Hon. HUMPHREY MITCHELL (Minister of Labour):: Mr. Speaker, I wish to table the report, in English and in French, of the Canadian government delegates to the twenty-ninth session of the international labour conference held at Montreal on September 19 to October 9, 1946.



INTERNATIONAL LABOUR ORGANIZATION- AMENDED CONSTITUTION

[Stage Direction]
Right Hon. L. S. ST. LAURENT (Secretary of State for External Affairs): I beg leave to table the amended constitution of the international labour organization adopted at Montreal on October 9, 1946, and also convention No. 80 of the international labour organization for the partial revision of the conventions adopted by the general conference of that organization at its first twenty-eight sessions. This supplementary convention is merely to replace references to the league of nations in these conventions by references to the existing organizations.	.
(Translation):


Mr. LIGUORI LACOMBE (Laval-Two Mountains):: Mr. Speaker, in compliance with Standing Order No. 68 of the House of Commons, it is my privilege to place in the hands of the clerk of the house some "resolutions and petitions, adopted by the municipal councils of parishes, towns and villages of the Laval-Two Mountains constituency, the names of which follow: parish of St. Benoit, parish and village of St. Scholastique, village of St. Benoit, parish of St. Canut, village of St. Scholastique, parish and village of St. Monique, parish and village of St. Martin, parish of St. Augustin, village of St. Augustin.
Besides, a petition from the Union Catholique des Cultivateurs of the Montreal diocese.
All these resolutions and petitions protest against the dismemberment of the Laval-Two Mountains constituency. They have been endorsed in pursuance to Standing Order No. 68 of the House of Commons.

Proposed Legislation
(Text):



MUNICIPAL IMPROVEMENTS


[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved for leave to introduce Bill No. 256. to amend the Municipal Improvements Assistance Act, 1938.
Mr. KNOWLES:: Explain.


Mr. ABBOTT:: Perhaps I had better read the explanatory note:
Under the Municipal Improvements Assistance Act, 1938, authority was granted to make loans to municipalities to enable them to pay the whole or part of the cost of constructing or making extensions or improvements to or renewals of municipal water works systems, gas plants, electric light systems or other projects of a self-liquidating character. In some cases since a loan was made to a municipality it has become desirable to reorganize the municipality or to create a new municipality from part of the area previously included in the first municipality, for example, by reason of the growth of population to establish a village in the place of a local improvement district or in respect of part of the area previously included in a rural municipality. The purpose of the amendment is to permit the new municipal corporation to be substituted for the purpose of the loan for the former corporation in proper cases.
Motion agreed to and bill read the first time.



FARM IMPROVEMENT LOANS


[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved for leave to introduce Bill No. 257 to amend the Farm Improvement Loans Act, 1944.
Stanley Howard Knowles: Explain.


Douglas Charles Abbott: This is a very simple bill. The purpose is to include poultry in the definition of live stock as contained in the act.
Motion agreed to and bill read the first time.



SENATE AND HOUSE OF COMMONS


[Stage Direction]
Right Hon. W. L. MACKENZIE KING (Prime Minister) moved that the house go into committee at the next sitting to consider the following resolution:
That it is expedient to present a measure to amend the Senate and House of Commons Act to provide an additional annual allowance to the member of the Senate occupying the recognized position of leader of the government in the
Senate and the member occupying the recognized position of leader of the opposition in the Senate.
He said:	His Excellency the Governor
General, having been made acquainted with the subject matter of this resolution, recommends it to the consideration of the house.
Motion agreed to.


[Stage Direction]
Right Hon. C. D. HOWE (Minister of Reconstruction and Supply) moved that the house go into committee at the next sitting to consider the following resolution:
_ That it is expedient to present a bill to establish a corporation to be known as the dominion coal board to administer subventions or sub-sidies_ relating to coal voted by parliament, to exercise and perform certain other powers, duties and functions.
Provision is made further for the advisory functions of the board, for the employment of professional and technical advisers and assistants and their remuneration, and for all expenses of the act to be paid out of moneys appropriated by parliament for the purpose.
He said:	His Excellency the Governor
General, having been made acquainted with the subject matter of this resolution, recommends it to the consideration of the house.
Motion agreed to.


[Stage Direction]
Right Hon. C. D. HOWE (Minister of Reconstruction and Supply) moved that the house go into committee at the next sitting to consider the following resolution:
That it is expedient to present a bill to establish a corporation to be known as the Canadian maritime commission to exercise certain powers and perform certain duties and functions under the Canada Shipping Act, to administer any steamship subvention voted by parliament, and to exercise powers or perform duties and functions under any other act or order of the governor in council.
Provision is made further for the advisory functions of the commission, for the employment of professional and technical advisers and assistants and the remuneration thereof, and for all expenses under the act to be paid out of moneys appropriated by parliament for the purpose.
He said:	His Excellency the Governor
General, having been made acquainted with the subject matter of this resolution, recommends it to the consideration of the house.
Motion agreed to.
Inquiries of the Ministry


[Stage Direction]
On the orders of the day:
Mr. H. C. GREEN (Vancouver South):: I should like to direct a question to the Secretary of State for External Affairs. An Associated Press dispatch from London, published this morning in the Ottawa Citizen, states:
Britain and her four dominions have decided to stage a conference to formulate an empire peace policy for Japan, a dominions office spokesman disclosed today.
In addition to this, there have been dispatches, as the minister knows, during the last week or two with regard to a possible peace conference for Japan. It would be very helpful if the minister could give the house a statement with regard to the question.
Right Hon. L. S. ST. LAURENT (Secretary of State for External Affairs): The first paragraph of the dispatch as cited by the hon. member is certainly inaccurate. Consideration is being given to various proposals for preliminary discussions among the members of the commonwealth on the Japanese peace settlement, but no final decision has yet been taken in regard to any of these proposals. At a convenient time I propose to make a fuller statement of the attitude being taken by this government in respect of the Japanese peace settlement.


Howard Charles Green: If I may ask a supplemental question, is the minister in a position yet to say whether or not the reports that the conference will be an eleven-power conference are correct? Apparently the thought is that the eleven nations who fought against Japan would be represented in the conference.
Mr. ST. LAURENT: I cannot say that any determination has been made in that regard. The foreign secretary of the United Kingdom stated recently at Margate that it was his view that these eleven powers should be associated in the preparation of the treaty, and that is a view that is shared by the Canadian government.



CIVIL SERVICE

[Stage Direction]
VETERANS* PREFERENCE-INQUIRY AS TO PROCEDURE IN CASE OF ERROR
On the orders of the day:
Mr. LESLIE A. MUTCH (Winnipeg South): I wish to direct a question to the Secretary of State, of which I have given him notice. Has the civil service commission, having assigned to a position in the civil

service a veteran who is not entitled to the veterans' preference, the right to require his dismissal in spite of the fact that he has accepted the position in good faith and performed his duties satisfactorily, when they subsequently discover that he should not in the first instance have been accorded the veterans' preference?
Hon. COLIN GIBSON (Secretary of State):: The hon. member for Winnipeg South was good enough to send me notice of his question. I am informed that the general policy of the civil service commission is that where an error has been made owing to a mistake on the part of the commission, the veteran is not penalized; but where there has been an error owing to a misstatement or wrong information given by the veteran himself, he must assume the responsibility. If the hon. member wishes to give me information concerning any individual case, I shall be very happy to have it investigated.



PUBLIC WORKS


[Stage Direction]
On the orders of the day:
Mr. CLARENCE GILLIS (Cape Breton South):: I wish to direct a question to the
Minister of Public Works. I sent him notice of the question and fully explained it, so I shall be brief. When does the minister's department expect to begin to spend the $300,000 appropriation made last year for the breakwater project at Morien, Cape Breton, Nova Scotia?


Hon. ALPHONSE FOURNIER (Minister of Public Works):: Perhaps the hon. member
sent the question before the opening of the house. I have not seen it. If he will just wait until Monday, I shall have all the data.


Clarence Gillis: I sent it to the minister's
office this morning about ten o'clock.



TELEPHONE SERVICES


[Stage Direction]
On the orders of the day:
Hon. J. J. McCANN (Minister of National Revenue):: 

PRICE CEILINGS


[Stage Direction]
On the orders of the day:
Mr. H. R. ARGUE (Wood Mountain):: I should like to direct a question to the Minister of Finance, notice of which I sent to him. In view of reports of widespread profiteering in new and slightly used cars, will the minister consider the reimposition of price ceilings in this field?


Douglas Charles Abbott: As my hon. friend has said, he was good enough to give me notice of this question. I am informed that new cars are being sold by dealers at the list prices. Officials of the wartime prices and trade board have seen reports in the press of some profiteering in used cars, but it appears to be spotty. I am informed that it is not felt that the situation is such as to justify the reimposition of price ceilings.



WAYS AND MEANS

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

[Stage Direction]
3. That for the 4947 taxation year the graduated rates of tax applicable to income of individuals be the average of the present rates and of the rates set out in paragraph one.
Mr. FLEMING:: I have a question which I should like to put to the Minister of Finance with reference to this third resolution. In putting it I am bearing in mind that the resolution is stated in general terms, and the question is one of interpretation. What
appears in the resolution is that the rates for the year will be the average of the present rates for the first half of the year and the new rates for the second half. In the case of a person dying in the first six months, is it the intention that the bill shall provide clearly that the rate applicable to the income received by such deceased person in the portion of the year during which he was alive and in receipt of income shall be calculated on the average method and that the income tax shall not be calculated on the rates in existence for the first six months of the year, during which period he may have died?


Douglas Charles Abbott: The answer is yes. As the resolution indicates, the rates in effect for 1947 will be the arithmetical average of the rates existing up to July 1 and the new rates. For example, the rate for the first half of 1947 in the low bracket is 22 per cent. The new starting rate is 10 per cent. The sum of those is 32, and the arithmetical average is 16. The tax payable in the case cited by my hon. friend will be at the appropriate rate for the full year. The bill when it is brought in will contain a special schedule setting forth the effective rate for 1947, which will be a schedule made up of the average of the two rates to which I have just referred.


Donald Methuen Fleming: Then in any case where death has taken place and a T.l return has already been filed by the executor on behalf of the deceased in respect of 1947 income, steps should be taken now to revise the return?


Douglas Charles Abbott: To revise the return and obtain the appropriate refund, if one is due. That is correct.


Mr. KNIGHT:: I should like to say a word or two about taxation in connection with teacher's contributions to the superannuation fund, based upon a letter which arrived just in time to be discussed on this resolution. The system of pension for teachers in Saskatchewan has been based on a double or triple scheme. It is partly a service pension and partly made up of the proceeds of whatever annuity certain contributions made throughout the teacher's earning life will buy. Up to the present, under the Saskatchewan Teachers' Superannuation Act of 1942, the amount of statutory deduction has been four per cent. To that act there has been an amendment by which the teacher is now allowed to pay in, in addition to his compulsory four per cent, certain payments which I suppose might be classed as voluntary. They are voluntary in regard to paying in
Income War Tax Act

but they are not voluntary in regard to taking out, because I understand that the amendment sees to it that the funds are kept in there until the teacher ceases to teach. It is the desire of the Saskatchewan teachers' federation, as expressed in this letter from the secretary, that this matter be brought to the attention of the minister for the purpose of discovering the position in regard to these extra payments. I might read a line or two from the letter:
This year's amendment to the act-
That is the Saskatchewan Teachers' Superannuation Act of 1942.
- provides that not less than four per cent shall be deducted at the source but a teacher may elect to have a greater percentage deducted at source, and we are asking that any amount deducted be exempt from income tax.
My correspondents point out that the dominion act provides for exemptions up to an amount of $900 per annum. They also point out that if a teacher contributes to the fund and1 withdraws those contributions, that amount is taxable as income for the year in which it is withdrawn. That is to say, under the new policy, which I think was initiated m 1945, if pensions are liable to income tax then contributions should not be; otherwise you have a system of double taxation. Perhaps the minister would comment on that. In the meantime, in Hansard for 1945, at page 3427, I found something said by the previous minister of finance on this matter:
We are now changing the law in accordance with the recommendations of the royal commission to make all contributions to the pension plan deductible from income for tax purposes and to provide in general that pension payments shall be subject to tax.
That was where I got this idea of double taxation. On the previous page the former minister is reported to have said:
In the future it will not be possible to set up funds like that at all. The income of the fund will be free of tax, but the pensioner, the contributor, in every case will be entitled to deduct his contributions from his income for tax purposes and he will be taxed in full on his pension.
Perhaps the minister would comment on that so we can get some guidance for these people.


Douglas Charles Abbott: That is correct. Polio wing the Ives commission report the law was amended to provide that payments to a pension fund could be deducted from the income of the person paying, for income tax purposes, but that the income payments when received would be taxed. That of course is subject to the general qualification in the act that the 
fund must be one that is approved by the Minister of National Revenue as being a pension fund eligible under the act. I am not familiar with the Saskatchewan statute or the practice to which the hon. gentleman refers, but I suggest that if there is any doubt as to the application of the statute the matter should be submitted to the deputy minister of national revenue for a ruling. I think the hon. gentleman will find that the matter can be best dealt with in that way.


Howard Charles Green: Just along the same line may I ask the minister to state the present position with regard to the pension, for example, paid by the C.P.R. to an employee who has retired? I have had a communication from one who has been on pension for nine or ten years, and who is being charged income tax on that pension. Is there no protection in a case of that kind?


Douglas Charles Abbott: I am advised that up to 1935 the C.P.R. pension fund was non-contributory, and of course in that case the total pension would be subject to tax when received by the pensioner. In 1935 it was converted to a contributory fund, and since that time employees of the C.P.R. have been making contributions. I am told the Department of National Revenue now apportions the pension payments received by C.P.R. pensioners as between the portion which was non-contributory and the portion which was contributory, and makes a- proper tax adjustment.


Howard Charles Green: In other words if the man retired in 1934 his whole pension would be taxable?


Douglas Charles Abbott: That is correct.


Howard Charles Green: Does not the minister think some adjustment should be made to meet that situation?


Douglas Charles Abbott: I don't know why. It is a non-contributory plan; it is a free gift, and following the ordinary rule it is subject to tax when received. There has been no double taxation in that case, of course. The purpose of the law as it now stands, following the recommendations of the Ives commission, is that it should be so arranged that there will not be double taxation on these pensions. The general rule is that if the pension contribution may be taken as a deduction from income for tax purposes when it is paid in, then the pension is taxable; and that is the provision as it now stands.


Howard Charles Green: Is not the actual position this, that the man was receiving a certain rate of pay which, while it may not have been

Income War Tax Act
apportioned in such a way that part of it was shown to be a contribution to a pension fund, nevertheless probably was based on the fact that he was going to get a pension upon retirement? Surely some relief could be given these elderly men who are in that category.


Douglas Charles Abbott: Of course the short answer to my hon. friend's question is that if he had received his pension contribution as part of his pay, he would have paid tax on it. In fact he did not. Reasoning it in logic, he received pay on which he paid tax at the proper rate. If for the purposes of argument we say that in addition the company was paying into a pension fund a certain amount of money to provide him with a pension later, then that was something he was getting free of income tax, something which was not included in his income for purposes of taxation. Therefore following the rule I have just mentioned, when his pension is received it should be subject to tax.


Howard Charles Green: Yes, but even on that basis his increased income would have been very much smaller. It would not be right to tax him on his full pension, which is what is happening today.


Douglas Charles Abbott: Generally speaking I think it is more favourable to the taxpayer, certainly under existing rates of tax, to deduct his pension contributions for purposes of income tax, than to have a tax-free pension at the end, because the pension, except in the executive groups, is relatively small and usually covered by the exemption, so the pensioner pays very little tax. Taxwise I think it is very much in the interests of the pensioner to claim the pension contributions as a deduction from income when he is earning at a fairly high rate and is subject to a fairly substantial tax, than to have a tax free pension. I am informed it works out that way.


Howard Charles Green: I quite agree with the minister, but all these men now would be well over seventy-five. They retire at sixty-five, and having retired before 1935 they are getting on in years. I would ask that consideration be given to providing some relief for men in that position.


Mr. FAIR:: Just before eleven o'clock on Wednesday evening I asked the minister a number of questions in connection with farmers' income tax. I wonder if he has the answers for me today.


Douglas Charles Abbott: I assured my hon. friend that I would get the information and give it to him. It requires a bit of time; I may not
be able to do so while we are on the resolutions, but I repeat the assurance, which I think was the one I gave the other night, that at the latest I will give it when we are in committee on the appropriate section of the bill. It has not been overlooked.


Mr. MACDONNELL (Muskoka-Ontario):: I wish to draw to the attention of the minister a matter somewhat similar to that which was brought forward by my colleague to my left a few moments ago. I want to recall the change made in the law last year under resolution 27 at that time, which is carried into the present consolidation of the act in clause 9, paragraph 7. Under that provision, in the case of payments pursuant to superannuation or pension fund or upon retirement, as the law stood immediately preceding last July such a payment was taxable spread over five years, one-fifth each year. This paragraph 7, as it stands, made the tax fall very much more heavily, although there is one alternative, because it is taxable in the year it is received. I want to suggest to the minister two things, first of all that that contravenes substantially what was suggested or recommended in the Ives report, and secondly that it creates a great hardship, particularly in the case of widows.
I want to read a brief statement here- I believe it is correct-which sets out a case of great hardship which I would bring to the minister's attention. It states:
At the last session of parliament the government had changes made in regard to the methods of taxation of "lump sum" payments from pension funds and employer's gratuities to those retiring from service. When the matter was discussed in the house by the ways and means committee as reported at pages 3871 to 3876 of Hansard, Mr. Abbott, who was piloting the matter through, stated that the method then in vogue, i.e., taxation of only one-third of the lump sum, was "introduced during the war to moderate the effect of very high tax rates," and throughout his defence of the proposed change to revert to the system of taxing the whole of those payments, implied that taxation was now lower. This debate took place in July, 1946 . . . As Hansard will show, Mr. Abbott spoke only of men receiving lump sum payments during their lifetime; he did not make clear that this also affected widows, or other beneficiaries of a person who had made payments into pension funds and that as a rule the lump sum consisted entirely of the man's own payment into the fund.
And then this further:
Prior to 4942, or thereabout, the taxation on lump sum repayments from pension funds was on the full amount. As the result of representations made by various organizations, among which was the international firefighters' union, the tax was reduced to one-third. When the Ives commission was set up the organization referred to appeared before them in regard to "lump sum" taxation.
Income War Tax Act

The organization referred to was the international fire fighters' union, I might say.
The commission, in its report-
That is the Ives commission-
-commented on the difficulties surrounding the question and recommend the continuation of the one-third as being equitable. On page 3871 of Hansard, during the discussion on resolution No. 26, Mr. Abbott said: "The whole question was considered by the Ives commission and legislation was introduced last year following the recommendations of that commission."
I would submit that this finding of the Ives commission was not followed throughout, and in this particular it was disregarded.
I should like to bring one case to the attention of the minister:, and then I shall have finished. This is a case respecting one of the members of the fire fighters' union in Toronto. It states:
One of their members, after nearly thirty years of service retired on pension; he died within a few months; his widow received as a lump sum repayment of his contributions to the pension fund about $3,200. Under the present regulations she has two choices in regard to the tax. One would mean, in round figures, a tax of $500 out of the $3,200; the other a tax of $780. But here's "the rub,"-this man during the first half of his service on account of income, was not taxable. It was only when his wages got higher and his family grew up, and more particularly when the government dipped much lower than formerly into low and medium incomes, that he became taxable and was exempted from such tax on the amounts he was then paying into his pension fund. As a result of these exemptions he saved $209. Now, owing to the taxation being on the whole $3,200, his widow received, and which amount represented all his payments into the fund, even those in the years when he was not taxable, his widow has to nay either $500 or $780.
I just wish to recapitulate at this point. It seems to me that the change which was made last year and which, I submit, made taxation on such payments so much mote onerous, was a most unfortunate one. I hope the minister will be able to take this situation into consideration, and particularly as it affects widows.
And I just add this: I was informed-and this may be subject to correction-that actually a regulation has been made easing these cases where widows are affected. I should like to know if that is so. If it is so I would ask two questions: first, under what authority does that come, and, second, if it is proper to do it there, why should not the principle be extended?
I repeat that it seems to me the amount of the tax involved is, at any rate in the smaller cases, negligible so far as the crown is concerned, and a very great hardship can be and is being worked in many cases similar to the one I have just brought to the attention of the committee.


Douglas Charles Abbott: This question, as my hon. friend knows, is complicated. It is one which has been given a good deal of consideration by myself and by the officers of my department for the last three or four months. I have had a number of delegations to see me about it.
It is true that the law as it stands did depart in certain respects from the recommendations of the Ives report. That was done, I believe, for good and sufficient reasons. These lump sum payments can be made the subject of considerable abuse. And when I state that I am dealing with the general aspect of the problem, rather than with the specific case to which the hon. member referred. But I repeat that they can be made the subject of abuse. A man can accumulate a certain amount, and then leave the company he is with, get his payments, go to another company and get another lump sum payment.
Broadly speaking-and I think this is a view which is shared by many people-I believe that a pension plan which provides for single lump sum payments to widows is not a particularly good plan. As I say, I am only expressing my own personal view. I think it is a much-better plan if the directors of the fund are given the option of paying the amount to the widow in yearly instalments. I advised some of these delegations, which came to see me and which discussed certain funds, that the department would have no objection to a fund amending its by-laws or regulations, or whatever they may be, to make the provision I have indicated; and, in addition, to provide that it could be or should be paid in instalments. I went further and said that the department would be prepared to look at hardship cases where a lump sum payment should be made-for instance in order to pay off a pressing mortgage obligation. I said the department would be prepared to look at those cases involving a particular remission under the Consolidated Revenue and Audit Act.
I feel that that is really as far as we should go in that field. However it is a question on which I have a perfectly open mind; and if it can be shown that another scheme might be fairer and better, we would be prepared to consider it. But this is a matter which has been given a great deal of careful consideration by myself-and I am not an expert in it-and also by departmental officials who are informed in these matters. It has been considered sympathetically, too, I may add.


Mr MACDONNELL (Muskoka-Ontario):: I agree it is unfortunate that this condition exists with respect to lump sum payments, and I agree with the minister's view that it would be wise to adopt a different course.

Income War Tax Act
There are one or two respects in which I differ from the minister. I have no doubt there may be cases where people go from one place to another and may accumulate pensions -although I would think, and I suggest with deference to the minister, that the type of men who roll about are not the ones who are likely to accumulate much by way of pension. I should not consider that a very serious point. It is one which it seems to me could be taken care of by a suitable safeguard. Further, I deprecate the idea that we have to meet a situation of this kind, which I assume is a situation which will arise often, practically by charitable considerations. Perhaps I should withdraw the word "charitable" and say it is unfortunate that we must meet it by making special cases. It is most undesirable, first of all because people do not want to be a subject of charity; secondly because they do not know what their rights are, and thirdly because to some extent it depends on whether the minister had a good night's sleep. The minister being human, it depends upon that.


An hon. MEMBER:: Is he human?


James MacKerras Macdonnell: I am giving the minister the benefit of the doubt. But I do come back to this, that I do not have to remind the minister that a year ago we departed radically from what the situation has been before. And looking back upon the debates which took place at that time, I must reproach those of us on this side of the house for not' fighting it with more strength.
We departed radically because, as was pointed out in the Ives report, broadly speaking there was a practice-which as the report says was not logical, but which seemed to have common sense in it-of spreading payment out over five years. The report says that under the circumstances there seems to be no particular reason for changing the existing law. I must say that on general principle it does seem to me to be sensible. We have done jt in various cases. When you get a lump sum payment of this kind I think it should be spread over some years. I think that carries with it the judgment of everybody as being just a matter of common sense. If there are difficulties in the way, that is a matter for the minister and his advisers. It may be, although I am not suggesting this particularly, that the minister and his advisers feel that this has to be limited to sums of modest amounts. I am not offering an opinion on that, but I do suggest most earnestly that what we did last year w'as a reactionary move. The case that I have given shows the 83166-231
hardship that may be involved. As I see it. we departed from this considered report of Mr. Justice Ives. For all these reasons I do hope that the minister, with that open mind which I am sure we all feel he has, will be able to take another serious look at this for early action.


Stanley Howard Knowles: I should like,to say a word in support of the representations made by the hon. member for Muskoka-Ontario. I do not get many cases of this kind, but one has been drawn to my attention which seems to underline the point. This particular gentleman in Winnipeg, after serving a firm for a good many years, was forced to retire because of arthritis. The firm gave him a lump retiring allowance of $15,000 or $16,000. He felt that it would have been better to be provided with monthly payments, and so he arranged to buy a government annuity, spending about $14,000, or almost all the lump sum he had received. He is now in the position where the lump sum is being divided into five parts for taxation purposes and for the next five years he will pay income tax on one-fifth of the lump sum as well as on the $1,200 annuity which he purchased with the major portion of the lump sum. All told it will mean that in the next five years he will have to pay income tax of between $5,000 and $6,000 out of his $15,000. It would seem that in a case like that where a person takes a lump sum and turns it into an annuity for his life time, or for his life time with a guaranteed period of years, some consideration should be given. To give consideration to cases of the kind would encourage people who receive lump sums to invest them in life annuities.


Mr. CASE:: We are now dealing with section 3. There was a time when the budget meant something to the Canadian people; it does even yet, but at one time it was a highly secret document. As you know, last year we departed from the accepted rule-possibly even before that-and in the main the terms of the budget did not apply until January 1, 1947. By this clause the taxation rates applicable to income of individuals will be the average of the present rates and of the rates set out in paragraph 1. I know that a great deal of thought and consideration has been given to this, and I believe the minister will be able to answer my question.
I am wondering why the income tax provided by the budget was not made applicable immediately. The budget was brought down on April 29, at which time about one-third of the year had passed. When you are setting up tax rates based on an average table you would know that one-third of the year had



EEVISED EDITI0X

[Stage Direction]
Income War Tax Act
[Stage Direction]
passed and two-thirds was yet to come. Was that taken into consideration, and what difference there would have been in revenues if the Canadian people had been given that-added incentive of two months' advantage as compared to the present arrangement whereby the rates do not become applicable until July 1?
Douglas Charles Abbott: The principal reason for not making it effective immediately was that under our pay as you go tax system, deduction tables must be placed in the hands of thousands of employers, and it was not possible to prepare and have those tables available and in the hands of the various employers in time. Secondly, it would have meant a large number of tax refunds because the deductions have been going on since the beginning of the year at the existing rates. There would have been a loss of revenue of between $30,000,000 and $40,000,000.


Robert Ross (Roy) Knight: I should like the minister to revert to the matter I brought up a moment ago. I wanted to find out for my own information what is the basic principle of deductions in regard to these pensions. Is it the fact that the payment is compulsory, or is consideration given to the element that it must be a plan recognized by the province, the employer and the employee?


Douglas Charles Abbott: It is not a matter for the province; the pension plan must be approved by the Minister of National Revenue. The underlying principle is that the pensioner is entitled to deduct from his current income for taxation purposes the contributions which he makes to the pension fund, and then the pension which he receives at the end is taxable.


Robert Ross (Roy) Knight: If the four per cent
deducted at the source is exempt and if an additional two per cent or four per cent is paid in on a voluntary basis as a main part of the pension plan and as a contribution to the annuity which this fund will buy when the man becomes pensionable, then this extra or voluntary amount should also be deductible.


Douglas Charles Abbott: I really must ask my hon. friend to go to the administrative officials to get a legal interpretation. The statute provides that an amount not exceeding $900 may be actually retained by the employer from the remuneration of the taxpayer for the employee's superannuation or pension fund or plan. On the facts that my hon. friend has given, my personal opinion would be that they are probably included, but I suggest that he go to the deputy minister or the official in the department who is specially charged with administering the provisions of the act, put thp specific facts before him and get a
tMr. Case.]	,	]
specific ruling. Then if he feels there is an injustice, the thing to do would be to come back and suggest that the act be amended.


Mr. IRVINE:: I dislike to ask the minister a question in respect to income tax in so far as it affects farmers, but he promised a moment ago to give some information before the bill is passed.


Douglas Charles Abbott: I was going to answer
some specific questions that were asked by the hon. member for Red Deer.


William Irvine: The first specific question
that I should like to ask is in regard to basic herds. I am sure the minister will know whether provision should be made in this bill for any alterations that might be needed in the present practice, or whether it is only an administrative matter. Second, I should like to ask whether there is to be any alteration in the present regulation which provides that a farmer who is selling out after long years of farming is taxed on the entire proceeds of the sale of his capital stock.


Douglas Charles Abbott: In answer to the first
question, my understanding is that it requires no amendment to the act. It is simply a matter of accounting practice and administrative decision by the Department of National Revenue. As to what the actual practice is at the moment I am not in a position to say. I think the whole question is being discussed at some length by deputy ministers and others. Perhaps my colleague, the Minister of National Revenue, can elaborate on it, but I doubt it, because I myself have never been able to. I do not know whether he knows more about basic herds than I do; I do not believe he does. I do not know what the present day practice is, but it would be an administrative matter.


Mr. QUELCH:: I should like to say a
few words on this matter. There has been a great deal of dissatisfaction regarding the way the matter has been dealt with. For instance, the recommendation of the federation of agriculture of last year reads:
That breeding herds be recognized as a capital asset, and that a basic herd plan be adopted to distinguish between capital and income in live stock dispersal sales.
And then the brief of the Alberta farmers' union, which was referred to by the hon. member for Battle River, had this to say:
That in case of dispersal sales of live stock, an equivalent number of animals to those owned on January 1, 1941, be considered a capital asset and not subject to income tax.
If the government do not like that proposal they should at least bring in one that does

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recognize the principle involved. For instance, let us say a farmer sold a piece of land and invested the capital in live stock back in 1939. From then on he would have paid income tax on any offspring he may have sold. It may be today that he desires to sell out. He should be entitled to recover the full thousand dollars for the sale of the live stock. Apparently that is not what happens. He is taxed on a set proportion of the amount. Then again he is not allowed to charge any depreciation against that stock, and in the meantime a certain number of the live stock may have died. Therefore when he sells out he should be allowed to include some of the offspring as part of the capital in order to recover the total amount of capital invested. That is not allowed today. That is why the Alberta farmers' union suggests a method by which a fair deal may be given to farmers.
We recognize that it is not an easy question to deal with. Again I should like to suggest to the minister that the proposal put forward by the Alberta farmers' union could very well be taken into consideration. May I read it again:
That in case of dispersal sales of live stock, an equivalent number of animals to those owned on January 1, 1941, be considered a capital asset and not subject to income tax.
If the minister is not prepared to deal with the question now probably he will deal with it when the bill is before the house. The question was raised time and again in the house by the late member for Portage la Prairie, Mr. Leader, who urged the government to take some action in this regard.
One or two other proposals were put forward by the federation of agriculture which I should like to deal with at this time. The recommendations of the Alberta farmers' union and the federation of agriculture are similar. The federation of agriculture, along with the other faim organizations, asked that the exemption for single persons be raised to SI,000 and for married persons to $2,000. All people, especially farmers, were disappointed when the minister announced that he was not prepared to take any action in that regard. First of all apparently he took the stand that already we had exempted over fifty per cent of the people who earned incomes, and second, he said that if we were to raise the exemptions to S1.000 for single persons and $2,000 for married persons we would be reducing the taxes of those people in the high income brackets. Of course it would be a very simple matter to make sure that the people in the higher income brackets would not get any benefit from the raising of the exemption. It 83166-2314
would merely mean an adjustment in the tax schedule. I was wondering just what the cost of such a proposal would be. I do not think that the answer which the minister gave on page 3560 of Hansard is quite correct. This question was asked the minister:
Can the Minister of Finance tell us what difference it w'ould make to our revenues in Canada if all single persons receiving less than $1,000 and all married persons receiving less than $2,000 were exempt from paying income tax? Has the minister the information available?
The minister replied:
I am told that it would make a difference of roughly $200 million.
Surely that $200 million must represent the loss of revenue not merely from those who would be exempt from paying taxes but also from those who have incomes above the $1,000 and the $2,000 respectively. What I should like to know is, what would be the loss of revenue from these two groups alone? -as the tax schedule could be adjusted so that those above these amounts are not affected. I would say that the figure would be considerably below $200 million. As a matter of fact I would say it would be less than half the $200 million. I hold in my hand the taxation statistics of April, 1946. Pages 117, 118 and 119 give an estimate of the individual income tax payments. From that I tried to work out what the actual loss w-ould be. I quite realize that there may be a mistake in my figures but I think they are substantially correct. From these statistics we find that the number of income taxpayers in the single brackets with incomes below $1,000 would be 593,100, with a total income of $533,172,000. They paid a total tax of $37,730,000. Married income taxpayers with incomes below $2,000 number 799,300, with a total income of $1,271,100,000. They pay a tax of $60,430,000. If all married persons with incomes of less than $2,000 and single persons with incomes of less than $1,200 were relieved of taxes, the government would lose $98,160,000 out of a total of $671,596,000. This class of income taxpayers represents 54 per cent of all income taxpayers. Therefore by relieving from taxes 54 per cent of the taxpayers in the lower income brackets the government would suffer a loss of revenue from income tax of 14 per cent. Of course that does not take into consideration the loss of revenue from people in the higher income brackets above $1,000, which greatly reduces the loss of revenue that the government w'ould suffer from those who would no longer be paying income tax. and those are the people with whom we are chiefly concerned.
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I should like the minister to answer this question-whether or not the $200 million referred to the people who would no longer pay income tax, or whether it was taking into consideration the total above the $2,000 or below?


Douglas Charles Abbott: The total amount of the revenue, of course.. In increasing the exemption I think that $8 out of $10 would go to those in the upper brackets. The effect would be that they would benefit by raising the exemptions. I suppose that approximately $50 or $60 million in tax would be lost by increasing the exemptions for single persons to $1,000 and married persons to $2,000. If one took into account only the loss of revenue from people in these brackets, what would be the result? You would give no reduction to the man who earns $2,001 or $2,500. You would have to start increasing the tax. In other words you have to increase the rates of tax on everybody above $2,000 to the extent of say $50 million; and the practice in other countries where income tax has been highly developed, including Great Britain which is under a socialist government today, and Australia which is under a socialist government, and New Zealand which is under a socialist government, shows that the exemptions are lower than they are in Canada. I feel strongly that the income tax level is fair, eminently fair, just as fair as if not fairer than the level in other advanced countries. I say that to increase the exemptions will create more unfairness rather than less. To use a slang phrase, I am convinced that this plea for increasing income tax exemptions is a phony in so far as it will benefit the vast majority of the people of the country who have to pay taxes. I do not suggest that the hon. gentlemen who put it forward believe that for one moment. I do not impute motives. I know they genuinely believe that it is in the interest of the lower income levels. But my contention is that it is not. I think there is a point beyond which you hurt them rather than help them, because of the fact I mentioned in the budget speech that, rightly or wrongly, or any way you put it, half the people who earn income are below the existing level. There is no use. fooling ourselves. This tax revenue has to be got somewhere, and it cannot all be got from people of any figure you like, $5,000 a year and up, if you like, because there are simply not enough of them in the country to do it. If therefore we do not have a well worked out, well adjusted income tax schedule, we shall have to get the revenue some other

way, and that means indirect taxes, which work much more injustice on the low income groups than on the high.
That is my view and I hold it strongly. I am a strong believer in a well thought out, graduated, progressive income tax scheme, and that is what I believe we have in this country today. I believe that in fairness income tax relief should be graduated in all groups in the community, naturally less for those with high incomes. But the method suggested of raising the exemptions would not in my judgment accomplish the purpose intended.


Victor Quelch: I do not see how the minister can argue that by raising the exemptions you do not benefit the majority, because the figures I have show that if you increase the exemptions for married people to $2,000 and single people to $1,200 you relieve 54 per cent of the taxpayers. In other words, the majority would benefit, and not the minority, by such action.


Douglas Charles Abbott: The majority would benefit by unduly penalizing the minority. That is the fact. No man can convince me that the man with $2,500 or $3,000 or $3,500 is not entitled to just as much consideration, on a logical and reasonable basis, in the matter of tax treatment under the income tax act, or under any other act, as the man earning $1,500 or $1,800. It is true that taxes should be imposed in proportion to ability to pay, but you do not do that by an arbitrary exemption. I repeat what I said before. If the argument from analogy is of value, we are not doing too badly when our exemption levels are higher than those in any other country.


Victor Quelch: But it wrnuld be a good thing for this country to take the lead.


Douglas Charles Abbott: We have taken the lead in many things, and we have done so in this instance.


Victor Quelch: There is no reason why we should not continue. If you raised the exemptions to $1,200 for single and $2,000 for married persons, from the figures I have obtained, on the basis of 1945, it would cost the government a loss of revenue of $98 million, not taking into consideration the amount lost in respect of people above the proposed exemptions. But in view of the fact that we are bringing about a reduction of revenue greater than $98 million, we could increase the exemptions and at the same time allow for a reduction in revenue from people in the lower income brackets above S2.000 and $1,200.
There are one or two other points that I should like to consider in regard to the brief submitted by the federation of agriculture and

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the Alberta farmer? union. I refer to No. 7 on the list, which asks that payment of arrears of interest and principal on farm loans due in 1940 be allowed as deductions for income tax purposes. That is from the farmers union, which is almost identical with the one from the federation of agriculture, which asks that payment of arrears of interest and principal on farms due for 1940 be allowed as deductions for income tax purposes. I feel there is every justification for that demand. It is true that last year we introduced legislation to make it possible for the farmer to average his income over a period of three years. The majority of farmer members last year took the stand that the period should be increased to five, but there was a compromise on three years. That, however, was not made retroactive and therefore we find today that many farmers are having to pay tax on debts that were incurred in the past, and therefore the federation of agriculture and the farmers union ask that where payments are made on certain debts incurred in the past, no income tax be charged thereon. There is every justification for that position, for this reason. In the thirties the farmers, through no fault of their own, were forced into debt owing to the fact that they were having to produce at considerably below the cost of production. That was due to the policy of the government of the day.
At that time the farmers were told that they would have to accept world market prices, and that situation continued until 1942, and the farmers kept going into debt. Then in 1942 prices of agricultural products were increased, but at the same time the income tax was greatly increased. Moreover, it might have been possible for the farmers to get higher prices, but the government placed a ceiling on agricultural prices. The result was that we found ourselves faced with this situation. In peace time when prices were low the farmers were told they would have to accept world prices, and when the war came and prices went up they were not allowed to get the advantage of world prices but were told that they would have to take less. Nevertheless they were faced with the problem of having to meet debts that had been incurred in the period of low prices, and those debts unquestionably represent to a large extent unpaid expenditures.
Expenditures incurred in production should be allowed as cost and therefore deductible from taxation. But today, when the farmer tries to meet obligations incurred in the thirties, he finds that those obligations are increased to from 30 to 40 per cent as a result of having to pay income tax. I think the suggestion of the federation of agriculture is reasonable, that repayment of interest and capital on mortgages incurred prior to 1940 should be exempt from taxation.
There is nothing new in this principle. We have adopted it in regard to certain other corporations in the country, and if we can adopt it so far as those corporations are concerned, I cannot see why the principle cannot be followed in agriculture. Agriculture is probably one of the most risky occupations in the country. We have to realize, therefore, that although it is doing fairly well today it may run up against very great difficulties in the future-not as serious, we hope, as in the thirties; nevertheless we may run into a situation where it may be impossible for the farmer to recover cost of production in the prices he receives, and hence he will run into debt once more.
I suggest it would be a good thing if we were to allow the farmers to establish a reserve fund to offset future losses. We must help them not only to get out of debt but to establish such a reserve to take care of future losses. We do that in connection with the chartered banks. We allow them to set aside a certain amount as reserve; the public are not allowed to know what that inner reserve is, and the banks pay no income tax on the amount they put in that reserve. When they suffer losses they can draw money from such reserves to meet' those losses, and the excuse given is that these losses are unpaid expenditures and therefore should not be taxed.
I contend that exactly the same principle should be applied to farmers. They should be allowed to meet losses which represent expenditures without having to pay income tax on them. The chartered banks have always argued that inner reserves are merely for the purpose of meeting losses, and they emphasize the fact that during the thirties they suffered heavy losses and had to use up a large percentage of those reserves. But I think it is more true to say that the inner reserves are not merely for the purpose of meeting possible losses but for the purpose of guaranteeing profits, because during the thirties the chartered banks averaged dividends of around nine or ten per cent on paid-up capital. I do not see therefore how you can Say that they were having heavy losses when they were able to pay around nine or ten per cent dividends. The fact that they could pay such dividends proves that they were using inner reserves to guarantee profits; and yet they were not charged income tax on the reserves because it is claimed that those reserves were for the purpose of meeting losses. Apparently we are still continuing that policy. In 1943,
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Mr. HARKNESS:: 
The CHAIRMAN:: Order. We are dealing with resolution No. 3. Resolutions 1 and 2 have been passed.


Douglas Scott Harkness: 
Mr. HERRIDGE:: I wish to support the remarks made by the hon. member for Acadia and the last speaker in this regard. The hon. member for Acadia presented the case of the farmer very well indeed. I am not going to repeat the arguments he used. The same arguments apply to a good number of the dairymen and beef cattle raisers in the southern part of British Columbia. I noticed that the minister this afternoon argued by analogy, and I want to reply in that vein in presenting another aspect of this case. At the present time we know there has been a tremendous increase in property and land values in all parts of Canada. Men have doubled their money in land or property values if they have seen fit to sell at this time. On the one hand these people are not taxed if their increased capital is the result of an increase in land or property values.

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Mr. HACKETT:: If they are in business, they are.


Herbert Wilfred Herridge: Pardon me; I am talking about real estate sales. At the same time the relatively static capital in cattle is taxed when the cattle are sold, if for any reason the farmer is selling out. My argument is this. The increasing values in real estate and property are increases not as a result of any effort on the part of the owner; they are increases as the result of the efforts of society as a whole. Increases in capital investment in cattle or the capital itself is the result of the work and toil of a person and his assistants. I should like the minister to explain to this house how he can give moral justification for the distinction between the methods of taxation of those who obtain and increase their wealth as a result of the action of society and those who produce wealth as a result of their own efforts.


Mr. DIEFENBAKER:: In connection with the matter raised by the hon. member for Calgary East, one example that I know of comes to mind. Within the last one and a half years a farmer in Saskatchewan, who over the years had been engaged in the cattle business and built up a herd such as was referred to by my hon. friend, became seriously ill and was taken to a sanatorium, and his wife, unable to carry on, had to sell the stock. The man died, and the income tax authorities are proceeding to mulct the estate -that is all I can call it, even though it is within the law-on the basis of income in respect of the sale made in 1945. I feel that serious consideration should be given to this matter. If the whole amount could not be rendered exempt-and I realize that it could not-the entire income from the sale should not be subject to income tax.
The particular example I have in mind has resulted in a condition of affairs which is most serious. This man had practically his entire business in cattle. He built up a herd worth some $25,000, and all he had over and above that was an estate worth approximately $10,000. When illness overtook him and he found it necessary to sell he realized $25,000. Now that he has passed on, not only is the widow liable to succession duty, but she is being held liable to pay income tax on the $25,000, the value of the cattle sold in that one year, which has placed her and the family in a very difficult position. I realize that there were ways in which the matter could have been gotten around, by giving notice in advance; but surely under the circumstances something could be done in order
to ameliorate such conditions and to remove anomalies which have resulted from the strict application of the law.


Mr. WRIGHT:: I should like to add my words to those of other hon. members who have spoken in regard to this matter of farm income tax. We have been discussing these matters in the house for a number of years now; since 1944 we have been raising these questions of the basic herd, in regard to reserves, in regard to what deductions should be allowed in respect to interest, and various other matters. I believe we are making some progress, but we have still a long way to go before we give the farmer the same deal that is enjoyed by other groups in our economy.
I agree with the arguments advanced by the hon. member for Acadia, and there is one particular point I want to bring to the attention of the minister. That is the matter of allowing payments of interest as a deduction. During the thirties, in a great many cases in Saskatchewan and the other western provinces, and in fact all across Canada, people got behind with the interest on their mortgages. In 1937, 1938, 1939 and 1940 various agreements were reached with the mortgage companies whereby the mortgages were consolidated.	In some cases the companies
reduced the amount of interest due and then had a new agreement drawn up under which the remaining interest became part of the principal and the new agreement took effect as from that date. Now when a farmer makes a payment on that principal he is not allowed to deduct that portion which really represented interest and was consolidated with the principal. A farmer may have borrowed money at the bank. He may have had a crop failure; there may have been grasshoppers or something else may have happened so that he was not able to meet the note. He went to the bank and the manager said, "Well, we will just include that interest with the principal in a new note," and the new note is made out. The farmer is allowed to deduct the interest paid on the new note, but he is not allowed to deduct that part of the payments on the note represented by interest, and I think the government should give some consideration to that matter. I believe that where there has been a consolidation of a loan, the amount of that consolidation representing interest should be deductible with respect to income tax. I do not know to just what extent that is being done, but I feel that it could be done by regulation rather than by a change in the act, and I ask the minister to give consideration to this suggestion.
I would say also that there should be some uniformity in the administration of the income
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tax as between various districts in the country. I do not know just how much leeway is given the various district offices in the administration of the act but I know there has been a considerable variation in administration. I know that in my own district in 1945 and 1946 deductions were allowed for breaking. Then the income tax people became aware that certain people who were not farmers were hiding income by buying unimproved land and breaking it, and deducting the cost of breaking from their income before paying their tax. As a result the income tax people tightened up in their application of the regulations. I believe some publicity should be given the regulations so that the farmer may know just what his rights are in connection with income tax. I believe overpayments are being made by farmers in many cases through lack of knowledge of their rights under the act, so I would ask the minister to consider giving greater publicity to the correct manner of making out these returns, and the rights farmers have under the income tax regulations.
I fully agree with the hon, member for Acadia in his suggestion that farmers should be allowed to build up certain reserves against years of crop failure. There is no doubt that farming is one of the riskiest occupations, and farmers should be entitled to set aside certain reserves each year against crop failures, low prices, or years when they make no income. If some of these things were done I am sure agricultural production in this country would be increased. In my estimation there has been a great reduction in agricultural production simply because a great many farmers, though they have never paid income tax, thought they might get into that category. Certain farmers in the area who operated on a large scale were called before the committees, the various tax collectors who were sent out, and had to go back over their records for three, four or five years. Then, everybody in the community simply said, "Well, we are not going to get into that group. We are just going to carry on and make as little as we can. We are not going to try to produce," and as a result there has been a considerable reduction in agricultural production. I think every hon. member from an agricultural constituency will agree with that. Some time ago the Minister of Agriculture argued that so few farmers were paying income tax that this had no effect on production, but I say it has had an effect on production. Therefore I believe, if more publicity were given the exemptions a farmer is allowed, so that he would realize that he could produce without being seriously

mulcted, as the hon. member for Lake Centre has said, in regard to income tax, we would get greater production. The government should take that point into consideration.


Douglas Charles Abbott: Perhaps I might say just a word on the matter of farmers setting up reserves. That point was raised by the hon. member for Acadia, and he used as an analogy the fact that the banks were allowed to set up reserves. I want to make the point clear that, of course, the so-called hidden reserves set up by the banks are reserves of a completely different nature. They are set up to take care of possible losses or bad loans. A bank may not use them to pay dividends; it may not use them for its own purposes. Before it can do so, it must bring them back into profit and loss and pay the tax on them. With regard to the suggestion that the farmer be allowed to set up a reserve, so-called, for bad years, that has been taken care of, or we are trying to take care of it by the averaging provisions which were put in last year. That is in recognition of the fact that farming is a business which varies from year to year. But in my judgment there is no analogy between the special reserves which are set up by the banking institutions because of the special nature of their business, and a reserve which might be set up by a farmer or, for that matter, by any other type of businessman.


Victor Quelch: We are told that the banks, as the minister says, are allowed to set up an inner reserve to offset future losses. We were told in the banking committee that the banks had suffered heavy losses in the thirties, and had to draw heavily upon those inner reserves. The point I made was this, that, despite that fact, throughout those years the banks paid dividends averaging nine or ten per cent,


John Thomas Hackett: No.


Victor Quelch: How could they have
losses if, at the same time, they paid profits.


Mr. LENNARD:: 
Mr. BENTLEY:: I should like to make some observations, but perhaps the minister wishes first to reply to what has been said by some other hon. members.


Douglas Charles Abbott: When all those who are interested have finished, I shall deal with the basic herd problem.


Thomas John Bentley: I had two questions to ask the minister. I understood the minister to make a statement which, if he did make it, amazed me. I was listening carefully, but I might have misunderstood him. Did I understand him to say that he did not believe in an arbitrary exemption figure?


Douglas Charles Abbott: No, I do not recall having said that. If I did, I did not intend to. Perhaps my hon. friend is referring to my statement that I did not think one could solve the problem of tax relief by simply placing- and I may have used the word "arbitrary"- an arbitrary figure, if you place it too high.


Thomas John Bentley: That explains that. I wish this afternoon to deal with a matter which has not been discussed by other hon. members this afternoon.


Douglas Charles Abbott: I wonder if the hon. member would permit me to speak about the basic herd, before we leave that phase of the matter.


Thomas John Bentley: Yes; I am quite willing to give place to the minister.


Stanley Howard Knowles: The minister is not referring to the opposition as a basic herd, is he?


Douglas Charles Abbott: No. I have listened, as a matter of fact, to speeches about basic herds for the past three or four years, but I do not know yet what a basic herd is.


Howard Charles Green: Is it not just about time you found out?


Douglas Charles Abbott: And I do not believe anyone else does, really. However, facetiousness aside, hon. members are asking what portion of the sales price of a herd is capital, and 88166-232
what is income. I answered the hon. member for Cariboo a few minutes ago by saying that my view is that the determination of that question is not one which requires legislation, and that the question as to what is capital and what is income in respect of a farmer who sells his herd of cattle is one for administrative determination under the provision of the act as it stands.
I understand that some relief has been afforded in respect of dispersal sales-whatever those may be. Perhaps the term is more or less self-explanatory. However I am informed -and I believe my information is correct-that no amendment to the law is required to enable the Department of National Revenue to determine, in respect of the sale of a herd, what portion of the purchase price is capital and what portion is income. I should think that if a taxpayer feels he is aggrieved by the decision of the taxing authority, he should then lodge an appeal, because it is really a question of fact, pure and simple, and is based upon recognized accounting principles. As I see it, the only way to cure it would be to enact some specific provision of law which would depart from recognized accounting principles.


Mr. SMITH (Calgary West):: I should like to say a word or two at this point. I had intended rising before the minister, but I was too slow. The way I see the picture is this. Let us assume there are two men, one of whom bought a half section of land for which, we will say, he paid $2,000. Then his friend bought $2,000 worth of cattle, and grazed them on the first man's half section. The man who bought the cattle works hard and, before the years of heavy income tax, we will say he increased the value of his herd to $5,000, or to the point where he owns $5,000 worth of cattle. In the meantime, the value of the land has increased. These men put up the same amount of money, but one worked hard and the other did no work. The value of the man's land increased to $5,000, representing a capital gain of $3,000, and he pays no tax. The other man, who put up the same amount of money to buy cattle, and who worked hard with the herd, pays on the total increase.
Then the man who did the work becomes ill, or dies, and a sale must be made. In that event the tax is paid on the total increased value of the herd. On the other hand, the man who bought land has to pay nothing at all by way of taxation.
Do not misunderstand me. I realize fully the difficulties which confront one when he attempts to deal with this question. I fully

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realize that no one should be permitted to buy a couple of cows and let them increase until disposal time without paying any income tax. He has not paid any income tax because, owing to the fact that he has not sold any, he has had no income. Of course, if the minister were a stock man we would know that he would have to get rid of a bull or two, because they have to be changed now and again.
In the hypothetical case I have given, I can see that there might be some evasion; and I do not mean that it would be deliberate. However, there might be some injustice so far as the taxing authority is concerned. But I assure the minister of this, that in that ranching and farming country in which I live this is the greatest source of irritation.
As a suggestion, I do not see why the Department of National Revenue, the collecting department, cannot do something like this. Generally speaking, those men do not keep books. The big fellows do, but the intermediate and smaller men do not. I do not see why it could not be found, as a question of fact, what a man's herd was at a given date To use a word which is disliked, it could be done in an arbitrary fashion. Choose an arbitrary date, and put it on a basis that people can understand.
I should like to say one thing more; and in this instance I have a file from which to get the facts. The same principle is involved. My inquiry comes from a public administrator in the judicial district of Calgary in the province of Alberta. I have had correspondence with Mr. Brown, who is no longer there, and with Mr. McAdams. The correspondence is not complete, because, unfortunately, they lost the file which contained my original correspondence. I am not blaming anybody for that; I have lost files myself. Those things happen.
This man is a public administrator, and in an estate which he administers he has some producers' certificates, which are received from the sale of grain. The Minister of Trade and Commerce will understand that. They are treating those certificates as being both capital and income. I think that should be rectified immediately. What I am referring to is going on at the present time. It may be a mere incident; perhaps there are not many people *who die and who have producers' certificates, but the thing is utterly wrong. Will the Minister of National Revenue please not think I am blaming any one in his department for losing a few' letters. I am more likely to lose letters than he is.
To come back to this herd business and matters of that kind, these things are not only serious to the individual; they are most

irritating, broadly speaking. It seems to me that a great improvement could be made in that subdivision or area of taxation of farmers or cattle raisers.


Percy Ellis Wright: The minister asked for a definition of basic and herd and I should like to give him one as understood by the average farmer. A farmer may have been going on from year to year without being eligible for income tax. He will have built up his herd. Then in 1944 he reaches a point where he is taxable on his income. He has at that time thirty head of cattle, the herd having been built up when he was not taxable. Then in 1946 when he has increased this herd to forty he sells everything. He is then taxable on the whole forty instead of just the ten he has accumulated since becoming eligible for income tax. I think that is the idea which the average farmer has in mind.
The federation of agriculture has a similar idea, but instead of doing it on an individual basis they take the year 1941 as being the year in which a number of farmers came under the income tax and they ask that the year 1941 be used as a basis. The department could use either method, but I think most people would prefer the individual basis.


Douglas Charles Abbott: I am interested in my hon. friend's definition of basic herd. All I can say offhand is that it would change the size of the basic herd with the increased income tax exemption or because of the number of children a man might have.


Thomas John Bentley: In spite of the minister's last remark, I still agree with those who have spoken. I am in favour of having some basis for establishing basic herds for the taxation of farmers. The other evening the hon. member for Battle River asked some questions and the minister promised to give replies. Before he does so, I should like to say a word or two about one of the things mentioned in the united farmers and the farmers' union brief, so that the minister may make provision for this when he brings in his bill.
It may not seem important to many people when I mention the digging of wells, but I would point out to the minister and to the committee that a well on a farm is of almost paramount importance. In many of the branch offices no allowance is made for deducting the cost of digging a well. Whether that is a principle adopted by the revenue department or w'hether it is a matter of administration, I do not know. I can quite understand that if a farmer were to dig a well costing $1,000 and got water, he would not be entitled to deduct the total cost of the well but he could depreciate it over a period.

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But a farmer who is anxious to obtain water may dig four or five wells costing anywhere from S400 to SI.000 and sometimes S2.000 each, and yet strike no water. Such a man would not have improved his capital position. In fact he has depleted his income and his capital position, and no provision is made for that. That happens quite frequently. When it comes to the matter of exploring for petroleum a different method is used. Petroleum companies are allowed to deduct for income tax purposes a certain percentage of the amounts expended for exploration purposes, and dry wells come under that regulation. I am not complaining about that but I do say.that the exploring for petroleum is no more important to those companies or to the people of the country than is the digging for water to a farmer. If it is fair to allow these deductions in connection with petroleum explorations, the same principle should be applied to farmers who are digging wells.
Many other points were mentioned in the brief of the farmers' union and the United Farmers of Canada, Saskatchewan section, but they have been dealt with and I shall confine my presentation to this matter of digging wrells which is so important to the farmers of this country.


Mr. REID:: While the time may come in the future when every one will fill out his income tax form with a great deal of pleasure, nevertheless the case cited by the hon. member for Calgary West is one of those things that irritate people, and the more irritation and inequality we can remove, the better it will be for all. I rise to mention one matter in connection with people doing w'ork for government departments on behalf of the farmers.
A veterinary surgeon doing work for the Department of Agriculture is allowed nine cents a mile for driving his car. A rate of nine cents is not outrageous for driving through country districts. There is one veterinary in my district who sometimes covers 2,000 miles in a month and he will work six months in the year for the department. When it comes to making out their income tax returns these men are told that they will not be allowed nine cents a mile for expenses, that the allowance will be limited to four and a half cents a mile and that twenty-five per cent will be taken off the luxury driving.
Generally speaking, a man who drives 2,000 miles a month or 18.000 miles in six months on behalf of the Department of Agriculture is not going to do much luxury driving. I just want to draw the minister's attention to 83166-232i
this thing which is so irritating. If the Department of Agriculture allows nine cents and that is a fair price-why should the income tax division not also allow nine cents. This thing has been going on for a long time and I am drawing it to the attention of the minister in the hope that it will be corrected.


Arthur Leroy Smith: May I add one further word which I think will be helpful. We are really talking about cows. A man will have so much land which will maintain a certain number of cattle, and the number generally remains fairly stationary. If a cow becomes too old, he may sell it but he replaces it with another one. Let us take 1941 as the base period, assuming that that has been fixed. A man has fort}' cows worth $100 apiece. We will assume that in 1945 he still has forty cows, but they are now worth $150 apiece. We all know that cattle have advanced considerably. By 1945 the man has had a capital gain of fifty per cent.
If I bought land or stocks or shares or some machinery and sell it at an increased price, that is not taxable as income. The farmer with his forty head of cattle who sells them at an increase of fifty per cent, has had a capital gain just as surely as in the case of these other sales. Yet he is assessed with the sale price as income today.
Mr. GI'LLIS: I would not rise except for a definition which the minister placed upon the question raised by the hon. member for Vancouver South, namely, that of exempting pensions for income tax purposes. In reply to the hon. member, the minister said that these pensions, voluntary or contributory, were somewhat of a gift.


Douglas Charles Abbott: No; I was referring only to non-contributory pensions.


Clarence Gillis: One could classify the others as almost seventy-five per cent gift, because they' are all three-way pensions. I want to put the minister right at the start. None of these things is a gift, because if one contributes to a pension on a voluntary basis or otherwise, the first charge on his wages in the negotiations is that gift.


Douglas Charles Abbott: I agree that the word "gift'' should be changed.


Clarence Gillis: He might have been receiving ten per cent or fifteen per cent more in wages w'ere it not for the fact that a retiring allowance was established.


Douglas Charles Abbott: If my' hon. friend will allow me. the reason I made the remark was that if he had received fifteen per cent extra on wages he would have paid taxes on it.
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Clarence Gillis: The minister might well consider exempting pensions for income tax purposes. If you calculate the amount I believe the government would lose very little money if they did not collect taxes from pensioners. Few pensioners are in the income tax brackets. Nevertheless there are a few, and we hope some time to raise the pensions above the exemption levels. We are trying to take time by the forelock and get ahead of the minister.
There is another pension or retiring allowance which, in my opinion, is treated rather badly. Take a civil servant who has contributed to a superannuation fund for fifteen or twenty years. There were some of them in the service who during the past war joined the armed forces. They withdrew their superannuation allowance in the form of a lump sum, and they were taxed on the lump sum payment, despite the fact that it was paid in over a period of fifteen or twenty years.


Douglas Charles Abbott: I am informed that they were taxed only on one-third of the amount.


Clarence Gillis: I do not know; my information is that they were assessed on the whole amount.


Douglas Charles Abbott: After the war rates came in, I am informed that they were assessed only on one-third.


Clarence Gillis: The minister might check that. It was wrong to do it in the way in which it was done. Many of these young fellows came back to the service but could not return to their old positions. They took a lower position, and I believe that the payment should have been considered as a gift; there should have been no assessment against the superannuation. A man builds it up over a period of fifteen or twenty years with the expectation that it will carry him over the lean years of his life. He becomes patriotic and joins the services, offers his life to his country, and what he has built up to care for his old age is taxed. When he comes back he takes a lower position with no expectancy of comfort if and when he reaches the age where that is necessary.
These are the two points that I wish to mention. Because of the small amount of revenue that the department would be losing in taxes, the minister should make an announcement as soon as possible to the effect that in future pensioners of this country will be tax free.


Douglas Charles Abbott: I am always tremendously struck with the voluntary assistance I receive in methods of reducing revenue and increasing expenditures, but I get few suggestions for

increasing revenue. Of course, as hon. members know, my problem is to make ends meet if possible, so that I cannot-much as my heart is touched by a good many of these appeals-accede to them all.
- Mr. KNOWLES: In answering certain arguments put forward by this side of the house, a while ago the minister used the word "phony". I realize that he was in a pleasant mood when he used it and had a smile on his face, but I fear it was-


Douglas Charles Abbott: I will substitute the word "fallacious" if my hon. friend would prefer it.


Stanley Howard Knowles: I will accept the change. In other words, the minister regards as fallacious the arguments which have been made from this side of the house. After all, there was a solid vote on this side of the house on the matter of-


Douglas Charles Abbott: As was to be expected.


Stanley Howard Knowles: -raising the exemption levels. The minister said that it was the responsibility of the government to be fair to all members of society, and that consideration had to be given to the $3,500 man and the $5,000 man as well as to those in the $1,500 and $2,000 brackets. May I say to the minister that if he thinks there is anything phony and fallacious about the argument from this side of the house, then his argument fails to take into consideration all the facts of the matter. What one has to consider in these' matters is not just the amount that is being paid by taxpayers, but the amount that they have left. According to the new rates, after the $2,000 man pays his taxes he will have $1,930 left in 1948; that is in the case of a married man. The $5,000 married taxpayer will have $4,330 left after he pays taxes, and the $200,000 married taxpayer will have $67,507 left. There are all the gradations in between. I suggest that the responsibility of government, yes, is to all its citizens, to the whole community, but its responsibility is greater to those in the lower income brackets than it is to those further up.
The minister just said that it is his problem to try to make ends meet. I suggest that it is also the responsibility of the government to tiy to help the people to make ends meet. Those who are down in the brackets of $1,500 to $2,000 simply cannot do it, let alone the thousands of people who are even below these levels, and therefore are not liable to pay taxes at all.	.
It seems to me that in the whole of this discussion about income tax, revenues and expenditures of the government, the government's approach is too much of a business one and not a human one. The government

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seems to think its job is simply to get such revenues as it can to discharge governmental responsibilities at a minimum. We feel that the budget of a country should be such as to provide for the welfare of all the citizens.
The minister has just said that he gets few suggestions as to how to increase revenue. My desk-mate, the hon. member for Mackenzie, will continue with the reply that I am making to the minister's statement of a while back and offer him a suggestion or two.
Before I take my seat I should like to ask the minister one other question about another subject on which I hope he will make a statement before this item passes. My other question has to do with refundable savings that were taken during certain years of the war. I know the act provides that the first of these savings shall be repaid not later than March 31, 1948, and then there is a sort of revolving-door policy from there on. But it also provides that ' the governor in council may make payments at an earlier day.
As the minister knows, there are people who, during the war years, were in the income brackets and were paying these refundable savings, who are now in straitened circumstances. A great many feel that some provision should be made to pay these savings back to them now, when they are needed. It would be desirable if the minister could make some statement as to the plans of the government in connection with this matter. Is there any chance of the first payment being made earlier than was anticipated? Also, when payments start, are they to be spread over a period of years, or is there some chance that people in straitened circumstances may be able to get back at once all that is coming to them?


Douglas Charles Abbott: At the moment I cannot go farther than I stated before, namely, that, in accordance with the statute, refundable payments due by March 31 next will be paid by that time. This involves the sending out of several hundred thousand cheques and there is much mechanical and administrative work there. What it may be possible to do in future years with respect to accelerating payments, or possibly attempting to do something about payment on a selective basis in cases of hardship, is a question regarding which I cannot make a statement at the moment. There are tremendous difficulties in the way of making a selective refund of these refundable portions. One who reads the mail on it is struck, of course, by cases in which genuine need is demonstrated; but naturally, human nature being what it is, if refunds were made in anticipation on a selective basis, many people would apply who would not, strictly
speaking, be entitled to get it, and this would mean that every case would have to be investigated. Briefly, I am not prepared to make a statement as to what the government might be able to do, other than the one I have already given, that this year's contractual obligation will be met, and we shall have to see later whether something can be done.


Stanley Howard Knowles: The other matter is still being studied?


Douglas Charles Abbott: That and other things like it are being continually studied.


Mr. NICHOLSON:: As I followed the minister's remarks, I made a few rapid calculations as the debate proceeded. I anticipated that he would want information to indicate what might be done if the income tax brackets were raised. In answer to a question of mine the other night, the minister intimated that if all income tax payers receiving less than $1,000 for unmarried persons and less than $2,000 for married were exempt, it would mean a loss of revenue of $200 million, and those who are critical of government policy might fairly be expected to make some suggestions.
I think it is a sound principle of taxation that in a country as rich as Canada we should have a minimum below which no citizen should be expected to live. The Minister of Justice sets standards for people in the penitentiaries. It is a credit to Canada that we should provide medical services, dental services, adequate food and heated accommodation for criminals. I suggest that it is equally desirable that all citizens should have a minimum below which they should not have to live, and likewise we should have a maximum so that there would be a ceiling on incomes. I would not expect the Minister of Finance to advance this, but I think all members would agree with me that the Minister of Finance should possibly have one of the highest salaries in the dominion.


Douglas Charles Abbott: Oh, no.


Alexander Malcolm Nicholson: Perhaps we should say that the highest income should go to the Prime Minister. That would be only fair The one selected by the people to hold the most important position should have the highest income that we are prepared to leave to any one individual. The Minister of Finance is required to perform exacting duties. He has no guarantee of employment for any particular time-


Douglas Charles Abbott: Hear, hear. Thank goodness.


Alexander Malcolm Nicholson: I think it is hard to
understand why the Minister of Finance and
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his colleagues in the cabinet should work as they do on the salaries they receive, while twenty-five persons in the dominion, under the taxation system we now have, will be left $67,000 a year after paying taxes. As I mentioned the other night, in Great Britain this year there are only forty-three persons who are left with $24,000 or more, after paying taxes. I am going to be very generous and suggest that $25,000 should be the maximum that any' taxpayer should have left in Canada.
The minister earlier raised objection to arbitrary amounts, but we have arbitrary amounts now. We have arbitrary amounts at which taxation shall begin and abitrary amounts when we say that a married person receiving $2,000 a year will pay so much. But these other persons I have mentioned still have left, after paying their taxes, $67,000. On the basis of having 650 persons in Canada receiving $50,000 a year or more- the department will not break down the 650; the Minister of Agriculture gave some help, but let us assume that the 650 are divided as I shall suggest-there are twenty-five of them who receive $200,000, 100 who receive $100,000, 200 who receive $75,000 and 325 who receive $50,000. If you were to tax everything above $25,000 for those 650 persons you would have an additional revenue of $19,728,000, according to my rapid calculations.


Douglas Charles Abbott: You soon would not have
people earning that income.


Alexander Malcolm Nicholson: I submit that if there
are persons


Douglas Charles Abbott: You would get them one
year and that is all.


Alexander Malcolm Nicholson: -who are now taxed as soon as they reach $1,500, having to pay rent and keep their families, there is something radically wrong if others cannot get by on $25,000 a year. I submit that it would be a fairly easy matter and a thoroughly sound proposition to go through the upper brackets and take an additional $200,000 a year from those who can well afford it and who would still have left, after paying taxes, more than what might be regarded as a reasonable amount. They would have the assurance of good housing, adequate food, and so on and they could make provision for old age.
While we cannot expect the minister to meet our position this year, I assure him that he will have a constant barrage from this side so long as there are taxpayers left with $67,000 a year or more, after they have paid income tax.


Douglas Charles Abbott: I do not propose to make an extended comment on the remarks that have been made. It is an old and familiar argument-"soak the rich". That is what it is, and I do not object too strenuously to appropriate taxes on men of wealth. I think our income tax scale is a pretty steeply progressive one when you take eighty cents on the top dollar. But no matter how hard you try to soak the rich in this country, or in any other country, you cannot get sufficient revenues from that group, because there are not enough of them.


Alexander Malcolm Nicholson: You get $19 million odd.


Douglas Charles Abbott: I make that statement without fear of contradiction. If you want $90 million or $100 million from that group you cannot get it. That is the fact. My hon. friends can urge that argument as long as they like, but it will not work. I interjected, when the hon. member was speaking, that you would not long have people earning that income in any event.


An hon. MEMBER:: It is unearned income.


Douglas Charles Abbott: Moreover, we live alongside a country w'hicli is large and powerful and, as I have said before and repeat now, we cannot insulate ourselves completely from conditions as they exist in that country. I agree with my hon. friend that it is desirable to maintain a certain minimum standard of living in this or any other country, but that depends on the level of production in the country, and you cannot legislate for any standard of living. People have to work and produce. You can, it is true, assist in the standard of living by sound fiscal measures, by not imposing a tax structure w'hich deters production, which prevents the undue increase of wealth. That is perfectly true. But you cannot raise the standard of living in this or any other country by a purely "soak the rich" tax policy-


Mr. LOW:: Hear, hear.


Douglas Charles Abbott: -or talking about a minimum standard of living.


Stanley Howard Knowles: But you can, by positive steps taken by the government.


Douglas Charles Abbott: Yes, that may be true. But they are not in my judgment the positive steps suggested by my hon. friend.


Howard Charles Green: Before the resolution carries, there is one point I should like to place before the Minister of Finance with regard to income taxation. The war has now been over for

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nearly two years, and I think most Canadians are getting pretty well settled down to normal peacetime living. One of their big problems is that of planning their lives; including of course, their financial affairs; and the government-quite rightly, we in the official opposition believe-is relying on the individual Canadian to do just that-to plan his own affairs, to stand on his own feet. By having as many as possible of our people doing that, we believe we can have the strongest nation. But one important factor to be remembered is that in a plan of that type you must tell the people the facts. They must be given all the information available.
I suggest to the minister that the Canadian people should be given, at as early a day as possible, an approximate idea of the ultimate level of income taxation. The Department of Finance must have some thoughts as to what proportion of our taxation can be raised by the income tax and what percentage of a person's income should be taken from him in that way. Under the proposals of this year, the tax on the first $100 of taxable income is 10 per cent, as hon. members know; on the second $100 it is 12 per cent; on the third, 14 per cent; on the next $100, 16 per cent, and on the next, 18 per cent. Then for taxable income from $500 to $3,500 it is 20 per cent. That is really the rate that applies to the largest group of income taxpayers and I use it to illustrate my submission. Are we to be able to go below that rate? The minister, when he made his budget speech, said at page 2553 of Hansard:
Had our taxes been raised gradually and under normal conditions to their present levels, had they been increased for the productive, peace-time purposes of national development and social security rather than for the unproductive purposes of war, then the present levels migh.t perhaps have been acceptable and tolerable as continuing levels.
He went on to say that such, of course, was not the case, and I quote:
Instead, however, they represent a position to which we have returned after a sudden and unpleasant excursion into painful war-time levels of income tax, and people are still smarting . . . from their war-time experience . . .
Then he uses these significant words:
. . . one must reach the conclusion that those who must bear them-
That is, the income taxes.
-are not ready to support income taxes on the present scale. In fact, I am sure that were our present levels of personal income tax to be continued, they would constitute a serious impediment to a full -working effort and a brake upon the drive and initiative of men and women in all groups and classes.
A reduction has been made, and the minister said with regard to that reduction, at page 2555 of Hansard:
I believe that the verdict of all responsible persons will be that we have gone as far as we can possibly afford to go under the present circumstances.
I think the people of the country still feel that the income tax is too heavy. I do not believe they are prepared to go on paying rates, for example, of 20 per cent in the income range to which I referred a few minutes ago. They feel that they are being heavily shackled even yet by the income taxation. I would ask the minister to let us know, if he can, what the Department of Finance consider to be the normal level for the income tax.


Douglas Charles Abbott: I make no claim to being a prophet, as my hon. friend will appreciate. I assume that the Canadian people must continue to pay their bills, and the amount of tax which will have to be raised will depend upon the amount of expenditures and the amount of government services which the people of Canada, through their elected representatives, demand. I made reference to that in my budget speech. I pointed out that I get continual demands from hon. gentlemen opposite-and sometimes from my own party -for additional expenditures, but I never get any suggestions for reduced expenditures. The reductions in income tax which were made this year, as I said in my budget speech, were as much as I felt I could responsibly recommend with the commitments which Canada has to meet this year. It is true that a great many of those commitments are, I hope, of a temporary nature; and I refer particularly, of course, to the benefits for veterans and so on. But it is difficult to estimate with complete accuracy just what amount those will run to this year. I think the committee will find, when the supplementary estimates are brought in, that in that field as well there will be substantial additional amounts which will have to be provided for. With all these uncertain factors, I am not in a position to say today what I think the income tax scales may be next year or the year after. That, in my judgment, is something which has to be determined each year as we go along; and it will be determined by the demands made by the Canadian people for additional government services of one sort or another. It will depend on the extent to which this or any subsequent government is able to reduce government expenditure but without impairing the essential government services which the people of Canada, through their elected representatives in this house, demand. That is the only answer I can give to my hon. friend.
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Howard Charles Green: The minister has hardly answered my question.


Douglas Charles Abbott: The hon. member has asked me to assume the role of a prophet.


Howard Charles Green: No. I did not ask the minister to assume the role of a prophet. He is the last one I would ask to do that.


Douglas Charles Abbott: Hear, hear.'


An hon. MEMBER:: What does that
mean?


Howard Charles Green: What I had in mind was this. Are the department not working toward some goal of a normal income tax? There must be some opinion as to approximately what the normal income tax rate should be in 'peace time in Canada. If the department have not formed some opinion on that; if they are working in the dark, then, of course. I cannot get any answer to my question. But I point out to the minister that while he emphasizes the people's demands for expenditures, in the final analysis the government of Canada must decide what the expenditures art to be.


Douglas Charles Abbott: This house decides.


Howard Charles Green: Oh, well, the government decides; and the government must also decide what the tax is to be.


Douglas Charles Abbott: This house decides. The people's elected representatives decide, and the demands for new services are the final determining factor.


Howard Charles Green: No. The government has to have the backbone to decide what ;s to be spent and what is not to be spent. All I am asking is whether the Department of Finance is working toward any target for the normal income tax in Canada?


Douglas Charles Abbott: I am now going to answer for myself as Minister of Finance, because it is the minister, in the final analysis, who determines what the tax policy is; and that is as it should be. He is the one who comes before this house and makes tax recommendations and makes recommendations as to the proportion of the total tax load which will be raised by direct taxation'-that is, by income tax on individuals or business concerns-and what will be raised by indirect taxes. I have certain personal view's as to what is a fair proportion between the two. Personally, I should like to see the indirect tax burden reduced as much as possible because, broadly speaking, I feel that it is less fair than direct taxation. The proportion I have struck this year is the best I have been able to arrive at, as I have said to the committee before. I am
not going to make any predictions as to w'hat may be the situation next year; for all I know I may not be minister, probably will not be. This is not something on which I think one should try to make a long-range forecast. Today we estimate that the new income tax structure in a full year w'ill raise something in the order of $425,000,000. My hon. friend can calculate as well as I can what proportion of the total budget is taken from personal income taxes. Then there is a further very substantial portion taken from income taxes on corporations and business concerns. I do not intend to make any predictions. I have view's of my own, but I do not think this is the time to voice them. I can assure my hon. friend that the Department of Finance is not working in the dark, and I hope I am not working in the dark.


Howard Charles Green: Then I am afraid there is not likely to be much reduction in the income tax.
Mr. MaeINNIS: I have no wish to come to the minister's defence. I like him as an individual, but I do not like his economic and social outlook. However, I think he is working in the dark, and as a matter of fact I believe the hon. member for Vancouver South is working in the dark also.


Howard Charles Green: But not as dark as the hon. member for Vancouver East.


John Thomas Hackett: Is he in the light?
Mr. MaeINNIS: We shall see about that by and by. Here are people talking about long-term policies, who have washed their hands completely-until yesterday, when we were talking about housing-of directing the economic production of this country. They say production is something with which the government should not be concerned. The production of the country is the wealth out of which the people obtain their living; and that wealth is produced socially. Some get more and some get less of the total produced wealth. Income and other taxes are used to even out the distribution of the national income to some extent. A moment ago. replying to an hon. member over here, the Minister of Finance said the slogan of the C.C.F. was the old slogan of "soak the rich." The only difference between our slogan and his is that his slogan is "soak the poor."


Douglas Charles Abbott: That is an easy generality. It is not soaking the poor, and my hon. friend knows better.
Mr. MaeINNIS: Just a moment, now. When someone hits at my hon. friend he does not like it, but he was hitting at us and we

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have every right to hit back. He says our slogan is to "soak the rich", and I say he is soaking the poor.


Douglas Charles Abbott: I say, don't soak anybody; be fair
Mr. Mm el NX IS:	All right; now we can
agree. Some people are definitely getting soaked, because the minister himself has said that more than one-half of the income earners of this country were receiving incomes below the present level of income tax exemptions. I tell you these people are being soaked, I do not care who is doing it; and because they are being soaked we have to provide various ways of helping them. I am always surprised -that is not correct; I am not surprised, but I wonder at it-when hon. friends to my right ask for a reduction in taxes and then for increases in government services.
Let us look at some of the things we are asking for at the present time, at this present session of parliament. We are asking for better old age pensions. If we are to have better old age pensions the funds to provide them will have to come out of the income of the country, out of the national income. Since we cannot possibly take it out of the people who are already below the income tax exemption levels, it has to come from the incomes of those above the exemption levels. Yesterday we asked for subsidized housing. It is realized that those receiving incomes less than the exemption levels cannot provide themselves with decent housing. If we are to subsidize housing the funds must be provided through taxation. Then we want better health services. If anyone comes along and says we should have better health services, everyone is agreed. Those who are receiving sufficient income to pay for health services can provide their own, but the more than one-half our population whose incomes are below the income tax exemption levels-cannot provide health services for themselves. Consequently, if we are to give better health services that means further expenditures the dominion government has to take on, and it has to come out of taxes. Then several proposals were made that we should make grants in regard to education. I am not trying to be exhaustive in this list; I am just men. tioning a few of these things. So, if we are to do all these things, is there any possibility of doing them and at the same time either reducing or stabilizing taxes?
I think we should be discussing how to increase the total income, the total produced wealth of the country. That is what we should be concerning ourselves with: more houses,
more schools, more machines, more factories, more roads, more transportation. That is the wealth out of which comes the income of our country, which provides the people with their livelihood. The position we are in at the present time is that employers of labour, industrialists, commercial people, financiers, are frightened to death that they may expand their production capacity beyond what can be consumed under our present profit system. On the other hand, the working people are afraid that if they work too hard they will produce too much so that factories will close and there will be unemployment. That is the position in Canada today; that is the position across the line today. Until we assure people that the more they produce, the better off they will be, the happier they will be, the more prosperous they will be, we shall not get anywhere; and we cannot assure our people as long as we leave the production of wealth in the hands of people who are operating industry, not because they are interested in the things produced, but because they are interested in the profit made in the process of production.
I do not suppose there is any use in urging the minister to raise exemption levels, but I do not believe any hon. member will say that a single man can live decently on less than $1,000 a year and prepare himself for the future. If he is an ordinary single man he is only single until he can get himself a better position so that he can marry and bring up a family. Would anyone say today that a married man who is receiving less than $2,000 a year can bring up a family decently, provide them with the healthful living, give them an education which will afford them an opportunity to succeed in the community? No, no one would say that. Then, if we cannot say that, where is the logic in taxing people with incomes of only $750 for a single person and $1,500 for a married person? What is the basis for it? The basis, so far as I can see, is that if the government do not tax these low' incomes they will have to take more from the people who get more. So that, in order that they will not have to take more from the people who get more, they gouge more out of the people who already get less than what is needed for a decent living.


Mr. KUHL:: Mr. Chairman, I do not
know how far I would be in order if I were to discuss at this stage of the proceedings the fundamental principles of economics. But I am very much intrigued by some of the arguments which have been made. So far as having light, or being in the dark is concerned, I beg to suggest that I think all three
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hon. members who have spoken are in the dark. Of course everyone who speaks thinks he is in the light, and everyone else is in the dark.


Mr. HANSELL:: Let the blessed sunshine in.


Walter Frederick Kuhl: All we can do is to continue working, and to have the best man win.


Robert Ross (Roy) Knight: You are away above the
clouds.


Walter Frederick Kuhl: At least I have that advantage.


An hon. MEMBER:: He has his feet on
the ground, though.


Ernest George Hansell: He is closer to the sun.


Walter Frederick Kuhl: We seem to have come to
this position, where the Minister of Finance and the hon. member for Vancouver South have ended at a point where the only source of money they can see today is that which comes from the taxes they can extract from the people of Canada. That seems to be the only source of funds they can see.
For the last ten years or more we in this corner of the house, without contradiction or refutation by any hon. member, have stated that when a government takes upon itself the power of taxation, or when anyone advocates a policy of taxation to divert part of the national production of the public service, it is not distributing the whole of national production by doing so. In other words I mean that the government assumes, as a fundamental basis, that money and goods are always one and the same thing, and that therefore the only means whereby one can divert part of the national service is to tax somebody, whether it be the poor or the rich, or all of them.
We have challenged that premise again and again, and I do so now. I suggest to the minister that it is possible to reduce taxation and to increase services. Perhaps that sounds like an impossibility, and of course it is impossible under the orthodox policy of finance. But I suggest that there is a policy whereby services can be increased and taxation reduced.


Douglas Charles Abbott: I rise to a point of order.
My hon. friend prefaced his remarks by saying that he did not think he was in order, and I must say I do not think he is.


Ernest George Hansell: He wondered whether
the previous speaker was.


Douglas Charles Abbott: I did not interrupt, because it arose out of my attempt to answer earlier this afternoon the argument that the income tax exemptions were too low. That, admittedly, was relevant to a section which deals with

rates of personal income tax. However I had hoped that the committee would not go too far afield, in discussing economic questions. I was drawn into it by being asked to make a forecast on tax policy, which I was not prepared to do.


Stanley Howard Knowles: It was the word "phony" that started it.


Walter Frederick Kuhl: I do not intend to pursue it farther, but I did think the point should be made, inasmuch as others had represented their views.


Douglas Charles Abbott: That is why I did not interrupt my hon. friend. I thought he was stating his point, and I was content to wait until he had finished.


Walter Frederick Kuhl: But I do wish to agree with those who suggest that there should be a basic minimum standard of living below which there should be no tax levies. It may be a matter of opinion as to what that basic minimum should be; but, as I said in my budget speech, I felt that at least every family of four should enjoy a tax-free income of S4.000. The Minister of Finance stated that the standard of living was limited only by the production of the country. Well, we have always ranted and raved about this being one of the richest countries in the world. If that is actually so, I cannot see why every family of four should not be more than able to enjoy an income of $4,000 or thereabouts, tax-free. Certainly this countiy is capable of producing that amount of goods and services.
So far as taxes are concerned, I have already said that can be taken care of in another way. I suggest again that it is possible to increase public services and, at the same time, to reduce taxation. The present economy is based upon the false premise that money equals goods. I suggest that it does not. Therefore it is legitimate for the government, through its own financial institution, to finance a great deal of government services of its own creation, and to issue its own money. To the extent that that can be done, taxation can be avoided.
I suggest that the government would do well to explore the limits of this field, because it will not be long before it will be up against it, so far as finances are concerned. There is no other way I can see than that of accepting some of the suggestions which have originated in this corner of the house.


Solon Earl Low: I think the minister pointed out that he expected on the new level of income tax rates the income tax would yield, for a full year, something over $400 million.

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Douglas Charles Abbott: That was the estimate I gave, yes.


Solon Earl Low: Is that not about equal to the amount of money the government is paying each year by way of interest on its national debt?'


Douglas Charles Abbott: A little less, I should think.


Solon Earl Low: I am not going to take time now, but I suggest that the minister should look into the proposition we have offered time and again. If he were to do so he could save the major portion of the interest he is now paying out on the national debt; if he will just approach public financing with a little new vision, which I am sure he will have after he has been here for a year or two. But he will not have it after he has been here for five or six years, because by that time ideas crystallize along the old orthodox lines.
I suggest that he look into what we have offered, because I am satisfied that if he approaches financing this Canada by the use of national money through the Bank of Canada we have here, he can apply most, if not all of that $400 million of interest he is paying on a huge national debt, to a reduction of income tax, and he will not have to soak anyone on any level of taxation.
I would point out to him that when he begins relieving the burden of income tax of the people of this country he will find that, rich and poor alike, they will give him a lot more production. This country is today labouring under a heavy load of taxation. I have on my file dozens of letters from farmers who say, "If you will just get us a decent reduction of income tax we will produce hogs for you to fill your quotas; we will produce wheat, and other things you require". I believe if the minister will look into this process of using national money and getting that debt paid off, as he can get it paid off. and have the use of the interest, which is now being paid over to coupon clippers, for the reduction of taxes, he will be surprised at what this country will do.


Mrs. STRUM:: I want to take this opportunity to urge the minister to include the cost of drugs as a medical exemption. Medication is becoming increasingly important in the treatment of disease, and almost every week we are introduced to some new costly and expensive drug which is capable of saving life. In its income tax exemptions the government assumes that an individual can carry four per cent of the cost of medical care in certain categories without an income tax exemption, and then the exemption applies to anything over four per cent. A man earning $2,000 is assumed to be able to carry $80 of medical
expenses without exemption. On a $200 hospital bill he would have an exemption of $120. But that just includes the cost of the doctor, the nurse and the hospital. He may have expenses for X-rays and-


Douglas Charles Abbott: X-rays are covered.


Gladys Grace Mae Strum: I am glad to hear they are, but there are many other incidental costs that are not listed. I have a letter from a person who tells me that he has to buy a very expensive drug for his wife. Surgery may occur only once in a lifetime, in an emergency, but drugs such as are mentioned by this man are taken day after day as long as life lasts. In his case it takes twenty-eight per cent of his earnings.


James Joseph McCann: What is it?


Gladys Grace Mae Strum: Prostigmine. It is a new drug used for intestinal activation; it is not yet in the dictionaries. I should like the minister to give consideration to including these drugs which are essential to life. I do not think we need to worry that people will include tooth paste and lysol and a lot of things as drugs. I think they could be prescribed by doctors and a listing obtained in the same way that hospital bills and surgery costs are listed. The cost of these things is a heavy burden and handicap on many people, and I should like the minister to give consideration to this suggestion.


Mr. BLACKMORE:: Before the resolution carries, I think there are some matters which it would be well to mention for the welfare of our C.C.F. friends and I do it in an absolutely kindly way. They do a lot of talking about things about which they know too little. I should like to refer first to the remarks of the hon. member for Mackenzie. We are in an age of very dangerous thinking. There is a tendency in Great Britain and other places to fall off in production. People there seem to be at their wits' ends to know how to get production in coal and other things which they used to be able to get. There is a reason for all that. Somehow motivation has been destroyed in those countries.
Surely intelligent people in Canada-and Canadians are intelligent-do not want to run into such difficulties. May I refer to the remarks of the hon. member for Mackenzie. There comes to my mind a story of the time when the bolsheviks first took over Russia. They went into a certain city, and in a factory there they found a man who was employed at $20,000 a year. They took that man out and liquidated him because he was getting too much money.
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The DEPUTY CHAIRMAN:: I would ask the hon. member to try to deal with the section under consideration, section 3.


John Horne Blackmore: I do not understand why you did not call the hon. member for Mackenzie to order when he was talking as he was. Surely, if a man makes a remark in this chamber we should be permitted to level out matters in some way. I have noticed how one man will be able to present an argument without fault being found and then, when some one else tries to answer it, he is called to order.
I just want to say one thing with regard to this. That man who was getting S20,000 was liquidated, but the next year they were advertising in the markets of Europe for a man at S200.000 to take his place.
There is one thing our C.C.F. friends do not seem to be able to get through their minds. If a nation needs high class men in high places in production it must be ready to motivate those men; otherwise, as the minister says, it will not be very long until they will have no men like that, and will not have the incomes to tax.
I should like to make just one remark with regard to what was said by the hon. member for Vancouver East. His remarks were excellent right up to a point, and then he advocated that if the government took over production we would solve the problems of money and distribution. The hon. member would have to make half a dozen long speeches in order to support that stand. Let us take the railroad situation as an example. Has the taking over of the Canadian National Railways by the government added to the money available in the hands of the people to increase their purchasing power? Would the taking over of the coal industry in Canada add to the purchasing power in the hands of the people?


Mr. MacINNIS:: The hon. member is asking if the taking over of the Canadian National Railways added anything to the amount of money in Canada with which to run the railroad. I do not suppose it did, but I want to tell the hon. member that by taking over the Canadian National we have in Canada a railway system which we would not have had if the government had not taken it over.


John Thomas Hackett: That is real wealth.


John Horne Blackmore: That is just the kind of thing I had hoped the hon. member for Vancouver East would say. Just two or three minutes before, he was pointing out the fact that the producers in Canada and United States were in desperate alarm lest they have 
too much production. Those producers are private owners! How can the hon. member get any sense out of his stand?
We can get the production we need in Canada if we only motivate private producers. What we need is a financial system able to distribute our production at fair prices.
Resolution 3 agreed to.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


William Henry Golding: When the
committee rose at six o'clock we had passed resolution 3. We are now dealing with resolution 4.
4.	That for the 1947 and subsequent taxation years the deduction from income of an individual allowed in respect of persons supported by or dependent on him be allowed without regard to the country of residence of such persons.


Douglas Charles Abbott: Perhaps I had better make the usual explanation. The present law does not allow a man to claim an exemption for his wife unless she is resident "in any part of His Majesty's dominions or in a country contiguous to Canada, or, residing elsewhere, was a subject or citizen of a country associated or allied with Canada in the conduct of the war that commenced in September, 1939, and was prevented by reason of such war, or prohibited by law, from entering or landing in Canada."
It is believed that a married resident of Canada should be allowed this status for tax purposes, regardless of where his wife resides, if he can properly establish the fact that he is supporting her. The same rule will apply with respect to children and other dependents.


[Stage Direction]
Resolution agreed to.
5.	That the provisions allowing deductions from tax to taxpayers engaged in
(a)	exploring and drilling for natural gas or oil,
(b)	the production, refining or marketing of petroleum or petroleum products, or
(c)	mining or exploring for minerals,
the effect of which is equivalent to a deduction from income of the whole of certain expenses in respect of 1947 operations, be amended to provide that such expenses in respect of 1948 operations may be deducted from income and that, in the case of such expenses in respect of 1948 operations in respect of deep test oil wells an additional deduction from tax be allowed of an amount that, together with the deductions from income, will correspond to the deduction from tax allowed in respect of 1947 operations and that the amended provisons relating to expenditures on deep test oil wells apply in respect of

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the 1947 and 1948 taxation years to expenditures on groups of wells drilled to locate stratigraphic traps.
Douglas Charles Abbott: I shall give a brief explanation. Then' I expect that some hon members will have some questions to ask. The general purpose of this resolution is to extend, for the calendar year 1948, the wartime tax concessions allowed to oil, gas and mining operators. The special provision relating to deep-test oil wells has been broadened slightly to allow these benefits to those who will undertake extensive expenditure to locate stratigraphic traps. Hon. members who are experts in the field of geology will understand what this means.
The form in which these tax concessions will be given for 1948 will be changed as a result of the absence of the excess profits tax. In future the expenditure will be allowed as a write-off out of income rather than in the form of a tax credit appropriate to the prevailing tax rate. It is necessary, however, to continue a tax credit for deep-test wells over and above the write-off provision.


Mr. MERRITT:: On this resolution I wish
to refer to the repeal last year of section 8, subsection 5 of the Income War Tax Act, which allowed a deduction from tax of forty per cent of the contributions to prospecting syndicates prospecting for base metals and strategic minerals. As I say, that subsection was repealed last year. I wish to urge the minister to restore the provision and expand it. I suggest to him particularly that he expand its scope from base metals and strategic minerals to include all minerals and metals and more particularly gold. Second, I suggest to him that when he restores it he should remove the limitation of the section in two other ways. At. the present time it is limited to partnerships. An individual grubstaking a prospector cannot take advantage of the provision which was in the act. There was also a limitation of $500 on the contribution which could be made to any one prospecting syndicate.
The minister and the committee know more than I of the value to the Canadian economy in having a high production of gold. He knows the difficulty under which the gold mining industry is suffering at. present. Just recently the government announced an immigration policy, which, if it is to have any practical effect in line with the promises which it contained, will require a tremendous development to the north of our settled areas. Any such development would have to be primarily based upon the development of
mines in the area. Once the mines are established, the other settlements that follow come in.
One of the great advantages of the restoration of this section would be that it would popularize our mining industry among individuals who are not engaged solely in the business of mining. At present a mining company gets, under the resolution the minister is proposing, some tax concession for exploration expenses, but those engaged in the industry are not so greatly in need of concessions to interest them in it as are individuals, businessmen, doctors, lawyers and private citizens who might, as a side issue, wish to offer help in the grubstaking of miners.
Briefly I should like to refer the minister to an article that appeared in the Saturday Evening Post of May 17. 1947, by Averell Harriman, Secretary of Commerce of the United States. He points this out in a long article which has an arresting title, and one which I think will hearten everyone in the house on another subject. Speaking to his own people in the United States, he heads the article, "We must import to live." He goes on to cite many examples of shortages in important industrial metals which have arisen in the United States owing to the tremendous drain they have put upon them. He says that the United States have to look outside their own boundaries for the supply of metals and minerals. If there is anything in what the Secretary of Commerce of the United States says, there should be a great future for new development of our mining industry in Canada if only to supply the increased market that he foresees by reason of their becoming a "have-not" nation in respect of minerals, instead of a "have" nation as they have been up to the present time. These reasons will commend themselves to the minister, and I am sure he knows them now. I just mention them in passing.
1 want to turn to a particular reason I am suggesting why this provision, which stood for several years during the war, should be reintroduced. I have had correspondence from the British Columbia and Yukon Chamber of Mines, from the manager of the organization. Mr. Woodside, who is a man of more than fifty years' experience in mining in Canada and who has for the past twenty-nine years conducted a prospectors school in the winter in Vancouver. The number in the last class this winter was 150. I should think his opinion would be a valued one as to conditions in British Columbia. He says that this provision, to his personal knowledge, during the war was particularly useful in stimulating the

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contribution of money for grubstaking prospectors in British Columbia. He also says that it has been more useful in British Columbia, perhaps, than in other parts of Canada for two important reasons. First of all, the cost of prospecting in British Columbia is very high because of the difficult terrain and the difficult transportation conditions. I have three examples which may be of interest to the minister. In one area one prospector went out this year and his grubstake was $2,000. In another area not far away on the map two required $6,000 for their season's financing.
In the Yukon, which is, of course, just north of British Columbia, another party of two needed $16,000 for the supply of equipment and other expenses before they were able to go into the field. I understand that these conditions do not obtain to the same extent in eastern Canada. Second, prospecting in British Columbia is not done primarily by mining companies which already are provided for in the present regulations. In British Columbia, perhaps because we have not as big a money market as there is in Toronto, more than half the prospecting is done by individual prospectors who have to raise their own money and are not on salary from mining companies. That is another reason why this provision was particularly useful out in the west. I suggest to the minister that what is being done for an incorporated company might well be done for the partnership or individual who grubstakes a prospector in Canada and my specific suggestions to him are these:
1.	That he restore the principle of the old section.
2.	That he extend it to all mines and metals, including gold, and not restrict it, as it was during the war, to base metals and strategic minerals.
3.	That he include not only partnerships but individuals who may grubstake prospectors by themselves. I do not see any tremendous difference between three or four men doing it and one man doing it.
4.	That he raise the limit of the contribution for any single operation. It was, as I understand, a total of $5,000. with a limit of $500 on any individual contribution, and I suggest that perhaps he keep the limit of $5,000 and raise the $500 limit. I will not name the figure because I am not as competent as the officials to judge in that regard.
5.	I suggest, finally, that he give consideration to helping the prospector who grubstakes himself by working in the winter in the mines

or in some industrial employment in Vancouver, using the money he earns in the winter to go into the field during the summer.
I am aware of some administrative difficulties that would arise in the latter case, but very likely a scheme could be worked out if the principle were established.


Douglas Charles Abbott: This exemption was a most unusual and exceptional one which was allowed during war time to stimulate the search for strategic minerals. At the time it was put in it was asserted that prospectors might not be willing to go out and search for this particular type of mineral unless they were financed, and I suppose that is natural. The provision was put in the law, therefore, whereby an individual who contributed to one of these prospecting associations, syndicates or mining partnerships, registered or otherwise recognized under the laws of any province or territory of Canada, organized for the purpose of prospecting for minerals, could deduct his contribution from his taxable income in the same way as he could deduct a contribution made to a hospital or a charitable organization. I am informed that it actually took the form of a tax credit. That was an exceptional provision. and it was felt that it was not one that should be retained in the permanent tax structure. I have voiced the view in this house on other occasions that I had serious doubts myself as to the wisdom of this particular form of tax concession. I thought it was so exceptional that it should not be maintained longer than the period for which it had been put in, namely the w'ar, and it was dropped at the end of 1945. I am sure I would not feel justified in reinstating it at this time. Any encouragement that may be needed for prospecting for minerals, whether base metals or gold mining, should be given in some other form lhan this special form of tax credit or deduction.


Howard Charles Green: What form of assistance is there?


Douglas Charles Abbott: I should think the ordinary incentive that exists in the case of any other businessman who goes out and looks for something he thinks is profitable. Frankly, I have a constitutional objection to setting up special classes of tax exemptions, and this is one that did not apply to any special type of enterprise. It was put in because it was asserted during the war that perhaps prospectors w'ould not look for these minerals, which were badly needed, unless there was this inducement to investors to grubstake them. I think the investor who is now prepared to grubstake a prospector must accept the same tax position as any other investor.

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Charles Cecil Ingersoll Merritt: I tried to anticipate the minister's known feelings on both these points. First of all, I did try to indicate that there was perhaps some continuing need in Canada on other than war grounds for stimulating the interest of the people generally in prospecting, and for seeing to it that prospectors did get out. Second, I knew his often expressed view that there should be as few exceptions from a tax as possible. I am not asking the minister to make any exception from the tax or to allow any tax credit which he is not already allowing under clause 5, as I understand it. If a company can get some relief because it is in the mining business-and I thoroughly approve that-I see no reason why an individual or partnership should not have, not greater, but similar relief. I do not ask that it be in the form of a tax credit, for instance.


Douglas Charles Abbott: Yes, but it is the business of the mining company to search for minerals and get them. The tax relief here is to you or me or any other citizen who may want to take a chance and invest a few hundred dollars in a prospecting syndicate. I have voiced the view before-and I still hold it-that this particular tax concession lent itself to the sale of stock in those prospecting syndicates about as much as it did to giving persons an incentive to go out and look for the minerals. It is completely different from the tax concessions given mining companies and oil companies actually engaged in the business of searching for and producing minerals. This is a concession that was given to anyone who wanted to put up a few dollars in a prospecting syndicate, which might be nothing but a syndicate organized by a stock promoter to go out and pound a few rocks or cut a few trails to see if he could find minerals. Probably it was justified in war time, but I have held the view very strongly-and I still hold it-that it is not the type of concession that can be justified in peace time under normal conditions. It was dropped at the end of 1945 and I do not think it should be continued.


Charles Cecil Ingersoll Merritt: One more word, then. There is no reason that I' can see why the principle to which the minister has referred should be so rigidly applied as to stop one class of persons engaged in mining from enjoying the same benefits as another class.


Douglas Charles Abbott: It does not.


Charles Cecil Ingersoll Merritt: The mere fact that it is the business of the mining company engaged in exploration-it is their principal business- cannot be of as much importance as the need which I think exists, and of which I do not think there is any doubt, what we should promote the development of one of our chief natural resources. ' When the minister talks about administrative difficulties in working out one of these provisions, I must say I am not at all impressed. For instance, there are,
I understand, provisions in the mining legislation for the issuance of prospectors identification cards. There are many ways, I feel sure, in which anyone who had adopted the principle could get over any of the administrative difficulties which surround it.


Douglas Charles Abbott: I am not pleading administrative difficulties at all. I say that the concession is objectionable on other grounds.


Charles Cecil Ingersoll Merritt: The minister referred to the possibility that the provision might be used to promote the sale of shares in a syndicate rather than to do prospecting.


Douglas Charles Abbott: Of course it could be.


Charles Cecil Ingersoll Merritt: I call that an administrative difficulty, and one which the minister could get around.


Douglas Charles Abbott: Any mining syndicate or exploration syndicate which is registered as such can go out, sell stock and get contributions from individuals. If it does that, those individuals in a mining syndicate or in an exploration syndicate can claim tax credit on their personal income tax. That mining and exploration syndicate may not be so much interested in finding minerals as it is in selling stock. It might perfectly legally set itself up as an exploration sj'ndicate and send some prospectors out into the bush to look for minerals, but its main purpose may very well be to sell stock to the public; and the public, with the inducement of getting something off their personal income tax. will buy the stock. There is no way in which the Department of National Revenue can check on an enterprise of that kind. I know that. I again repeat that I think this special and unusual type of incentive tax concession is not justified under peacetime conditions.


Mr. LITTLE:: I should like to correct one statement which the Minister of Finance made with regard to mining companies going out and getting these claims. In my experience- and 1 have been in the north for a long time -you would not have had any mines at all if it had been left to the mining companies to stake these mines. It has been the prospectors and syndicates such as those which the hon. member spoke about, that found those mines in the early days.


Douglas Charles Abbott: I did not say the mining companies were sending them out. M}' hon.
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friend was raising the question whether they should get some tax concession. I do not want it to be understood for one moment that I am casting any reflection on the value or utility of the mining prospector. I agree with the hon. member for Timiskaming that, without these prospectors who go into the bush and find the mines, we would not have any mines. The only point I am making is that in peace time a man who is not a mining prospector should not get any special tax concession for grubstaking. That is my only point.


Frank Exton Lennard: I merely rise to support the hon. member who has just spoken. I may say that he has taken the words out of my mouth. I am not interested in syndicates, but I am interested in the old-time prospector who went out and gave everything he had. I might remind the minister that, of the older, successful mines in Canada, I will guarantee that everyone was found by one of the honest-to-goodness prospectors who was grubstaked.


Douglas Charles Abbott: But the honest-to-goodness individual prospector got no benefit out of this particular thing.


Frank Exton Lennard: He should get everything there is to get.


Some hon. MEMBERS:: Carried.


Frank Exton Lennard: Somebody said "carried." This session I have not taken up more than five minutes of the time of the house, and by those people to the left of me who said "carried" I want it to be understood that I do not talk by the hour; when I have something to say it takes me only one or two minutes to say it.


An hon. MEMBER:: You have not said anything yet.


Frank Exton Lennard: One more thing I should like to remind the minister of is that some of these small prospectors must receive some encouragement, because today they are not going into the bush in our northern country. Something must be done to encourage that individual effort which is necessary to make our mining industry the success it should be.


Howard Charles Green: Has the minister given consideration to making that help available in the case of an individual prospector rather than a prospecting syndicate? Would that not get around the difficulty he mentioned of a possible sale of stock?
There is one other point. In British Columbia, at least, the provincial mines department officials, gold commissioners and mining recorders across the province are in

a position to check carefully on any of these prospectors. It would be a simple matter to prevent any money from being taken for the wrong purpose. I feel confident that, in that province-and probably in Ontario and any other provinces where there is extensive mining development-great help can be obtained from the provincial department in carrying out some such provision. It is really tragic that there are so few men going into the hills to prospect. These metals are of the utmost value to Canada, particularly with our trade situation, in so far as the United States is concerned, in such a serious position. I hope the minister will not just say "no" tonight without giving the matter further consideration. He can say "no" when the bill comes down, but tonight he said "no" at once without hearing the case; and I think there was a good case here for consideration.


Douglas Charles Abbott: Let me answer that right now. I am not saying "no" without consideration. In the first place, this tax credit is not now in force. It lapsed over a year ago. That is the position. I am not proposing to reintroduce it. The hon. member for Vancouver-Burrard has brought forward the suggestion that a tax which was in force during the war be now reinstated.


Howard Charles Green: Not a tax; a concession.


Douglas Charles Abbott: That a tax concession which was given during the war be now reinstated. I have given reasons why I do not think we are justified in doing that. There is a good deal of confused thinking about the- type of concession which is being sought. The hon. member for Vancouver South suggests that we consider giving this to the individual prospector.


Howard Charles Green: I said in the case of the individual prospector doing prospecting rather than a syndicate.


Douglas Charles Abbott: All right. I want to deal with that. Let us see how we would give it to the individual prospector. The individual prospector is not taxed on his findings.


Howard Charles Green: I did not say to give it to him. I said to the person who grubstakes the individual prospector.


Douglas Charles Abbott: That was the old system. That is exactly the old system which was in force for three or four years.


Howard Charles Green: You gave it to the syndicate.


Douglas Charles Abbott: We gave it to the syndicate. And I explained at length either two or three years ago why we felt it was not practical,

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desirable or fair to give it to the individual prospector. I do not like to use the words "administrative difficulties", but there are serious administrative difficulties and there is a serious danger of fraud and evasion if you are dealing with large numbers of individuals. The question of this tax concession to a prospecting syndicate was discussed at some length in the house every time the tax concession came Up for renewal, because it was a concession which was renewed every year. As I say, it was allowed to lapse at the end of the 1945 period. I tried to show why I think it is not a special tax concession which should form part of our permanent tax structure. Nothing which has been put. forward here tonight has caused me to change my views. This is not a new thing to me. I considered this year after year when I was parliamentary assistant to my predecessor, and I am thoroughly familiar with this type of tax concession. I have tried to show why I personally felt that it was not a particularly desirable type. Of course I may be wrong in that, but I have voiced those views in this house before, why I had objections to this type of concession as such, and I still hold them. There is no use in my trying to say that I will give this matter further consideration and look at it before the bill comes in, because I do not think it is a concession which should be in the bill. So there is no use in my trying to fool the committee by just fobbing it off. I do not think it is a tax concession which should be in our income tax law. Perhaps someone else may think differently, but I do not.


James MacKerras Macdonnell: I had no intention of speaking on this matter because I know' very little about it; but two things the minister has said prompt me to mention two things and to ask him a question. It seems to me that the important question is whether or not we think we are, under our present laws, getting the utmost exploration and the utmost bringing in of new minerals. It does not seem to me to be important whether we are in peace time or war time. The question is whether we feel we are getting what we should get.
The second thing is, it seemed to me that the minister confused the issue by raising this question of stock sales. I am no more fond of stock promotions than hon. gentlemen to my left; they have no monopoly on a dislike for that kind of thing. But I want to suggest that I believe there are efficient organizations in the provinces trying to stop that kind of thing, and personally I should not have thought that was a conclusive reason. I am not offering any suggestions; I am not asking the minister to restore the tax. I merely say
it seems to me that the important thing is whether we are to get the maximum amount of work done to bring new mines into production.


Douglas Charles Abbott: That is, I agree, the important thing.


Howard Charles Green: That is the underlying
feature.


Douglas Charles Abbott: That is right. I do not think we should, but perhaps we ought to subsidize the prospectors who go into the bush. Then perhaps the provinces, which derive large revenues from the development of mines, should take some steps to 'encourage prospecting. My point is that this type of tax concession to individuals, not to the prospector himself, but to individual investors who are willing to gamble four or five hundred dollars in a prospecting syndicate, should not be given special tax concessions. I say they should not get that tax concession in peace time. I am repeating myself a great many times, but that is a view I have held for a long time.


Douglas Scott Harkness: Perhaps I had better make it clear at the start that I am interested only in paragraphs (a) and (b) of this resolution, dealing with oil and natural gas, on which the minister made a brief statement when we first considered this resolution. It seems to me that the whole tax picture as far as the oil industry is concerned is needlessly confused; and I am sorry to say that, as far as I am concerned, the statement made by the minister this evening has only added to the opaqueness, or perhaps I should say the opacity, of that picture. At any rate I am just a little more confused than ever.
In addition to the general confusion that exists as far as the taxation of the oil industry is concerned, there is also the point that the taxes on that industry, or the concessions from taxes, are on a year to year basis, which makes it extraordinarily difficult for the oil operator to plan his future operations or to know where he stands. As an example, the exemption from duty of pipe and oil drilling equipment is provided at the present time under the omnibus bill and will continue until that bill expires. What will happen in connection with the duty on pipe and other oil drilling equipment after the omnibus bill ceases to have effect, nobody knows; and of course it is a matter of extreme interest to oil operators as to what the situation will be.
I have several questions, I am sorry to say, that I should like to ask the minister. The first is whether he is prepared to make any statement as to what the situation will be as far as duty is concerned on pipe and oil drill-
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ing equipment, as to whether the government have given that matter any consideration, and whether or not they are willing to make the present tariff concessions part of the regular tariff schedules. I must say I brought up this matter when the omnibus bill was being discussed. I thought that was the proper time for it, but I was ruled out of order and referred to the budget, and as a result I am bringing it up at this time. In that connection I should like from the minister, if possible, a statement as to whether or not a particular piece of equipment known as a heater treater can or will be included among the particular articles of oil drilling equipment that are exempt from duty at the present time.
The oil picture in Alberta is much brighter now than it was this time a year ago. During 1946 I think in the neighbourhood of 190 oil wells were drilled in Alberta, of which some fifty were producers. In 1947 a more active drilling programme has been in progress, owing to quite a considerable extent to the fact that the price of crude oil has been allowed to rise, following the removal of subsidies, by an amount equal to the subsidy which was withdrawn. Quite a number of wells have been brought into production in the plains area of Alberta and Saskatchewan, particularly in the Lloydminster area. More important than that, however, is the fact that a new field of high grade oil, at a fairly reasonable depth of something between five and six thousand feet, has been brought into production at Leduc, where there are three producing wells at the present time. From present indications it seems that we have at Leduc in Alberta another oil field comparable with the Turner valley and, we hope, exceed*-ing it.
All this progress, however, has not removed the need for more incentive to encourage drilling. I think it is quite apparent to everyone that the finding of large oil fields would have several beneficial results as far as Canada is concerned. In the first place, it would bring down the cost of oil and oil derivatives such as gasoline and so forth, in which nearly all our citizens are interested. In addition, it would materially ease our foreign exchange difficulties as far as United States funds are concerned, because one of the chief causes of our loss of foreign exchange is the amount of oil we have to import. As a matter of fact, a fair number of reasonable oil fields would also do away with the difficulty the Minister of Reconstruction and Supply spoke of the day before yesterday, as far as the shortage of fuel oil is concerned.
Without going into that point farther, as I say I think it is quite clear that the dis-

covery of oil fields in Canada is a matter of major importance to the country. The fact that we do not have more oil fields than at present is, at least to a large extent, due to the taxation and other policies which have been pursued by the present government. In other words, the tax structure has not been such as to encourage the drilling of oil wells, and more incentive along that line is still needed.
I should like to refer to the tax concessions which I suggested last year, and which have been suggested by the oil men for a considerable time, and to ask the minister what consideration has been given to these suggestions during the past year and why no action has been taken on them. First, it was requested that the fifty per cent tax drawback or deduction for deep-test wells be extended to apply to wells drilled in the plains areas. As far as I know, nothing has been done in that regard, and I should like the minister to say why nothing has been done and why that very reasonable request has not been accepted. The second request was for a greater depletion allowance. Last year and the previous year that allowance was 33| per cent. In the United States, oil operators are given a depletion allowance of up to fifty per cent and, furthermore, they can carry it forward or backward. In a year when they have no net income they can save the depletion allowance on the oil produced and use it in a future year; or if their tax arrears have not been settled they can carry the allowance back. It seems to me that if we are properly to encourage the drilling of oil wells a depletion allowance at least equal to that received by our chief competitors immediately to the south, in the United States, should be allowed to our own oil operators.
Third, the request was that all drilling expenses including costs of permits and leasing, geological and geophysical exploration, and all that sort of thing be allowed as tax deductions. The fourth request was that all concessions at present allowed should be included in the permanent tax structure, so that operators would know where they stand and be able to make plans for the future.
I have a few more remarks to make on another related subject, namely in connection with natural gas, but I should like to have the minister answer these questions first.


Arthur Leroy Smith: Before the minister speaks, may I add a few words?


Douglas Charles Abbott: Yes, if in the meantime I do not lose track of the questions asked by the hon. member for Calgary East.

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Arthur Leroy Smith: Pe.haps I had better wait, then.


Douglas Charles Abbott: Oh, no, I believe I shall remember them. Proceed.


Arthur Leroy Smith: What I shall say will be along the same lines as those followed by the hon. member for Calgary East. What I say is not so much by way of complaint, as to urge that I do not think the taxing authorities have ever had a complete and sufficient knowledge of our problem out there.
There is no doubt whatever about the importance of oil in our economy. I am sure no one would deny that, for a moment; and if we can but increase that production we shall have gone a long way. The Turner valley, our one large field, is on the downgrade, although last year it produced seven or eight million barrels; and those were 40-gallon barrels. After all, that is a lot of oil; and it is of high quality, about 40 gravity.
We have had a most intensive search and many wells have been drilled. They are seeking there, not only to continue development in the foothills, but to find oil in the plains area comparable, we will say, with the immense supply in the state of Texas. That drilling is much shallower.
For instance, today to drill a well in the Turner valley will cost at least $200,000. Wells at present being drilled are being drilled at a cost of anywhere from $25,000 up to roughly $60,000, as in the case of the Leduc field, which has been mentioned. That is exclusive of the production equipment.
It is fortunate that the Imperial Oil Company have discovered what appears to be a new field, in which they have drilled three wells. It is most unusual, but we find that all are excellent producing wells. Number two blew in during the course of the present week. But, as I have said, they have had three out of three. They can be drilled for roughly $60,000 each. That area is held largely by the bigger companies; none of the smaller independent companies are in there. They may have a half-section, but the greater part of the ground is held by these larger companies.
What is the tax position? Remember, we are dealing with something that is called an income tax. I am leaving out for the moment the concession on marginal wells or deep-test wells, to which reference has been made. We will put it this way, and say that a group of members in the House of Commons have formed a company and subscribed $200,000. We take that money and drill an oil well, and from it we get back the $200,000. Things are going very well, so we say, "We will certainly begin to drill another one." We drill another one and it is a duster-a dry well. The $200,000 we got out of the first well is taxed. We have lost it in the second well; and yet we have paid tax on income for the whole of that $200,000, less depletion allowance.
I hope the minister will correct me if I make a single mistake in what I am saying. Remember, I have said that I am disregarding depletion allowances at certain percentages, and I am not talking about deep-test wells, although I shall, later on.
So, we in the House of Commons who have formed the company have spent the S200.000 and we have got it back. Then we have put it into another well, but we have not got a cent from it. But we have had to pay income tax on that first $200,000.


Douglas Charles Abbott: I do not wish to interrupt the hon. member, but so that I may have it clear in my mind, may I ask how he could put the $200,000 into another well if he paid income tax on it when it came out of the first one?


Arthur Leroy Smith: Let me put
it this way. We naturally would put it in there before our income tax became payable, and then we simply owe you the income tax. In other words, we are not only busted; we are doubly busted, because we have nothing left with which to pay you.


Douglas Charles Abbott: So we do not get it.


Arthur Leroy Smith: Well, I will tel! you that directors have certain responsibilities.


Douglas Charles Abbott: Not for that, though.


Arthur Leroy Smith: Whether
you get it or not, I am just speaking about the industry, and what takes place in it.
Let me add something to what was said a minute ago by the hon. member for Timiskaming. In western Canada until the other day, or at least until a few months ago at Leduc, no large company ever made a discovery of oil. Imperial Oil Company have made one now, and I hope they make a lot of money out of it, because that company alone has spent over $20 million in exploration, largely in Alberta, and some in Saskatchewan. Even though they are a big company disliked by hon. members to my left, I at least sincerely hope that they get back their $20 million which they have already put into dry holes.


Mr. CASTLEDEN:: How much have they got back?
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Arthur Leroy Smith: I know this, that they have not taken anything back on that exploration fund. The Turner valley, if you will remember, was discovered by an old friend of mine named Bob Brown. They went in there and bought and bought and bought. Their explorations-and that is not just tapping of known fields-in other places have cost them at least $20 million. I hope they get it back, and a lot more with it, because, after all, that is the way in which countries are developed; it is not done by legislation. Development is accomplished by people taking risk capital and spending it. I hope they get $60 million out of it; or $100 million, as far as that goes.


Douglas Scott Harkness: The government will
get the most of it, anyway.


Douglas Charles Abbott: Only thirty per cent.


Arthur Leroy Smith: I thought
you and I were friends.


Stanley Howard Knowles: Well, let me say-


Arthur Leroy Smith: Dave Lewis has broken his typewriter, so that these long written speeches are not here. Let me finish mine.


George Hugh Castleden: What is the insinuation?


Arthur Leroy Smith: What do
you want?


George Hugh Castleden: Do you mean he writes our speeches with his typewriter?


Mr. CRUICKSHANK:: Dave Lewis writes all your speeches.


William Henry Golding: Order.


George Hugh Castleden: That's a lie; Dave Lewis does not write our speeches.


George Alexander Cruickshank: Who writes them, then?


George Hugh Castleden: We write them ourselves.


Arthur Leroy Smith: After what we call in French-and I do not speak it very well-this little contretemps, probably I can continue. What I was trying to say was-


William Irvine: Always trying to say it, but he never seems to get at it.


Arthur Leroy Smith: There are a lot of fellows talking into their waistcoats; that is all they can use them for.


William Henry Golding: Order. I would ask hon. members to allow the hon. member for Calgary West to proceed without interruption.


George Hugh Castleden: The hon. member
should not make insinuations.


Arthur Leroy Smith: If I made an insinuation, I am sorry. I know you are one of the greatest speakers in the world, and I will compliment you and let it go at that.


William Irvine: That is as great a fib as the other one.


Arthur Leroy Smith: I will not admit that about you; you are about the worst.


William Irvine: Except yourself; I have not heard anyone worse.


Mr. ZAPLITNY:: On a question of privilege.


An hon. MEMBER:: Sit down.


Frederick Samuel Zaplitny: Who said, "Sit down"?


An hon. MEMBER:: I did.


Frederick Samuel Zaplitny: Come over here and try to make me sit down. You are not big enough. The hon. member made an insinuation that some in this group read speeches written by others. I happen to be in this group and I have not yet read a speech in this house. I have not had one written by anyone else and I ask the hon. member to withdraw that remark.


George Alexander Cruickshank: A lot of your members have.


William Henry Golding: I would ask the hon. member to allow the hon. member or Calgary West to speak.


Arthur Leroy Smith: If I have said anything that offends I withdraw whatever I said or whatever the hon. member thinks I said. I am trying to get along but I am having a little difficulty.


Douglas Charles Abbott: I want to learn more about this oil business.


Arthur Leroy Smith: I am trying to deal with the oil business in the province from which I come and from which many hon. members over here come. What has happened? We have a field called Turner valley. You may have read of great productions here, there or elsewhere, and at this great distance Turner valley has been regarded as a small thing. May I say that in itself it is one of the largest fields ever discovered in North America, and I know that will come as a great surprise to some people. The average cost of drilling a well there is about S200.000, and they are now drilling below 10.000 feet at the north end with the cost running $250,000 and higher. Imperial Oil drilled one up

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between Edson and Cadomin which cost over a million dollars, and it was a dry hole. They went down 13,000 feet.
What I am trying to show is that the people out there are not fiddling with this thing; they are trying very hard to develop something. I admit they are doing it for profit, that is the incentive; that is the reason they are there. If they make a profit and are able to supply western Canada with oil, then we shall all be infinitely better off. With a production of 8,000.000 odd barrels last year from the one field, they could supply only Alberta and part of Saskatchewan. Before the war, we had advanced as far as Brandon and were able to supply that part of the Manitoba market, but that is not true today. I should like the minister to explain paragraph (c), which reads in part:
. . . and that the amended provisions relating to expenditures on deep-test oil wells apply in respect of the 1947 and 1948 taxation years to expenditures on groups of wells drilled to locate stratigraphic traps.
Do I correctly interpret that as meaning that the same deduction, assistance if you like, which in times gone by was given to deep-test wells, so-called, will now apply to wells drilled on the prairie structures?


Douglas Charles Abbott: Not necessarily. If my hon. friend wishes I will explain what is meant by this extension of the provision which existed last year. When it was suggested by the Department of Mines and Resources that the tax concession contained in the section which is now in the act and which is being extended for 1948 should include groups of wells drilled to locate stratigraphic traps I asked them what that was. They have given me an explanation which I shall be obliged to read to t.he committee because I am not a geologist. Probably it will be entirely clear to those who, like my hon. friend, have a knowledge of oil wells. This is the explanation given me by the Department of Mines and Resources:
The term "deep test" has been restricted so far to an exceptionally deep or costly well proposed to be drilled in potential oil bearing territory to prove or disprove the commercial productivity of a geological horizon on some deeply buried dome, anticline or other significant geological structure. The most probable productive part of such a structure is its summit, and the location of this can generally be determined from a detailed geological examination of the bedrock exposures in the area, from deep holes previously drilled, or from a seismic survey. The possibilities of such a structure can generally be determined from the results of a single deep well.
A "stratigraphic trap" on the other hand, is not a structural dome, but an oil or gas reservoir formed in a porous formation such as sandstone
or clastic limestone as a lenticular bed a pinch-out, or a somewhat similar type of deposit, formed along an ancient buried shore line, or as some deltaic or flood-plain deposit in potential oil bearing territory. The tilting of these strata causes a separation of the gas, oil and water by gravity, with the gas and oil rising to the up-dip side. The escape of these is prevented by the porous horizon being sealed off by an overlapping younger shale or other impervious sedimentary formation which was deposited in an advancing sea. Such porous reservoir sands have been deposited from various sources and are therefore apt to be very erratic, irregular and patchy in distribution, and inconsistent in composition and thickness. The location or outline of such deposits cannot be determined from a geological examination of surface bedrock outcrops or from a seismic survey, nor can this be established from a single drill hole, but only by the drilling of a series of holes, seldom less than six or nine in number. The production from any one hole is apt to be much smaller than that derived from the tapping of a structural high of a potential oil-bearing structure.
I do not pretend to understand the technical significance of that, but I understand that it is the type of exploration where one has to drill a series of holes, not so deep as deep-test holes,- because of the particular formation, and it is proposed to extend the special tax concession to that type of test well.


Douglas Scott Harkness: How does one know when he is drilling on one of those structures?


Douglas Charles Abbott: I do not know. I would have to get another memorandum from the Department of Mines and Resources.


Arthur Leroy Smith: Strange as it may seem, I understand what the minister has just read. However, there is one very great error in that. It says that when you are dealing with a dome, if you hit the top you get the best production. You do not; you get gas and that is all you get. The way oil is laid down in these anticlines is with water at the bottom, the oil next and the gas at the top. What you do is to drill down the edge and cause the pressure of the gas to force the oil up. There is that difference in what the minister has just read.
What I am talking about are areas like the Princess field or the areas around Brooks or Taber, where a comparatively large amount of money has been spent. It is not a question of single holes. Imperial Oil started off with at least a five-well programme and now they have a thirty-well programme. They struck oil in the first hole, but that was just their good luck.
If I understand aright what the minister says, if the company which I have formed in this House of Commons went down to the
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Gleichen reserve and started drilling where we thought there was a stratigraphic trap; if we started off with a five-well programme we would be doing exactly what the minister has said. What I am trying to do and what I hope the minister will see is that if we had that sort of thing, then we would receive the same concessions and assistance as is given to deep-test wells.
May I say one thing which is logical and which proves everything that I have been trying to say. We are looking for new oil wells. It does not make any difference if we find one below the other or if we find them side by side. Of course the side by side ones will be at less depth and much more inexpensive than the. so-called deep-test wells. In other words, the whole logic of the situation compels me to think-and I have never heard any answer to it

I mentioned this last year, but I have not had any answer that if assistance is to be given in the seeking of new fields, new oil, it should not be perpendicular, that the fields should lie one under another. It seems to me to be infinitely more simple if we find them side by side and at shallower depth.
I was down here long before I became a member of parliament on this same question, and I was well received by Doctor Eaton, Doctor Clark, and some of these splendid gentlemen who belong to the minister's department. I have always felt and I still feel that you have one of the finest geologists in Canada right here in the person of Doctor Hume. His advice is well worth while; he is a splendid gentleman. He has a tremendous number of things to do in a geological way. He has an immense area of country to cover in charge of exploratory parties, and so on. He must cover immense areas of ground, but it does seem to me-and I wish someone would answer this question-that if we are to assist somebody who is looking for oil deep down, we should assist the chap, the company or the corporation who is going to find it at shallower depth. If you have two fields side by side they are just as good as if you had two in the form of one superimposed upon the other with this impervious rock in between. We can talk about these seismic surveys and all these other things. If you are drilling in a place where you think there is a stratigraphic trap you will find that there is only one discoverer of oil. and that is the drill. Everybody in the oil business knows that. You can shoot all the dynamite you like all over the place, but you will find that at depth you quite often get salt water. In that you are lucky sometimes, because usually you get nothing. Oil
is found only by the drill. No greater boon could come to Canada than that we should become largely suppliers of our own oil.


Douglas Charles Abbott: I shall endeavour to answer some of these questions. I agree that it would be most desirable and helpful to Canada if we could discover additional oil sources, and it is for that reason that this particular tax concession, which has been in the law. was put in and is being continued. As to why it is not extended to other types of exploration, the reason is contained in the section itself. Whether it is an adequate reason is, of course, another matter. But this applies only, in the language of the statute where, under 10 (b):
The taxpayer could not be reasonably expected to drill the oil well unless permitted to deduct at least fifty per centum of the expenditures in connection therewith from tax.
In other words, this particular type of well is, I understand, a very expensive operation; it runs, as my hon. friend has said, to a million dollars for one well. The other type of well, shallow well, does not cost anything like that amount, and it was felt that for that type of well the prospector, the oil company, the wild-catter would be within his financial means and could be expected to undertake it. This special incentive was given to induce the drilling of these very expensive wells which would otherwise not be undertaken. As the hon. members for Calgary know, the tax credit applies only where the particular project has been approved by the governor in council upon the recommendation of the Minister of Mines and Resources, and that would mean, of course, upon the technical recommendation of the distinguished geologist to whom my hon. friend referred a moment ago.


Douglas Scott Harkness: What is the minimum depth allowed for granting the concession?


Douglas Charles Abbott: I do not know the answer to that. That is determined by the Department of Mines and Resources and the geologist in that department. The tax concession available in this section is made available upon the recommendation of the minister of that department. What his test is I do not know.


Douglas Scott Harkness: There have been some difficulties over that matter. In fact I know of one oil company which is very much disgruntled over the fact that it did not get this concession. It. would perhaps make everybody happier if there were some minimum depth which could be announced.


Douglas Charles Abbott: Perhaps that may be so, but it is a technical matter on which I, as Minister of Finance by the statute, have to

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rely on the advice of my colleague, the Minister of Mines and Resources, which, as I say, means the technical advice of his geologist.


Douglas Scott Harkness: It leaves it very much open, of course.


Douglas Charles Abbott: Quite so.


Arthur Leroy Smith: May I add one word. I really think the minister is wrong. I know he will not think I am speaking at all critically. We want more help. Suppose you applied this assistance to the shallow wells on the prairie. What is the answer? If we drill a dry hole we do not get anything from the department except a tax concession from moneys we might have invested otherwise. But if we get some oil wells, then the dominion government will make-more money by way of taxes than in any other way I know of, because oil wells go fast. When you knock the bung out of the beer barrel it empties itself; it does not renew itself. The paying life of an oil well is in the early stages. What you do today is this. You allow us a tax concession up to fifty per cent. Suppose we in this committee formed a company and we have no other sources of income; therefore there is no concession possible to us; but in the event that we succeed in getting something, then you indeed have a great source of revenue from the oil which is there produced. Really I am utterly unable to find any logical reason for confining this assistance to deep-test wells. I see what is going on, but remember that this can go only to producing companies which, of course, have other revenues. Let us assume that they have other revenue and let us assume that it is continued. If you would only let this go to the prairies I am as sure as I am standing here- because of all the people that are in there now exploring; we have not seen the like of it in the history of Canada-that this government would get more money by way of income tax than all the different contributions that they make to this wild-catting. The government would get infinitely more.


Douglas Charles Abbott: My hon. friend is aware that companies, if they have income, are allowed a 100 per cent write-off for the cost of dry wells.


Douglas Scott Harkness: This is supposed to be incentive legislation. It is there for the specific purpose of encouraging people to drill wells and produce oil. As a matter of fact, this is absolutely no incentive to anybody to put new capital into the drilling of oil wells. The only people whom it helps are the companies which are sufficiently big to have at least SI million income from producing wells.
50	far as the deep-test well is concerned, this concession does not do a bit of good to a company that has not an income of at least
51	million from producing wells. Otherwise they get no benefit really out of it. They are the only people who can have the well written off or fifty per cent written off under this so-called incentive legislation. If the government really wishes to put incentive legislation on the statute books to bring oil wells into production it should put in a type of legislation which would encourage you and me and everybody else in this chamber to put his money into a producing oil well. It is no good to give an incentive to people who are already producing and already have a large income from oil production.


Douglas Charles Abbott: In this deep-test incentive legislation, the estimate I have been given is that something of the order of $4j million has been spent in connection with sinking these deep-test wells.


Arthur Leroy Smith: It was confined to marginal drilling.


Douglas Charles Abbott: Never mind whether it was marginal drilling. I know one company that did it, because they used to be clients of mine in the old days. This expenditure, I am informed, ran to $4| million. Of that, about half represents tax which would otherwise have been paid to the dominion treasury, and the other half represents the companies' own money.


Arthur Leroy Smith: That is true. There is no doubt about that.


Douglas Charles Abbott: Unfortunately, up to the present time, no oil has been found as a result of that expenditure. The two or three oil companies engaged in it are out their two and a half millions, and there is two and a half millions less paid into the treasury. It is apparently the type of terrain where this deep-test drilling is desirable and necessary in order to try to find oil, and this has been a type of incentive legislation which so far has not worked out, though perhaps it will.


Douglas Scott Harkness: The minister is talking around the point. This is supposed to be incentive legislation, but it is not because it is no good except to a very limited number of companies that already have large income. My point for the last two years has been that the government should put into operation legislation that is a real incentive.


Douglas Charles Abbott: Perhaps we had better drop this. We were thinking it was desirable to
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continue it for another year, but perhaps my hon. friend suggests that we should eliminate it.


Douglas Scott Harkness: I am not suggesting that for one moment.


Douglas Charles Abbott: It must be some good then.


Douglas Scott Harkness: It is much the same as sending a small boy to do a big man's job.


Douglas Charles Abbott: My hon. friend is arguing that it is not sufficient. That can be argued, but this is as far as we are prepared to go.


Stanley Howard Knowles: I interjected what I intended to be a serious remark during the speech of the hon. member for Calgary West (Mr. Smith) a moment ago, but my observation was taken the wrong way. It had to do with the question of risk. I rise now to point out what seems to me to be a fallacy in the kind of appeal that the two hon. members representing Calgary are making. The hon. member for Calgary West in particular stated he felt that companies that put these huge sums of money in should not only get their money back but get a good return on it, and the figure he used in the case of one company that had put in $20 million was $60 million. He held that they should get $60 million back, and he suggested, as a justification for that, that they had risked their money. On the other hand, members rise in this house year after year and ask for assistance from the government in the form of incentive legislation to encourage these people to risk their capital, or, in other words, to remove a large element of the risk.


Douglas Scott Harkness: On a question of
privilege-


Stanley Howard Knowles: It seems to me that hon. members cannot have it both ways.


Douglas Scott Harkness: On a question of privilege I do not think any member has risen in this house and asked for assistance from the government. All that we have asked for is a reduction in confiscatory taxation, not assistance. We have never asked for subsidies or anything else.


Stanley Howard Knowles: Hansard will bear me out that the word "assistance" was used by the hon. member for Calgary West a number of times during his remarks.


Arthur Leroy Smith: So what?


Stanley Howard Knowles: He is asking for
assistance because of the value to Canada of bringing in new oil wells, and I agree; but my contention is that you cannot have it both ways. If you ask for assistance to 
remove the element of risk, then there must be something less of these huge profits made. If they are to get huge profits by reason of the risk, then they need not ask for assistance from the government.


Arthur Leroy Smith: What I said was this. If I invest $200,000 in one well and I lose it in the next, I have lost my $200,000 and I do not want to pay income tax on the $200,000 which I have lost. You might catch up with that. That is the illustration.


Stanley Howard Knowles: That was only one
sentence in a long speech.


Douglas Scott Harkness: After this long discussion, would the minister cast his mind back to my original remarks and answer the few questions I asked?


Douglas Charles Abbott: First, on the question of
customs duties, it is not relevant to this section, but I am not prepared to make a statement as to what the duties on pipe will be. As to the heater treater, that is an administrative matter which my hon. friend should take up with the Minister of National Revenue. I have answered the first point relating to the fifty per cent allowance for the stratigraphic traps as well as the deep-test wells. As to the suggestion that higher depletion should be allowed I can understand the desire for that. All enterprises, including mines, would like a higher depletion, but after careful consideration of the whole field of depletion we are of the opinion that the present rates which are allowed are all that should be given. As to the suggestion that it should be indicated how long this particular tax concession will last, in view of the hon. member's remarks, perhaps he is not very much interested. Joking aside, I am not prepared to say that this is necessarily a permanent part of the tax structure. It is proposed that it shall apply for the whole of 1948, which is eighteen months, so that there is reasonable assurance for any concern, which may contemplate applying for permission to avail themselves of it, to make their plans.


Douglas Scott Harkness: Another question was
whether any consideration had been given with regard to drilling expenses, including permit and leasing costs, geological and geophysical exploration and seismographic experiments. Would these be allowed as deductions for tax purposes?


Douglas Charles Abbott: I am told that is not
allowed on the deep-test wells, but it is allowed with respect to other wells. It is allowed as a write-off.

Income War Tax Act


Douglas Scott Harkness: I understand that permit and leasing costs and so on are not allowed on any mine, unless there is some regulation that I am not aware of.


Douglas Charles Abbott: I would have to check
that particular detail. I will look into the-question and. when in committee on the section of the bill which continues this exemption for the 1948 period, I will see if I can give a definite answer as to just how these items are treated.


James MacKerras Macdonnell: May I take one moment to raise a question with regard to natural gas in another part of the country? I do this because the member for Haldimand (Mr. Senn) would have liked to raise it, but he is absent, being ill. With regard to the eight per cent sales tax on natural gas, which is widely used in western Ontario for heating purposes, there are two points that- I would bring to the minister's attention. I understand that this tax was originally imposed as a special war levy, and there was great hope that it would be removed at the end of the war. Second, I understand that there is no sales tax levied on solid fuels of any kind, so that it is felt by those who use this gas that the tax is discriminatory. I mention this because of its great importance to the people throughout western Ontario.


William Ross Macdonald: Shall resolution 5 carry?


James MacKerras Macdonnell: Will the minister make any comment?


Douglas Charles Abbott: I will take note of my hon. friend's remarks. I am aware of the situation.


Mr MACDONNELL (Muskoka-Ontario):: Hopefully?


Douglas Charles Abbott: Well, I always consider all these suggestions sympathetically, at any rate.


Stanley Howard Knowles: It is one of those indirect taxes which the minister said this afternoon he did not like.


Douglas Charles Abbott: I am afraid it is not one that I can do anything about at the present moment.


[Stage Direction]
Resolution agreed to.
6.	That there be imposed an income tax of 5 per cent on a non-resident corporation in respect of dividends received by it on or after April 30, 1947, from a resident corporation where all the issued shares of the resident corporation having full voting rights under all circumstances, other than directors' qualifying shares, are beneficially owned by the non-resident corporation.
Douglas Charles Abbott: This is imposing a new tax.
I will give a brief explanation, if the committee wishes it. This resolution proposes a 83106-233
five per cent tax on dividends leaving Canada from subsidiaries to foreign parents. The general rule has been that dividends leaving Canada are subject to a fifteen per cent tax, although parent subsidiary dividends were exempt entirely from this tax. The present resolution, then, imposes a tax of five per cent where none was imposed before, but it still leaves the parent subsidiary dividends bearing a lower rate than that which applies generally to dividends leaving Canada. It is expected that the revenue from this tax will be $3 million to $4 million annually. It corresponds with a similar tax imposed by the United States upon dividends going from their subsidiaries to Canadian parents and is within the terms of our tax convention with the United States.


James MacKerras Macdonnell: I am glad the minister made that point about its being within the terms of the tax convention. Does he think it will have any deterrent effect on United States investment here, or does he think the amount is too small to have any effect?


Douglas Charles Abbott: I inquired into that and I am assured that it should have no deterrent effect. There is a similar tax going the other way. The inquiries which I made indicated that the adverse effects would not be significant. Under our convention they can take credit for it on the other side.


Stanley Howard Knowles: Is the United States rate five per cent, the same as ours?


Douglas Charles Abbott: Yes.


[Stage Direction]
Resolution agreed to.
7.	That, where a resident corporation owns over 50 per cent of the issued shares having full voting rights under all circumstances of a nonresident corporation and receives dividends (other than dividends that are not liable to taxation) from the non-resident corporation, the resident corporation may deduct from the tax otherwise payable by it for the 1947 and subsequent taxation years an amount in respect of income tax and excess profits tax paid to a government of a country other than Canada on the income out of which the dividends are deemed to have been paid.
James MacKerras Macdonnell: Will the minister say something about resolution 7?


Douglas Charles Abbott: I will give the usual
explanation. The law at present allows a Canadian company an offset against its Canadian tax in respect of the tax paid to a foreign government by its wholly-owned subsidiaries abroad. The present resolution proposes to extend this principle and allow a tax credit where the Canadian company con-

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trols the foreign subsidiary; that is, the foreign subsidiary does not have to be wholly-owned. Provision will also be made in the law that the credit will apply in cases where the control is secured indirectly through the intermediary of a wholly-owned subsidiary.
I think the committee will agree that the general principle of allowing tax credits is sound, and this present measure is a further step in that field. Generally speaking, it is in line with the practices followed by other countries.


James MacKerras Macdonnell: I have a question with regard to the wording of the resolution in the fifth line from the bottom, if the minister will read it with me. It reads:
. . . the resident corporation may deduct from the tax otherwise payable by it for the 1947 and subsequent taxation years an amount in respect of income tax . . .
Is that not a vague phrase? The section of the act itself, which I understand is comparable-that is, to say, section 8, subsection 2(a)-makes that specific.


Douglas Charles Abbott: I repeat to my hon. friend, as I have done before, that the language in these resolutions is rather general and not as carefully drafted as the statutes will be. I have not yet seen the section in the bill which will be introduced, but I will endeavour to see that the language is clear.


[Stage Direction]
Resolution agreed to.
8.	That the period during which refunds may be made in respect of amounts deducted for tax at source from salaries or wages be extended and that where the period for refunds in respect of deductions heretofore made has expired, such refunds be permitted for a further prescribed period.
Howard Charles Green: Will the minister explain resolution 8?


Douglas Charles Abbott: Yes. This resolution represents an alleviating measure. Where tax has been withheld at the source from wages and salaries, for example, refunds may be made "upon application ... in writing within twelve months from the close of the calendar year in which such money was paid," in cases where the amount withheld was greater than the actual tax liability. It has been found that many persons did not get their applications in within the twelve-month period, and it does not seem fair that this should preclude them from getting their money back. The proposed amendment will allow such refunds to be made even though the application was not made within the twelve-month period. For the future the provisions for refunding tax withheld at the source will be brought
into line with the general provisions for obtaining refunds applicable to those who file returns.


Howard Charles Green: There has been considerable complaint about the delay in making these refunds. Can the minister tell us how far the department are running behind in making them?


James Joseph McCann: As I understand it, the position is that, although there is a considerable backlog, it is being liquidated. I think something like 1,300,000 refunds have been made in the year with reference to overdeductions.


Howard Charles Green: Approximately how long are they running behind now?


James Joseph McCann: Well, just the past year.


Howard Charles Green: They are a year behind in making refunds?


James Joseph McCann: No, I would not say they are a year behind. The refunds for 1946 are almost up to date.


Howard Charles Green: That brings up one other point. There has been reported in the press considerable dissatisfaction on the income tax staff. For instance, I have here a press clipping dated April 21, 1947, and headed, "Income tax staffs now talking strike." This is a press dispatch from Vancouver, I think. It states that there is apt to be a walkout in the Toronto office, that the dissatisfaction "may lead to a walkout in Toronto April 30." The complaint apparently was that there is too much red tape and interminable delay in getting wage and job adjustments. The final paragraph of the article reads:
Wages are the chief cause of complaint among tax staffs here . . .
That is, in Vancouver.
. . . Staffs have suffered heavy turn-overs because of offers from higher-bidding big business.
Can the Minister of National Revenue tell us what has been done to clear up that situation?


James Joseph McCann: That statement is entirely fictional. W7e have no knowledge of any such complaint. The first knowledge I had of it was the press report, which probably is the same as the one from which the hon. member has quoted. There has been no general dissatisfaction in our regional offices. An attempt has been made at an adjustment of salary and in procuring a further number of competent accountants and assessors to bring the work up to date. I can give the assurance

Income War Tax Act
to the committee that that has resulted in a much improved condition as far as assessments go-


Howard Charles Green: Action is being taken to meet these complaints which, by the way, seem to have some merit?


James Joseph McCann: Well, I would not say that they have any particular merit. As often happens in any government department when it goes about any reorganization, there are some employees who are impatient and, because they are not dealt with at the same time, they may make some complaint. But the planned reorganization and readjustment of salaries to people of merit and who are competent is going on. We are proceeding, as I say, as quickly as can be done.


Angus MacInnis: I wish to say a few words in connection with resolution 8. I understand that the persons referred to here who may make application for refunds are persons from whom deductions have been made at the source and have not received sufficient income to make a return.


Douglas Charles Abbott: It applies to all taxpayers. They may be the greater number.


Angus MacInnis: The principle is the same, I think. I do not see why a person should have to make to the government application for a refund, or why, if he does not make that application within a certain period of time, he should be debarred from making it. I believe that the government checks all income tax returns. If they find that a person has not paid his income tax in full, they make a demand that he do so. That is the procedure.


Douglas Charles Abbott: I can answer this very quickly. It applies only to people who have not filed returns.


Angus MacInnis: That was what I said in the first place, and I was told it applied to everyone.


Douglas Charles Abbott: The provision applies to all taxpayers.


Angus MacInnis: 
Douglas Charles Abbott: How on earth can we know?
I do not want to interrupt my hon. friend, but if a man works for two or three employers how can the income tax department know if no return has been put in?


Stanley Howard Knowles: You will find out very quickly if he owes money.


James Joseph McCann: You do when he makes a return, or if the time comes when he ceases to make a return. What happens if he works for six months and becomes ill? We have no knowledge of that, and the deductions cease then.


Angus MacInnis: If the deduction ceases, then you have an amount to the credit of that individual; at least it should be to his credit, and it is the duty of the department to find that individual and return it to him.


Douglas Charles Abbott: We would do so if we knew about him.


Angus MacInnis: In any event, there must be an address which can be obtained from the employer. I cannot understand this highhanded way of saying that if he does not make a claim for refund within a year-I realize that the purpose of this change is to extend the time-he loses the money. I cannot understand a provision that a person who has a just claim should be debarred from getting the money to which be is entitled if he does not make application for the refund within a certain time. I am glad the government is going, as far as it is, but it has not gone far enough until it makes at least some effort to find" the individual to whom it owes money, andl returns the money it owes.


Douglas Charles Abbott: My only point is that the-government does not know and has no effective-practical means of knowing that it does owe' money to such an individual. That is the point. If he files a return, yes; then the government assesses the return and sees that with his exemptions and so on he has overpaid his tax. But in the case of a man who has worked for three or four months, who has had deductions at the rate of, say $2,000 a year, who then becomes ill or moves away, the government has no means of knowing at what rate deductions may have been made by another employer perhaps in Vancouver or in the United States or somewhere else. Surely it is not asking too much of every individual Canadian to apply to the nearest income tax office if he believes he has overpaid his tax or that tax has been deducted in a greater amount than it should have been. That is not placing a very great onus on the taxpayer. I wish
Income War Tax Act

the committee would think of the additional staff that would be required to go through all the returns of employers which are filed and coordinate those returns to see that the John Smith who worked for one employer in Toronto for three months at a rate which made him taxable in the same John Smith who three months later worked for somebody in Vancouver. I think it would be beyond the bounds of reason, and this measure is to extend the period within which application may be made. I am sure my colleague the Minister of National Revenue will confirm that we get thousands of these applications for refunds. A man is pretty careful about claiming money when it is owing to him. I never find very much of an oversight in that connection.
Mr. MacINiNIS: I have in mind a case which I could mention, though I am not going to, where money has been due for years, where a return had been filed as well, and where the money was not paid until a demand was made. What the minister says may be easy if you have the education of a lawyer and are practised in keeping books and doing that sort of thing. A great many of these people will have very little education, very little understanding of what they are supposed to do. Those who represent farmers here, particularly on this side of the house, have made the welkin ring on many occasions in regard to the difficulties and discriminations the farmer is up against in the matter of income tax, but I can tell them the person -who never gets a break in regard to income tax is the wage-earner or salary earner who 'has his tax deducted at the source. As the minister says, if he works for six months at the rate of $2,000 a year the tax is deducted at that rate. Then if he does not work for the rest of the year he is out the amount deducted unless he applies for a refund. As the Act stood, and as it still stands even with this extension, if he does not make application within a certain period of time he loses that money.


James Joseph McCann: There are very few
Josses.
Mr. MaoINNIS: There are so many, in any .event, that the time for making application for refund has had to be extended. I would say that a person should not be debarred from making application for refund, if the refund is .coming to him, no matter when he makes it.


Herbert Wilfred Herridge: I think 1 am in order in asking the Minister of National Revenue a
question under this section because, while it has to do with compulsory savings, it is in the nature of an overcharge. I have had several complaints from men over sixty-five years of age who say they had compulsory savings deducted from their income. I have in mind a man who returned to work in a factory after he was sixty-five years of age, and had these compulsory savings deducted from his cheques. I understand that he has written the Department of National Revenue on several occasions requesting a refund, so far without success. I should like to ask the minister why these incorrect overcharges are not returned to people of this type as soon as possible.


James Joseph McCann: If there has been fault in this particular instance it has been due to the employer. Anyone who is sixty-five years of age and who has a refundable portion of his tax to his credit may make application for it and have it returned, provided that he has an income of less than $5,000.


Clarence Gillis: In the end of the country where I come from this is a pretty burning question. There it is not a question of chasing a taxpayer from one employer to another. All the people I speak of nowT are employed by the one employer, but some of them wait for two and three years for tax refunds. I think one principal reason is the lack of staff in the only office you have in Nova Scotia; that is, the Halifax office. Most of the people in my riding are employed by Dominion Steel and Coal. The tax is deducted at the source. The records are there, but apparently the comptroller of the company has the last say. The taxpayer makes applicaton for a refund of his 1944 tax, for example. I am still working on some 1944 refunds, and some go back as far as 1943. There are as yet no complete records for 1946. When the taxpayer applies for his refund, after going through all the necessary formalities, apparently the inspector in Halifax has to check the return and then send it to the comptroller in Sydney for a recheck, and in the process it gets pretty well mixed up. I do not expect the minister to cure this tonight, but I should like to see him break that machinery in Nova Scotia at least in two, by the establishment of an office in Sydney. That has been mooted for at least eighteen months, and I should like to see the thing get underway.
Mr. 1SNOR: It is all ready.


Clarence Gillis: Is the hon. member for Halifax answering me, or is he holding a private discussion with the minister?
[Mr. Abbott.!

Income War Tax Act
Mr. 1SNOR: You carry on with your part.


Clarence Gillis: I have the floor and it would he courtesy for you to keep quiet while I am talking to your superior.


Mr. ISNOR:: Mr. Chairman. I did not interrupt the hon. member. He can go on and make a case, if he wishes.


Clarence Gillis: That is clear.


Gordon Benjamin Isnor: He knows it is settled, or he should know.


Clarence Gillis: Even now I do not know what the hon. member is talking about, and I am not particularly interested.


Mr. MACKENZIE:: That applies both
ways.


Clarence Gillis: I was pointing out to the minister that for the past eighteen months or so it has been mooted that the department intended to set up an office at Sydney because the big tax deductions at the source in that province are in that end of the province. I should like the minister to tell me tonight. I have been told a dozen times at least by his department that they are all ready to start operations in that office. That is my first grievance.
Then, there is a great deal of difficulty in connection with the matter discussed by the hon. member for Vancouver East. Perhaps it is not the fault of the department. During the war, thousands and thousands of workers were employed in war industries throughout the country, and perhaps they paid taxes during half of 1945 in a war industry which folded up, their books and records went with them, and in many instances it has been difficult to trace them down. For instance, in the shipyards at Pictou we found that difficulty, and I worked on it for a long time. Different companies operated there. The employees from the shipyards came back to work in the coal mines or on the farms and began to try to track down their taxes. As was pointed out by the hon. member for Vancouver East, that is not a difficult matter if one is a bookkeeper or a lawyer, or one who can look into the future, but the workman finds that there are not many facilities to which he can turn to have this ironed out. Everyone backs away from an income tax return as if it were a rattlesnake.
I know I do not want to see them, although on many occasions I have tried to trace down files.
I am not criticizing the machinery in Halifax. What the department have at that point is good, but they have not enough of it. I have found them cooperative. But it is difficult to find these records. Can the
Minister of National Revenue advise me tonight when we might expect the office in Sydney to begin operations, because we shall1 not get the mess off our hands we have therewith respect to refunds until such time as we have an office down there where the problem is. I think most of the difficulty is with the comptroller of the coal company.


Gordon Benjamin Isnor: Mr. Chairman-


Clarence Gillis: Mr. Chairman, I asked the minister a question, and I should like to have it answered.


Gordon Benjamin Isnor: Speaking on the same subject as was raised by the hon. member-


Clarence Gillis: As a matter of courtesy, might I have that question answered?


Howard Charles Green: Let the minister answer.


Gordon Benjamin Isnor: Perhaps the minister can answer both of us at the same time.


Clarence Gillis: I would rather he would answer me first.


Stanley Howard Knowles: What do you mean by "both''? Are you two people?


Gordon Benjamin Isnor: Speaking with respect to the question raised by the hon. member who has just spoken and the hon. member for Vancouver East, might I ask if I heard the hon. member for Cape Breton South correctly when I thought he said he did not understand what I was saying? Well, that is quite understandable. In his case when he refers, as he does, to the collection of refunds, in the same way as the hon. member for Vancouver East referred to deductions on salaries of $2,000 a year, I would point out that the deductions are made on either a weekly, semi-monthly or monthly basis.	.


Angus MacInnis: I know that. It is a waste of time to tell me that, because I know it.


Gordon Benjamin Isnor: I do not as a rule interrupt the hon. member. I allowed him to go along and build up his case.


Angus MacInnis: And I would not have interrupted the hon. member for Halifax, but he is giving an altogether wrong impression of what I said. I said it was made at the rate of $2,000 a year.


Gordon Benjamin Isnor: I thought perhaps I would clear that point up. The deductions are made on a weekly, semi-monthly or monthly basis; and if a person works for two, three, four, five or six weeks, as the case may be, his deductions are made only on his earnings during that time.


Angus MacInnis: Quite so; that is right.
Income War Tax Act


Gordon Benjamin Isnor: So from time to time-once a month, as a rule-those deductions are returned to the income tax office, and at the end of the year a recapitulation is made showing the total deductions for the period in which the person was employed. A record is made showing the name, the amount and the days, and those are added in. Until the income tax office at Halifax, we will say, so far as Nova Scotia is concerned, has a complete list of the earnings of that man, it is not in a position to make a refund to him. I think that should be clearly understood. That shows the position in the income tax office after the return has been made. It is not fair to criticize the income tax office at Halifax or any other place for not being able to take care of the refunds immediately after the returns are made. That is the first point.
Then, I am reasonably sure the hon. member for Cape Breton South must know-because he has been told time and again-that the office at Sydney is to be established. I have heard that said on the floor of the house. Like the hon. member, I hope the office will be established in Cape Breton in the very near future, so as to relieve the overworked staff at Halifax. May I add that the staff at that point is most efficient. I know many of them personally, and they are a fine body of men and women, doing the best they can to clean up income tax returns as quickly as possible.


Clarence Gillis: May I say to the hon. member for Halifax that, personally, I was never advised that the office was to be established, and I never have heard it on the floor of the house. I had considerable correspondence with Mr. Elliott, while he was deputy minister, and the last I heard of it was that as soon as available space could be secured it would be set up. I do not know whether that space was secured or what stage it is in at the present time. That is why I should like the minister to answer.


Gordon Benjamin Isnor: I thought the hon. member, like myself, was a fairly regular attendant in the house; certainly I heard it on the floor of the house.


Clarence Gillis: I did not, and you cannot show it to me in Hansard, either.


James Joseph McCann: The matter of opening an income tax office in Sydney has been dealt with before, and it was recommended in a report made with respect to the establishment of additional district offices in Canada. I tabled that report in November, 1945.


Angus MacInnis: No wonder it was forgotten.


An hon. MEMBER:: It is not established yet.


James Joseph McCann: No, it is not; and there are valid reasons why. There is no department of government which has grown as quickly as the Department of National Revenue in the same number of years. No department of government has lost to industry and to business generally throughout the country, and to other departments of government, as many of its trained personnel as did the Department of National Revenue. Those are some of the difficulties that we have.
What the hon. member for Cape Breton South has said with reference to the Halifax office is not according to the facts. The progress report shows that, as of May 1, 1947 there were 80,081 returns for 1945 made, of which 80,081 had been assessed. In other words, it was 100 per cent for 1945.


Clarence Gillis: Assessments are not returns,


James Joseph McCann: The assessments had been made. The return for 1946 were due exactly thirty days ago, and they have hardly been sorted as yet in the offices throughout the country. You could not expect them to be assessed so that we could determine whether or not there was a refundable portion. There have been 86-4 per cent of the 1944 returns assessed. I submit that the work of that office is as good as in any office in the country, and better than in some.
'Mr. ISNOR: Better than in most.


James Joseph McCann: Better than in most. We are proposing, for the convenience of people on Cape Breton island, to open an office in Sydney. It will require seventy-seven people to man it. Where are we to get these people? Probably the initial employees will be taken from the Halifax office, and the work there demands that we retain all the present staff in Halifax. The work of that office will not be reduced a great deal. As soon as we get the necessary space, the proper equipment and competent people to carry out the work, we shall proceed to open that office.


Clarence Gillis: When I was speaking I think I made it quite clear that I have had as much to do as an individual with the Halifax office as any other member of this house. I was not criticizing the work of that office; I was simply complaining about the lack of personnel and the difficulties created by having to check off with the comptroller of the coal company. It is no problem if you are employing only twelve or fifteen men, but when you are handling weekly deductions for

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13,000 people and it is necessary at the end of the year to check them all, a great deal of difficulty is created. I was not complaining about the office; my kick was the lack of necessary assistance for an office in that end of the country where a big problem must be faced.
I was informed at least two years ago that personnel was being trained for this particular work. I have had a number of people write to me making application for positions, and apparently they were qualified. I am reasonably sure that personnel will not be the main problem.


Howard Charles Green: Why would it not be possible to allow an applicant for refund the statutory period within which to apply? In British Columbia that would be six years. Is there any reason why such a person should not be permitted to come under the statute of limitations?


Douglas Charles Abbott: This is a problem which was raised by the administration branch of the income tax department. As my hon. friend realizes, this refers to people who have not filed income tax returns. Six years is quite a long time to wait, because it would be difficult to check facts after that length of time. Application has to be made and checked back against the employer's returns. In view of the congestion in the offices and one thing and another, I would think that would be an unreasonable length of time to allow people who have not filed income tax returns to make application.


Howard Charles Green: That is just the tragedy; the people affected are people with small incomes, people who are not taxable. Surely it will not hurt the government very much to allow them at least six years to apply? If they delay in their application it will be that much more difficult for them to prove their claim. I suggest that this is one case where the government could be lenient. I submit that the ordinary statutory period would be the fair thing to allow.


Douglas Charles Abbott: As my hon. friend will notice, the resolution provides that such refunds be permitted for a further prescribed period. I do not think it is intended to prescribe it as such in the legislation. I have not seen the bill. If it is desirable to do that it could be done. This is really to remove the twelve months' limitation.


Mr. ARCHIBALD:: I should like again to bring to the attention of the minister the position of the fishermen on the west coast. During the war, income tax was deducted at the source, but this was not done in the case of east coast fishermen. That discriminatory
practice has never been adequately answered by the department. The fishermen, especially those in the halibut fleet, are filing returns, but they do not get an answer for three years. If there is a deficiency, interest is charged. They are objecting violently to this.
While I am on my feet, I wish to say that the settlement service they have in Prince Rupert gets on very well with the departmental officials in Vancouver; in fact the relationship is excellent. However, to put it mildly, this overcharging of interest is getting under their skin. It is no fault of their own because they cannot get an answer from the department. I have received correspondence on this matter and it is still going on. This matter has been troubling them ever since I have been in the house. They cannot get an answer from * the department as to whether they are squared away. In one case it was pointed out to me that it was the department's fault, and yet these men are continually being forced to pay interest on any deficiency in their taxes.
Mr. MoCANN:	The people to whom the
hon. member refers deal with the Vancouver office, and there cannot be any great number because our reports show that the 1943 returns as of May 1, totalled 240,000, of which 230,000 have been assessed. For the 1944 period, as of May 1, 1947. 211,000 out of 248,000, or eighty-six per cent, have been completed. Seventy-five per cent of the returns for 1945 have been completed in Vancouver. I do not think there can be many of these cases. There may be the odd one, but to say that none of the people in the hon. member's particular district is getting service is beside the fact. If there is any particular case in which the hon. member is interested, if he will pass it over to me I shall try to expedite the handling of returns.


George Alexander Cruickshank: What does the
minister mean by "completed?"


James Joseph McCann: Fully assessed.


George Alexander Cruickshank: Does that mean
that they will not be charged interest?


James Joseph McCann: I did not say that. The
law states that the interest rates shall be so much from the time the return is made until it is assessed, and then a month after notice of assessment the rate shall be at a certain rate if it is not paid. I should like to say something about overpayments. Quite often when the assessment goes out it is indicated that the assessment is such and such and that the taxpayer has overpaid to the extent of $6, $8 or $10. The majority of
365S
Income War Tax Act

these people do not ask for a refund, they ask that if be left as a credit for the following year.


George Alexander Cruickshank: What interest is
charged if there is an underpayment, and what interest is credited if there is an overpayment?


James Joseph McCann: There is no interest
credited, and the charge is four per cent from the time the return is made until it is assessed, and thirty days after notice is sent out until it is paid there is an extra charge of three per cent.


George Alexander Cruickshank: If there is a
charge for underpayment, for the sake of argument using the year 1943, and a penalty imposed, and again for the sake of argument, in 1944 there has been an overcharge, who gets the benefit?


James Joseph McCann: The crown.


George Alexander Cruickshank: Is there anything
fair about that?


James Joseph McCann: In practice, with the small amounts involved, it would be difficult to work out the interest on $2 or S3 with the tens of thousands of individuals concerned. Where there are small credits like that involved we would require a large additional staff, and we are at present short enough of staff making assessments without having to compute interest on small amounts.


George Alexander Cruickshank: There are at the
present time several hundred competent men unemployed in British Columbia who could be used in this work.
The minister refers to small amounts. It might be a small amount to a man making $5,000 or $10,000 a year, but to a man who is not making anything like that amount, a charge of $150 is not a small amount. To my mind, there is no excuse whatsoever for this or any other government permitting that kind of situation to exist.


Harry Grenfell Archibald: On May 28, I put on Hansard an excerpt from a letter received from the Prince Rupert Fishermen's Settlement Service which was sent to the Vancouver office. The minister said that there could not be very many cases. Here is the wording that I put on Hansard, which will be found at page 3561:
In many instances we have cases where assessments are not made for three years after the return is filed

This is from a reliable source. The excerpt continues:
-and any differences there may be are assessed and on this non-payment interest is charged for

the full three years, and both the fishermen and myself feel that this is not fair and interest should he charged from the date of assessment.
The minister has said that any cases we can get which are still hanging fire he will look into. I shall write immediately to the settlement service and the cases will be laid before him.


John Horne Blackmore: I wish to protest against what has been brought to the attention of the committee. Certainly there can be no element of fairness in the procedure which charges a man interest for two or three years before he knows what he owes. It constitutes such an outrage as must shock every member of the committee. Certainly a matter like . that cannot be condoned.


Douglas Charles Abbott: I am going to intervene here. We have discussed this question on numerous occasions when the income tax resolutions have been before the committee. Of course this is in no way relevant to the particular resolution which we are discussing, which is an alleviating resolution extending the delay within which the return may be filed. [DOT] The question as to whether or not interest should be charged on underpaid income tax amounts not paid with the filing of the income tax return is not relevant. If my hon. friend wishes to make a speech on that when we are on second reading of the bill he may, of course, do so, and I shall try to argue the case with him then; I have done so before. On balance, the short answer is, unless there is some penalty for underpayment of income tax, then there is too great a temptation to the taxpayer to underpay his tax. The administrative practice, as I understand it, is, if there is an underassessment and a genuine mistake in the calculation of the tax and something is added, then the interest runs only from the date of the notice of the assessment when he should have made the payment. In any event, I intervened to say that if we are to embark on a discussion of this resolution as to whether interest should be paid or not paid, then we can discuss almost anything in the income tax act.


John Horne Blackmore: As I understand it, the matter we are discussing is the amount which is deducted at the source. That being so, the committee should be permitted to discuss the matter.


Douglas Charles Abbott: There is no question of interest involved there. What we are discussing here is the question of income tax payment which is deducted at the source and on which the taxpayer is entitled to a refund. The section proposes that he have an extended

Income War Tax Act
time within which to file his application for it. When he gets his refund he gets it without interest. In other words, the crown does not pay interest on the overpayment. That has been the law with respect to the crown ever since there has been a crown. The crown does not pay interest on these refunds. Perhaps that is wrong. Nevertheless we have argued it out before. It is not a question of the taxpayer owing interest here; it is a question as to whether the taxpayer should get some interest on the amount of the tax that he has overpaid.


Mr. HAZEN:: Will the Minister of National Revenue give us the returns and the assessments at the Saint John, New Brunswick, office from 1945? Apparently he has the figures.


James Joseph McCann: Yes, I can do that. The position with reference to Saint John for 1945 was as follows. There were 56,450 individual returns. We do not include the corporation returns there. The total assessed as of May 1, 1947, was 40,052, or 70-9 per cent. In fact, to give the whole pictpre in reference to 1944 in Saint John as of May 1, there was 93-7 per cent assessed, and for 1943 they were practically all assessed.


Ernest George Hansell: The question I wish to ask may not come directly under this resolution. I do not want to be out of order. If the minister thinks this is not the time for him to answer I shall be glad to ask it at some other time, but I do not know where I can ask it. It has to do with refunds, and my question is in respect of the refund of compulsory saving. My question is twofold. In the past there has been some discussion as to the possibility of paying back compulsory savings in necessitous cases. People take sick or something happens and they must have moriby. The government holds some of their money.


Douglas Charles Abbott: I wonder whether my hon. friend will allow me to interrupt him. I dealt with this question this afternoon under the general income tax section, but I do not think my hon, friend was then in his seat, I gave my views as to what could be done this year and what-


Ernest George Hansell: Was it in respect of necessitous cases?


Douglas Charles Abbott: Yes.


Ernest George Hansell: I shall read it in Hansard tomorrow.
The second part of my question is this. I had some correspondence with a gentleman 83166-234
who needs money. He was quite willing to borrow the money if his compulsory savings could be assigned, but evidently the regulation will not permit banks or credit institutions to lend money and take compulsory savings as security. Has the minister given any consideration to that? There are necessitous cases where a person would not mind paying a little interest and borrow the money, but he has no security. The refundable portion of the tax is certainly just about as good collateral as anyone could desire, but the regulations do not permit it to become collateral. Could the regulations be changed in. necessitous cases so that a person could borrow on his compulsory savings?


Douglas Charles Abbott: My hon. friend knows that the law contains a provision which says that it will not be assignable. Consideration has been given to amending it, but the decision was against it for the reasons that I mentioned in answer to a previous question this afternoon. We do not feel that we can look into necessitous cases and pick these out and deal with them as distinct from others. My hon. friend will see the reasons I gave when he reads Hansard tomorrow. To extend the privilege, to enable the taxpayer to assign it, would involve some considerations of investigation and the ascertaining that it was a necessitous case. The reason the nonassignability provision is in the act is to prevent the exploitation of the taxpayer who may be willing to assign or sell at a ridiculous discount. On balance, it is thought to be a wise protection. The same reasons apply to assignability for collateral purposes. In other words, if we felt that we should look into necessitous cases we would turn over the money rather than allow it to be assigned. We would pay the amount. If one were to investigate cases and deal with them as necessitous, instead of allowing the man to assign we would pay back the money.


Thomas John Bentley: I wish to revert to something the minister said a moment ago. He is a genial gentleman, but he startles me occasionally with his remarks. He said flatly that the crown does not pay interest. Never?


Douglas Charles Abbott: The crown is not liable to pay interest in law and never has been. The courts, on a petition of right, will recommend in certain cases that it pay interest.


Thomas John Bentley: Therefore the crown will pay interest when it feels like it. When it is a question of playing fair both ways it may pay interest or not. It can charge interest but need not pay it.



Income War Tax Act


Douglas Charles Abbott: My hon. friend is making a soap-box speech.


Thomas John Bentley: I am making a statement of fact.


An hon. MEMBER:: You know where "phony" got you this afternoon.


Thomas John Bentley: And that is a phony statement.


Douglas Charles Abbott: I will withdraw the statement.


Thomas John Bentley: I was not speaking of compulsory payments but on the question which my hon. friend the member for Cape Breton South brought up and which was followed by the remarks of the hon. member for Fraser Valley. I did not intend any heat.


Douglas Charles Abbott: I take it all back. No offence was intended and. none need be taken.


[Stage Direction]
Resolution agreed to.
9. That funding securities received in respect of an accrued right to interest, dividends or other payments of an income nature or in respect of the extinguishment of a shareholder's preference to the declaration of dividends for past periods be taxable as income.
Douglas Charles Abbott: Perhaps I had better explain this resolution, because I have an amendment to move.
Resolution No. 9 as amended makes provision for taxation in two directions. The first part of the resolution makes taxable in the year of receipt the value of a security received in respect of an accrued right to receive interest, dividends or other payments of an income nature. The house is aware that companies which have been in financial difficulties frequently issue what are commonly called funding securities covering arrears of interest on its bonds that the company has been unable to meet in the past. This interest, if it had been paid, would, of course, have been income to the bondholders in each year in which received. When the bondholder receives a new bond covering arrears of interest he has, in effect, received the interest in one lump sum, although it is received in the form of a promise to pay. There has been some doubt regarding the present law as to whether the recipient of the funding security is taxable on the receipt of the security or whether the tax liability is deferred until the time when the security is redeemed, that is, when the company actually pays cash to the bondholder. It seems clear that the practice should be to have the tax liability fall in the year in which
the funding security is received by the bondholder, and this is what is being proposed in the present resolution.
The second part of the amended resolution deals with the premium received by a shareholder upon the redemption of his shares. At present the premium upon redemption is deemed to be a dividend. The proposed amendment is that the premium shall be taxable as income. The change in wording has the effect of making a corporation taxable in respect of premium received, whereas under the present law the corporation is not- taxable because the premium is deemed to be a dividend and, as the committee knows, dividends paid from one corporation to another are exempt from tax in the hands of the receiving corporation.
In the case of funding securities, this will relate only to interest-bearing securities and not preferred shares and the like or shares which are issued in connection with arrears of cumulative preferred dividends. I would ask my colleague the Minister of National Revenue to move the amendment which I am proposing


James Joseph McCann: I move, Mr. Chairman:
That paragraph 9 of the resolution to amend the Income War Tax Act now before the committee be deleted and the following substituted therefor:
"9. That funding securities received on or after January 1, 1947, in respect of an accrued right to interest, dividends or other payments of an income nature and premiums received on or after May 31, 1947, on redemption of shares by a corporation, be taxable as income."


Arthur Leroy Smith: Part of what I had to criticize has been removed by this amendment, but I think it is open to this criticism, if I understand the amendment which has just been proposed. It seems to me that what it means in simple language is this. Assuming I have a bond bearing interest and, we will say, the company has been unable to pay that interest for a period of ten years, and then some refunding is done for the accrued interest which is owing to me; had I received that interest through the period of the ten years it would have affected only' my gross income or taxable income to perhaps only a comparatively small extent. But remember I have not had it, and now I receive the shock of getting it all at one time, not in money but in a promise to pay, so that my tax in that year, it seems to me, is unduly enhanced, if I may use that expression.
Put, it another way. Suppose I had $100 a year coming to me during the ten years. At the end of ten years it is $1,000. and at that time there is a reorganization and a refunding issue is put up. I do not get the $1,000 but a

Income War Tax Act
new form of bond or preference share or security or something of that, kind, and that is only a promise to pay. But. that $1,000, added to my income in that year, since we have an ascending scale of income taxation, means that I am unfairly struck all at once. I am asking the minister if he does not think he might spread that burden over the period during which I otherwise would have received the money had the corporation been able to pay it, or for some lesser period. It strikes me as being unfair to the individual who has not received interest payments, on which perhaps he has relied during those years when he has had to borrow other money at a greater rate, it may be, to maintain himself and his business, or whatever it may be. It is severe that you should say, "In the year 1957 we are giving you a security, a promise to pay, in lieu of money you did not receive, which will be in the same amount, and you will add that, to your taxable income during that year." That is something worth the minister's consideration.


Douglas Charles Abbott: I had already given it more thought, and I can give it more before the bill is brought in. I do not think it is really feasible. The position is the same as that in which any mortgagee is in where arrears of interest accumulate and he eventually collects them. The section we propose to insert in the act is almost identical in terms with a similar section which has been in the British income tax act for a number of years. I have perhaps omitted covering all the arrears of preferred dividends, because on investigation I found that there were great complications there, and I have not been able to see through all the various implications. That may have to be done at a later day. We do not intend to do it this year, so that the amendment this year will relate simply to interest-bearing *securities. But I will give some consideration to the point that my hon. friend has raised; and when the bill is brought in, he can see the form in which the section is drawn.


James MacKerras Macdonnell: I wish to add a word along the line taken by the hon. member for Calgary West, and along the line of fairness. I want to add what seems to me is a further argument-the minister has hinted at it himself-that in the case of corporations where interest goes from one to another, the shock may not be anything like the same as it is with individuals. Take the individual about whom the hon. member for Calgary West spoke. He gets his interest at the end of ten years. Actually he does not get it. He gets a promise. I appreciate the fact that there is a mechanical difficulty 83166-234i
here where the bond circulates from hand to hand, but I do not think that is insuperable. I think it can be overcome by stamping and in various ways. I should like to second earnestly what my hon. friend has said, and I hope the minister will reconsider this stringent provision, as I see it.


Thomas John Bentley: May I ask the minister a question without his thinking I have an ulterior motive?


Douglas Charles Abbott: Yes.


Thomas John Bentley: I am not a lawyer and- I say this earnestly-I do not follow legal phraseology too well. I tried to follow it when the Minister of National Revenue was referring to it. Does this in any way affect the revolving funds in a cooperative institution?


Douglas Charles Abbott: No, not. at all. It is blocking what, we believe, might be a serious loophole and loss of revenue which should be received by the treasury. That is the purpose of it.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
10. That the provisions respecting the taxation of private companies in respect of undistributed income be extended to include companies having not more than 75 shareholders excluding shareholders employed or formerly employed by the company, as at present.
Douglas Charles Abbott: Resolutions 10, 11, 12 and
13 all relate to the special provisions concerning so-called private companies which were put in the law following the recommendations of the Ives commission. The committee may recall that legislation was introduced in 1945 dealing with the recommendations of the Ives commission regarding the position of shareholders of closely-held companies. The problem arose out of the situation faced by the estate of the chief shareholder of these companies having to meet the liability for succession duties upon the death of the main owner of the business. The legislation made provision for the payment of a tax by the corporation on its undistributed income. Thereafter a payment of a dividend out of this accumulated surplus which had been specially taxed was free from further tax when paid out to the shareholder.
As the law now stands, a company with more than fifty shareholders cannot qualify for the benefits of the legislation. Resolution No. 10 proposes that, the limit on the number of shareholders be raised to seventy-five. Cases have been brought, to the government's attention where, through various reasons, the

Income War Tax Act
shareholding has been moderately widened, with the passing of the years, although such company is still, in fact, a privately held corporation. It seemed reasonable, therefore, that the terms of the legislation might be made less rigid in order that many deserving cases which now are disqualified may be enabled to come under the terms of the law and pay the special tax.


Mr. HARRIS (Grey-Bruce):: I want to make objection, not to the increase to seventy-five, but to the increase to any specified number of shareholders. The minister has touched on the difficulties which the department has found in applying this to one or other of the various companies which have applied. But as I understand it, the number of shareholders is fixed as of April 29, 1941. thereby rendering an injustice to one company which happens to have had more of its shareholders die prior to that date than might die later.
Dealing with this amendment in 1945, may I say that I know of one company in which one man died leaving thirty-two heirs and in that fashion counted his company out of taking the benefit of this act. I suggest to the minister that the true purpose back of the act as passed in 1945 was to give certain rights to closely held corporations, provided that they had less than fifty shareholders; but instead of that date being fixed as of April 29, 1941, it .should be fixed as of the original date of incorporation if at that time it conformed in other respects with the definition of a private company. Then, if thereafter any of the original shareholders remain as of the date of April 29, 1941, and if the remainder of the shareholders are successors to the original ones, that company might enjoy the benefit of the resolution; because, as years go by and the shareholders die off, this same company may still continue to have its surplus undistributed and each family in turn may make the strenuous efforts to avoid distribution to which the Ives commission referred. If that is the case, the last surviving man or his family upon his death, finds it even more onerous to face the difficulties. Therefore I suggest that the minister, between now and when the amendments come in, might give consideration to that. In the meantime I am going to ask the department to look at page 62 of the Ives report and let us have some facts as to the number of companies which have taken advantage of this amendment of 1945 and the amount of money collected from them.


Douglas Charles Abbott: We can give that when we are on the bill.


[Stage Direction]
Resolution agreed to.
[Mr. Abbott.!
14. That the provisions making applicable in respect of income of the 1946 and subsequent taxation years the liability of a private company to pay tax upon undistributed income to which a personal corporation, estate or trust would have been entitled if the income were distributed, be amended to provide that the liability is to be deemed to have been imposed on and after December 18, 1945.
William Ross Macdonald: Shall resolution 11
carry?


Some hon. MEMBERS:: Carried.


William Ross Macdonald: Resolution 12?


James MacKerras Macdonnell: I thought the minister was going to say something about these items.


Douglas Charles Abbott: These last three are almost purely technical. Resolution 11 represents merely a clarification of an amendment introduced last year. Last year's amendment took care of a purely technical omission in the original law. The date of coming into force of this amendment was stated in such terms as to render it ambiguous. The present proposed amendment provides that last year's amendment shall come into force as from the original date of the enactment of private companies' legislation. There was an interpretation argument there and we wanted to make it perfectly clear.


Some hon. MEMBERS:: Carried.


Douglas Charles Abbott: I can deal with these three resolutions together if the committee wish me to. They all relate to private companies.


[Stage Direction]
Resolution agreed to.
James MacKerras Macdonnell: May we have the minister's statement covering the three?
12. That there be deducted from the undistributed income of a private company on hand at the end of the 1939 fiscal period, the amount of dividends paid by the company before December 31, 1942, that were not subject to tax in the hands of the shareholders by reason of the company having been a family corporation.


Douglas Charles Abbott: Yes. Resolution 12 deals with a further purely technical matter relating to private companies. I am afraid the committee may have difficulty in following me in my explanations of these amendments relating to private companies. As the committee will have appreciated from listening to the hon. member for Grey-Bruce, the law is intricate, and this is inevitably so because of the very nature of the subject being dealt with. In arriving at the amount of undistributed income, the law has to provide for the adding up of surplus earned since 1917. Since that date there have been many changes in our law, and the present amendment arises through the fact that at one time in the

Criminal Code
history of income tax there was a special provision relating to a class of company known as "family corporations". Shareholders of these family corporations were not taxable on the dividends received from them. The privilege of paying out of a family corporation dividends tax-free continued up to the end of 1942. It is necessary, therefore, in calculating undistributed income on hand at the end of 1939 for purposes of the present tax to exclude therefrom the amount which, subsequently to 1939, was paid out tax-free in the hand of the recipients. The present amendment gives effect to this exclusion.


[Stage Direction]
Resolution agreed to.
13. That a tax be imposed on an individual who holds shares of a private company that paijJ tax on undistributed income in accordance with section 96 of the Act, which shares were held on December 31, 1944, by a corporation or other shareholder who would not have been liable to tax in respect of dividends on the shares so that the private company was not required to pay tax on the respective portion of undistributed income, such_ tax to be payable in respect of dividends paid to the individual out of the said respective portion of undistributed income, at the following rates:
(a)	where the shares were acquired by the individual in the years 1945 and 1946-at a rate of 15 per cent; and
(b)	where the shares were acquired by the individual on or after January 1, 1947-at the rate that the private company would have paid tax on the respective portions of the undistributed income if an individual had held the shares on December 31, 1944.
Douglas Charles Abbott: The purpose of this resolution is to block a loophole in the legislation.


James MacKerras Macdonnell: Will the minister say a word about the two different rates in (a) and (b) ?


Douglas Charles Abbott: One is at fifteen per cent and one is at some higher rate.


James MacKerras Macdonnell: ^nd the reason for the difference?


Douglas Charles Abbott: The first rate was retro-ictive, and we did not feel it would be proper to impose anything higher than the minimum rate. On the subsequent one, we gave notice in January that we intended to do so, and that explains the difference in the rate.


[Stage Direction]
Resolution agreed to.
Resolutions reported, read the second time and concurred in.


[Stage Direction]
On the order:
Resuming the adjourned debate on the motion of Mr. LaCroix for the second reading of Bill No. 133, to amend the criminal code (illegal organizations).
Right Hon. L. S. ST. LAURENT (Secretary of State for External Affairs): I wonder if, on behalf of the Minister of Justice, I might have the unanimous consent of the house to advert to this order. The house will remember that on three or four occasions, when we were dealing with public and private bills, the Minister of Veterans Affairs (Mr. Mackenzie) declared that this one stood because it was the intention to move that instead of its being read the second time, the subject matter 'be referred to the committee on human rights and fundamental freedoms as soon as it was set up. If, on behalf of the Minister of Justice. I could have unanimous consent I would move:
That Bill No. 133 be not read a second time, but that the subject matter thereof be referred to the joint committee on human rights and fundamental freedoms.
That committee is to be organized early next week, it might be well if it had this bill before it in determining its agenda.
Arthur Leroy Smith: Perhaps the right hon. minister who is leading the house does not know that this matter is at present before the public accounts committee.
Mr. ST. LAURENT: This is the bill of the hon. member for Quebec-Montmorency (Mr. LaCroix) dealing with the outlawing of communist organizations.


Arthur Leroy Smith: That means
illegal organizations, which were discussed all morning.
Mr. ST. LAURENT: This is a special bill dealing with the outlawing of so-called communist organizations. It was understood w'ith the mover of the bill that, as soon as the 'committee was set up. we would ask that the subject matter be referred to that committee for' its consideration.


[Stage Direction]
Motion agreed to.	' [DOT]:


[Stage Direction]
Right Hon. L. S. ST. LAURENT (Secretary of State for External Affairs, for Mr. Abbott) moved that the house go into committee to consider the following resolution:
That it is expedient to bring in a measure to authorize the Canadian National Railway Company to issue securities not exceeding $46,723,000 in principal amount to provide the moneys necessary to meet capital expenditures made or capital indebtedness incurred during the calendar year 1947: to authorize the governor in council to guarantee the principal, and interest of securities issued by the company for the purpose aforesaid; to authorize the making of temporary loans to the said company secured by
Canadian National Railways
[Stage Direction]
such securities and not exceeding $46,7*23,000 in principal amount to enable the said company to meet such expenditures and indebtedness; with authority to give financial aid and assistance to other companies of the said national system.
Motion agreed to and the house went into committee, Mr. Golding in the chair.
James MacKerras Macdonnell: Is the parliamentary assistant going to make some statement about this?


Mr. MAYHEW:: This bill is similar to bills that have been presented to the house annually for betterments and improvements to the Canadian National Railways. The bill to be founded on this resolution is for the purpose of providing authority for the financing of capital expenditures of the railway system and the retiring of miscellaneous maturing obligations, either by way of loan from the dominion or by the issue of securities of the company to the public and guaranteed by the dominion. The total amount to be provided for this purpose is limited to $46,723,000, divided as follows:
Additions and betterments (less retirements)	 $18,000,000
New equipment	 41,500,000
Barraute branch	line	 2.684,000
Acquisition of securities and retirement of capital obligations.. 1,057,000
That makes a total of $63,241,000, from which is deducted the amount available from reserves for depreciation and debt discount amortization, amounting to $16,518,000, leaving a total of $46,723,000. The capital budget as set out above was approved by the standing committee on railways.


James MacKerras Macdonnell: Does that mean this has been before the standing committee on railways during this session, and that these items have been discussed and approved by that committee?


Robert Wellington Mayhew: That is right.


James MacKerras Macdonnell: And when they gave this approval did they have before them the budget of the railway? In other words, are they satisfied as to the need for these moneys over and above the earnings the railway is able to make? I mean to say, if the railway committee has made its report, has it had available the estimated earnings of the railway company in order to know whether these additional capital expenditures which this resolution authorizes are justified, having regard to what the railway is able to provide itself?


Robert Wellington Mayhew: I understand that is correct. If the hon. member will look at page 144 of volume 3 of the proceedings of the committee on railways and canals, he will find , a further break-down of these amounts.


Mr. MUTCH:: The budget and the estimated earnings, as well as the expenditures for the past year, were gone into thoroughly in the committee, and the expenditures here projected were discussed.


Robert Wellington Mayhew: All we are asking tonight is for the second reading of this resolution. Further debate may take place on the second reading of the bill. We should like to get that far tonight if we can. I am not barring any debate on the second reading of the bill.


Arthur Leroy Smith: We can ask
a question or two, can we not? As the resolution reads, it provides for this $46,723,000 for specific purposes. Among other things, it says that it shall be with authority to give financial aid and assistance to other companies of the said national system. I understand that the first item in the break-down the parliamentary assistant has given was one of $18 million. What was that for?
Mr. MAY'HEW:	Additions and betterments to the road.


Arthur Leroy Smith: Then there
is an item of $41 million for equipment, $2 million for branch lines and $1 million for securities. And that amount is less $16 million depreciation. By taking those figures, we arrive, I understand, at the figure in the resolution. Y'ou have $73 million or $74 million in the break-down and you take off $16 million. I did not understand what it was for.


Robert Wellington Mayhew: That was depreciation
and debt discount amortization for last year.


Arthur Leroy Smith: What
portion of the amount is for financial aid and assistance to other companies of the said national system? That is a general expression; what does it mean.


Robert Wellington Mayhew: There is the sum of


Arthur Leroy Smith: It is not
in the break-down we were given. Does it come under additions and betterments?


Robert Wellington Mayhew: The hon. member will
find it in the break-down in the report of the railways and shipping committee.


Arthur Leroy Smith: I have been unable to keep up with the reports of the committee, so that if I ask for some information I hope there will be no objection. Where does the amount for other companies come in the break-down we have been given?


Robert Wellington Mayhew: Some of it is for the
Grand Trunk Western and some for the Central Vermont railway system.
.(Mr, St. Laurent.]

Canadian National Railways


Arthur Leroy Smith: Under which of the four items does it come?


Robert Wellington Mayhew: It comes under the $18
million.


Arthur Leroy Smith: For additions and betterments?


Robert Wellington Mayhew: Yes.


James MacKerras Macdonnell: In other words, the words "with authoritj' to give financial aid" are included in these
amounts?


Robert Wellington Mayhew: Yes.


Douglas King Hazen: It would be interesting if
we had a comparison between the amount asked for this year and that which was asked last year. I have the resolution before me. At that time $22,550,000 was asked and voted. This year the amount is $46,723,000, or over twice as much as last year. The minister said the first item for additions and betterments came to $18 million.


Robert Wellington Mayhew: Yes, the even amount.


Douglas King Hazen: Last year the amount was
$14 million. This year the amount for new equipment was how much?


Robert Wellington Mayhew: New equipment was


Douglas King Hazen: Last year, according to the
figures I have here, it was $8,863,000.


Robert Wellington Mayhew: That is right.


Douglas King Hazen: So that there is a substantial, increase there.


Robert Wellington Mayhew: That is right.


Douglas King Hazen: The next item was in connection with the building of the Barraute railway.


Robert Wellington Mayhew: Yes.


Douglas King Hazen: How much was that?


Robert Wellington Mayhew: It was $2,684,000.


Douglas King Hazen: We had no such item as that last year; but we did have an item of $7 million for the acquisition of the Manitoba railway. The next item was for the acquisition of securities. How much was that?


Robert Wellington Mayhew: This year or last year?


Douglas King Hazen: This year.


Robert Wellington Mayhew: It is $1,057,000.


Douglas King Hazen: Last year the amount was $410,000.


Robert Wellington Mayhew: No, it was $840,000. That wras for acquisition of securities and retirement of capital.


Douglas King Hazen: The amount for acquisition of securities, as it was given last year, was $410,000. I am reading from page 4312 of Hansard for August 5, 1946; is that correct?


Robert Wellington Mayhew: This $840,000 seems to be the correct amount. I am informed that is the amount which was submitted to the committee, and I understand the hon. member was a member of it.


Douglas King Hazen: I am reading from your own statement, of August 5, 1946, as it appears at page 4312 of Hansard for last year. You say there that the acquisition of securities was $410,000. Is that wrong?


Robert Wellington Mayhew: I am afraid I cannot answer that. I shall have to take a note of it, and see if I can answer it later.


Douglas King Hazen: Thank you. Then, the parliamentary assistant gave us this evening an item for retirement. Was there any retirement of securities?


Robert Wellington Mayhew: No, there is no retirement. That will be done under refunding.


Douglas King Hazen: What is the total amount you gave us this evening.


Robert Wellington Mayhew: It is $46,723,000.


Douglas King Hazen: Did you deduct something from that?


Humphrey Mitchell: Surely this is not crossexamination.


Douglas King Hazen: No, it is not cross-examination at all. I am trying to get information.


Humphrey Mitchell: Why don't you sit down when the parliamentary assistant is answering the questions.


Douglas King Hazen: I am putting questions and I have a perfect right to do so.


Mr. McCULLOCH (Piotou):: The hon.
member was in the committee.


Douglas King Hazen: I was in the committee; but it does not stop me from asking these questions.


Henry Byron McCulloch: You could have asked them in committee.


Douglas King Hazen: I am asking them now, and I have a right to do so.


Humphrey Mitchell: You have a right to do so but do it properly.


Robert Wellington Mayhew: Probably the hon. member did not hear me.
Canadian National Railways


Douglas King Hazen: It is difficult to write these things down, and I am trying to have it correct.


Robert Wellington Mayhew: If you wish to take them down I will give them to you.


Douglas King Hazen: I think I have them now, with one exception, namely the last one. May I have that again?


Robert Wellington Mayhew: The last one was


Douglas King Hazen: What is that for?


Robert Wellington Mayhew: That is depreciation and debt discount amortization.


Douglas King Hazen: And what does the whole thing total? Do you add that $16 million, or do you deduct it?


Robert Wellington Mayhew: Naturally you take it off the total.


William Henry Golding: Order. Two hon. members should not be standing at the same time.


Douglas King Hazen: I may be asking questions
too fast; pefhaps I should ask one at a time. I am not clear about the $16,000,000, and I should like the parliamentary assistant to explain whether that is added or deducted.


Robert Wellington Mayhew: That is the amount available from the reserves which is deducted from the amount which will be spent on the railroad of $63,214,000, leaving a balance of $46,723,000.


Arthur Leroy Smith: I was not a member of the committee, and I should like to know where this branch line for which $2,600,000 is asked runs. Is that an estimated amount; has the contract been let, and is the work under construction?


Robert Wellington Mayhew: It is under construction and $50,000 was spent last year. It is planned on spending the amount which I gave this year.


Arthur Leroy Smith: Is it on contract?


Robert Wellington Mayhew: The total amount for the whole road is $3,234,367.


Arthur Leroy Smith: Is that an estimate or a contract price?


Robert Wellington Mayhew: It is an estimated price.


Arthur Leroy Smith: Is the railroad company building it?


Robert Wellington Mayhew: The Minister of Transport will probably be able to answer that. Most likely he will be here when the bill is up for second reading.

Resolution reported, read the second time and concurred in. Mr. Mayhew thereupon moved for leave to introduce Bill No. 258, to authorize the provision of moneys to meet certain capital expenditures made and capital indebtedness incurred by the Canadian National Railways system during the calendar year ltM7, and to authorize the guarantee by His Majesty of certain securities to be issued by the Canadian National Railway Company.
Motion agreed to and bill read the first time.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Monday, June 2, 1947