive practices. But the minister is not just saying that they may no longer continue that practice even though up to now they have been allowed to do it and in fact in the past it was not an abuse.
[DOT] (6:20 p.m.)
The minister used a word which I think was very revealing in this situation. He used the word "misconduct." I point out to him that it was not misconduct in the past; this practice was specifically approved. Yet when this legislation is passed we will define the past practice as misconduct and we will say to these employers: Your past conduct, which was valid at the time, is now misconduct. You must now undo it, and in addition we are going to penalize you now for doing something which the Minister of National Revenue approved in the past.
I am not suggesting that because the acquisition of this kind of asset was allowed in the past it should be continued. I say, make a cut-off in this respect, do not allow them to do it in future. But surely it is not necessary, in preventing abuses, to go back in time and penalize that which was not an abuse when it was done.


David Lewis: Mr. Chairman, earlier today the hon. member for Kamloops suggested that my colleagues and I ought perhaps to support his objection to what he calls retroactivity. I may not be following him but it seems to me that the proposition he puts forward is really indefensible. He must agree, by implication, that there are often abuses in this connection because he says he agrees that the minister ought to take steps to plug the holes which enabled these abuses to take place. It follows therefore from his own statement, if I understood him correctly, that there have in fact been cases where a deferred profit sharing plan was used in a way not contemplated by the legislation.
If the minister uses the word "misconduct", I join him in using it. I am sure he did not mean it was misconduct in the sense of being a violation of the law. I would use the word misconduct as being a violation of the spirit

of the law even though the words of the law were obeyed. If you admit that the intention of the law was violated and abused by setting up funds which did not carry out that intention, I cannot understand how anyone can propose that funds which were set up contrary to the intention of the law should be permitted to continue to be administered contrary to the intention of the law. This is precisely what the hon. member for Kamloops is proposing. This is why I cannot join him in his objection. I cannot weep for employers who have in fact abused the intention of parliament, have not paid attention to the needs of their employees but have used deferred profit sharing plans for other and what I would call without hesitation improper purposes.
I suppose that the law as it stood heretofore did not give the Minister of National Revenue any alternative but to approve plans which met the letter of the law even though they violated the spirit of the law. As I understand the minister's proposal, it is in three parts. The first is that the intention of the law be made very clear and that all plans in the future be made to comply with that law. The second is a recognition of the fact that there are now plans which result in abuses of the law in terms of not fulfilling the intentions of the law. The minister says to us, and I say without hesitation entirely properly and in the interests of equity, that those plans which have in the past abused the intentions of the law must be brought into line with the new rules that seek to impose the proper application of those intentions. Third, the minister says to the employer who has a plan which does not meet the new requirements, "I give you a term of years"-if I remember correctly it is until 1970, which is four years -"during which you must divest yourself of investments that do not meet the qualifications of this legislation, and you must adjust your plan to meet the present requirements which are intended to plug the loopholes through which you crawled in the past five years."
I cannot see that that is retroactive legislation. It seems to me that if you did not do that you would impose upon employers who introduced profit sharing plans tomorrow a set of strict rules which an employer who introduced a profit sharing plan yesterday would not have to obey. He could go on forever with a plan that violated the intentions of the legislation and the genuine intentions of profit sharing plans because he would have been lucky enough to get that improper
February 28, 1967

plan into existence before the holes in the legislation were plugged. That is why I could not agree with the hon. member and why the members of my party could not vote against the principle of the bill now before us. I personally, and I am sure this would apply to my colleagues, would have condemned the minister if he had permitted improper profit sharing plans to continue to be improper, which is what the proposal of the hon. member amounts to.
I think the minister is right in saying that from now on all profit sharing plans shall meet the requirements which will make them proper profit sharing plans. Those in the past which did not meet those requirements are now required to take steps to meet them. That is why I could not join the hon. member for Kamloops before, nor can I join him now. 1 urge upon the committee that the legislation on this point is surely right.


Mr. Leboe:: Mr. Chairman, I wonder
whether I could ask a question of the minister. Is the minister aware of any particular case where the application of the legislation he is presenting would cause the bankruptcy of a company because of the necessity of divesting itself of the interest and profit accruing from the fund, according to the provision before us?


Mitchell William Sharp: No, Mr. Chairman, I do not know of any such companies. Indeed, I would say that all bona fide profit sharing plans can with a minimum of adjustment fit within these rules. My officials have had extensive discussions with the companies which have profit sharing plans, and particularly with the well known and large ones. While these companies find some of the restrictions a little cramping and would prefer to have even greater freedom, nevertheless it is our belief that the profit sharing plans will continue and will flourish as they should.


Edmund Davie Fulton: Mr. Chairman, I do not wish to take part in an extended debate with the hon. member for York South, but I think it is fair to point out to the committee that we have just heard a new and startling version, from perhaps the most prominent legal spokesman of the New Democratic Party, of their doctrine of the interpretation of statutes. That is, that the intention of a statute should be that which the hon. member ascribes to it, and not that which the courts have formed and which lias been derived from the actual wording of the statute. This is, of course, a handy doctrine for the New Democratic Party should
Income Tax Amendment they ever come to power; but is part of the very principle to which I object.
Unfortunately the minister is also subscribing to that principle because he is saying through this legislation that that which was perfectly within the law and therefore was not an abuse of the law until now is, in his view, now an abuse of the law, because he ascribes an intent or meaning in the law which is not there in its wording. Therefore the minister is asking us to enact retroactive legislation to provide that that which was within the law and was specifically approved by his colleague the Minister of National Revenue now becomes retroactively illegal and invalid and must be undone.
[DOT] (6:30 p.m.)
No amount of casuistry from the hon. member for York South will convince me that this should be an acceptable principle. I repeat that I am in favour of changing the law prospectively, and saying that even though up to now this type of investment could be made in profit sharing plans, this cannot continue to be done and the operation of the plan in the future must conform to the requirements that are laid down. But it is unacceptable to say that a company must in addition divest itself of certain assets which it had purchased in the past and incur a liability by paying a tax on the proceeds of their disposition now, whereas its intention might have been to dispose of those assets some years from now.
However, it is obvious that we will not persuade the minister that the principle is more important than the dollars that will be gathered into the tax coffers as a result of the abuse of this principle. I maintain that this legislation is objectionable, and in my view the minister has not given any explanation as to why it is not appropriate to remove the retroactive effect of this legislation and let it speak prospectively with all proper severity and clarity. People should not be penalized because the law did not reflect what somebody now says it was intended to reflect.


Mitchell William Sharp: Mr. Chairman, I can understand the hon. gentleman's concern about the retroactivity of the legislation. However, I do suggest to him that we are not really violating this principle because if the plans do comply with the requirements laid down in the legislation no penalty is imposed. It is only if they do not, that they might then be subject to some tax penalty. But if they sell their investments and invest the proceeds for the benefit of the employees-and that is all

February 28, 1967
Income Tax Amendment
that is at stake here-then of course there would be no tax penalty.
May I say to the hon. gentleman that one can conceive of a situation where a company is not really establishing a profit sharing plan, its purpose being to get access to funds tax free. It establishes a profit sharing plan with a number of employees who are also shareholders and it pays certain sums into that plan. It has tame trustees. It then invests in the shares of a company, which in turn buys the bonds of the company that has established the profit sharing plan, and in the end the company that has established the profit sharing plan never pays the bonds. All that has happened is that the company has had the use of tax free funds without any benefit to anyone except the company itself and its shareholders, with a resulting loss to the treasury.
I do not see how such a situation can be dealt with unless there is a requirement that the company change its investments. The legislation may be retroactive, it may change, it may require that the company change its practices, but I do not believe that parliament is really doing anything improper when it requires such a company to divest itself of such shares and invest for the purpose of benefiting the employees.
I regret to say that the ingenuity of the taxpayer is such that plans such as I have outlined are possible. This legislation was first enacted for well-intentioned reasons, I am sure that my predecessor, Mr. Fleming, was persuaded that it was in the public interest to encourage profit sharing plans, and I believe that in his position I would have done the same thing. I would probably not have had the imagination to foresee the ways in which the purposes of these worthy plans could be perverted, but in fact they have been, and now it is necessary to enact legislation which requires that the plans be used for the purpose for which they were intended.
The method used to do this is not extraordinary, it is just a requirement to change the practices that I think we would all agree are not in the public interest.


Kenneth Hamill (Ken) More: Mr. Chairman, I understand we are on clause 15. I should like to ask the minister why an amount not greater than $1,500 has now been changed to $1,500 or 20 per cent of the salary or wages. I am aware of the fact that the company would have taken in the employees regardless of their salary scale on the basis of $1,500. It seems to me that this would have been of benefit to the lower paid employees who were getting paid

for their job on a scale equal to that paid for similar jobs elsewhere, and they would not be discriminated against in the salary they were receiving. But certainly we have heard a lot about the average income of people in Canada and we know that every employee of the company does not receive at least $7,500 a year. It seems to me that if this 20 per cent maximum were not imposed under this legislation the legitimate proposals and plans would benefit the lower income employees.


Mitchell William Sharp: The explanation is that an employer may no longer deduct $1,500 in respect of contributions of employees such as relatives to whom he pays only a small salary. The present provisions were being abused and it was felt that there should be some relationship between the income or the salary being paid and the amounts contributed to the profit sharing plans. I shall have an amendment to propose which may go some distance to meet the legitimate concern of the hon. member for Regina City.


Kenneth Hamill (Ken) More: Does the minister have an amendment to clause 15 and does he intend to move it now?


Mitchell William Sharp: I will be very happy to move the amendment at this time. It appears in the Votes and Proceedings for last night. I will ask my colleague, the Postmaster General, to move the amendment, which reads as follows:
That clause 15 of Bill C-259 be amended
(a)	by striking out line 25 on page 16 and substituting therefor the following:
becomes, before that time, a person who is not an employee of any;
(b)	by striking out lines 36 and 37 on page 16 and substituting therefor the following:
to his estate, not later than 90 days after the earliest of;
(c)	by striking out subclause (4) on page 17 and substituting therefor the following:
(4)	All that portion of subsection (7) of section 79c of the said Act preceding paragraph (a) thereof is repealed and the following substituted therefor:
"(7) There may be deducted in computing the income of an employer for a taxation year the aggregate of each amount paid by the employer in the year or within 120 days after the end of the year, to a trustee under a deferred profit sharing plan for the benefit of employees of the employer who are beneficiaries under the plan, not exceeding, however, in respect of each individual employee in respect of whom the amounts so paid by the employer were paid by him, an amount equal to the least of"
(5)	Subsection (7) of section 79c of the said Act is further amended by striking out the word "or" at the end of paragraph (a) thereof, by adding
Amount of employer's contribution
deductible
February 28, 1967

the word "or" at the end of paragraph (b) thereof and by adding thereto the following paragraph:
"(c) 20 per cent of the salary or wages paid in the year to the employee by the employer,"; and
e (6:40 p.m.)
(d)	by renumbering subclauses (5) to (8) as subclauses (6) to (9) and by striking out subclause (9) on page 19 and substituting therefor the following:
(10) subsections (1) to (3) and subsection (9) shall be deemed to have come into force on December 21, 1966, and subsections (4) and (5) are applicable to taxation years commencing after that date.


Jay Waldo Monteith: Does the minister have, in a few words, an explanation of paragraph (c) of this amendment?


Mitchell William Sharp: The hon. member asked about paragraph (c)?


Jay Waldo Monteith: Yes.


Mitchell William Sharp: Paragraph (c) of this amendment would change subclause 4 on page 17 and introduce a new subclause 5. This is a relieving amendment. The present subclause 4 proposes that a new limitation be placed on the -amount an employer may deduct as a contribution to a deferred profit-sharing plan. Under the present provisions of the Income Tax Act, the limit on the amount an employer may deduct in respect of each employee who is a beneficiary under the plan is $1,500 minus the amount deducted by the employer as a contribution under a registered pension plan in respect of that employee.
The present subclause 4 would introduce a new limit which would be 20 per cent of the salary or wages paid in the year to the employee. The purpose of this present subclause 4 is to prevent an employer deducting $1,500 in respect of contributions for employees to whom he pays only a nominal salary, such as relatives. As presently drafted, the limitation of 20 per cent of salary would apply to the aggregate of the contributions under a deferred profit sharing plan and a registered pension plan for a particular employee. The amendment to the bill now proposed would make the 20 per cent of salary a separate test that applies only to contributions under a deferred profit sharing plan. This is one of the reasons for my statement to the hon. member for Regina City that this amendment, to some extent, meets one of the objections he raised.


Harold Raymond Ballard: I have one question. I believe when this section of the act was first introduced in 1961, old age pensions became payable at 70. 1 feel this is the reason that age 71
Income Tax Amendment appears twice in the section. I was wondering if the minister should be considering making the termination of this plan, in so far as individual employees are concerned, match the date when the old age pension becomes effective? At this time that would be 67, and in two years' time it would be 65 instead of 71.


Mitchell William Sharp: I understand that age 71 is used to place an outside limit on the time the amount may be paid. It may of course be paid earlier than that, and age 71 had nothing to do with the Old Age Security Act but had to do with registered pension plans or retirement savings plans.


Desmond Morton Code: I move the amendment.


Herman Maxwell Batten: Shall the amendment carry?


[Stage Direction]
Amendment agreed to.
Herman Maxwell Batten: Shall clause 15 as amended
carry?


Mr. Fullon:: On division.
Clause 15 agreed to.
On clause 16-Extended meaning of drilling and exploration expenses and prospecting, exploration and development expenses.


Horace Andrew (Bud) Olson: I should like to have some explanation of clause 16. It deals with the deductions from drilling and exploration expenses. As I understand the purpose of this amendment, one may deduct from these expenses any grants or any payments that are made under the northern mineral exploration assistance regulations. I am wondering if the minister can tell us if the result of the amendment would be that a profitable company which would be paying taxes would, in fact, have to reduce the total amount of grants that may be paid under the northern mineral exploration assistance regulations in completing corporation income tax payments for the year? If that is a correct assumption, then I have one or two other questions to ask.


Mitchell William Sharp: Mr. Chairman, as the hon. gentleman has pointed out, this amendment provides that drilling and exploration expenses, prospecting and development expenses of a taxpayer will be reduced by the amount of any grant received by him under the northern mineral assistance regulations, and will be increased by any repayment by the taxpayer of such grants. The northern mineral exploration assistance grants are grants paid to assist exploration for oil and minerals in northern
1358S
February 28, 1967

Income Tax Amendment Canada. They are paid under regulations passed or approved under authority of an Appropriation Act, item 7A of the 1966-67 supplementary estimates. Grants may be paid to a Canadian citizen or to a corporation that is controlled by a Canadian citizen or to any corporation that has its common shares listed on a Canadian stock exchange. Grants are not paid to oil or mining companies that are eligible for special write-offs under section 23A of the Income Tax Act.
The grant may be paid to corporations formed for the purpose of exploring for oil or minerals in the north. The grant is up to 40 per cent of the accrued cost of the exploration project. The northern mining exploration and assistance grants are repayable if the exploration project is successful. The repayment may be spread over ten years or such other time as the company wishes or the minister of northern affairs decides. Interest is also payable on the repayment from the date of success.
Amendments to the Income Tax Act are necessary to clarify the tax treatment of the grants that are received, and the repayments. Without clarification, there is some possiblity that the repayable grants may be treated as loans which are forgiven if the project is unsuccessful. Such treatment would give unusual and unintended benefits to the taxpayer. The proposed amendments will provide that the amount received as a grant reduces the amount that may be claimed as drilling and exploration expenses. Any amount that is repaid would be taken to be a drilling and exploration expense. Clause 3(1) provides an amendment to allow the taxpayer to deduct interest on the repayment of these grants. This we have already approved.


Horace Andrew (Bud) Olson: If this amendment simply represents a tidying up of things to be done, some problems that have arisen, then it seems to me the effect may be to slow down exploration and development. It seems to me also that it is highly desirable that these Canadian companies which do, in fact, qualify for grants under the northern mineral exploration assistance regulations, should continue to have this advantage because, as the minister well knows, there is great risk involved in this kind of exploration and development. The minister has pointed out that these grants are not paid to other than Canadian companies. I have no disagreement with that. I believe a valid case can be made, with all this talk that is going on about foreign control


of our resources, for the desirability of giving some advantage to Canadian corporations.
As I said at the outset, Mr. Chairman, I was asking for an explanation because I did not quite understand all the implications of this amendment. If the amendment is simply to tidy up some anomalies which may have come to light in the application both of the Income Tax Act and the northern mineral exploration assistance regulations, then I suppose it is acceptable. But if the effect of the amendment will reduce in any way the advantage that Canadian corporations have in this field of high risk exploration and development, then I want to tell the minister that I think it would be undesirable.
[DOT] (6:50 p.m.)
I do not think any new penalties are being imposed on Canadian companies, though of course this may be possible. There may be some foreign-owned companies which may, for example, have access to some special tax deduction privileges in the United States for this kind of development involving high risk. If Canadian companies are not at the same level of advantage under Canadian law as are foreign companies, so far as their home government is concerned, then I think the minister should give us an explanation and should make whatever adjustments are necessary to make certain that Canadian companies are at least on an equal basis with any foreign-owned company engaging in exploration and development.


Mitchell William Sharp: Mr. Chairman, I agree with the general sentiments expressed by the hon. member for Medicine Hat. These special grants were introduced specifically for the purpose of encouraging Canadian companies to engage in exploration in the north. Otherwise these advantages would, in effect, have been available only to large, foreign-owned corporations, and this would have been most unfair and certainly not in the interest of Canadian companies.
The only purpose of the amendment being made now is to avoid double counting to give an unintended benefit. It should be borne in mind that these allowances for exploration and drilling expenses can be carried indefinitely. Therefore, it would be quite possible unless we clarified the situation to make both the grant and the allowance, which is not what we intended and is not necessary to equalize the position of these new companies which are taking advantage of this legislation with the position of other companies already engaged in this business, companies which
February 28, 1967

have large incomes against which to write off their drilling and exploration expenses.


Horace Andrew (Bud) Olson: Mr. Chairman, I have some recollection of being advised that some United States companies enjoy a tax write-off or deduction privilege under United States law that in some cases puts them in a relatively advantageous position vis-a-vis Canadian companies in the matter of engaging in this kind of exploration in Canada. Therefore, Mr. Chairman, I should like to ask the minister whether or not he is aware that any of these foreign companies have an advantage for taxation purposes that is not enjoyed by Canadian companies under Canadian law at the moment.


Mitchell William Sharp: Mr. Chairman, I can recollect long arguments when I was an official about the relative tax positions of Canadian and American mining and oil companies. The argument continues and I expect it will continue. The Carter commission has only provided a new round of discussion and a new enthusiasm, of which I expect to be the beneficiary in the near future.


Horace Andrew (Bud) Olson: I appreciate, Mr. Chairman, that we now have this royal commission report on taxation and that when we have had sufficient time, and particularly when the minister has had time, to give the report appropriate study we may have some changes to make. But on this day, February 28, 1967, we have before us amendments to the law respecting income tax deductions for drilling and exploration expenses.
I should like to put my question again, and X do not think it is an exact repetition of the previous question. Has the government made any search of the law in this regard? We certainly have a vast assembly of foreign companies in Canada which in many cases are conducting this kind of exploration work. I would ask the minister whether the government is satisfied that Canadian companies are at least on an equal basis from the taxation point of view with some of the foreign owned companies with which, to some extent, Canadian companies compete. This competition gets to the point that if foreign owned companies have greater advantage than Canadian companies, the risk is such that they are more anxious to move in and undertake some of this high risk exploration work. However, Mr. Chairman, in the end if these companies find something worth while it is they who wind up with the assets.
Income Tax Amendment
It seems to me, Mr. Chairman, that the minister and his officials should have ascertained the position so as to make sure that by passing this amendment we are not putting any Canadian company in a relatively disadvantageous position in conducting this kind of work. Over the long range we want as many Canadian companies as possible to be involved in exploration, so that it is those companies that wind up with the assets if and when their efforts bear fruit.


Thomas Speakman Barnett: Mr. Chairman, I am rising to ask a question either of the hon. member for Medicine Hat or of the minister, so that we can at least understand what this discussion is about. As I understood it, the minister and the hon. member for Medicine Hat are agreed that the grants under the northern assistance regulations are available only to Canadian companies; I think I understood that part clearly.
What is puzzling me, in part at least, about the argument being advanced by the hon. member for Medicine Hat is this: By implication it almost seems that foreign owned companies must be receiving similar grants from government funds in their own country which they put into exploration in Canada. It seems to me that this is a rather strange procedure for another country to adopt. Have I got that straight or have I not?


Jay Waldo Monteith: Seven o'clock.


Horace Andrew (Bud) Olson: Mr. Chairman, I think the hon. member has followed the argument. What I am asking the minister is whether he and his officials have ascertained whether or not Canadian companies are in a relatively disadvantageous tax position vis-a-vis foreign companies in the matter of drilling and exploration. I agree there is the possibility that there may be some double advantages under the act as it is now written and perhaps this amendment will tidy the position up. But the question that I posed was whether, by passing this amendment to the act, we would reduce the relative advantage of Canadian companies, which I say would be undesirable.
I am not suggesting, Mr. Chairman, that simply by making another amendment to clause 16 we equalize the situation, because other decisions may be made in this matter by other governments. But in the matter of exploration in Canada, Mr. Chairman, I believe that Canadian companies should have at least equal advantage.

February 28, 1967
Income Tax Amendment The Chairman: Order. Pursuant to an order of the house made on Monday, February 20, I do now leave the chair. The committee will resume its work at eight o'clock.



SITTING SUSPENDED


[Stage Direction]
The committee resumed at 8 p.m.
Herman Maxwell Batten: When the committee rose at seven o'clock, clause 16 was being considered.


Mitchell William Sharp: Mr. Chairman, in deference to the hon. member for Medicine Hat who asked a question at seven o'clock-had he asked it earlier he might have got an answer

I wish to say this. The hon. member referred to taxation in Canada and in the United States and raised something that has been asked about on many occasions. He wanted to know whether Canadian law as it relates to the taxation of mining companies is of greater or lesser advantage to Canadian companies than is United States law with respect to United States companies.
I do not think it is possible to answer that question. Depletion allowances in the United States are greater than those allowed in Canada. On the other hand exploration and drilling deductions generally speaking are more advantageous to Canadian companies. That is not the point concerning us here. All companies in Canada, regardless of who owns them, have the same tax laws applying to them. When we were considering giving a stimulus-and I believe stimulus would be the right word-to northern mining exploration, other than in the customary way of writing off exploration expenses, it was decided to bring in new legislation, or a new appropriation to encourage Canadian owned companies to embark on exploration that they otherwise might not do. Various plans were developed for these purposes and they are embodied in the appropriation acts and in new legislation.
The amendment now before us has nothing to do with the relative positions of foreign owned and Canadian owned companies. It was brought in to clarify the treatment of grants made under the northern mining exploration legislation or under appropriations related to it. We feel this clarification is necessary, otherwise a double benefit will be accorded, which was not intended.

So far as Canadian and United States owned companies engaged in mining in Canada are concerned, their positions are exactly the same regardless of who owns them. The question of whether our tax laws are more advantageous or more stimulating than they are in the United States is not one with which we need to concern ourselves in this legislation. The only argument that arises is as to whether United States companies have greater encouragement to explore for minerals in the United States than companies organized in Canada have to explore for minerals in Canada? But companies situated in Canada are all subject to similar tax laws.


Horace Andrew (Bud) Olson: Mr. Chairman, I shall not pursue this much further. We have here a situation which the minister calls giving a double benefit. We have Canadian companies receiving grants, in some instances under the exploration assistance regulations, as well as being allowed to deduct drilling and exploration expenses from income for taxation purposes. That is what the minister calls a double benefit. Be that as it may, Canadian companies enjoy an advantage here that is being withdrawn. It is true that depletion allowances in the United States are greater than those we have here.
The minister talks of other advantage accruing to Canadian companies with respect to development expenses. I will not go into details because I am not completely familiar with the subject. The minister also, before the dinner recess, talked about seme things contained in the report of the royal commission on taxation. In press release No. 14 of that report it is recommended that there be an immediate cancellation of mining and petroleum depletion allowances and a phased withdrawal of the three-year tax exemption for new mines. That, as I say, was a recommendation of the royal commission to the Minister of Finance.
[DOT] (8:10 p.m.)
This press release, presumably an official press release from the Minister of Finance, stated:
The commission conceded that the existing concessions have encouraged Canadian mining and petroleum activities.
I emphasize the word "Canadian". It is my belief that the withdrawal of these concessions will be to the great disadvantage of Canadian companies engaged in this kind of exploration and development. The press release goes on to quote the commission as
February 28, 1967

saying that the proposed tax reforms might shift some of the investment in mining and petroleum into other activities. Possibly this is desirable, and possibly not. If there is a shift of Canadian funds and investment into other activities as a result of action taken by Canadian law, there is not much validity left in the contention that there is too much foreign ownership of the mining and petroleum industries in Canada today.
This press release No. 14 goes on to say:
If public policy dictates a need to stimulate mineral exploration, subsidies rather than tax concessions should be used, the commission added. For example, the new government loan program for northern exploration could be expanded; increased subsidies for transportation, communication and geological surveys could be made-
Here we have a situation in which the minister has referred to a change which may come about as a result of this report on taxation. At the same time we are withdrawing an advantage which Canadian companies presently enjoy. I suggest that the effect of this amendment will be that the total amount of the grant made under the act, which is intended to provide assistance to companies engaging in mineral exploration, will be withdrawn as a tax deduction from the expenses claimed for drilling and exploration.
Various ministers of the Crown have travelled about the country moaning and groaning about the degree of foreign control over Canada's basic industries. They should use what influence they have over the Minister of Finance in respect to matters of this kind. In this case we are withdrawing an advantage which Canadian companies possess at the moment, and if certain of the recommendations made by the Carter commission are implemented-I cite the recommendation that all the petroleum depletion allowances should be withdrawn

the position will be worse still.
On page 5 of this press release something is said about increasing the capital cost allowances for certain property. We do not have this proposal before us at the moment and we are not likely to have it before us for several months, at least, if we accept, as I do, what the minister said yesterday about the recommendations contained in this report.
The Minister of Agriculture was in Lethbridge the other day. He took the occasion to complain about foreign ownership of Canadian industry, and a newspaper reported him under the headline: "Greene Favours Limiting All Foreign-controlled Firms". The Minister without Portfolio, the hon. member 23033-8591
Income Tax Amendment for Davenport, goes about the country saying Canadians should own a great proportion of our industry. Yet when we reach this one point in the Income Tax Act where a distinct and definite advantage is offered to Canadian companies, the law is amended so that a large portion of this advantage will be withdrawn.
The minister says these companies were receiving a double advantage which was never intended. I could give many examples of cases where a double advantage is given by way of grants to designated areas, for example. The fact that these mining and oil companies are allowed to deduct the full cost of drilling and exploration, notwithstanding the fact that they have received a grant, is a factor which in my view leads to the desirable end of giving an advantage to Canadian companies.
I will not labour the point further. If any attention is to be paid to these complaints which we hear from members on the front government benches that Canadians own too small a share of the country's industry, we should not be considering an amendment such as this in parliament today.


Mitchell William Sharp: May I make a brief comment? First, so that the record may be clear, may I say that the Department of Finance has never issued any summary of the recommendations of the Carter commission. That summary was drafted by the commission itself. I will take no responsibility for it, nor do I want any of its views attributed to the government. The only purpose of this amendment is to ensure that the company cannot have both a grant and a write-off with respect to the same expenditure. That is all. I believe this is fair and equitable. Otherwise there would be ground for complaint from other taxpayers that a special and unwarranted advantage had been given to a particular class of taxpayers.


Mr. Winkler:: I would like simply to say that the minister has no reason to be concerned, because the vehemence of the hon. member for Medicine Hat is exemplified by his support of the government at all times.


Horace Andrew (Bud) Olson: I would remind the hon. member for Grey-Bruce that he should confine his remarks to the bill before us. These other things are just useless observations which simply waste the time of the committee.

February 28, 1967
Income Tax Amendment


Eric Alfred Winkler: My observations are not so useless when it comes to the support ol the government.


[Stage Direction]
Clause agreed to.
Clause 17 agreed to.
On clause 18-No deduction in respect of sale of property in certain circumstances.
Horace Andrew (Bud) Olson: The marginal note here reads: "No deduction in respect of sale of property in certain circumstances. The explanatory note tells us:
The purpose of this amendment is to provide that a deduction may not be allowed under paragraph (d) of subsection (1) of section 85B in computing the income of a taxpayer for a taxation year where that taxpayer ceases to be resident in Canada or becomes exempt from tax in that year or in the next following year.
The clause itself says that certain provisions of the act do not apply so far as this tax is concerned with respect to property sold in the course of the business where the taxpayer ceases to be a resident of Canada, and so on. Can the minister give us an example of what this is intended to cover?


Mitchell William Sharp: Perhaps I may give a somewhat fuller explanation of the purpose of the amendment than is contained in the note. This amendment is intended to close a loophole by providing that a taxpayer may not take a deduction for a reserve for a taxation year where the taxpayer, in that year or the next following year, ceases to be a resident of Canada or becomes exempt from tax.
Section 85B(l)(d) provides that where an amount has been included in a taxpayer's income from a business in respect of property sold in the course of the business and that amount is not receivable until some time in the future, the taxpayer may deduct a reserve equal to a portion of the profit from the sale.
[DOT] (8:20 p.m.)
Under the existing law taxpayers can escape tax altogether by becoming non-resident or exempt between the date of sale and the date at which payment is received from the purchaser. To prevent this, it is necessary to amend section 85B to forbid the claiming of a reserve at the end of the year during which or after which the taxpayer becomes nonresident or exempt.


[Stage Direction]
Clause agreed to.
On clause 19.
Edmund Davie Fulton: In respect of this clause, Mr. Chairman, I should like to raise a question I

asked earlier concerning the possibility in the future of deferred profit sharing plans being used for the purpose, and through the medium, of policies of insurance to provide for the acquisition of the shares of a deceased principal shareholder, and their distribution in turn among the beneficiaries of the plan who have been the employees of the company. I have been told that a profit sharing plan subject to the simple proposal I have outlined no longer would be approved, and that an insurance policy would no longer be a qualified investment for those purposes. Could the minister tell me what the situation will be?


Mitchell William Sharp: Mr. Chairman, my understanding is, provided the insurance is of what might generally be called the endowment type, there is no limitation. The trustee fund can purchase an endowment type of policy upon the life of the principal shareholder without restriction. However, if the insurance is of another kind, then there are limitations concerning the proportion of the income of the plan which can be used for the purchase of insurance.


Edmund Davie Fulton: Am I correct in understanding that if the insurance says that on the death of the insured prior to age 71 the proceeds which are payable can be used to purchase the shares of the insured, and that after age 71 when the endowment materializes, the proceeds can be used for that purpose. Under those circumstances could such a scheme be approved?


Mitchell William Sharp: My understanding is that this is merely for the purpose of defining the kind of endowment policy that is acceptable as an investment. Perhaps members of the committee will understand the reason for the limitation if I state it in this way. If there were no restriction, then it would be possible for all the fund to be invested in a term policy on the life of the principal shareholder, which might never be of any value; it would be a gamble in respect of the time at which the shareholder would die. The endowment policy ensures that there is an investment which inures to the benefit of the members of the fund. That, as I understand it, is the principle which is involved here. These limitations are only to describe the kind of endowment policy that is acceptable as an investment.
February 28, 1967


Edmund Davie Fulton: If you look at subclause (d) on page 22, at lines 13 to 20, you will see the following:
The cash surrender value of the policy... is or will be, at a time before the 71st anniversary of the birth of the insured person, if all premiums under the policy are paid, not less than the maximum total amount.. . payable by the insurer under the policy-
I assume that this is so that in effect the policy matures at age 70, and then it would have to be a term of the plan that the proceeds will be used at that time to buy the shares of the insured person and that the shares then will be distributed between the beneficiaries.


Mitchell William Sharp: I do not think it matters what are the terms of the plan. The first part of the description by the hon. member is correct; that is, that some time before the 71st anniversary of the birth of the insured the endowment policy matures, but the fund does not necessarily at that time acquire the shares. The proceeds go into the fund and can be used for whatever purpose the plan has in mind.


Edmund Davie Fulton: Then, Mr. Chairman, I have one other technical question on this aspect of the matter. If the minister would look at subsection 6 at line 41 on page 21, he will notice that the introductory words are "For the purpose of this section", and then it goes on to describe the circumstances under which the acquisition of a policy of insurance will not be deemed to be a non-qualified investment, and so on.
I wonder whether those words should not be "For the purpose of this part"; that is, the part we are dealing with, Part IIE, because the intent and effect of the other clauses in this bill are that all things which are called nonqualified investments must be disposed of within certain periods; otherwise there is an extra penalty with regard to the tax. I have a concern lest a policy of insurance which is deemed to be a non-qualified investment owing to the purport of one section, is not sufficient to make it clear that with regard to the other sections of this part it would be exempt from the necessity to dispose of the tax penalties. In other words, is the exemption of insurance policies made applicable to the whole of this part of the bill; that is, insurance policies which are in accordance with the provisions set forth here.


Mitchell William Sharp: Mr. Chairman, may I make two comments on what has been said by the hon. member for Kamloops. In the first place, it
Income Tax Amendment may give him some assurance to know that these sections were examined very carefully by the insurance industry itself, which has a very great interest in them. They do not feel that this is as limiting as the hon. member has suggested. Second, I am advised that if one were to adopt the suggestion of the hon. member, it would make the situation worse, because this section deals with insurance as such; it does not attempt to lay down a principle that a life insurance policy is a nonqualified investment. That is the principle on which these sections were drawn. It was an attempt to narrow the disqualification of insurance to specific kinds, and to place limitations upon them.
[DOT] (8:30 p.m.)
I am assured that the hon. member's suggestions would not accomplish his purpose. I hope he derives some assurance from the fact that the insurance companies have also adopted this attitude.


Edmund Davie Fulton: Mr. Chairman, I am forced to reiterate the objection I made earlier today in respect of the retroactivity of this measure. I cannot understand why there is a necessity for providing a legal prohibition in respect of something that has occurred in the past. Surely that was not the intent of the original legislation.
The next point I want to raise relates to clause 19 and the proposed changes to the Income Tax Act. Let me refer to page 27 of the bill at line 38 and following, continuing on to page 28, which deals with equity shares of corporations. There are very complicated provisions involved, and if I understand their effect correctly it is to qualify investments for trusts governed by deferred profit sharing plans.
As I understand this part of the measure, it deals with the investments which a plan may make, or trustees may make; yet one of the clauses qualifies the investment in respect of equity shares. It refers to equity shares of a corporation by which, before the date of acquisition by the trust of the shares, payments have been made in trust to a trustee under the plan for the benefit of beneficiaires thereunder, if the shares are of a class in respect of which there is no restriction on their transferability, and in each of four taxation years of the corporation in the period of the corporation's five consecutive taxation years that ended less than 12 months before the date of acquisition of the shares by the trust, and in the corporation's last taxation year.

February 28, 1967
Income Tax Amendment
This seems to me effectively to exclude from that classification of investment the shares of a private corporation because, as I pointed out, this normally would apply to restricted shares in private corporations, and the transferability for the purpose of holding those shares as restricted to the members of the private corporation.
It is my hope that the minister will explain the effects of this clause relating to the restriction of transferability in respect of private shares, because there is some question regarding profit sharing plans, particularly when you take into account the other features of these plans. I refer particularly to one of their objectives; to give their employees the opportunity to participate in the funds of the plan and the transferability of shares upon the death of shareholders who are, in other words, the owners of the corporation. Will the minister explain the restriction in this regard?


Mitchell William Sharp: Mr. Chairman, the purpose of this section is to limit the investments of profit sharing plans to shares in respect of what might be termed family businesses. As hon. members will see, if we did not have any such restrictions, the trustee could buy the shares of a family business, which could not be sold except to the family. This might not accomplish the purposes which we have in mind.
If profit sharing plans are designed to share the profits among employees we do not believe it would be in the interest of the employee to have the plan designed to invest in shares that could not be transferred freely. Otherwise the funds themselves might be placed in a position in which the shares could only be sold to those individuals who were members of the shareholder family. This would obviously defeat the purposes of the plan, or could be used for the avoidance of taxation. Let me assure the hon. member that this is exactly the reason we have placed this restriction on profit sharing plans.


Edmund Davie Fulton: Mr. Chairman, it seems to me that what the minister is saying is that we should throw out the baby with the bath water. Instead of defining the restrictions and the exceptions, what is being said is that there are no exceptions at all, or perhaps I should say restrictions. Obviously there must be an advantage to the plan if the benefits cannot be transferred to the employees who should benefit.

The only thing to be contemplated as a result of this measure is a restriction confined to transferability, because seldom if ever will a private company have no restriction on transferability of its shares. Why does the minister not provide by legislation a clear indication of restrictions rather than an indication or an absence of accepted restrictions? It seems to me that under the present provisions there is no restriction, or to say the least an unqualified restriction as to transferability.


Mitchell William Sharp: Mr. Chairman, I must come back to the point at issue here relating to deductibility. A profit sharing plan is based on deductibility from the taxable income of the employer or employing company. I do not think we would be wise to allow a deduction from the income of an employing company unless there is a complete transfer to the employee. If the plan is such that it invests in shares of the company which are restricted as to transferability I do not think we can be assured that the benefit will accrue to the employee. Therefore, I am very much of the view that there should be no restriction on transferability of these shares. Otherwise I believe we are in fact giving a deduction for something that is not being transferred in full to the employee. After all, the employer can obtain deductibility simply by transferring a share of his profits; the profits do not have to be deferred or invested in shares.
[DOT] (8:40 p.m.)


Edmund Davie Fulton: Mr. Chairman, I do not really like to engage in this sort of argument, but transferability may not mean at all that the shares cannot be sold: You may have to wait 30 days, and that is all. It does hot destroy the marketability of the shares. If the company is a good company, outside people will make an offer, and if the family or other shareholders do not want to meet that offer, the shares can be sold. It seems to me an extremely desirable objective and proper purpose of these plans to have in mind that on the death of the principal shareholders employees will themselves become shareholders and owners of the business, and any plan that facilitates this should be approved and encouraged rather than discouraged.
If we were to include this provision, not even the proceeds of the insurance policy could be used to buy the shares and put them in the plan, because of the blanket exclusion here in respect of any shares which have any restriction on their transferability. I did not have an amendment to propose, but because
February 28, 1967

Income Tax Amendment
I do not think the minister really meant the argument he has advanced, I move:
That clause 19 be amended by deleting from the proposed section 105Q the words, "(A) there is no restriction on their transferability, and", where they occur at lines 44 and 45 on page 27.


Mitchell William Sharp: Mr. Chairman, is this amendment before us?


Edmund Davie Fulton: Yes.


Herman Maxwell Batten: Order. It is moved by the hon. member for Kamloops:
That Bill C-529 be amended by deleting the words:	"(A) there is no restriction on their
transferability, and", at lines 44 and 45 on page 27.


Some hon. Members:: Question.


David Lewis: Mr. Chairman, with some of the things the hon. member for Kamloops has said I am in sympathy, and I can see some validity in his concern in certain cases. But it seems to me that the amendment which is moved could not possibly be accepted, at least as far as my submission goes, because what is being done by removing these words and not replacing them with any others is enabling a profit sharing plan to be locked in to the non-transferable shares of a private company. Surely the hon. member cannot intend that. When he was speaking I thought he was appealing to the minister to make some amendment to this language so that in certain cases, if the restriction is of a certain kind only the investment would be a qualified investment. But instead of producing an amendment of that sort, which might have been looked at with some sympathy, the hon. member has produced an amendment which would mean that the proceeds of a profit sharing plan could be invested in the shares of a non-profit company and be locked there for as long as the employer desired, no matter what happened to the shares, what the employees wished, or anything else. Surely this does not accomplish the rather limited purpose of the hon. members's intention as he expressed it. We certainly could not support an amendment which would have the effect which I have suggested.


Mitchell William Sharp: Mr. Chairman, I need add very little to what has been said by the hon. member for York South, who has put his finger upon the essence of the problem. It would be possible to argue that profit sharing plans should never invest in the shares of the company itself, if one were looking at the original purpose of deferred profit sharing plans. The original purpose of deferred profit sharing
plans was to enable the employees to share in the profits they were helping to create. But, as I said earlier, as a result of introducing the principle of deferment, introducing the further principle of using these funds to acquire shares in the company, and introducing the further complication that they could then be used as a form of annuity or pension, one has to make some compromises. Apparently it is now accepted as part of the doctrine that these profit sharing plans should be used to help employees acquire shares in the companies in which they work. So we have in a sense moved away from the pure theory of profit sharing plans toward a rather different concept.
A qualified investment includes investment in the shares of the company itself, but we have also tried to ensure that the investments are of such a character that the employee has a reasonable prospect of getting out of the fund the amount that the employer put in out of his profits.
[DOT] (8:50 p.m.)
It may be that with more experience we will be able to define more carefully the nature of the restrictions on transferability that are most to be feared, but I think the committee will realize that this is the first extensive effort to regulate these funds and plans. They were introduced for the first time in our legislation five or six years ago. On the basis of the experience that we have had until now we believe that it is necessary to be much more' detailed if for one reason only, namely that these plans have been abused and we are trying if possible to establish regulations which will reduce the abuse.
I have to take very strong exception to the amendment that has been proposed because I do not believe that it would be in the interests of the employees that the funds should be invested in securities which have restrictions on their transferability. Therefore I hope that the hon. member will withdraw his amendment, and if not I certainly will vote against it because I do not believe it is in the interests of the employees.


Edmund Davie Fulton: If the minister had something better to offer I would be glad to withdraw my amendment in favour of his. However, all he has said until now is that he does not see why the provision should not be in here. In 'brief, I do not claim the ability to draft an amendment on the spur of the moment which would specify the kind of restriction which we all agree might be acceptable. Nevertheless I think it is more to the disadvantage

February 28, 1967
Income Tax Amendment of the employees to exclude from investments in deferred profit sharing plans shares in private companies, which is what the bill does -they cannot have those shares in their portfolio under the present bill-than an amendment which says that these shares can be included even though there are some restrictions on their transferability. Let me point out that the kind of restriction that is normally applied does not exclude their sale, it merely gives an option to someone else to buy them at the proper price, so the employee will either get the shares or their fair market value.
Therefore in the absence of some indication by the minister that he will substitute another amendment for the one I proposed, I cannot withdraw mine.


Herman Maxwell Batten: Is the committee ready for
the question?
Amendment (Mr. Fulton) negatived: yeas, 25; nays, 51.


Edmund Davie Fulton: Mr. Chairman, I want to ask the minister one or two questions with regard to the proposed section 105L of the bill which appears at page 23. Am I right in my understanding that under this section a plan which will not now be approved must dispose of all non-qualified assets or investments, and even if it disposes of them immediately after this legislation comes into effect it is liable to pay a tax on part of the proceeds of that disposal?


Mitchell William Sharp: If the fund does dispose of the non-qualified investments in accordance with the schedule laid down in the act, then no penalty whatsoever is imposed. Indeed if it pays the penalty and then disposes of the non-qualified assets or investments, it can get the tax back. So I believe this is very fair under the circumstances.


Edmund Davie Fulton: I am encouraged by that answer but I hope the minister will not misunderstand me if I say I cannot equate it with the provision of section 105L which reads as follows:
Every trust governed by a deferred profit sharing plan or revoked plan shall pay a tax
(a)	for 1967, equal to the amount, if any, by which 20 per cent of the initial base of the trust exceeds the proceeds of disposition of its initial non-qualified investments disposed of after December 21, 1966 and before 1968;
Am I right in my understanding that under subparagraph (a) the first possible disposal, which now must be after December 21, 1966, will expose the plan to a liability for a tax because it would not have disposed of its

non-qualified investments before that date? Unless the minister can point out to me some relieving subsection which has not yet come to my attention it seems to me that that would be inescapable. Since they cannot do it until after December 21, 1966, they become liable to a tax.


Mitchell William Sharp: I am a little puzzled by this question, and so are my officials, which gives me some assurance. I fail to see the difficulty which the hon. member is experiencing. We are talking about a tax for 1967 equal to the amount, if any, by which 20 per cent of the initial base of the trust exceeds the proceeds of disposition of its initial non-qualified investments disposed of after December 21, 1966 and before 1968. I do not understand how a difficulty could arise, nor does it seem to be retroactive.


Edmund Davie Fulton: In the words of this section the fund would not have to dispose of its investments. If it were not for this legislation the plan would not have to dispose of its investments. Therefore it would not have any proceeds from its investments until the plan materialized and was put into effect, after which the deferred operation can take place.
[DOT] (9:00 p.m.)
Now, the minister's legislation imposes on some of these plans, I gather quite a number of them, the obligation to dispose of their investments and to pay a tax on the proceeds of that disposal. They cannot escape this liability to tax. This is the important point I made earlier this afternoon. You are changing the rules half way through the game. The minister is saying this type of investment cannot be acquired in the future, but he is not stopping there. It would have been acceptable if he had, but that is not what the minister is doing. The minister is not only saying; "you cannot acquire this type of investment in the future, but you are to dispose of the investments that you acquired in the past, notwithstanding the fact that my colleague, the Minister of National Revenue, approved specifically of what you were doing. You have to dispose of them and incur a liability to tax on part of the proceeds of disposition."
This is retroactive legislation, no matter what the hon. member for York South says. It is saying now that what you did, although right at the time, in accordance with the law at the time, in accordance with approval given at that time, is now wrong. You have to undo it and you have to pay a penalty now for doing that which last year we said you
February 28, 1967

could do. I find this intolerable. I am just amazed that the minister would introduce such legislation into this house.


Mitchell William Sharp: I am still puzzled by the anxiety of the hon. member. If a trust carries out this disinvestment of non-qualified investments in accordance with the schedule, I think it is 20 per cent of their non-qualified investments by the end of 1967, 40 per cent by the end of 1968, 60 per cent by the end of 1969 and 100 per cent by the end of 1970, they do not have to pay any tax whatever. They are given a period of time to get rid of their ncn-qualified investments. If they fall short at the time, then they have to pay a penalty equal to the amount of the shortfall. There is a provision at the end of 105L that the trust is entitled to a refund later if they then disgorge their non-qualified investments. Perhaps this is the reason the hon. member has felt we were being retroactive in an undesirable way. I do not believe that is a justified criticism. We have enabled these trusts to get rid of non-qualified investments in an orderly way. If they meet these targets, no penalty is involved, and if thereafter they comply they can get the tax back.


Edmund Davie Fulton: I understand what the minister is saying to me goes a long way toward meeting my point. I am sorry if I am dull, but I do not see how what he is saying to me is, in faet, the result of the wording of this legislation. The proposed section reads, in part:
Every trust governed by a deferred profit-sharing plan or revoked plan shall pay a tax
(a) for 1967, equal to the amount, if any, by which 20 per cent of the initial base of the trust exceeds the proceeds of disposition of its initial non-qualified investments disposed of after December 21, 1966, and before 1968;
Well, they cannot dispose of them until after December 21, 1966, because the legislation does not come into effect until after December 21, 1966. It seems to me they become liable for a tax equal to the amount by which 20 per cent of the initial base of the trust exceeds the proceeds of disposition of its initial non-qualified investments. Perhaps we could stand this clause and the minister might provide a private memorandum for me, since I am unable to see how this thing works.


Mitchell William Sharp: I have one here.


Edmund Davie Fulton: Could we stand 105L?


Mitchell William Sharp: Yes, I would be happy to do so. Perhaps in the meantime I might pass over to my hon. friend a copy of the note that helped me to understand the section.

Income Tax Amendment


David Lewis: Read it into Hansard.


Mitchell William Sharp: Perhaps I could give a brief description of how it is intended the section will operate, and perhaps the hon. member will see this is what the legislation says.
The new section 105L is intended to induce the trust for a deferred profit-sharing plan to dispose of some of its non-qualified investments each year and to have disposed of all these investments by the end of 1970. It imposes a penalty tax equal to the amount by which the proceeds of disposition of the initial non-qualified investments in a series of periods fall short of certain specified proportions of the initial base of the trust. The penalty tax, therefore, is equal to the amount by which the disposition falls short of the target set forth.
The proportions of the initial base that must be disposed of in order to avoid tax are as follows: 20 per cent by the end of 1967; 40 per cent by the end of 1968; 60 per cent by the end of 1969, and 100 per cent by the end of 1970.
The terms "initial base of the trust" and "initial non-qualified investments" used in this section are defined in a new section 105Q on page 26 of the bill.
"Initial base of a trust" means the aggregate of the values of all initial non-qualified investments held by the trust on December 21, 1966, when each such investment is valued at the lower of, (i) its cost to the trust, or (ii) its fair market value on December 21, 1966. The reason for the date, of course, is that is when the bill was read for the first time.
"Initial non-qualified investment" means a non-qualified investment held by the trust on December 21, 1966.
The second part provides for a refund of any tax paid under this section as I have just been describing if the non-qualified investments held on December 21, 1966 are disposed of for not less than the full value placed on them at that date. If there is some loss on disposal and the tax paid exceeds that loss, there will be a partial refund. I might add that the subsection is rather complicated because it also provides for interim adjustments from year to year as disposals are made.
I hope that that explanation will help the committee, and I suggest it is in line with the amendments proposed.

February 28, 1967
Income Tax Amendment
May I now place before the committee an amendment I should like the Minister of Labour to move? The amendment reads:
That clause 19 of Bill C-259 be amended
(a)	by striking out lines 5 to 12 on page 22 and substituting therefor the following: to any rights or benefits under the policy (other than the rights or benefits of the insurer),
(b)	by striking out lines 21 to 24 on page 22 and substituting therefor the following:
(e) the total of the premiums payable in any year under the policy is not greater than the aggregate of the amounts that, if the annual premiums had been payable in monthly instalments, would have been payable as such instalments in the twelve months commencing with the date the policy was issued,
(c)	by striking out lines 32 and 33 on page 22 and substituting therefor the following:
policies in respect of which the trust is the only person entitled to any rights or benefits (other than the rights or benefits of the insurer) does not exceed an amount equal to 25 per cent of the aggregate of all amounts paid by employers to the trust in the year; and
(d)	by striking out line 37 on page 24 and substituting therefor the following:
year or within 90 days after the end of the year to that employee, or


John Robert (Jack) Nicholson: I so move.
[DOT] (9:10 p.m.)


Mitchell William Sharp: Just a word of explanation, Mr. Chairman. The first two paragraphs of the amendment, (a) and (b), are the result of suggestions made by representatives of life insurance companies to provide a better way of describing what was intended by the legislation. Paragraph (c) has been proposed to make clear that the 25 per cent test that is in the legislation is based only on payments made into a plan by employers. The fourth paragraph, (d), is relieving. It will give a trust for a plan a period of 90 days after the end of the year in which to reallocate amounts which are forfeited in the trust during the year. As the bill reads now the trust would otherwise have to make the reallocations by the last day of the year.


Herman Maxwell Batten: Shall the amendment carry?


Some hon. Members:: Carried.


[Stage Direction]
Amendment agreed to.
Herman Maxwell Batten: Shall clause 19 as amended carry?


Edmund Davie Fulton: Mr. Chairman, I still object to the whole import of clause 19 and I do not modify that objection. However, with respect to the applicability and effect of section 105L I guess I have been too long away from the
[Mr. Sharp.1
tutelage of the Department of Justice and the draftsmen that are at their disposal. At first I did not understand the way it worked. I thought it worked in the opposite way to that explained by the minister. However, having considered carefully the explanation and reconsidered the drafting I would have to agree that it operates in the way outlined by the minister, and I apologize to the committee for my inability to see that from the very outset. Therefore I withdraw my specific objection to section 105L but I maintain my objection to clause 19 as a whole.


Mitchell William Sharp: Mr. Chairman, may I say that the hon. gentleman has certainly no need to apologize for not being able to understand this bill. Understanding this bill would be even more wonderful than understanding the Carter report at first reading.


Kenneth Hamill (Ken) More: I just have one short question to put to the minister on this clause which relates to investment in shares of corporations and the requirement that corporations pay dividends. I did raise this question with the minister in my earlier remarks as a result of knowledge I have of a plan which is set up to enable employees to obtain an interest in a company. Although this particular company is a well run company, it is small. It does not pay dividends, reserving the funds accumulated for expansion purposes. In this event the trustee of this plan would not invest in the shares of the company as I understand this section, even though this was the purpose of setting up a profit sharing arrangement.
I can understand the restriction if the plan were for pension purposes. This profit sharing plan was set up to provide funds to enable employees to obtain some equity in the company on the retirement of those who are now the proprietors of the company. It seems to me that this restriction would leave no basis on which they could operate a profit sharing plan to accomplish this objective.


Mitchell William Sharp: I do not know whether the hon. member has looked carefully at page 28, but according to section 105Q (e):
"qualified investment" for a trust governed by a deferred profit sharing plan or revoked plan means ...
(vi) equity shares of a corporation by which, before the date of acquisition by the trust of the shares, payments have been made in trust to a trustee under the plan for the benefit of beneficiaries thereunder, if the shares are of a class in respect of which-
February 28, 1967

Then comes the clause to which the hon. member for Kamloops took exception; and then in subparagraph (B) appears a description of the kind of shares. The test there is whether dividends have been paid and, second, whether the corporation had earnings which did not have to be paid out in the form of dividends. I believe it is quite reasonable that the profit sharing plan should be restricted to investments in companies with good earnings records. I think it would be quite unreasonable to restrict them to companies which paid dividends regularly.


Kenneth Hamill (Ken) More: I thank the minister for his explanation. I think the import of the second part answers my question in part.
Clause as amended agreed to.
Clause 20 agreed to.
On clause 21-Application for assignment of social insurance number.


Horace Andrew (Bud) Olson: Mr. Chairman, this clause is a requirement that every taxpayer from 1966 on shall have a social insurance number. Objections have been voiced before about this. I am not particularly against the principle that people in Canada should be required to obtain such a number so that the computing machines which it is desirable to use today can identify them by an account number. What I object to is the kind of insidious deception displayed in this house some time ago by some members of the government who stated categorically, and stated repeatedly, that there would be no requirement that anybody need apply for a social insurance number if the did not wish to do so.
The Minister of Finance, the Postmaster General and others know very well that the Minister of National Health and Welfare gave this assurance over and over again when the Canada Pension Plan was going through the house. It is now compulsory to pay income tax; it is compulsory to file a return if you have earnings above a certain minimum. This amendment to the Income Tax Act is a deceptive way of compelling people to apply for a social insurance number. Anyone not wishing for a government benefit should have the choice of not applying.
[DOT] (9:20 p.m.)
What concerns me mainly in this amendment, in this very complex tidying up bill, is a matter that was discussed when the Canada Pension Plan was being discussed. I am surprised that the Minister of Finance has completely reversed his position about the need to 23033-860J
Income Tax Amendment apply for a social security number. If it is government policy to require that everybody in Canada be registered, why not say so? Why does the government give these assurances, saying: "It will not be compulsory to have a number; people do not have to apply, the whole thing will be voluntary,"-and all the rest of it.
In section 130A, subsection 2, we have the compulsory part. It says that anyone who does not apply for a social insurance number after 1966 shall be deemed to have failed to complete the information on a prescribed form as required by or pursuant to section 44. I repeat, Mr. Chairman, if it is government policy for every Canadian to be compelled to apply for this number, why not say so? Why not be straightforward, instead of completely reversing what was said before. The Minister of National Health and Welfare insisted that the government would not want this number on a compulsory basis.
Clause 6 ought to be amended, to enforce a certain medical standard with respect to the making, producing and fitting of dentures. In any event I think the minister owes us an explanation. How can he justify the complete somersault with respect to being forced to apply for social insurance numbers?


Mitchell William Sharp: Mr. Chairman, the government is proposing this amendment to the Income Tax Act because of the increasing work load on the Department of National Revenue. The main reasons for this increase in the work load are the increases, I am happy to say, in the number of taxpayers, the tax collection agreements with the provinces, the record keeping requirements as the result of the federal-provincial fiscal arrangements and the introduction of the Canada Pension Plan. There has been an enormous increase in the burdens of the Department of National Revenue, and this work load will be further increased as we move into the guaranteed income for old age pensioners.
The work presently required to be performed by the department could not be carried out today without the use of electronic computers. The increased demands to be placed upon the department will increase this dependence on computers. We cannot operate these computers without numbers; we have not yet invented a machine that will respond to names. We must use code numbers such as these.
The Department of National Revenue has a system of numbers, but it is not adequate. It was developed before the social insurance

February 28, 1967
Income Tax Amendment number system was implemented for the Unemployment Insurance Commission and the Canada Pension Plan. The first public use of the taxation number occurred in 1965 when personalized 1964 tax forms were mailed to each taxpayer then on record. I am sure most hon. members are familiar with the personalized return forms; they received them in the mail. The forms bear the taxpayer's name, the last known address, and his unique number.
The unique taxation number has been of great assistance in meeting the problems of exact identification inherent in computer record keeping, but it has some serious shortcomings. Not all taxpayers choose to use the labelled return bearing their number. Others do not receive their returns because they have moved frequently. In either case the essential identifying number is unavailable to the department's computers. Furthermore the taxation number is based in part on name, and is therefore subject to variability when names change, as in the event of marriage.
Shortly after the Department of National Revenue developed its numbers system the requirements of the Unemployment Insurance Commission and the advent of the Canada Pension Plan dictated the need for the design and implementation of a new and universal system of permanent unique numbers suitable for massive record keeping operations by electronic computers. The social insurance numbers system was the result. It now embraces over 9 million members of the population.
To carry out its responsibilities for collecting Canada Pension Plan contributions and to ensure that contributors' records are accurately maintained, the Department of National Revenue must use these social security numbers and require that all contributors use them on the reporting forms required to administer the plan. Thus the department is now using one system of numbers for the identification of taxpayers and another for Canada Pension Plan contributors, most of whom are the same.
As I said earlier, Mr. Chairman, when speaking on second reading of the bill, I do not know why there should be objection to simplifying a system. I can understand the objection to having a number, but I do not see what objection there can be to having one number instead of several. I submit that this is a natural evolution in the system. I do not think it in any way infringes on our essential liberties nor in any way does it disclose to

unauthorized persons the private business of taxpayers or individuals. I submit this is a very desirable improvement.


Mr. Smallwood:: I did not intend to speak on this bill. I wish to thank the hon. member for Medicine Hat for drawing our attention to what the government is doing, forcing numbers on the Canadian people. The government is treating us like a bunch of cattle. In western Canada in the spring of the year we mark our cattle; the government wants to do that to our people.


Some hon. Members:: Oh, oh.


Clifford Silas Smallwood: Do not laugh. This is a serious matter. Here we find the people of Canada being forced to become numbers. We will not have names any more; we will be numbers. They will introduce a punch system and everybody will have to stamp his number wherever he goes. This is an absolute disgrace in a democracy.


Joseph Julien Jean-Pierre Côté: Should we use letters
instead of numbers?


Clifford Silas Smallwood: The Postmaster General probably could not even read letters. He made a mess of them in his post office. It is disgraceful to treat people as numbers. We shall not have any more names; people will be No. 21, No. 23-they will be numbers instead of names.
The minister talked about computers and how efficient they are. Well, they are so efficient that they did not send a man in my constituency his cheque. They sent it to somebody else. The machine had the wrong number and somebody else got his money. The same held true for the May and June cheques. We were told: "Oh, but the machine cannot make a mistake; it cannot make cheques out to the wrong number." If that is so, where did these wrongly directed cheques go? One man in my constituency has been without a cheque since May.
What kind of outfit runs this country? Are we all to be cattle? I want to see more people getting up and complaining about being turned into cattle. I think this is disgraceful.
[DOT] (9:30 p.m.)


Stanley Howard Knowles: I do not wish to disappoint the hon. member for Battle River-Camrose. He seemed sure that we would not object to the use of numbers in this very complicated operation. Frankly, I am puzzled as to why this annoyance with numbers has come into the picture. Most of us in this chamber were
February 28, 1967

born, and most of us have birth certificates: They bear numbers. Most of us are married: Marriage licences have numbers. Some may have been divorced and divorce certificates have numbers. When finally we die, our death certificates will have numbers.


An hon. Member:: We have got your number, too.


Stanley Howard Knowles: Unemployment insurance
had always used a number system of its own. Income tax has a numbering system for us. I suppose every person in this chamber has credit accounts and charge accounts and carries identification with respect to them in his pocket. All have numbers on them. I suspect that all of us have with us our railway passes and, though we may not use the trains as much as we used to, we use these passes for identification purposes time and time again. They have letters as well as a number- L.J.R. as well as a number.
Here in the House of Commons we have seat numbers. We have post office box numbers. We even have room numbers. Most of us have insurance policies and every policy has a number. If we own a car, it has a number. In my own province of Manitoba I have had the same number since 1950. Each of us has a driving licence. The number of that licence has now been made permanent in at least the provinces of Manitoba and Ontario. If any of us are fortunate enough to own property with a title to it, there is a number on the title. Most of us probably have mortgages, and they have numbers. When we vote we find our numbers on the voters lists. When we pay municipal taxes we find we have a number on the tax roll. We have telephone numbers. I even do my filing in my office on the basis of a numerical system. During the supper recess I found that the Minister of Finance is included in my filing system, and he has a number in that file.


An hon. Member:: What is the number?


Mitchell William Sharp: No. 007.


Stanley Howard Knowles: I find that I have the hon. member for Kamloops in my files, not because he is the hon. member for Kamloops but because for a number of years he was the Minister of Justice.


Mr. Chretien:: He is number one in the race, too.


Mitchell William Sharp: Have you the remaining Conservative leaders in order?
Income Tax Amendment


Stanley Howard Knowles: The press is finding it difficult to assign numbers to their order of priority. But for years and years we have used numbers in all kinds of situations for ease in identification, and I find it hard to understand why all of a sudden it has become such a sin to have a number. I use that word with a double meaning, now. I thought the advertisement in Saturday's papers was a bit ridiculous, though I did laugh at it. The Department of National Revenue spent a few dollars telling the people of Canada that every taxpayer must have a SIN-and it was spelled "S-I-N", all in capital letters.


An hon. Member:: It is the new morality.


Stanley Howard Knowles: I wondered what it was and I
admit I read the advertisement. The chap who was caricatured was looking at one of those delightful income tax forms. Of course there was a pretty girl shown on it, and every taxpayer was supposed to have a SIN. Of course, one goes on reading to find out what the SIN is, but before the reader is told what it is he is told he must report it on the tax form. I thought it was something one might get an income tax deduction for; I wondered what I might have been missing over a number of years.


David Lewis: Would you object to having to report it?


Stanley Howard Knowles: I am reminded of the old
man who was asked whether, if he had to live his life over again, he would make the same mistakes. His reply was: "Yes, but I would start sooner."
Of course, SIN, to the Department of National Revenue, means Social Insurance Number. I am a little surprised that the department has not been taken to task already for this incursion into the new morality. I do not know whether other hon. members read the advertisement, but I freely confess that I did. I have asked a number of people what they thought about it. Some thought it was very good, because people would read it, while others thought it was less good because it did not really put into people's heads the idea that they must get this number on their income tax forms. But surely we are straining at something or other, when we see a loss or denial of individual liberty in the greater use of numbers in a very complicated situation. I do not think it is any more a denial of individual liberty than it is to have a number on my driver's licence, which I have to show when an officer stops

February 28, 1967
Income Tax Amendment my car on the street. Nor is it any more a denial of individual liberty than it is to have a number on my marriage licence, or because, as a minister who can still perform marriages, I have a number under which I do it. There is no loss of liberty or personality in this sort of thing.
On the other hand, if we are to deal with this complicated business of keeping all the records which are required for things like income tax, unemployment insurance, the Canada Pension Plan and so on, we need a system which will work electronically. Others in this house were out, last year, as I was, to the place at Tunney's Pasture where these things are operated. I was certainly convinced that but for electronic equipment the Minister of Manpower and Immigration could not find all the people required to do the work of looking after our income tax records, let alone the Canada Pension Plan records.


An hon. Member:: Government is getting too big.


Stanley Howard Knowles: Well, if government is getting too big, this is one way of catching up. Maybe government is doing more and more things on behalf of the people of Canada. If these things are to be done, and done efficiently and effectively, I think we have to use modern methods.
As I understand it, one of the things we must have in this country is portability for the various social insurance plans. We have portability between the Canada Pension Plan and the Quebec Pension Plan, and it is a condition of the medicare legislation that there is to be portability among the provinces. If we are to carry this out effectively I think we must have one number for our people, not two, or three, or half a dozen numbers. I also think it is a service to our people to teach them to try to get these numbers. People take a long time to do the things which need to be done or which the law requires. The Canada Pension Plan legislation makes it clear that unless people have the number they cannot get pension benefits. It may seem harsh, but unless records are kept how can the benefits be paid?
The advertisement is careful to say that only people over 18 need to have their social insurance numbers, their SIN, as the Department of National Revenue puts it. The government's new morality does not require that anyone under 18 have a SIN. It does not start under that age.

[DOT] (9:40 p.m.)


Robert Gordon Lee Fairweather: It does not restrict it to those over age 18.


Stanley Howard Knowles: It does not make it compulsory under age 18. There already is a provision in the Canada Pension Plan legislation that people must apply for it if their income is $600 a year or more. This legislation does not go that far, but it does say that persons whose incomes are $1,000 in respect of a single person or $2,000 in respect of married persons must apply.
It has been said that this is an additional burden on our people. Surely, Mr. Chairman, it must also be said that one of the ways to save money in the government is to have things done efficiently. If we do not have electronic methods and are going to have it done by individual pen-pushing accountants, then it will cost that much more. Surely this is ordinary elementary common sense. I think that a lot of the talk we have had today and on other occasions about this matter is just so much talk. I believe that, just as we have accepted all these other numbers, we should not quarrel about having one number for our income tax, for our Canada Pension Plan, and for our unemployment insurance. Why not have one number for all the things concerning which we are in contact with the federal government, or indeed with the provinces, particularly where portability is required. Mr. Chairman, it was not my idea that this social insurance number be called SIN, but now that it has been so christened, I think it is not a bad idea.


Clifford Silas Smallwood: Mr. Chairman, I should like to reply for a moment to the hon. member for Winnipeg North Centre who gave us quite a sermon regarding numbers. He said that he has a number, as a minister. Possibly he would like to use that number, marry himself to the Liberals and be through with it. After listening to him I am more concerned than I was before that we should not have this compulsory number which is forced upon us, because I believe we must stick up for democracy. After hearing him I am more convinced than I was before that this is straight socialism. I am surprised that the Liberals swallowed it. I would go further and say that it is communism. We should wake up and realize what these people are trying to do to us. It is time we looked after our democracy, or we will go to sleep and then find that we
February 28. 1967	COMMONS
have people on our hands who will be dangerous to the younger generation of our country. As was mentioned earlier, we might find that when a baby is born he will be given a number and not a name. What is happening here tonight is very serious.


Mr. Maclnnis (Cape Breion South):: Mr. Chairman, I intend to rise only to ask a question for clarification in respect of a couple of statements made by the hon. member for Winnipeg North Centre, who my colleague from Halifax says is in favour of SIN. I should like to ask my friend whether he would qualify what he meant when he said that some of us were born. This creates a bit of a question in the minds of some people.
I should also like to draw his attention to what his colleague the hon. member for York South suggested, when he said that without the computer system the work of the government would never be done because the minister of manpower could never find the people. Is he overlooking the potential and possibilities of the Cape Breton area in which to find workers to fill in for the computers which he says are so essential. I bring this to his attention simply because of the suggestion of the hon. member for York South, who seems to be aware of the problem we have. If the minister is looking for workers, I suggest that he start in the east.


Horace Andrew (Bud) Olson: Mr. Chairman, after the explanation by the hon. member for Winnipeg North Centre I suppose all of us should be reduced to the point where we would not object to licence numbers and various other serial numbers on documents and so on. It seems to me, however, that he has completely missed the point so far as the objection to insurance numbers is concerned. As he well knows, if there is to be one number attached to each citizen in Canada for the purpose of the Canada Pension Plan, Old Age Security, taxation, and a number of other things which some centralized filing of this information in may come along later, and if there also is to be a computer system, then all this information which is filed in the computer can be blurted out. It can blurt out this information at the rate of 600 lines per minute.
What I object to is that in the Income Tax Act there are provisions which require that all officers who handle the files must keep the information to themselves, and now we will have a situation where we will have the same common number for every citizen in respect
Income Tax Amendment of all these matters and there is no prohibition of which I know at the moment in respect of information relative to the Canada Pension Plan, the Old Age Security Act, and so on, such as there is in respect of the Income Tax Act.
Therefore, as I said, I think the hon. member for Winnipeg North Centre has completely missed the reason for the objection to having all this information filed under one number in the computer. This would mean that all these departments of govermnent would have access to the information in respect of the individual.


Stanley Howard Knowles: Would the hon. member permit a question?


Horace Andrew (Bud) Olson: Perhaps the hon. member should permit me to finish my remarks, but go ahead.


Stanley Howard Knowles: Why does the hon. member think that having a common number would result in the information from different departments being in the same file, any more than having a common name would do that?
I do not see how this situation would violate the secrecy of the income tax department.


Horace Andrew (Bud) Olson: Perhaps not. Maybe the hon. member for Winnipeg North Centre has a greater understanding than I do of computer programming and what happens when you ask for an account and information from those accounts which are filed electronically. However, my information is that when you call for a file from an electronic computer, and give a number, all the cards on this whole centralized filing system would be printed. Therefore since these accounts would be filed in a central area, people in the Department of National Health and Welfare- the people administering the Old Age Security program and other things-would have access to the income tax records of any taxpayer. Now, since all this information would be included in the same file with the same number, if a person pressed a button asking for information from this file, the computer would have the capability of blurting all the information out, and there it would be.
I suggest, Mr. Chairman, that this would be in violation of the rights of the taxpayers of this country, which heretofore have been protected. When they file their income tax returns they are guaranteed by law that no one except the tax assessors with the Department of National Revenue shall have any access to this information.
13E02

February 28, 1967
Income Tax Amendment [DOT] (9:50 p.m.)
Perhaps we need more assurance that no one else will have access to this information compiled by computers. With that assurance I am sure this measure will be accepted. Before it is acceptable we must know that there will be a separation of information so far as computers are concerned, so that the information will not be available to everyone. I agree with the hon. member for Winnipeg North Centre who suggested that this general information should not be made available to anyone who seeks it.
In spite of the assurances given some months ago by the Minister of National Health and Welfare and in the absence of any satisfactory explanation, I think a great deal more supervision should be employed in respect of the information available from these computers. There is always the possibility that records and information, obtained in confidence, will become available generally as a result of computer operation. Without some assurance of a separation of confidential and public information there is a possibility of an invasion on human rights. We in this parliament must do everything possible to avert that invasion.


Edmund Davie Fulton: Mr. Chairman, I have been very interested in the remarks made during the last 15 or 20 minutes, particularly those of the hon. member for Winnipeg North Centre regarding the effects of the provision in this measure having regard to the Income Tax Act. There may be some merit to the suggestion that for administrative purposes, in so far as the social security measures of this nation are concerned, individuals should have social insurance numbers. In this regard let me point out that there are provisions in the national health and welfare measures which require individuals to have these numbers. This is the first invasion of this kind we have observed in the nature of paraphernalia, purposes, and methods of enforcing the Income Tax Act. No one heretofore has been obliged to accept an income tax number in order that income tax regulations may be enforced, formidable and restrictive as they may be. This particular provision would have the effect of applying an income tax number by an indirect method, for a purpose other than enforcement of the Income Tax Act.
While I understand the reasons behind the insistence that people must have a social insurance number, I cannot understand the application of that principle to this particular

measure. It will be used to enforce collection of income taxes under a government instituted social security program. We as members of parliament are well aware of the difficulties involved in income tax legislation, and we all appreciate that certain injustices occur. In the present case the government is using extraordinarily restrictive apparatus for a purpose not intended. If we must be labelled by a social security number, let us be so labelled without the impending threat of such a label being used for income tax collection purposes. The people of Canada resent very much being regarded as wards of the government, and resent being numbered for income tax purposes. They resent even more being numbered on the basis of social security in order to accomplish something not intended.


Eric Alfred Winkler: Mr. Chairman, I should like to ask the minister whether in his view this particular clause will apply to old age supplements in years to come?


Mitchell William Sharp: I do not know the answer to that question. Let me make the very general statement that we are asking approval for identification of something that is not capable of being used for another reason. If we could be sure of an identification by names, that would be sufficient, but we all know that many individuals in this country have the same name by birth and very often the same name by marriage. The identification we now seek I do not think infringes in any way upon our freedoms. We are simply seeking a method of identification which can be used in respect of individuals who come under the provisions of various measures because of different circumstances. The whole thing involves a matter of identification.


Edmund Davie Fulton: Mr. Chairman, if this measure involves simply a matter of identification, why does the measure provide such a heavy penalty under the Income Tax Act?
[DOT] (10:00 p.m.)


Mitchell William Sharp: In the first place, Mr. Chairman, the penalties are not as serious as has been suggested; I can assure hon. members of that. They are just the ordinary sort of penalties that are provided if in your income tax return you file your name in an improper way. In other words, the same penalty would be provided if you did not fill out your name properly. This is exactly the kind of penalty that is involved in this measure. If you misinformed the tax authorities by filling in your name incorrectly, or your address in the
February 28, 1967	COMMONS
wrong way, the same sort of penalty would be involved.
We now have a better method of identification, and I suggest that we should adopt it. I do not believe that this provision in any way affects our democratic rights or deprives any of us of our individuality. In fact, I think it is a much better means of identification than has been available heretofore.


Malcolm MacInnis: Mr. Chairman, would the minister answer a question supplementary to that just put to him? He was asked whether this provision will apply to recipients of the old age pension in the following year, and the minister's answer was, "I do not know." How, under a numbers system, are we going to settle this issue?


Mitchell William Sharp: If this provision were to be applied, it might be a very useful thing to do. But the fact is that I do not know-I am not the Minister of National Revenue-and am not aware whether there are any plans of this kind.
While I am on my feet, Mr. Chairman, I would like to reply to the hon. member for Medicine Hat. I should like to assure the hon. member and the committee that this provision has nothing to do with the privacy of income tax returns.
The tax returns of the people of this country are kept separately, just as though they were kept on pieces of paper with names on them, rather than on tape. But it happens to be a little more modern to adopt this method, and in this House of Commons I think we should take advantage of modern techniques to save the taxpayers' money and improve the administration of this country. I believe that the attitude being displayed here by some hon. members is that this system is something that has occurred recently. I believe this argument is perhaps best answered by the remarks of the hon. member for Winnipeg North Centre, who has pointed out that we are all identified by a great many numbers in many files. I believe that for the government it would be of advantage to have these details clearly and accurately recorded.


Gordon Harvey Aiken: Mr. Chairman, may I call it ten o'clock?


Stanley Howard Knowles: Don't say ten o'clock; that is a number.


Gordon Harvey Aiken: It is an hour, to my way of thinking.
Progress reported.
Proceedings on Adjournment Motion PUBLIC SERVICE



EXTENSION OF TERMS OF REFERENCE OF JOINT COMMITTEE

Hon. G. J. Mcllraiih (Minister of Public Works):: Mr. Speaker, I should like to ask permission to revert to motions for the purpose of extending the reference of the special joint committee on the public service of Canada to include the right to examine and report upon the matter of the pensions paid on account of the service of former members of the R.C.M.P. and of the armed forces.


Mr. Speaker:: Is this agreed0


Some hon. Members:: Agreed.


George James McIlraith: I move:
That the special joint committee of the Senate and House of Commons on the public service of Canada be further empowered to inquire into and report upon the matter of the pensions paid on account of the service of former members of the Royal Canadian Mounted Police and of former members of the armed forces; and
That a message be sent to the Senate informing Their Honours of this resolution and requesting that house, if it concurs, to authorize the committee to inquire into and report upon this matter.


[Stage Direction]
Motion agreed to.

George James McIlraith: Tomorrow we propose to submit to the house for its consideration first, the third reading of the bill on immigration appeals, that is item 83 on the order paper, then we will continue the matter that was before the house today, item 119, followed by items 133, 135, 86 and 134.



PROCEEDINGS ON ADJOURNMENT MOTION

[Stage Direction]
A motion to adjourn the house under provisional standing order 39A deemed to have been moved.

Hon. Martial Asselin (Charlevoix):: Mr. Speaker, on February 15, 1967 last, I put the following question to the Secretary of State (Miss LaMarsh):
Would the minister check with C.B.C. authorities in order to find out why the C.B.C. granted an interview last week to Mr. Vachon on the program "Aujourd'hui", during which the ex-policeman said that he had decided to join the Communist party and that, in the future, he would endeavour to convince our youth to share his views on Marxism?
13604	COMMONS
Proceedings on Adjournment Motion
The debate on this question was adjourned until tonight.
I would like to make a correction here, Mr. Speaker; I made a mistake when referring to the program "Aujourd'hui". My question was prompted by a news release of the Canadian Broadcasting Corporation news service.
Like so many Canadian taxpayers, Mr. Speaker, I raised this question because I am concerned over the attitude of certain C.B.C. officials. We are getting the feeling that the Canadian Broadcasting Corporation is straying away from its cultural and educational role. This agency is financed by public funds, and taxpayers have a right to wonder once in a while if their money is not being used to promote certain doctrines in complete opposition to the principles and beliefs of the great majority of taxpayers.
I, for one, believe strongly in freedom of the press and independence for the C.B.C.; I also wish to point out that I will fight to prevent this corporation from becoming a political instrument. However, when C.B.C. officials give us the impression that the corporation is conducting socialists, separatist and, in this case, communist propaganda, it is our duty to sound the alarm and ask ourselves a few questions regarding the inclinations and orientation of the management philosophy within the Canadian Broadcasting Corporation.
When an interview is granted an ex-policeman who says that he has decided to join the Communist party and that, in the future, he will endeavour to convince our youth to share his views on Marxism, I feel we must ask ourselves whether, in this case, the C.B.C. is really fulfilling its mission which consists in bringing into our homes sound ideas and valid opinions, in order to serve the interests of a democratic country such as ours.
[DOT] (10:10 p.m.)
Mr. Speaker, I am not a McCarthyist, but I think it is time that parliament should consider setting up a board of inquiry into the C.B.C. to examine the thinking, the philosophy and the tendencies of certain employees who seem to have built up an empire, the influence of which represents hardly a marginal sector of our society but which seems to impose upon the majority a unity of thought which currently gives to this crown corporation a completely false concept of its social, cultural and artistic vocation.

DEBATES	February 28, 1967
The consoling thought is that the new Broadcasting Act will vest the board of governors with greater authority over the programming of our radio and television stations.
It is time that the minister responsible for the Canadian Broadcasting Corporation should be removed from the very awkward position in which she is currently. It is said that the Secretary of State is responsible to parliament for the C.B.C., but that she is powerless to impose the views of parliament on the C.B.C. and that she is simply the C.B.C. messenger. I think that, in the present system, this formula must be changed.
I hope that the minister or her parliamentary secretary who will answer me tonight will forward my quite objective remarks to the C.B.C. in order to correct a situation which is becoming worse every day.


Mr. Albert Bechard (Parliamentary Secretary to Secretary of State):: Mr. Speaker, in reply to the question of the hon. member for Charlevoix (Mr. Asselin), I might repeat this evening what I said on February 23 last, when a similar question was put to the Secretary of State (Miss LaMarsh) by the hon. member for Roberval (Mr. Gauthier).
In order to provide a more specific reply, since the case of Mr. Vachon has been mentioned, I must point out, however, without going over the whole story, the circumstances in which that person was accused of being a risk to the security of the state during a recent election campaign in the province of Quebec.
At that time, Mr. Vachon, who was a member of the Provincial Police, I believe, had been charged by the hon. prime minister of Quebec with being, as I already stated, a security risk. Mr. Vachon then denied that allegation of the prime minister, and has since then admitted himself that he had joined the Communist party only recently.
In view of these circumstances, the Canadian Broadcasting Corporation decided that it was a matter of public interest to bring Mr. Vachon to clarify his views on this situation on television, owing to the controversy which arose last spring.
I may say to the hon. member for Charlevoix and to this house that, through this appearance of Mr. Vachon on television, the C.B.C. had no intention whatsoever of presenting to the Canadian public the Communist policy or ideology in this country. Such is not the purpose of the C.B.C. and I believe that, in all fairness, although we may
February 28, 1967

find fault with the C.B.C., just as there are faults everywhere, we must say that the recent appearance of Mr. Vachon on television, when he stated that he was a member of the Communist party, was not the intended-


Mr. Speaker:: Order. I regret to interrupt the hon. member, but his time has expired.



HEALTH AND WELFARE-REQUEST FOR HEALTH WARNING ON CIGARETTE PACKAGES

Mr. Antonio Yanakis (Berthier-Maskinonge-Delanaudiere):: Mr. Speaker, last week, following the publication of the report by the Department of National Health and Welfare, I asked the Minister of National Health and Welfare (Mr. MacEachen) whether his department intended to give priority to Bill No. C-130, which I introduced at the start of the session, and which would compel tobacco companies to place a warning on cigarette packages to the effect that smoking may be injurious to health; by so doing, deceitful publicity about tobacco would be limited.
In the very first place, Mr. Speaker, I wish to congratulate doctors and psychologists who made contributions to that report, as well as the officials of the Department of Veterans Affairs, who helped with the questionnaires and necessary experiments.
Mr. Speaker, that report, which contains more than 140 pages, is the result of 12 years of research and experiments. After reading it, I can only congratulate the minister and his officials for the seriousness with which it was done and I suggest that it deserves particular attention by the minister, mainly in the light of the following excerpt from the foreword:

The outstanding finding of this study is that cigarette smokers compared to non-smokers had excessive mortality, particularly from heart disease, lung cancer, bronchitis and emphysema. This is consistent with findings of other related studies. These findings are compelling reasons to continue and develop measures to reduce or eliminate the hazard to health attributable to smoking.

Mr. Speaker, I feel that this report has become public. I feel that it would be a serious mistake to ignore it, particularly in view of so many statements made and polls taken by teachers of medical science, psychologists, surgeons and others.
The possible danger of cigarette smoking was stressed in a report prepared by the public health service and submitted to the American Cancer Society.
According to that report, based on a poll taken between July 1964 and July 1965 and covering 42,000 American families:
Proceedings on Adjournment Motion
-Americans over 17 suffered from 12 million more various chronic ailments than if they had not smoked.
-Americans spent 900,000 more days in bed than if they had not smoked.
-Among gmokers 300,000 coronary cases, 1,000,000 cases of bronchitis or emphysema and 1,000,000 cases of peptic ulcers were noted.
-The loss from sick leave due to the effects of cigarette smoking amounts to millions of dollars.
The report states on the other hand that the total cigarette consumption has kept on increasing but that it is due to the increase in population only, each American smoking less on the contrary since the anti-tobacco campaign was launched.
In 1964, the percentage of smokers among the male population fell from 59 to 53 per cent. Furthermore, 18 million adults, which includes half the doctors, have stopped smoking.
The report states finally that the campaign against smoking had some effect, but it deplores the fact that the law passed in 1965 merely ordered the words "attention, smoking may be dangerous to your health" to be placed on cigarette packages instead of taking more vigorous steps to force cigarette manufacturers to have such warnings written on their advertisements.
Professors Francis Peyton and Charles Huggins, the two American Nobel prize winners for medicine in 1966, stressed the dangers of nicotine during a press conference in Stockholm, calling it an "undeniable source of cancer".
Professor Huggins, for his part, said that "sooner or later, cigarettes cause lung cancer and cigars cancer of the tongue or the mouth".
In a lecture given during a conference on health and tobacco addiction, Mr. Emerson Douyon, psychologist and head of the Montreal Association for Retarded Children, compared cigarette addicts to alcoholics and drug addicts who, by their behaviour, hide personality problems.
[DOT] (10:20 p.m.)
The confirmed smoker, especially the cigarette smoker, is often childish, insecure, inconsistent, and does not usually know why he smokes and why he cannot quit smoking. The habit is absurd, regressive, infantile and is also a manifestation of masochism. Smokers do not stop smoking, even when they are aware of the relationship between cigarette smoking and cancer of the lung. Statistics prove that lung cancer causes twice as many deaths, in every province and every year, as drowning. We know that safety organizations do their utmost to prevent fatal accidents, but the greatest calamity is still the number of deaths from lung cancer which, in many cases, could be avoided. Still, very few people seem to be concerned about it.
In conclusion, Mr. Speaker, I am asking the parliamentary secretary to the Minister of National Health and Welfare (Mrs. Rideout), as a result of this report, to alert the
13606	COMMONS
Proceedings on Adjournment Motion minister about the connection between smoking and lung cancer, one causing the other. The minister himself recently announced, after an investigation by Canadian Facts Ltd., that more than a million Canadian smokers had succeeded in giving up tobacco and this, I suppose, as a result of a campaign undertaken in the United States and Great Britain-but not in Canada-by the respective governments. What is most unfortunate is to find that the same investigation has shown that more than 300 young Canadians get into the habit of smoking each day, and we know that when they have fallen into the habit, they can hardly give it up. The Parliament of Canada should follow the example of Great Britain and the United States and pass a motion unanimously asking the government to take the necessary measures-


Mr. Speaker:: Order. I regret to interrupt the hon. member-


Antonio Yanakis: -to cope with lung cancer due to smoking.


Mrs. Margaret Rideout (Parliamentary Secretary to Minister of National Health and Welfare):: The question from the hon. member ror Berthier-Maskinonge-Delanaudiere (Mr. Yanakis) recorded in the House of Commons Hansard, page 13079, for February 15, 1967, has been noted with a good deal of interest by the Minister of National Health and Welfare. Basically it refers to requiring cigarette manufacturers to specify on packages of cigarettes the following statement, which is also used in the United States:
Caution: Cigarette smoking may be hazardous to your health.
There is also reference to the elimination of misleading advertising and to the implementation specifically of the hon. member's private Bill No. C-130, to amend the Tobacco Restraint Act.
The fundamental approach of the Department of National Health and Welfare in dealing with the serious health hazards of cigarette smoking, which include heart disease, lung cancer and chronic lung disease, is to discourage cigarette smoking by Canadians. Emphasis has been placed on a program of health education and research. It might well be that the labelling of packages in a particular way with a cautionary note might be a
DEBATES	February 28, 1967
useful adjunct to health education, but the effectiveness of this procedure and its full implications have not yet been clearly established. For example, it is necessary to consider the use of a caution regarding one harmful practice such as cigarette smoking in relation to the use of other hazardous substances, such as alcohol.
We are watching with great interest the results that may be ascribed to the use of this warning on packages of cigarettes in the United States. The feasibility of legislation in Canada for the control of cigarette advertising and for warning labels on cigarette packages is a matter of study in my department at the present time.



CANADIAN BROADCASTING CORPORATION- CRITERIA FOR DISTRIBUTION OF COLOUR TELEVISION SETS

Lawrence Elliott Kindt: I rise on a point of privilege, Mr. Speaker. I do not see the Secretary of State in her seat and I do not propose to say anything to the parliamentary secretary. This is too important a matter for the parliamentary secretary.


Mr. Speaker:: Order, please. There can be no point of order.


Lawrence Elliott Kindt: It is a point of privilege.


Mr. Speaker:: Will the hon. member kindly resume his seat. It is elementary that hon. members should resume their seats when the Speaker has the floor. I bring to the attention of the hon. member that the rules provide that either the minister or his parliamentary secretary should be here. I assume that is why the parliamentary secretary is here at this time.


Lawrence Elliott Kindt: I rose on a point of privilege, sir. I said this morning that I wanted to be on the late show, provided the minister was here, and I wrote a letter to that effect to the Clerk. If the minister did not intend to be here, the Clerk should have informed me. I have wasted an hour or so. Who is running this show? Is it the Clerk, or is it the Speaker?


Mr. Speaker:: Order, please. I invite the hon. member to resume his seat. This house is now adjourned.
Motion agreed to and the house adjourned at 10.28 p.m.

Wednesday, March 1, 1967