[Stage Direction]
On the orders of the day:
Hon. R. B. HANSON (Leader of the Opposition):: Mr. Speaker, according to dispatches and reports appearing in this morning's newspapers, the Minister of Agriculture (Mr. Gardiner), now the Minister of National War Services designate, is reported to have said in an interview yesterday that voluntary registration of every man and woman in Canada will be adopted over a four-day period during the last two weeks of August; and further, that Major General LaFleche is returning to Canada from England to be one of the deputy ministers in the new department, and with him, as joint deputy minister, will be Mr. Justice Davis, of the appeal court of Saskatchewan, already in Ottawa. May I ask the minister the following questions, of which I have sent him notice:
What are his proposals with respect to the taking of the national registration; and in particular-
(a)	Will the country be divided into districts for registration purposes, and if so will the electoral districts be the basis of division?
(b)	What public officials, if any, will be appointed to take the registration?
(c)	Will an attempt be made to secure voluntary assistance as far as possible?
(d)	How will those officials be appointed?
(e)	What precautions will be taken to ensure that no patronage or partisanship will be exercised in connection with these appointments?
May I say most emphatically that the country is in no mood to tolerate partisan appointments. The first appointments made by the minister and announced last night are not such as to give the public confidence, either in the efficiency or in the non-partisanship of the administration of t'he department.


Some hon. MEMBERS:: Order.


Right Hon. W. L. MACKENZIE KING (Prime Minister):: May I say to my hon.
friend that questions are for the purpose of getting information, not of giving it.


Richard Burpee Hanson: Well, I
have finished with that, so I will not return to it.
(f)	Will a voluntary advisory committee, similar to the Canada registration board of
1918, be appointed to advise the minister regarding the problems of national registration?
(g)	What procedure will be adopted to ensure that all persons are registered? Will all persons be required to report at designated places for registration, or how will it be carried out?
(h)	What penalties, if any, will be imposed for failure to register?


Hon. J. G. GARDINER (Minister of Agriculture) :: Mr. Speaker, I could, if it were thought advisable to do so, give a detailed answer to each one of the questions, but I am afraid it would mean that I would have to take up at least the limit that is allowed to a speaker in the house. At the moment I wish only to say this, that when I was asked to assume the responsibilities of the post which will be created when the bill providing for this department has been passed, it was emphasized that there was need for great haste in getting the registration made. I believe that as a matter of fact the need of having that registration at the earliest possible date was emphasized in the house some days ago by the leader of the opposition (Mr. Hanson). That being so I have proceeded along lines provided for to a certain degree by an order in council passed under the powers of the National Resources Mobilization Act.
The announcement made last night was for the purpose of speeding up as much as possible the giving of information to the public as to what we proposed to do. We hope to have the registration, in so far as the signing up of names is concerned, completed by the end of the month of August. This morning I asked the proposed deputy, who has been suggested by one of the names now given to the house, to prepare a letter which I am sending to each of the members of the house, no matter on which side he sits, answering quite fully. I believe, most of the questions that are asked on the sheet which I have in my hand, and indicating the method by which we hope to proceed in making the registration. I might say shortly that we are attempting to follow as far as possible the suggestion made by the hon. member who sits to the right of the leader of the opposition in the speech which he delivered the other day, speaking, officially I think, as the opposition critic of the statement of the Minister of Finance in presenting the budget. We are following that suggestion as closely as we possibly can, knowing that hon. members, for the next two or three weeks at least, will be here in the house and will not therefore be in a position themselves to take part actively in the registration.
British Children

That, I believe, is all I need say at the moment. The letters will be in the mail boxes of hon. members this afternoon. Members will be asked to take certain action with regard to their own constituencies. We are requesting them to take action in the matter of the appointment of both the registrar and the deputy registrar in order that they may see to it that the suggestion that there may be some political bias in connection with appointments shall be met so far as their own districts are concerned. As stated in the letter which is being sent forward, these men will have authority to take action in connection with the different polling subdivisions, but to take that action jointly, neither having the power to act by himself.
I have only one comment to make touching the suggestion contained in the statement rather than in the question of the leader of the opposition. I do not know how familiar he is with the persons who have been suggested as deputy ministers, but I may say that one of them is a very highly respected member of the judiciary in a western province, who, I think, will compare favourably with other members of the bench in the various provinces from one end of Canada to the other. The other is a gentleman who served Canada well during the last war and has rendered equally valuable service since, and who I think will give a good account of himself.
I had in mind, in recommending these appointments, in addition to the other qualifications, the fact that both men have a reputation for getting things done, and I believe that if there is one thing more necessary than another in the prosecution of the war it is to get things done. I have no doubt these men will demonstrate the soundness of their choice and will show that they can get things done, and get them done without at the same time introducing anything in the form of partisanship during this time of war.



BRITISH CHILDREN


[Stage Direction]
On the orders of the day:
Mr. GORDON GRAYDON (Peel):: I wish to direct an inquiry to the Minister of Mines and Resources (Mr. Crerar). In view of the fact that the Canadian people as a whole regard the providing of homes for children from Great Britain as a highly important war service, and having in mind that the committee in charge of the voluntary registration of Canadian women, as well as other organizations, have stated publicly that there are

homes available in Canada for more than 100,000 British children, I should like to ask the Minister of Mines and Resources whether the government has advised the British authorities as to the number of homes so available. If so, what was the number so indicated and what, if any, limit was placed by this or the British government on the number of children who might so immigrate.


Hon. T. A. CRERAR (Minister of Mines and Resources):: In reply to the lengthy question which the hon. member has asked me, may I say at once that I consider it wholly inadvisable and unwise to give any impression to the country that 100,000 homes have been offered. It is quite true that the organization mentioned in the question did report a large number of homes available, and I have no reason to doubt that they have received offers for 100,000 homes. But if I am correctly informed, as I think I am, a survey was made in certain localities and it was discovered that a very considerable number of homes were offered by people on relief. The house will agree with me, as I am sure the hon. member will, that it is not desirable for British children who may be brought to Canada for purposes of safety to be placed in homes that are on relief. It is therefore misleading to make the statement contained in the question.
I have stated to the house before that those who have homes to offer-and there are thousands upon thousands of them-should offer those homes to the appropriate provincial authorities, and that is being done. I have not before me at the moment the number of homes so offered to the various provincial authorities, but I can say that at the present time, to my knowledge, they are at least five times in excess of the number of children the British government has indicated to us so far that they are sending to Canada. There is no need for excitement or alarm about the matter.
I wish to give all the information I can to the house, and as a matter of fact on a former occasion I gave some information that was rather unfortunately transmitted, because it raised certain questions which led to some difficulties. In my anxiety to give information to the house I overstepped the bounds of propriety.


Richard Burpee Hanson: We will
forgive you.


Thomas Alexander Crerar: The hon. gentleman will forgive me. While I appreciate his forgiveness and the forgiveness of hon. members generally, that does not get me out of the difficulty. As I stated before, the welfare

Canadian Youth Congress
agencies of the various provinces are receiving the offers for homes. When an offer is made the home is examined by qualified public officers and its suitability is determined before the child is placed in it. That, I think every member will agree, is a wise procedure. In addition to that, after the children have been placed their welfare will be followed up.
Personally I regard this whole matter as one that throws a heavy obligation upon the Canadian people. When parents send their children to strangers thousands of miles away under these distressing circumstances it is certainly the obligation of those who have anything to do with their placement in Canada to see that these youngsters are placed in as good homes as possible. We may err in that respect, but I wish simply to assure my hon. friend and the house that we are devoting to the whole question the very best effort that we can put into it.
Mr. JEAN-FRANCOIS POULIOT (Temis-couata):	Is every refugee child accompanied
by its birth certificate when it comes to Canada, and is it also accompanied by the form that was supposed to be filled out on the departure of children from England?


Thomas Alexander Crerar: As regards the birth
certificate, I am unable at the moment to give that information. I do not think the Canadian authorities would require a birth certificate. We do require a form to be filled out giving considerable information, such as the date of birth, the child's parents, their address, and other necessary information. It is of course necessary to see to it that these children do not lose their identity, as far as their parents are concerned, and steps have been taken to guard against this.


Mr. POULIOT:: But does the minister
realize that the question of birth certificate is of the utmost importance to the child itself?


Thomas Alexander Crerar: I fail to see that at the
moment. I have no doubt that the information could be secured later if necessary. I am not informed on that point.


Jean-François Pouliot: But I am asking the
minister if he realizes the importance of the birth certificate to the child itself. If he cannot show his birth certificate how can he prove that he is a legitimate child?



INTERNED ALIENS


[Stage Direction]
On the orders of the day:
Mr. CLARENCE GILLIS (Cape Breton South):: I should like to direct a question
to the Minister of Labour (Mr. McLarty).
I have received a telegram from Glace Bay in reference to relief for the families of interned aliens. It comes from district 12 in Nova Scotia. I would ask the minister if he has any knowledge of this situation.


Hon. N. A. McLARTY (Minister of Labour):: The hon. member was kind enough to give me notice of this question, and a copy of the telegram which he had received. I immediately had inquiry made in the Department of Labour and found that no complaint had been received there as yet. It might be proper to point out that welfare for those who are in necessitous circumstances and dependent on internees is administered by the same method as ordinary relief aid, namely, through the municipalities and the provinces. The dominion does, however, contribute one hundred per cent of the cost. In view of the fact that the question was raised I asked the commissioner under the Unemployment and Agricultural Assistance Act to take it up with the Minister of Labour in Nova Scotia and have the matter looked into, and I am sure that is now being done.



CANADIAN YOUTH CONGRESS


[Stage Direction]
On the orders of the day:
Hon. H. A. BRUCE (Parkdale):: I wish to direct a question to the Minister of Justice (Mr. Lapointe). On the twelth of last month I gave the name of the Canadian youth congress as an organization which should be banned, because it was controlled by communists. The next day I called attention to the proposed meeting of the Canadian youth congress to be held in Montreal last week, asking that it be prohibited. Mr. T. P. Slattery, a national co-president of the Canadian Catholic union, which quit the congress a few years ago because it was communistic, stated yesterday that communists control the Canadian Youth Congress although they are dishonest enough to deny it, but not clever enough to conceal it. In view of this statement will the minister consider banning this organization now?


Right Hon. ERNEST LAPOINTE (Minister of Justice):: The Canadian youth congress in its inception was a movement general in its character, the purpose of which was to organize and group together the youth of Canada. Eventually the communists entered its ranks and tried to assume control, as is their usual practice. According to the reports I have in my department the instructions of communist leaders to the members of the party in recent
Munitions and Supply

years have been to join other associations and organizations and try to assume control. They did that in some labour unions, for instance, and last year the instructions were even to join the army. However, as my hon. friend said, various groups which had joined the congress left it because of the tendencies of the leaders, and this congress does not at this time represent Canadian youth. I am sure that some of the resolutions they adopt I do not agree with, nor does my hon. friend either. But those I have charged to investigate the matter have reported to me as follows:
The official policy of the youth congress concerns itself with youth problems of a general nature, and although radically inclined it cannot be termed communistic.
As to whether the association should be declared illegal under the defence of Canada regulations, I do not know that it is necessary or that it deserves such doubtful glorification or recognition. But I am quite willing to consider the suggestion of my hon. friend.



MUNITIONS AND SUPPLY


[Stage Direction]
On the orders of the day:
Mr. WILFRID LaCROIX (Quebec-Mont-morency): On June 20, as recorded on page 933 of Hansard, the Minister of Munitions and Supply (Mr. Howe) tabled a list of the departmental heads and key men charged with the purchase of materials in connection with the Department of Munitions and Supply. Examining this list, made up of sixty-three officers, I find there is but one French-Canadian, Mr. A. P. Labelle. Would it be. possible for the minister to change the situation so as to have a better proportion of French-Canadian officials?
Hon. C. D. HOWE (Minister of Munitions and Supply):: I received a copy of this question only a few minutes ago and I have not had time to check the list. Offhand it occurs to me that the names of C. E. Gravelle and Beaudry Leman have been overlooked. However, I admit that we have not been able to attract as many Frenoh-Canadians to the service as we should like. Several have been invited to join in the work, but for business reasons have been unable to do so, much as they would like to. We are prepared to invite a few more, but the difficulty in inviting any business men to join the organization at the moment is lack of office space. A new office building will be completed within two or three weeks, and at that time we hope to extend invitations to several prominent French-Canadians to join our organization.
Mr. E. Lapointe.]


ADVISORY COMMITTEE ON MARKETING-QUESTION AS TO PERSONNEL
[Stage Direction]
On the orders of the day:
Mr. A. M. NICHOLSON (Mackenzie):: The Minister of Trade and Commerce (Mr. MacKinnon), in reply to a question asked by the hon. member for Qu'Appelle (Mr. Perley) in connection with the wheat situation, replied last night that if certain decisions are made one type of committee will be necessary, and if some other decision is made a different type of committee will be necessary. In view of the fact that harvesting operations will start in western Canada very shortly, could the minister announce this week the personnel of the advisory committee in connection with the marketing of wheat?


Hon. J. A. MacKINNON (Minister of Trade and Commerce):: I have tried to make it clear, in answer to recent questions, that this is a matter of grave concern to the government at the present time. Committees that have been set up by parliament-and I refer particularly to the wheat board and also the board of grain commissioners-are at the present moment giving close attention to this subject. Meetings are being held throughout the country for the purpose of getting evidence which has direct bearing on this question. I am expecting representatives of these boards in Ottawa very shortly, when it is hoped that a decision will be arrived at on various matters, which will allow of an announcement being made in answer to the hon. member's question.


PASSPORTS AND VISAS
[Stage Direction]
On the orders of the day:
Mr. NORMAN J. M. LOCKHART (Lincoln) : I should like to ask the Prime Minister (Mr. Mackenzie King) if a passport office is being opened at Niagara Falls, as is being done at Windsor. I have contradictory reports in that regard.
William Lyon Mackenzie King: I am sorry I cannot answer my hon. friend offhand, but I shall make immediate inquiries and try to let him know before the day is over.



NATIONAL WAR SERVICES


[Stage Direction]
Right Hon. W. L. MACKENZIE KING (Prime Minister) moved that the house go

Income War Tax Act
into committee on Wednesday next, to consider the following resolution:
That it is expedient to introduce a measure to establish a Department of National War Services, with power to the minister thereof to conduct a national registration and survey; to promote, organize and coordinate offers of voluntary assistance and public information services; to assist in carrying out the purposes of the National Resources Mobilization Act, 1940; to establish councils, committees or boards or use existing agencies to assist the minister; to empower the governor in council to prescribe the penalties for violations of the act; and to provide further for the employment of officers, clerks and employees necessary for the proper conduct of the business of the department and to authorize the payment of expenditures incurred under this act.
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.
Some hon. MEMBERS:: Carried.


William Lyon Mackenzie King: Would there be any objection to allowing the resolution to be taken up immediately? I should not have inserted the word "Wednesday". I intended that the bill should be taken up on Wednesday.


Richard Burpee Hanson: Would it embarrass the government if it stood over? I should like to read the resolution.


William Lyon Mackenzie King: Very well. Motion agreed to.



WAYS AND MEANS

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

[Stage Direction]
ReSolved, that it is expedient to amend the Income War Tax Act and to provide:-
1.	That the rates of tax applicable to persons other than corporations shall be increased to the rates of tax set forth in the following schedule: A.-Rates of Tax Applicable to persons other than Corporations and Joint Stock Companies
On the first $250 of net income or any portion thereof in excess of exemptions 6 per centum or $15 upon net income of $250; and 8 per cent upon the amount for which the income exceeds $250 and does not exceed $1,000 or
$75 upon net income of $1,000; and 12 per centum upon the amount by which the income exceeds $1,000 and does not exceed $2,000 or $195 upon net income of $2,000; and 16 per centum upon the amount by which the income exceeds $2,000 and does not exceed $3,000 or $355 upon net income of $3,000; and 20 per centum upon the amount by which the income exceeds $3,000 and does not exceed $4,000 or $555 upon net income of $4,000; and 24 per centum upon the amount by which the income exceeds $4,000 and does not exceed $5,000 or
$795 upon net income of $5,000; and 27 per centum upon the amount by which the income exceeds $5,000 and does not exceed $6,000 or $1,065 upon net income of $6,000; and 30 per centum upon the amount by which the income exceeds $6,000 and does not exceed $7,000 or $1,365 upon net income of $7,000; and 33 per centum upon the amount by which the income exceeds $7,000 and does not exceed $8,000 or $1,695 upon net income of $8,000; and 35 per centum upon the amount by which the income exceeds $8,000 and does not exceed $9,000 or $2,045 upon net income of $9,000; and 37 per centum upon the amount by which the income exceeds $9,000 and does not exceed $10,000 or $2,415 upon net income of $10,000; and 39 per oentum upon the amount by which the income exceeds $10,000 and does not exceed $20,000 or $6,315 upon net income of $20,000; and 41 per centum upon the amount by which the income exceeds $20,000 and does not exceed $30,000 or $10,415 upon net income of $30,000; and 44 per centum upon the amount by which the income exceeds $30,000 and does not exceed $40,000 or $14,815 upon net income of $40,000; and 47 per centum upon the amount by which the income exceeds $40,000 and does not exceed $50,000 or $19,515 upon net income of $50,000; and 50 per centum upon the amount by which the income exceeds $50,000 and does not exceed $75,000 or $32,015 upon net income of $75,000; and 53 per centum upon the amount by which the income exceeds $75,000 and does not exceed $100,000 or $45,265 upon net income of $100,000; and 56 per centum upon the amount by which the income exceeds $100,000 and does not exceed $150,000 or $73,265 upon net income of $150,000; and 59 per centum upon the amount by which the income exceeds $150,000 and does not exceed $200,000 or $102,765 upon net income of $200,000; and 63 per centum upon the amount by which the income exceeds $200,000 and does not exceed $300,000 or $165,765 upon net income of $300,000; and 67 per centum upon the amount by which the income exceeds $300,000 and does not exceed $400,000 or $232,765 upon net income of $400,000; and 72 per centum upon the amount by which the income exceeds $400,000 and does not exceed $500,000 or $304,765 upon net income of $500,000; and 78 per centum upon the amount, by which the income exceeds $500,000.
Mr. FRASER (Peterborough West):: Has any provision been made in the act to permit taxpayers to prepay their 1940 taxes, either monthly or in any other way?


Mr. ILSLEY:: No.


Gordon Knapman Fraser: Many people will have to budget to make both ends meet if they are to raise this extra S300 or $400. They may have double the income tax they had to pay last year, and they were wondering if this could be done. If they are permitted to prepay the tax, is there any discount allowed?


James Lorimer Ilsley: There is no provision in the act, nor is it proposed to insert any such provision. However, if anyone wishes to prepay his income tax he may do so; we will take the money.
Income War Tax Act


Richard Burpee Hanson: That leads to another matter which I should like to urge upon the minister. Under these personal income tax schedules the amounts payable under certain categories will be quite large. My own difficulty has been that I am asked to pay taxes in respect of money which I earned in the previous year and which usually I have spent. I am citing my own case, which I suppose is typical of a great many. I am in the difficult position, then, of having to dig up money, I will not say to pay for a dead horse but at least to meet a last year's bill. In certain municipalities they do make it possible for individuals to pay their taxes in monthly instalments. As the situation stands now under these schedules, on April 30 you pay either all or a very substantial percentage of your taxes, as prescribed by law, and then interest at five per cent is charged on the unpaid balance. At the moment I am in the unfortunate position of having a substantial unpaid balance-that is, substantial for me-on which I must pay interest at five per cent. Would the minister consider making it possible, for a substantial down payment to be made with the filing of the return and permit the balance to be paid say in three monthly payments, without interest? The interest may be substantial; I do not know what the revenue is from that source, but certainly I think this would be a great convenience to taxpayers who want to pay but who just have not the ready funds available. If the department could see its way clear to bringing in this new feature and permitting taxpayers to pay perhaps 334 per cent or 40 per cent on April 30 and 15 per cent during each of the succeeding four months, without interest, it certainly would be a great convenience to taxpayers like myself, in needy circumstances.


James Lorimer Ilsley: There is such a provision in the act now.


Richard Burpee Hanson: I did not know it.


James Lorimer Ilsley: It is section 48 of the Income War Tax Act, which reads:
Every person liable to pay any tax under this act (except any tax payable under section eighty-eight hereof) -


Richard Burpee Hanson: What is the exception?


James Lorimer Ilsley: I will look at it in a moment.
-shall estimate the amount of tax payable by him and shall send with the return of the income upon which such tax is payable not less than one-third of the amount of such tax and may pay the balance within four months thereafter, together with interest at the rate of five per centum per annum upon such balance
[Mr. Ilslev.l
from the last day prescribed for making such return to the time payment is made.
Section 88 deals with the gift tax.


Richard Burpee Hanson: I knew
about the provision for deferred payment, but that is with interest. I do impress upon the minister the desirability of helping the taxpayer spread part of the tax over the succeeding four months without interest. The minister shakes his head, but this is an important matter. Since the tax is so much greater- three and a half to four times, and perhaps more than that; since so much more money is being taken out of this class of our citizenship, a class which I suggest to the minister is very limited, and since in my opinion the sacrifice they are being asked to make is greater than that required of any other class of individuals, I suggest the minister might very well give consideration to these taxpayers.
How much interest was collected last year on .this basis of five per cent? What w'ould be the possible loss of revenue, on the basis of last year's figures?


James Lorimer Ilsley: I will have to get that information for the hon. member. I have not got it just at the moment. With regard to extending the time in which payments may be made, without the payment of interest, I shall give the usual answer to inquiries of the kind, namely that the tax is payable, can be computed any time after January 1 and may be paid in the period between January 1 and April 1. It is due, all due, on that date. As a matter of convenience to them taxpayers may defer their payments beyond that date without being liable to penalty. They must, however, pay interest, and they must pay it within the period of extension provided in the act. To make an extension without interest would simply be forgoing part of the revenue which otherwise would be available.


Richard Burpee Hanson: I am afraid the minister has missed my argument. I know the tax may be computed immediately after January 1. All that is true, in theory; but in practice it is not correct. The ordinary individual cannot do that. He may have a set of books, and some time may be required to close those books and to make the necessary adjustments. At least thirty days might elapse before the accounts could be closed. Moreover in respect of complicated accounts some taxpayers have to employ chartered accountants to do the work for them. Their returns must be prepared at the convenience of their professional employees. In other words it is not feasible to close the accounts and have them in by January 1 or shortly

Income War Tax Act
thereafter. Theoretically I know the minister has properly described the provisions of the statute, but in practice it just does not work out that way. In view of the greatly increased demands being made upon this limited number of taxpayers who in my opinion are being called upon to bear greatly increased tax burdens, I ask that consideration might be given them in respect of deferred payments, and such consideration could be given by waiving of interest- ,
Before the minister refuses my plea, I think we should learn from him just what was paid in interest last year and what the loss of revenue would be. I have an idea it would be meagre when compared with the increased amount of taxation the government will 'get from this class of taxpayer. I ask that the minister give consideration to my request. It is a reasonable one, and one which I believe will be reechoed from different parts of the house.


James Lorimer Ilsley: I now have the information for which the leader of the opposition has asked. The interest paid amounted to $1,218,871.22.


Richard Burpee Hanson: A large
amount.


James Lorimer Ilsley: That was in the fiscal period 1939-40.


Richard Burpee Hanson: Is that
from personal income tax?


James Lorimer Ilsley: No.


Richard Burpee Hanson: Oh, no.


James Lorimer Ilsley: $608,000 was from individuals, $594,000 from corporations and $15,000 from the five per cent tax. I have omitted the odd thousands.


Mr. MacNICOL:: A young man who was
formerly employed by the X Oil Company of Vancouver-I shall not give the correct name of the company-was moved by his company over a year ago to their head office in California. He says he is now being pressed to pay income tax to the Canadian government. Could that be so?


James Lorimer Ilsley: When did the young man
go to the United States?


John Ritchie MacNicol: Over a year ago; he has been in California more than a year. I take it from his letter that he has been asked to pay on his earnings in California. But that could hardly be so; I presume he is being asked to pay on the amount he earned before he left Canada.


James Lorimer Ilsley: If he were resident in Canada during part of 1939 he would be considered
a resident of Canada for income tax purposes in respect of his total income, whether earned in Canada or in the United States. The tax paid by him to the United States government on income earned by him in the United States would be allowed him as a credit against his Canadian income tax.


Mr. HARRIS (Danforth):: The minister
gave a figure in connection with interest. My understanding is that that not only applied to the tax for the year 1939 but included all interest on other outstanding amounts.


James Lorimer Ilsley: That is the amount of
interest paid in the fiscal year 1939-40, classified as to individuals, corporations and five per cent tax.


Joseph Henry Harris: Yes, but in
that amount is included all outstanding interest for the past two or three years.


James Lorimer Ilsley: Perhaps so.


Joseph Henry Harris: We are trying
to get at the amount of interest for the one-year period.


James Lorimer Ilsley: I have not that figure.


Joseph Henry Harris: My guess would be it would be half the amount mentioned by the minister.


James Lorimer Ilsley: I assume this would be
about the amount collected each year. But if the specific question could be answered, the answer would be the same.


Richard Burpee Hanson: If the
minister has the information for the preceding years he could strike an average and say that $600,000 odd would be the amount of revenue accruing to the treasury from interest on deferred payments. Even if a loss of $600,000 a year be involved-a figure which perhaps I am justified in doubting-having regard to the substantially increased tax these same people are being asked to pay, will not the minister give consideration to the proposal I make, namely that the five per cent interest for a period of three months after April 30 be not by law allowed to accrue to the taxpayer's bill? That would not be very long- just three months.


James Lorimer Ilsley: To "give consideration" is
not very much, either.


Richard Burpee Hanson: I am
afraid not.


James Lorimer Ilsley: I should be stubborn indeed if I were to say I would not give consideration to any proposal made in the committee. But certainly I would not agree to give consideration to this proposal and at the same time offer any hope that it would be favourably
Income War Tax Act

considered. I say that because it is a fundamental feature of the income tax law that the amount falls due on a certain set date. As regards most taxpayers that date is March 31. I was going to say the time-honoured principle of income tax administration is that after the end of the calendar year persons may pay their tax any time. But it falls due on April 30. After that date not only the tax but interest is due. If people wish to pay in advance they may do so. If they wish to pay by instalments in advance the department will accept their money. If they pay after the specified date provision may be made to accept payments in instalments, but with additional interest, and if the payments overrun those dates a penalty is imposed. The interest and penalty rates have been carefully considered and calculated, having due regard to prevailing interest rates in the country, and it would be a striking change in income tax administration if we were to waive interest payments after the due date.


Richard Burpee Hanson: The minister is adamant, I can see that; but at the risk of making myself a nuisance I will return to the proposal. Certain provinces also have income taxes, the payment of which is required immediately after this tax is payable. In my province there are substantial municipal taxes which become due just about this time. There they have adopted a much more liberal principle; they allow a four per cent discount for prepayment and a five per cent flat discount for prompt payment. Interest at six per cent is charged after the deadline for prompt payment has been reached. The department seems to be rigid about this thing, whereas other jurisdictions have been more liberal. So far in New Brunswick we have escaped a provincial income tax, but ever since I have been a taxpayer I have paid a municipal income tax. The payment of these three taxes must be made at approximately the same time, just in the middle period of the year. It is hard enough to pay these taxes on last year's earnings, which in most cases are gone.
Over and above all that you are asking the people to pay to the federal government three and a half times what they had to pay last year. I am not complaining about that; I have said all I am going to say about the size of the tax and the sacrifice being imposed upon these people. However, it would leave a better taste in their mouths if the minister woidd allow three months from April 30 within which the balance could be paid in instalments. The government would not lose very much; I certainly do not think it would run to $600,000 in any year. It would be a great help to the burdened taxpayer. In the

light of the information I have given the minister I hope he will give this matter not only consideration but favourable consideration. I would not urge it if I did not think it just. I am cognizant of the responsibilities which we owe to the state at the present time, but let us make the burden as easy as possible provided we can accomplish the objective we have in mind, namely, the obtaining of this principal sum of money. Let us forget about the interest for three months.


Mr. ADAMSON:: If the information has been given, I am unable to find it, but I should like to know if the minister is ready to consider a guest child as a dependent and allow $400 exemption.


James Lorimer Ilsley: I have an amendment to move when the proper resolution is reached dealing with children evacuated under government and cooperative schemes.


Mr. IIOMUTH:: Will the exemption be limited to children evacuated under government schemes? I have in mind a number of people in my district who have brought out their relatives' children. One family has four, and I should like to know why they should not be considered.


James Lorimer Ilsley: I suggest that we deal with this matter when we are considering the amendment.


The CHAIRMAN:: We are now dealing with the resolution covering the income tax schedules. Questions of exemptions have been raised from time to time and I have allowed them to be discussed, but they would properly come up for discussion under later resolutions. It would avoid duplication of argument if we now stuck to the income tax schedules as set out in this resolution.


Alexander Malcolm Nicholson: I pointed out last Wednesday that in my opinion the important thing was not the amount of tax an individual paid, but the amount he had left after paying his tax. In my province a man receiving an income of $15,000 would have left, after paying all income taxes and the national defence tax, an amount equal to $31.83 per day, on the basis of 300 days in the year. It seems to me .that those in Canada who receive these larger incomes should carry a much heavier share of the burden. This could be done without their having to reduce their standards of living to any alarming extent. I wonder if we could not have even higher taxes for those in the higher income brackets?


James Lorimer Ilsley: I am in between two fires. Certain hon. gentlemen directly opposite have been urging that the rates are entirely too

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high and certain hon. gentlemen diagonally opposite have been urging that they are too low. I do not think I should be prepared at the moment to consider any change.


[Stage Direction]
Resolution agreed to.
2.	That the additional rate of tax applicable to all persons other than corporations and joint stock companies in receipt of income in excess of $5,000 in the amount of five per centum, be repealed.
Mr. GREEN:: Is the surtax on investment income being repealed?


James Lorimer Ilsley: It is not repealed; it is retained.


[Stage Direction]
Resolution agreed to.
3.	That the war surtax of twenty per centum as enacted by sections two, three and four of chapter 6 of the 1939 statutes (second session), be repealed.
Richard Burpee Hanson: This resolution repeals the war surtax. There is no concealment here. The surtax of twenty per cent was put on last September. It applied on the net taxable income, which was the income left after taking into account all kinds of investment income such as bond income and other classes of income. The twenty per cent surtax is being repealed?


James Lorimer Ilsley: Yes.


[Stage Direction]
Resolution agreed to.
4.	That the statutory exemption of a married person and other persons with dependent relatives as set forth in paragraph (c) of subsection 1 of section five of the act be reduced from $2,000 to $1,500.
John Ritchie MacNicol: I have received a letter from a widow who resides in the house in which she has resided for some forty years. She has endeavoured to keep it going just the same as she did when her husband was alive. She has an income of about $1,500, and if she is classed as a single person she will have an exemption of only S750.


James Lorimer Ilsley: That is true.


John Ritchie MacNicol: On the first $250 of the remainder she will have to pay $15; then she will have to pay eight per cent on $500 of the balance of the $750, or $40. Then she will have to pay two per cent on $150, which is the amount in excess of the $600 upon which she would have to pay under section 18.


James Lorimer Ilsley: The two per cent is not limited to the excess of $600.


John Ritchie MacNicol: Does it apply to it all?


James Lorimer Ilsley: Yes.


John Ritchie MacNicol: That makes it still worse.


James Lorimer Ilsley: If the income of a single person is over $1,200, it is three per cent.


John Ritchie MacNicol: Where does the $600 referred to in resolution number 18 come in.


James Lorimer Ilsley: Unless she receives more than $600 she will not be taxable under the national defence tax.


John Ritchie MacNicol: I have just pointed out that the net amount left out of her $1,500 is $750. Therefore does she pay on the $750 or on the S150 in excess of $600?


James Lorimer Ilsley: The hon. gentleman understands perfectly, and he has correctly stated the amount which that widow pays under the Income War Tax Act, but he does not quite understand the application of the national defence tax. What that widow would pay as national defence tax would be three per cent on the whole $1,500.


John Ritchie MacNicol: On the whole $1,500?


James Lorimer Ilsley: Yes. In case there is any misunderstanding about it, I will explain how that is. If the taxpayer is in receipt of less than $600 a year, the taxpayer is exempt; but if the taxpayer is in receipt of more than $600 a year and is single, the tax is two per cent; provided that if the taxpayer is single and in receipt of more than $1,200 income the tax is three per cent.


Richard Burpee Hanson: The widow would pay three per cent on $1,500.


James Lorimer Ilsley: Yes.


John Ritchie MacNicol: That makes her case much worse than the poor lady thought it would be. I will set out again what she has to pay. On $750 she pays S15 on the first $250, then eight per cent on the $500, or $40; then three per cent on the whole $1,500, or $45.


James Lorimer Ilsley: Yes.


John Ritchie MacNicol: In addition to that she has to keep up her home, where she has lived for some forty years, paying $250 in municipal taxes. She pays $18 for water and $100 for repairs of one kind or another. She keeps a janitor or a man who comes in to cut the grass and fire the boiler and do odd jobs; she pays him $60 a year. She needs a charwoman to come in every week to clean up, and that will cost her $48. Probably she is not so well as not to require a doctor occasionally, and her medical expenses are about $100 a year. It costs S200 to heat the house, $24 for electricity, $30 for telephone and $30 for gas. If I have added these items correctly, including the additional amount paid in respect of national defence tax, it makes a total of $960. That leaves the poor lady something like
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$540. She has a daughter with her who is not very well and so does not work. One of the sons has not worked for quite a while and needs the odd dollar she can spare to help keep his family. How is that poor woman going to live? She maintains that she is a married woman, having raised a family and kept house for forty years. How can the minister justify classifying her as a single woman? To me it looks unfair. Why is she not classed as a married woman and given an exemption of $1,500 a year instead of $750 a year?


James Lorimer Ilsley: She is single, therefore
unmarried.


Gordon Graydon: She is eligible for
marriage.


An hon. MEMBER:: How do we know?


John Ritchie MacNicol: I should like an answer.


James Lorimer Ilsley: Is the hon. gentleman suggesting that widows should be held to be married taxpayers?


John Ritchie MacNicol: It looks to me to be most unfair. The case I have stated is typical of thousands upon thousands, not only of women but of men too.


James Lorimer Ilsley: I thought the hon. member was asking what might be called a legal point, that is, why a widow should be classified as an unmarried person within the meaning of the Income War Tax Act. Without being overconfident of my opinion, I would suggest that the proper interpretation of the act would be to classify a widow as an unmarried person.


John Ritchie MacNicol: Of course she cannot
figure out how she can be classified as a single person, either, after having raised a family and lived with her husband for forty years.


Mr. FAIR:: It looks as though this is a chance for widows and widowers to get together and improve their status.


Mr. ROSS (St. Paul's):: Last evening I asked the minister with respect to the remuneration of dollar a year men, and he said he would give me a more accurate answer. May I have that answer before we get some place where it cannot be given?


Thomas Vien: I believe the hon. gentleman raised the question as to allowances for expenses. That would come under a subsequent section.


Richard Burpee Hanson: Which one?


Thomas Vien: In respect of allowances, ft certainly does not relate to exemptions of $2,000 or $1,500.


James Lorimer Ilsley: I should have no objection to answering at this stage, but I am not quite ready. I should like to answer the question a little later, if the hon. member does not mind.


Douglas Gooderham Ross: Very well.


[Stage Direction]
Resolution agreed to.
5.	That the statutory exemptions of all other persons except corporations, be reduced from $1,000 to $750.
Resolution agreed to.
James Lorimer Ilsley: I move that the said resolutions be amended by adding thereto as resolution 5A the following resolution:
5A. That section 5 of the said act be amended by adding thereto the following paragraph:
"(ee) $400 for each child maintained by the taxpayer in Canada under a cooperate plan sponsored by the governments of the United Kingdom, Canada, and/or its provinces for the evacuation of children from the United Kingdom; provided that the tax benefit obtained as a result of the exemption shall not in any case exceed the amount of the tax benefit received by a married person in receipt of a net income of $5,000."


Mr. JACKMAN:: May I ask the minister what he means by "a cooperative plan"? If you take a guest child because you know the parents in the old country, does that not qualify you also for the exemption? Or does that limit the working of this exemption?


James Lorimer Ilsley: Yes, it does. What I may call private arrangements do not qualify the taxpayer for exemption under this amendment.


Richard Burpee Hanson: I do not think that is fair, and I am going to oppose it. The number of guest children who will come out under private arrangements in any event, I should judge, will not be large, but people out of the goodness of their hearts are taking these children, in many cases without any financial obligation on the part of their parents. Very often they are relatives. The cases I have in mind are those of relatives or business associates. A friend of mine who is in the fire insurance business knows some people at the head office in London of the company he represents. When this problem arose he cabled that he was prepared to take two of either sex of a family without any financial arrangement at all; if it could be made, well and good, but in any event he was willing to take two children into his home. It appeared that there were three young boys in a family and he agreed to take those three boys into his own family for the duration of the war, without any arrangement for a financial allowance from England, as he assumed there would be considerable difficulty

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in that respect. These children have either arrived or are in transit. The principle involved has appealed to the government and to the minister, but they are proposing to restrict the exemption to the cooperative scheme sponsored by the governments of the United Kingdom, Canada, or any of the provinces. It seems to me that there is a gross discrimination there which should not be permitted to exist. Before the allowance is made the facts should be established and the case should be bona fide. But why in the world the government has limited the exemption to the sponsored arrangement with the government and refused consideration to those who have made a gratuitous arrangement is beyond me. I do not see any principle involved. Is the minister making a distinction between people who may be considered well to do, and others? I do not think that can be applied. Why is the exemption limited?
I do not agree with it. I do not think the committee will agree that it is a fair deal and it ought not to prevail. I would ask the minister to apply it to every genuine case so that the taxpayer shall get the benefit; otherwise have no exemptions at all. It should be one or the other.


Mr. SLAGHT:: May I add a word in a kindly spirit. This afternoon there has been repeated reference to the children coming to Canada and they have been termed, variously, evacuees, refugees and refugee children. I have sinned in this respect myself in the past two weeks. I take a special interest in this problem and therefore I would urge the suggestion, which I read the other day, that in Canada, in referring to these unfortunate youngsters, we should call them guest children.


Richard Burpee Hanson: Hear, hear. It is a very good suggestion and we ought to carry it out in the resolution itself.


Arthur Graeme Slaght: One can imagine these little folks, after being here some time and possibly reading the deliberations of the House of Commons, turning to their foster parents and saying, "Daddy, am I a refugee? Am I an evacuee, and what is an evacuee?" It is not easy to avoid mistakes of this sort, but I suggest that we in this house should set a good example by referring to these children in the way suggested.


Gordon Graydon: With regard to the question of exemptions in respect of guest children -I am following the terminology suggested by the hon. member-there must surely be a distinction between guest children coming to Canada who are under some form of endowment, either from their parents or by virtue of some trust fund that may have been set
up on their behalf, and other children. There is a difference which I presume the minister recognizes, because it is hardly fair to suggest that a person taking a guest child from England and receiving some indemnity for looking after it during the war should be in the same category, so far as income tax is concerned, as those who are looking after children without any means of support of their own. I know of one case of my own knowledge. People who will be paying the national defence tax are often below the scale of what you might call our middle class of wage earners. There are many people in this class *who have a good deal of difficulty getting along. I know one man who will be faced with some difficulty when filling out his returns in connection with the national defence tax-and it would apply to the income tax in a comparable way. He has three children who are not guests but whom he and his wife have been looking after for some years in Ontario because the parents of these children died and left them without any means of support. This man has no other children himself and naturally he would like to know what the ruling will be under such circumstances.


Richard Burpee Hanson: He could legally adopt them.


Gordon Graydon: He has not done 60, for reasons best known to himself. I suggest that a distinction should be made between these classes so that in bona fide cases where people are really looking after children and paying for them, whether they be guest children or Canadians, they will receive consideration in connection with the national defence tax. Certainly I do not agree with giving exemptions on income tax or national defence tax for the keeping of children whose parents are partly looking after them. If exemptions are to be given the taxpayers should prove to the satisfaction of the department that no contribution is being received from any outside source. I leave that suggestion for the consideration of the minister, because I know that there are certain cases of hardship that should receive attention.


James Lorimer Ilsley: With regard to these children, the leader of the opposition says that no distinction should be drawn between those who come under a sponsored scheme and those who come by private arrangement. I admit that when I first looked at the resolutions I was rather of that opinion myself and therefore I went into the question with some care with the previous minister and with the officers who were engaged with him in the consideration of the problem. Hon. members under-
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stand that apart altogether from this question of children who are coming to the country, if a taxpayer takes children-whether related to him or not-into his home and brings them up without adopting them he cannot receive the S400 exemption. That question has been debated in the house on several occasions and successive ministers have always stood firmly by the principle that unless the child was the taxpayer's, no exemption could be allowed on its account.
Next came the question of children coming to Canada, to whom the hon. member for Parry Sound refers as guest children. In the case mentioned by the leader of the opposition, whether they are the children of relatives or the children of friends, who quite often are people of considerable means, or at any rate of some means, it was thought that there was no good ground for giving these exemptions any more than for granting the exemption to thousands of persons who under similar conditions do not enjoy it. On the other hand when the movement becomes a mass movement sponsored by governments to meet a great national need, when the children come from families of friends or relatives, not from well-to-do homes entirely but from all sources, and go into the homes of generous people, often not at all well-to-do, people of limited means, it was felt that we could go this length in infringing the principle that has been preserved in our income tax legislation from the beginning, and under those circumstances permit an exemption of $400 per child.
But I should also point out that even then the exemption is limited. The proviso is that the tax benefit obtained as a result of the exemption shall not in any case exceed the amount of the tax benefit received by a married .person in' respect of a net income of $5,000. The reason for that is that if two children were taken into the home of a taxpayer of large income, one who, let us say, is paying thirty per cent on his utmost bracket of taxation, he would be able to reduce the income tax otherwise payable by him by thirty per cent of $800, which would be $240. He would receive n much greater benefit than would the taxpayer in the lower brackets. Therefore we thought it just under the circumstances to attach the proviso that I have mentioned.
I am inclined to think that when all the factors in the situation are considered, unless we are to amend the act as proposed by the hon. member who spoke last, and make it necessary for the income tax division to hold an inquiry into these cases, go into them minutely and find out just what the facts

are-whether the children are really being maintained and will be maintained without later recompense in any way

unless we are to change entirely the principle of the act I do not think we could insert a provision that would be fairer than the present one.


Gordon Graydon: I am still not convinced that the minister's amendment fully meets the situation. As I understand it-I have not seen the amendment, I have only heard it read-unless these guest children come under a cooperative scheme sponsored by the British and Canadian governments, no income tax exemption will be allowed in respect of them-Does this mean that unless a taxpayer takes a child from the provincial distribution depot which is being set up by the welfare departments in the various provinces, no guest child may be included as a dependant so far as income tax exemption is concerned? There are many people in Canada to-day who are doing their best to arrange for the care of one or more guest children. As soon as the arrangements were announced by the government many people communicated privately with people in England to get a child about whom they knew something or who to their knowledge was anxious to come to Canada. These people are being discriminated against- because the parents of many of the children are not able to contribute anything to their support-in favour of persons who go to the provincial welfare organization and take a child from that distribution point. That seems to me to be the position in which the minister has left it.


James Lorimer Ilsley: I am afraid there will be some cases in which taxpayers in this country will be taking children without any chance of being later recompensed for keeping them and who will not be able under this amendment to get the exemption. But any other arrangement would be open to still further objection. This seems to be about the most reasonable course that can be taken, having regard to all the facts.


Harry Rutherford Jackman: It is virtually impossible under the exchange regulations in the old country to send money with these children for their support. It is hardly likely that the interests of Great Britain at present will admit of any large aggregate sum being sent out in support of the children. While in a few cases some provision may be made by English parents who have assets in this country, such cases will be proportionately so few in number as to be hardly worthy of consideration. Most of these children, probably ninety-five to ninety-nine per cent of them, will have to be supported by the people with whom they

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live in this country. University professors in Toronto have been organizing to bring out children of corresponding professors in the old country who -have no possible means of sending money out with them; it is entirely voluntary. Canada being a partner of the motherland in this war I think we should certainly do what we can, and the government should not prejudice the people who are good enough to pay out a substantial sum each year for the maintenance of these children until the war is over.
Will the minister clarify what he means by his reference to the exemption of $5,000 for a married couple? I do not understand that.


James Lorimer Ilsley: A married person in receipt of a net income of $5,000 is taxable at a certain rate, which can be ascertained from the tax schedules. The benefit which that person gets by deduction is limited to a figure arrived at by multiplying the $400 exemption for a dependent child by the highest tax rate payable by that married person, which might be, let us say, about S80. If 20 per cent is the highest rate, which I think it is, then 20 per cent of $400 is $80 tax deduction that that person gets by virtue of taking that child. This amendment merely provides that if the taxpayer is in receipt of an income of more than $5,000-let us say $50,000-he still gets only $80 deduction on account of the child, instead of, as would otherwise be the case, perhaps several hundred dollars.


Karl Kenneth Homuth: I feel, with the hon.
member for Peel, that this is grossly unfair. Suppose a man brings three children of relatives out from the old country. If he received from some estate in this country $1,000 towards the maintenance of those children, he would have to show that $1,000 in his income tax return and would be liable to tax on it; yet he could not get any exemption for the three children.


Richard Burpee Hanson: Unless
they came under a sponsored arrangement.


Karl Kenneth Homuth: That is so. Surely there
cannot be discrimination like this. I know of families in my own town who, when it was announced that children were to be brought out to Canada, immediately cabled their relatives to send their children here. Those children might have come under the government arrangement, but they did not. Their parents were in a position to pay their way here, but they are not in a position to pay for the maintenance of those children in Canada; they are in a low income bracket. The thing is grossly unfair. I do not see why we should have two classes of children so far as the income tax is concerned.


James Lorimer Ilsley: The hon. member for Rose-dale suggested one reason, that is, that the exchange restrictions in the United Kingdom, as I am informed, make it impossible for parents to send money here to pay for the maintenance of their children. There is no doubt they would send that money if they were free to do so, and in all probability the time will come when they will be able to do so. Many of these are cases of deferred compensation.


Richard Burpee Hanson: Why does the minister say in all probability that is so? He has no basis for that statement.


James Lorimer Ilsley: I am merely arguing on the probability. Hon. gentlemen opposite are arguing that the reason money is not coming here for the upkeep of these children is not that the parents are not willing and anxious to send it, but that the action of the British government prevents its coming here. It would be entirely wrong to allow income tax advantages to persons in this country in cases of deferred compensation.


Richard Burpee Hanson: I follow the minister that far, and I am in agreement with the limitation contained in the last part of the proposed amendment. I do not think people in the high brackets should get the allowance that would come to them if they were paying 30, 40 or 50 per cent. But there is one class of these guest children to which the minister should give further consideration. Those are the children brought out by invitation, without any hope or expectation of reward on the part of those who are to become their guardians here. Those people should have consideration. It is a limited class. The government will have records of all these people. The rich and well to do will be looked after, but in my own town I have an Englishman who is an organist in one of our churches. He and his wife are bringing out at least one relative, if not two. I do not know what is the rate of compensation for a church organist in Ontario, but in Fredericton it is not very large.


Gordon Graydon: It depends upon how good he is.


Richard Burpee Hanson: Even the best man does not command a high salary in a city as small as Fredericton. In this case I have been informed, although I have no personal knowledge, that the man and his wife ere taking these children out of the goodness of their hearts, without any hope of compensation, reward or gratuity of any kind. The minister has advanced the reason that there would have to be an investigation in every case. Very good; let there be an investigation.
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What are these men in Saint John doing to earn their salaries? I am not casting any reflection on our provincial inspector, who is a good man, but he has a number of men under him, and when I go into the income tax department there I am not impressed with the amount of work they are doing, to say the least. There are times, of course, particularly around April 30, when they are busy, but in New Brunswick they could very well investigate every case.
I am not impressed with the minister's apparent objection, though perhaps he did not mean it in that way. Of course they would have to investigate; there should be no fraud practised on the government. But this is a deserving class, though a limited class, and I do urge upon the minister that he give further consideration to this phase of the matter and widen the scope of the amendment to include this class. Then I think I would stop there.


Mr. ROWE:: I wish to add my voice to the opposition to this measure as it now stands. To me it seems grossly unfair. As I listened to the questions answered to-day by the government I thought we might well consider taking a greater financial responsibility in connection with these children. For instance, it has been pointed out that these guest children cannot be taken by those on relief. I think that is fair. The money for the maintenance of relief recipients comes directly from the government now, and I think there are many other people in a better position to look after these children. I mention that only to suggest that probably the government has taken this position to avoid responsibility as a government for the maintenance of these children. As the Minister of Finance has stated, it is impossible to bring money from the United Kingdom for their support, so that it seems to me every possible encouragement should be given this movement of which every hon. member of the house is so heartily in favour.
The government does not in any way subsidize those who look after these children. I do not think that is necessary, because it has been stated that hundreds of thousands of householders in this country are prepared to extend a welcome to them. But I do suggest that the number of children to be brought here from the United Kingdom might have far exceeded the figures that have been mentioned. As the hon. member for Parkdale said the other day, they would be better sleeping in the fields of Canada than living in their own homes in many parts of old England, if the threatened blitzkrieg ever takes place. The people most likely to take these children are not particularly those in the higher income brackets. In all fairness to those people I have not heard

of many rich old bachelors or elderly maiden ladies who have offered to take four or five children for the duration of the war. On the other hand I have heard, as I am sure the minister has heard, of many mothers with four or five children of their own who are only too glad to look after some of these guest children; and I am sure that number would be much greater if these people knew they were going to obtain these exemptions. In a family where there are four or five children the mother usually has twice as much to do as some who are not mothers might think necessary. In these cases it is necessary to have additional help in order to take care of these extra children; and unfortunately at times there may be doctor's bills for the care of mothers whose strength weis not equal to their willingness. I believe in every instance the exemption should be granted. In my opinion it would be an even safer plan to grant exemptions to those who could well afford not to have the exemptions, than to withhold exemptions from those who could not afford to take the children unless special consideration in this regard were given.
I realize of course that to a degree there are exemptions for those people taking children under schemes sponsored by the government. But it has been wisely pointed out that hundreds of children have been and will be taken from relatives or acquaintances, and that those children need not necessarily be taken through sponsored schemes. Long before there was much sign of real action of a definite kind by the government I received letters from clubs, such as the Rotary club, in certain districts, and from Lions clubs in other districts saying that they were getting in touch with auxiliaries of the same clubs in the old country, with the purpose in view of bringing children to Canada.
I have in mind one instance where approximately two months ago a plan was made with a Rotary club in London, England, to take 200 children. That plan was not sponsored by the government at all. I am familiar with the district in which the club in this country is located, and I believe I can state truthfully that in that district no more than five per cent of the people taking the children have incomes of $5,000. One would wonder at times how some of the labouring men in that community could keep their three or four children, but it is those people who are proposing to take two or three more children from relatives in the old land.
I believe the minister would be well advised to accept the suggestion which has been made from this side of the house. This is not a matter in connection with which one wishes to offer criticism of government policy. I

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believe, however, that in working out details the government would not be making any mistake if it were to lean somewhat in the direction we have indicated, rather than to be too careful in respect of exemptions.
The additional children in a home might very easily become a more expensive burden than one's own children. I cannot conceive of anyone with two or three children of his own being in a position to keep two or three additional children as cheaply as he could his own. We must realize that organizations and plans have been made to take care of one's own children, and it must be borne in mind that in many instances where two or three more children are added to the family, additional help will have to be obtained to handle domestic affairs. In those instances where domestic help has not been found necessary in connection with the care of the family, with the addition of children from overseas such help would be required. In other instances where already domestic help is being retained, with the addition of children from overseas additional domestic help would be required. I have no doubt that people taking children into their homes will be most cautious to see that they are carefully looked after.
I believe encouragement would be given to the general scheme, and the government would be acting fairly to those who are opening their homes to British children, if it were to accept the suggestion which has been made. I must repeat to the minister, and I am sure he will agree, that in a general way those people most likely to offer assistance are those whom hon. members may consider the least capable financially.
I read in one of the newspapers an article pointing out that at one place in the United States parents with seven children of their own had offered to take four or five additional British children. I believe our contention is sound, and I would urge that the minister reconsider the matter. I am confident he is not being misled in the suggestion from this side of the house.


Douglas Gooderham Ross: May I add my
voice to the protests which have been made. Everyone dislikes discrimination, and it seems to me that in the stand it has taken the government has dampened the urge people in Canada have to take children from the United Kingdom. This is just one further obstruction placed in the way of carrying out the plan successfully. Certainly no discrimination in this connection should be tolerated.
How much money would the government lose, if exemptions were granted? In the event of 10.000 children coming to Canada, how much would be lost to the public treasury?
I am inclined to believe it would amount to less than half of one per cent of the total tax collected.


Richard Burpee Hanson: Nothing like that amount.


Douglas Gooderham Ross: No doubt it would be a good deal less. For goodness sake do not let us do anything more to make the people think the government of Canada does not want these children.


Mr. GRAHAM:: I have listened with keen interest to the debate, and find myself supporting the attitude of the minister. It seems to me on the very point raised by the hon. member for St. Paul's, namely, that of discrimination, the government is wise in its present policy of refusing to allow special exemption in respect of children coming from the old land. The minister has properly pointed out that the minute such exemptions were granted, those who under like circumstances and for the same purpose, namely, that of being generous to some children needing assistance, have taken children, and who could not secure the exemption under the act, would have the right to claim that they were being discriminated against. Unless the minister cared to open up the whole question with regard to people in that position, it seems to me the government is pursuing a wise policy in not exempting in this particular instance, and still leaving those other people in the same position. I can see the difficulty. The government must look ahead and must realize that the minute exemptions were given, considerable opposition would grow up, and justifiable claims might be made by a class of people who, as the minister has informed the committee, a long succession of finance ministers has not seen fit to exempt.


Joseph Henry Harris: The government has a direct responsibility in connection with this item. I do not see how it can avoid including those guest children who came out prior to the originating of these schemes, of which they are part and parcel. Scores of inquiries were made to the director of immigration and to the Minister of Mines and Resources who is in charge of the branch, and in every instance the answer was: Let them come. No organization at this end stated what provisions were being made in the taxation proposal in respect of those who received guests. The whole matter rested with Commissioner Little at Canada House, Trafalgar square. I presume Commissioner Little knows nothing about this amendment now being made to give exemption in respect of those who will come out under organized schemes.
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James Lorimer Ilsley: The hon. member does not understand. We are not making any change in the law with regard to those children.


Joseph Henry Harris: Quite. But
those who came out as guest children prior to the bringing down of the budget are not under a government scheme. There is no record of them.


James Lorimer Ilsley: No.


Joseph Henry Harris: They will not receive the exemption.


James Lorimer Ilsley: No; they came out subject to the existing law, which has not been changed.


Joseph Henry Harris: We would be far better to lean in the other direction, and see that they were treated precisely the same as those who come under the present legislation. It should not be a difficult matter. It would be far better to lean a little more this way. As I see the situation, these children are all guests of Canada, and the fact that our budget was brought down on June 24 should have nothing to do with what should be considered the main problem. I do not think the minister should stick to this particular point. I am going to suggest that he let the matter stand and consider bringing down an amendment which will take care of the whole problem of guest children and exemptions therefor.


James Lorimer Ilsley: There is a bill to follow this resolution, and hon. gentlemen will have the same liberty to argue on the relevant sections of that bill as they have now. I do not know whether in view of that they want to press their request to have this resolution stand. I am willing to consider the suggestion made by the leader of the opposition. He has been fairly reasonable about it and has outlined a small class of cases where there might be some hardship. If it is possible to segregate that class without the use of too much language in framing the amendment, I would be prepared to consider something being done. However, in saying that, it may be that I shall have to come back here and say that the matter has not been favourably considered.


William Earl Rowe: Under the exemptions at present allowed, a man may claim an exemption for a dependent child, such as a brother's child, whom he may have taken into his home?


James Lorimer Ilsley: No.


William Earl Rowe: It is so marked on the income tax return.


Mr. REID:: Some provinces allow for dependent children.


James Lorimer Ilsley: It must be the taxpayer's own child. That is the trouble in connection with making this change.


Mr. McNIVEN:: When the minister is
considering the amendment now before the committee, I wonder if he will also give consideration to another matter? This amendment is limited to guest children, but in many instances these children will be accompanied by their mothers. Would the minister consider including these mothers in the exempted class?


John Ritchie MacNicol: And the fathers too.


Donald Alexander McNiven: The fathers are not permitted to come to this country. This is a serious matter. It is for the good of these children that they be accompanied by their mothers. It lessens the responsibility of the foster parents in taking care of the children, but at the same time it increases the expenses to which the foster home is put by reason of having to take care of the mother and provide her with the necessaries of life. As has been pointed out to-day, the exchange control regulations of Great Britain preclude the sending out of any large sums of money. In fact they limit the amount of money which can be sent out, so that it is necessary for the foster home to provide practically all of what is required to maintain the family.


Gordon Knapman Fraser: I
have in mind a family in Peterborough that had to mortgage their home in order to pay the passage for three children and their grandmother, not their mother. I feel that if a mother is to be considered as an exemption, a grandmother should also be considered as one.


James Lorimer Ilsley: I agree with the hon. member.


William Earl Rowe: It is the same principle.


Gordon Knapman Fraser: On
July 4, I asked the Minister of Mines and Resources if the full allowance of $400 would be granted. I also asked if a married couple take a refugee or guest child and the man enlists or be conscripted, would the refugee child be classed as a dependent and receive the full dependent's allowance. The minister said the same answer would apply.


James Lorimer Ilsley: I was present when the
minister answered the question. He said he would bring it to the attention of the Minister of National Defence.

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Gordon Knapman Fraser: His
answer was, "the same answer would apply," as reported on page 1318 of Hansard.


James Lorimer Ilsley: What is the answer?


Gordon Knapman Fraser: Pardon me; he said he would refer the matter to the Minister of Finance.


James Lorimer Ilsley: I was wrong about that.
This question would have to be answered on a different occasion. This matter is not covered by this resolution; it has to do with dependents' allowances as covered by the War Measures Act.


William Earl Rowe: It seems to me the minister
could get over the difficulty and perhaps satisfy all if the amendment were changed slightly. The amendment is that section 5 of the said act shall be amended by adding a paragraph providing an exemption of $400 for each child maintained by the taxpayer in Canada under a cooperative plan sponsored-here I would suggest adding the words "or under an arrangement approved of"-by the governments of the United Kingdom and Canada. It would then be left to the department to decide just what arrangements would be approved of. Under the present amendment only a child brought out under a sponsored plan would be considered as reason for an exemption, but if the amendment were changed, a child brought out under a plan approved by the department would be considered as reason for an exemption. This would still give some encouragement to people to take these children and would maintain the principle of the amendment.


James Lorimer Ilsley: The only objection to the proposed change is that it would vest discretion in the Minister of National Revenue without providing any principles to guide him in the exercise of that discretion. It is the type of section which is avoided if it is at all possible.


Richard Burpee Hanson: I agree
with that.


William Earl Rowe: It is better than nothing.


Richard Burpee Hanson: As regards draughtsmanship, the minister is absolutely right. However, if we can agree on the principle I think the law officers of the crown or the departmental solicitors could work out the language. At first blush I took a much wider view of this question of exemptions for guest children than perhaps was reasonable, but I suggest to the minister that he give consideration to the classes of children to which I referred. I think he will find that their number would be limited and it would not cost the country much by way of lost revenue. I refer 95826-92
to those children where there is no arrangement as to pay and no hope or expectation of payment. If the minister says he will give serious consideration to this question, I am willing to let the resolution pass and bring up the matter on the bill. I hope the minister will not be too hard-boiled about it. Up to now he has not seemed disposed to grant any concession. I understand he is protecting the revenues of the crown.


James Lorimer Ilsley: I am thinking about the taxpayers generally instead of these few.


Richard Burpee Hanson: I do not think anyone will raise an objection of that kind. I do not want to impute motives, and certainly I do not want to impute bad motives, but when you have been a member of the government, as the minister has been for a number of years, you get the point of view that you must protect the revenues of the crown. That is quite proper, and I should hate to see the minister take the opposite position. If the minister wants to have the resolution passed, will he give us an undertaking that between now and the time the bill is introduced he will give consideration to the suggestion? If he does not, I am going to return to it.


James Lorimer Ilsley: I know. I agree to do that.


Roy Theodore Graham: I want to clear my own mind with regard to one matter. An hon. member, I believe the member for Waterloo South, suggested the case of a person who received $1,000 for the upkeep of two or three or more children. That would not be included in his income; it would be regarded as trust funds.


James Lorimer Ilsley: That is true.


Joseph Henry Harris: I have an
observation to make upon a matter which was brought to the minister's attention on June 27. At page 1197 of Hansard there is this reference to the new income tax forms:
I make this suggestion, that when the new forms are printed, provision he made for exemption for the children who are coming from Britain. . . . Let us have more of them, here, and for those good people who take them into their homes let us give the full exemption that is given for our own children. Do not even put them in the category of "other dependents"; make them part and parcel of us now. And do not put those who are charged with looking after those children in the position of having to make a separate affidavit that they have refugee children in their homes.
And then a case was recited. Surely the matter has been under consideration by the department since that statement has been made.


James Lorimer Ilsley: It has been.

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Agar Rodney Adamson: I should like to cite to the minister two cases. One of them relates to a man who is now paying supertax and who has invited and received five children into his own home. I have talked to him over the week-end, and if he is denied any allowance, the maintenance of these extra children, and also the mother, will be a serious burden on him. In another case which, as it touches me personally, I hesitated to mention, a brother ofiicer cabled to me saying that he had been shifted out of England and would I be responsible for his wife and two children for the duration of the war? Naturally I replied, yes. In this event I shall be in a category, as far as I have worked the matter out, to which this scheme is not applicable. Between incomes of $5,000 and $6,000 per annum there is imposed a thirty per cent tax applicable to these brackets, and if an allowance of S400 were made, thirty per cent would be roughly $120 a year. I can assure the committee that nobody can raise a child in this country, keeping it adequately clothed, fed and educated, for $10 a month.


James Lorimer Ilsley: The government is not aiming to pay people the entire cost.


Agar Rodney Adamson: I realize that perfectly. My point is that people in these higher income brackets who are undertaking the care of these children are definitely assuming a considerable obligation, and I think such people should be encouraged in this direction. They are the very people whom we want to take British children; they are a class who can bring up these British children and make them understand what a fine place Canada is. By every act and attitude the government should encourage the bringing to this country of the largest possible number of British children for the duration of the war. We want them to come both for our own sake and for the sake of Great Britain. I suggest that the least we can do is to apply this $400 exemption without exception in respect of all British children received into Canadian homes.


Mr. CLAXTON:: I want to say just a word in support of what the last speakers have been saying. Over the week-end I had something to do with making arrangements for bringing out four families. In three cases there is no possibility of their Canadian hosts receiving a cent of remuneration or recompense of any kind; and they do not fall within the class, mentioned a moment ago, of people who pay supertax; they are people who are hard put to pay the taxes which they now pay. Consideration of the kind now suggested would be a great relief to them in this good work in which they are prepared to do everything in their power to assist.


John Ritchie MacNicol: Has the minister all the details of the scheme at the other end, that is in Great Britain, particularly with regard to allowances for children? I noticed to-day in a Leeds paper which I have just brought from my room that, among a number of questions in the British house, someone asked regarding these children, "Who pays for their keep?" The answer was made that exactly the same arrangements operate as in ordinary evacuations. The parent pays six shillings a week and the government pays the rest. Is there something in the scheme on the other side whereby the British government pays for the upkeep of children brought over here?


Mr ILSLEY:: I do not know.


John Ritchie MacNicol: I shall send the minister the clipping.


Thomas Vien: I would suggest that this is hardly consonant with the item under discussion.


John Ritchie MacNicol: I thought that something about the guest children was being discussed.


James Lorimer Ilsley: I have no knowledge of any such arrangement.


Richard Burpee Hanson: I did not quite understand that the minister was acceding to my proposal that between now and the introduction of the bill he give consideration to the limited class of exemptions which I mentioned.


James Lorimer Ilsley: Yes, I agree to do that.
Amendment (Mr. Ilsley) agreed to.


James Lorimer Ilsley: I am sorry that I have to reintroduce another controversial matter by moving an amendment to insert a resolution to be numbered 5B.
There was considerable discussion last evening about the taxation of members of the forces. Some of the debate related to taxation under the Income War Tax Act by way of graded tax, and some of it related to the national defence tax. I have considered the representations which were made last night. My own feeling about the matter was, at first, that dependents' allowances for men and noncommissioned officers should not be subject to the national defence tax. I felt that those taxes are so near the minimum required, although they are considerably larger than they were during the last war, that perhaps it would not be regarded as proper for the government to impose the national defence tax on these allowances. Therefore my first thought was that dependents' allowances for privates and non-commissioned officers should be exempt from the provisions of the national

Income War Tax Act
defence tax. If that were done, there did not seem to be much reason why they should not also be exempt from the graded tax provisions.
Further consideration brought this interesting fact to light, that even if dependents' allowances were exempt from the national defence tax and the graded income tax, privates who are single would still be taxable because at the rate of S1.30 a day the yearly compensation would be $474.50, and a valuation of the subsistence could not be possibly less than 50 cents a day. That would bring the total amount to over S600, and therefore the national defence tax, by eliminating dependents, would subject all privates and non-commissioned officers to taxation. I thought perhaps that if we were taking any steps in the matter, we might go the whole way with privates and non-commissioned officers and exempt them from the provisions of both taxes. The amendment I move is this:
That the said resolutions be amended by adding thereto as resolution 5B the following resolution:
"5B. That the service pay and allowances of warrant officers, non-commissioned officers and men of the Canadian naval, military and air forces be exempt from income tax."


Howard Charles Green: As the part of the resolution dealing with the national defence tax now stands, all officers, non-commissioned officers and men serving beyond Canada, and also all officers, non-commissioned officers and men serving in the navy, and in the air forces, are exempt from the tax. Is it intended to take away those exemptions? I suggest that the minister extend the exemptions to cover all men serving in the active service force. They have enlisted for service anywhere in the world, although at the moment many of them are in Canada. I do not think it is fair or reasonable that those men who have enlisted for service overseas should be deprived of the exemptions simply because they happen to be in Canada at the moment. After all, it is a special tax, a national defence tax. The name implies what it is. The idea is to help pay for our defences, and I cannot see why those men who are doing the defending should pay the tax in addition to rendering the service. It does not make sense. The Canadian people would not wish to see men in the active service force compelled to pay the national defence tax.


James Lorimer Ilsley: I wish the hon. member would allow the question of officers overseas to stand. That, however, does not prevent the passage of the resolution I propose.
95826-92}


Howard Charles Green: The resolution deals only with the income tax?


James Lorimer Ilsley: Yes.
Amendment (Mr. Ilsley) agreed to.
6. That a tax of five per centum be imposed upon Canadian residents with respect to all interest or dividends paid or payable by Canadian debtors in a currency which is at a premium in excess of five per centum in terms of Canadian funds.


Joseph Henry Harris: This section is another of those financial transactions that tend to freeze up Canadian capital. It is quite true that we have very few heavy maturities coming due in New York so far as the dominion is concerned. The first one matures in May, 1941. In the meantime this tax of five per cent on Canadian residents who probably have some of that New York investment is really a penalty on the Canadian resident whereas the American who might have some of the maturity escapes the tax; he is a United States citizen.
The tendency in taxing funds of this kind is to slow down the renegotiating, under the Neutrality Act, of loans at present outstanding in New York. As the Minister of Trade and Commerce knows, Edmonton has a maturity coming due in New York funds. A large number of municipalities in Canada have millions of dollars coming due in New York funds. The city of Toronto has a three-way $7,000,000 loan coming due shortly. Many of these funds, even though payable in New York funds, are held by Canadians. Some Canadians are patriotic enough to accept their money in Canadian funds. If they do, must they nevertheless pay this five per cent tax? They must, as I read this resolution. The instrument is drawn payable in New York funds. I should like the minister to tell me whether I am sound in that observation. If a Canadian is patriotic enough, when he owns a maturity which is due in New York and payable in New York funds, to waive the premium and simply accept his hundred Canadian dollars from his municipality or from the owner of the indebtedness, whoever he may be, will the Canadian nevertheless have to pay the five per cent tax, seeing that the instrument is drawn in terms of New York funds?
Let me follow the matter through further. Many of these obligations will undoubtedly be renewed. As I understand the Neutrality Act of the United States, it is quite all right for them to renew loans with any country which is considered belligerent, provided that country meets its obligations in the matter of interest and provided further that New York is satisfied. There is no deterrent in that
Income War Tax Act

respect. But the resolution speaks of dividends paid or payable. Some of these dividends may not be paid, some of this interest may not be paid, but it is payable by Canadian debtors in terms of Canadian funds. If it is not paid, is just payable, nevertheless it is taxable as far as this resolution is concerned. Will any consideration be given in that regard? I should like the minister to enlarge on resolution 6 for the benefit of those who have dividends coming due.


James Lorimer Ilsley: Some securities are payable in two currencies at the option of the holder; the normal case would be Canadian and United States currencies. For instance, the holder of a bond on which $100 interest is payable, who has the option of taking $100 United States or $100 Canadian, is likely, under present conditions, to take the United States dollars. Many of these securities were issued years ago, and in those instances at least, the additional ten per cent that the person receives is somewhat in the nature of a windfall. Legislation similar to this has been on the statute books for some years, and provided for a five per cent tax being payable. To a person who invested at that time, when the two currencies were practically of the same value, the option did not mean much, and he is not being allowed to get the benefit of the changed conditions without paying something to the government; that is the theory underlying the tax, which was imposed in 1933.


Richard Burpee Hanson: That is not quite the way to put it. This is unearned income, which the government has just taken to itself.


James Lorimer Ilsley: Well, that is about what I said. I used the term "windfall" instead of "unearned income", but that is what a windfall is. Perhaps "windfall tax" would not be very good language for the minister to use, but that, as I understand it, was the purpose of the section as originally enacted.
Debtors paying interest that fell due on the bonds, for instance, found that they could make an advantageous arrangement with the persons to whom the interest was due. They could say to the holder of the bonds, "You have a right to be paid in United States currency-the word 'payable' is not in." The old section read:
9B. (1) In addition to any other tax imposed by this act an income tax of five per centum is hereby imposed on all persons resident in Canada, except municipalities, or municipal or public bodies which in the opinion of the minister perform a function of government, in respect of all interest and dividends paid by Canadian debtors, directly or indirectly to such persons, in a currency which is at a premium in terms of Canadian funds.

So the creditor would say, "I do not want to be paid in United States currency, I will take my money in Canadian currency, and I will not ask you to pay me the full amount of the premium. If you will pay me $4.50 instead of $10 premium, that will be satisfactory to me." So he would get the $100 interest and $4.50 premium, and the dominion government would get nothing. The creditor would receive just as much as if he had claimed payment in United States funds and taken $110, and turned round and paid the dominion government $5.50. By these arrangements between creditors and debtors the dominion government found that in many instances it was not getting any income under this tax, although naturally a tax was expected under these conditions. The section failed of its purpose.


Richard Burpee Hanson: Does the minister say that this actually occurred?


James Lorimer Ilsley: Oh, yes, it occurred; that is the reason for the amendment.


Mr. NEILL:: Does the minister think the wording of the act, of 1933, justifies the government in claiming five per cent on the amount of the premium? It seems to me it should be only on the amount of the dividend. Instead of that, they have been taking, through the banks, five per cent on the exchange premium as well. As the minister said just now, instead of five per cent on the $100 the government take five per cent on the whole amount, and that reduces the premium which the customer receives to $4.50. Where does he find in the language of the act of 1933 any justification for charging five per cent on the amount of the premium?


James Lorimer Ilsley: Five per cent is payable in respect of all interest and dividends.


Alan Webster Neill: But this is not interest or dividends; this is premium. The government charge five per cent on the interest or dividend; that is the law, that is all right. But they also charge five per cent on the premium, which is not provided for in the act at all.


James Lorimer Ilsley: Well, if the amount was
claimed in United States currency the five per cent tax is collected on the amount paid, which would be worth, say $110.


Alan Webster Neill: But the act does not say
"the amount paid", it says "all interest and dividends paid", and exchange premium is neither interest nor dividend.


Richard Burpee Hanson: It is
premium. That is the way in which they work it out anyway.

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James Lorimer Ilsley: I think the five per cent is collectible on one hundred United States dollars.


Alan Webster Neill: And the exchange is ten
dollars.


James Lorimer Ilsley: Never mind what the exchange is; the dividend or interest is one hundred United States dollars which the holder of the security elects to take. This resolution imposes a five per cent tax on that one hundred United States dollars, which would be more than five Canadian dollars. It would be-


Richard Burpee Hanson: It would be $5.50.


James Lorimer Ilsley: Yes, about $5.50. That is the justification.


Alan Webster Neill: Well, I still think exchange premium is not a dividend.


John Ritchie MacNicol: Does this resolution apply to a Canadian receiving a dividend from the United States? When a Canadian holder of a United States stock receives his dividend cheque, it comes in United States funds. Does this resolution apply to that?


James Lorimer Ilsley: It applies to Canadian debtors, not United States debtors.


Richard Burpee Hanson: What the hon. member is asking is in regard to dividends payable by United States companies in United States funds. They come here, and the Canadian holder gets a premium of ten per cent on the amount of the cheque. The government takes the tax on it. I do not recall under what section they get it, but I know they get it; the recipient has to account for the premium.


James Lorimer Ilsley: Just in the general income tax.


Agar Rodney Adamson: That would include a
Canadian debtor, such as International Nickel. But the United States Steel corporation would not be a Canadian debtor. Dividends received in United States funds from purely United States sources would escape this tax.


James Lorimer Ilsley: They do not escape it; they are not subject to it.


Agar Rodney Adamson: That is the point I wanted to clear up. If our currency should go lower; if it should go to a discount of twenty per cent, this five per cent would still apply?


James Lorimer Ilsley: Yes.


Roy Theodore Graham: In the case of a Canadian investor holding stock in a United States company, the federal authorities of the United
States tax the dividends which are paid out. Does Canada, in like manner, tax Canadian dividends paid to United States investors?


James Lorimer Ilsley: Yes; there is a five per cent withholding tax imposed in both instances.


Mr. CASSELMAN (Edmonton East):: As I understand it, this has a great deal to do with interest paid by our municipalities on debts owing in the United States. They are largely affected by it, are they not?


James Lorimer Ilsley: The tax is imposed only on residents of Canada.


Frederick Clayton Casselman: I am a member of the Edmonton city council, and we have heavy payments coming due on August 1 in United States funds. A few minutes ago I think the minister said this amendment was proposed for the purpose of getting away from the arrangements that have been made with Canadian holders of those securities payable in United States funds.


James Lorimer Ilsley: That is true.


Frederick Clayton Casselman: Then the result will be that the municipalities, in this instance the city of Edmonton, will be asked to pay that tax of five per cent to this government. Does the minister think that is fair?


James Lorimer Ilsley: We are asking the holders of the securities to pay that tax of five per cent.


Frederick Clayton Casselman: But the fact is that by this amendment the minister is putting a heavy burden on all municipalities having securities of that kind, and there must be many of them across Canada.


James Lorimer Ilsley: I think it was the city of Edmonton that made an arrangement some time ago by which the persons to whom they owed money would escape that tax. We were obliged to admit that as the law was drawn there was nothing to prevent the city of Edmonton from making such an arrangement with their creditors. They did make it, and the dominion government was unable to collect any tax, although I think anyone would say that the spirit and the intent of the legislation were that the lender, the creditor- not the city of Edmonton-who purchased these bonds years ago when the two currencies were about equal, was getting something he did not expect to get when he came to collect his interest.


Joseph Henry Harris: I am sorry, but I cannot hear a word. On a point of order, I think the minister should address the chair.


James Lorimer Ilsley: It is a little difficult for me to talk to the hon. gentleman most interested
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in the matter when he sits directly behind me. I think I have said about all I had to say, anyway. I deny that the tax is on the city of Edmonton or any other municipality; the tax is on the person who loaned the money.


Joseph Henry Harris: I raised the question about Edmonton in the first place; that is why I was so anxious to hear the minister's explanation when the question was raised again.
While I am on my feet I should like to ask a further question concerning three-way maturities, those payable in Canadian funds, New York funds or London funds. Sterling is at a discount, and as I read this resolution, since one of the three options is payment in New York funds, under resolution 6 payment under any of the three alternatives would come under the tax. Is that a fact?


James Lorimer Ilsley: That is a case which comes under resolution 6.


Joseph Henry Harris: If the maturity is met by the acceptance of sterling, it would still be taxable?


James Lorimer Ilsley: That is true.


Joseph Henry Harris: Then resolution 6 really means whether the currency is at a premium or a discount, provided it is a threeway maturity?


James Lorimer Ilsley: It means that if it is payable in a currency which is at a premium, it is taxable, no matter in how many other currencies it may be payable.


Richard Burpee Hanson: If a man accepted sterling he would still pay the tax?


James Lorimer Ilsley: Yes, but I do not believe
many people would do that. I do not know just why they would.


Alexander Malcolm Nicholson: Is the five per cent tax on the premium or on the total amount paid?


James Lorimer Ilsley: It is on the total amount.


Frederick Clayton Casselman: Would the minister consider that some exception might be made in cases of municipalities such as I have mentioned? I quite agree with the principle that where a Canadian resident is getting a windfall, the government should get a fair share of it, but I should like to direct attention to the situation I mentioned before. The city of Edmonton has heavy interest commitments on August 1. In the past, due to the exchange premium of ten per cent, we have had to find SI 10 for every $100 we had to pay. We tried to save our taxpayers as much as possible by entering into this private arrangement, which was permitted under the act as it stood. In other words, we
tMr. Usley.)
said to the Canadian holder, "We will pay you $104.50 and we will save $5.50 for our taxpayers.'' Now, if this amendment is put through, .it will compel our taxpayers to find the full $110 for every $100 that is due.


James Lorimer Ilsley: That is what they agreed
to do.


Frederick Clayton Casselman: It
is true that they agreed to do it, but they never expected to do it, and this is a heavy burden on the municipalities. I want to register a protest and to suggest that an exception might be made in regard to our municipalities, which certainly have been hard hit during recent years, for various reasons which I need not go into now. I think they should have some consideration in this matter.


Alexander Malcolm Nicholson: I think the point taken by the hon. member for Edmonton East is perfectly logical. I believe those who purchased the bonds originally expected that Canadian currency would be at par when these interest payments came due. I wonder if the minister could not take the entire premium, if United States money is worth an extra ten per cent. Would it not be logical to give the government the entire difference, rather than have it go to Canadian creditors who, at the time they entered into this undertaking, expected that the currency would be at par?


James Lorimer Ilsley: J think that would be going a little too far.


Joseph Henry Harris: I am not quite
satisfied with the minister's reasons for inserting the words "or payable." I have not a copy of the old act, but I understand that the words "or payable by Canadian debtors" have been added. I am quite in agreement with the minister in regard to the dividends that are paid in foreign currency, but would the minister enlarge on the reason for adding those words?


James Lorimer Ilsley: In order to prevent the
evasion I mentioned. With the word "paid", no tax was collectible unless the interest was actually paid in the foreign currency. The debtor did not pay in the foreign currency; he paid the creditor less than the creditor was entitled to receive, in Canadian currency, and the amount of the reduction was the amount of the federal tax. The city of Edmonton, to take that example, when it agreed to pay in either United States or Canadian funds at the option of the holder, agreed that if the premium should go to 10 per cent, it would have to raise S110 for every $100 due. We put a tax on the lender, or we thought we did, in the event of that taking place, back in 1933 or 1934. Now, by virtue of the exist-

Income War Tax Act
enee of our tax, the city of Edmonton was enabled to pay less than it contracted to pay, namely, SI04.50 instead of $110. It is a disturbance of that arrangement which it is now said is unfair.


Roy Theodore Graham: What would be the position in respect of Alberta, where their bonds are payable in New York funds, but where the government of the province has consented to pay only one-half? The whole would be "payable". Would the Canadian debtor have to pay the whole amount, despite the fact that the government of Alberta refused to pay it?


James Lorimer Ilsley: The debtor, in that instance, would be the government of Alberta.


Roy Theodore Graham: Yes. But it will be noticed that under this particular resolution the amount that would be payable would be twice as much as Alberta would be willing to pay. Would the holder of the bond, the lender, have to pay on the whole amount or on the amount he received?


James Lorimer Ilsley: That is a good question. I shall have to think about it.


Frederick Clayton Casselman: In furtherance of what was suggested by the hon. member for Mackenzie, I should like to ask this question:	What is the government's
objection to taking the whole of that amount, instead of simply 5 per cent of it? If the city of Edmonton must pay it, which under the circumstances we object to doing, we would far rather pay it to the dominion government than to a private individual. What is the government's objection to taking the whole of it?


James Lorimer Ilsley: Because while the lender
probably thought at the time he lent the money that he would not get a premium, nevertheless his contract entitled him to it. It would be reducing a two-payment bond of this kind if we were to take the whole premium.


Alexander Malcolm Nicholson: The government is
breaking the contract, is it not?


James Lorimer Ilsley: No. We are placing a tax, but we are not altering the nature of the bond entirely. We would be doing so if we accepted the hon. member's suggestion.


Mr. MAYHEW:: A man being paid his
interest in Canadian money, or at the value of Canadian money to-day, is getting that for which he contracted, and he is not entitled to one cent more. I claim that in most instances the contract was made for the convenience of those who were buying our bonds outside Canada. It is not a convenience to a man when he can cash his bonds in any of our
banks, and secure an additional 10 per cent or 20 per cent; it is simply cheating the rest of his fellow citizens in Canada, when he is allowed to do it.


Richard Burpee Hanson: I would not say that.


Robert Wellington Mayhew: If he is living in Canada, he should not be allowed to continue to cash his bonds at the United States rate of exchange.


Richard Burpee Hanson: I do not agree with the hon. member at all. That word "cheating" is altogether too strong.


Robert Wellington Mayhew: Probably, but it has that result.


Richard Burpee Hanson: I do not agree that it has that result. I think a word should be said in defence of those who are affected. There is a contract, and I would point out that that contract is important. I am not going to say it is sacred, although that word is often used in connection with contracts. It is important, however, that its terms should be observed. If we are to have a sense of security and if we are to be able to do business and to lend money, it is important that the terms should be observed. If I undertake to borrow money from Tom, Dick and Harry, and say to them, "I will pay you at your option in either Canadian dollars, United States dollars or pounds sterling," I know in advance the full risk I take. If it goes up one way or down another, I have to take all the chances of what time and events may bring forward. If it should happen that I have to pay a premium in United States funds, that is a risk which I know full well I must take when I enter into the contract. To say it is cheating-well, I just cannot agree with that. It is not a proper term to use.


Mr. JOHNSTON (Bow River):: It is not legalized.


Richard Burpee Hanson: I do not think the hon. member is serious when he uses the word "cheating" in that connection. I do not know anything about legalized cheating, and I wish to dissociate myself from any suggestions of the sort. It is a contract, and when we enter into it we know exactly what it may mean. I must dissociate myself from any suggestion that it is cheating.


Robert Wellington Mayhew: The leader of the opposition was not asked to associate himself with the word "cheating" at all. It was i who
said it.


Richard Burpee Hanson: I know
that.
Income War Tax Act


Robert Wellington Mayhew: I am quite willing to say that it may have been a strong word.


Richard Burpee Hanson: All right.


Robert Wellington Mayhew: Nevertheless, a man who is cashing his coupons to-day and receiving United States money for them is getting more than he was entitled to, and more than he anticipated getting in the first instance.


Richard Burpee Hanson: No.


Robert Wellington Mayhew: Therefore I say he is taking from his fellow taxpayers money which does not rightly belong to him. The provision was inserted in the first instance in order to extend the field in which the city borrowing money might be able to obtain funds, and to make it convenient for those living in another part of the country to make sure that they were going to cash the investment at the funds prevailing in the country. But it was never intended in any event to fight it on this basis.
I had an experience which I am sorry I cannot place on record. I may say, however, that I fought it on two occasions with the municipality of Oak Bay, and won in both instances. At that time I was reeve of Oak Bay.


Richard Burpee Hanson: It would depend on the terms of the contract.


Alexander Malcolm Nicholson: We should remember that our Canadian funds are selling at a discount because of a special emergency, and that those who bought those securities bought them when that emergency did not exist. At that time those securities were sold to attract buyers in wider markes. I submit that if we are not breaking the sanctity of the contract when we suggest taking five per cent, we are not breaking the contract when we suggest taking ten per cent, twelve per cent or fifteen per cent as the case may be. The same principle holds.
I suggest that those Canadians holding bonds payable in Canadian funds or in United States funds should during this crisis be content with receiving payment in Canadian funds.


John Ritchie MacNicol: It would affect all holders of United States insurance policies, would it not? I am not one of them, but I know a gentleman who recently cashed a United States policy, one he had taken out with the New York Life, or some other company in that country. Ho received several hundred dollars more than the amount to which otherwise he would have been entitled.


James Lorimer Ilsley: This resolution relates only to payments by Canadian debtors.


John Ritchie MacNicol: The Canadian creditor is lucky, then.


Agar Rodney Adamson: Unfortunately I cannot agree with what the hon. member has said. The buying of a security with a foreign payment clause or the buying of a security payable in a foreign currency necessitates some risk being taken by the purchaser. We all do it. If we had bought securities which were payable in sterling I do not think we would be justified in demanding that the government pay those bonds at the old rate of exchange. The Grand Trunk railway four per cent perpetual securities were paid at the old sterling rate of exchange of .$4.86} up until 1931 or 1932. In 1933 the government of Canada, being the debtor, found they could not continue to service those debentures at the old par rate of exchange, and they gave the debenture holders the current rate, which was then and is to-day at a considerable discount. The holders of those four per cent Grand Trunk bonds had no complaint to make; they had bought a sterling security and they were satisfied. When anyone buys a United States security or a security payable in United States funds they receive their payment in United States funds. If it works one way it should work the other, and therefore I think the argument is untenable.


Joseph Henry Harris: I have read this rather carefully, but I cannot find a section which is equivalent to the section in the 1932 act. Section 9B (1) of the act of 1932-1933 reads:
In addition to any other tax imposed by this act an income tax of five per centum is hereby imposed on all persons resident in Canada, except municipalities, or municipal or public bodies which in the opinion of the minister perform a function of government.
Is there any equivalent section in this resolution?


James Lorimer Ilsley: Not in the resolution.


Joseph Henry Harris: In the act itself?


James Lorimer Ilsley: I think it will be there, yes.


Joseph Henry Harris: The minister says it will be in the act.


James Lorimer Ilsley: I said I thought it would be there; it is in the draft bill.


Joseph Henry Harris: In view of the fact that it is not the purpose of this legislation to penalize municipalities or other bodies which perform the functions of government, I assume the minister will be amenable to receiving representations from those municipal bodies which are most seriously affected by this resolution?


James Lorimer Ilsley: If the municipalities are creditor municipalities, they are taken care of by the provisions of the act. The act is in their favour now.

Income War Tax Act


Joseph Henry Harris: Certain of these securities are maturing in 1940, and certain debenture holders have come forward as patriotic citizens and said they are ready to accept Canadian funds. Yet those debenture holders find themselves being penalized.


James Lorimer Ilsley: The hon. member is talking about municipal debtors. Apparently he is associating himself with the hon. member for Edmonton East (Mr. Casselman). We are simply carrying out the spirit and intent of the original tax.


Joseph Henry Harris: In the case of Toronto, there are 87,000,000 worth of securities coming due in New York, and the hon. member for Edmonton East referred to other securities of his city coming due on August 1. I should like to consider this matter over the dinner recess. I agree with the minister that perhaps this is not the concern of the municipalities because they are the debtors, but many citizens have been patriotic enough to accept Canadian money in payment of these securities and they are being penalized. They have refused to accept the ten per cent windfall to which the minister referred, and yet they find themselves liable under this legislation. Under the old legislation those municipalities which were performing the functions of government received a certain consideration, and I understand they will receive the same consideration in the new bill. I purpose pursuing this matter after the dinner recess.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


Thomas Vien: Shall resolution 6
carry?


Joseph Henry Harris: At six o'clock
we were discussing this resolution, which has to do with amending the provision in the old act, section 9B (1). I fully agree that contracts entered into by municipalities which borrow money in New York or London in Canadian funds must be honoured to the letter. But if municipalities can agree with the people from whom they borrow upon an amended contract whereby they can liquidate their payments in any other manner, that amendment of the original contract has as much force as the original agreement and should be honoured in the same degree. But under this amended resolution municipalities would be precluded from making any arrangements with their creditors. At any rate the new arrangement that they make must be on the basis of this amendment as it is passed,
and all I am asking the minister is that the power provided in the present Income War Tax Act be retained, inasmuch as municipal indebtednesses are involved and the burden of paying the tax will fall upon property owners who pay a substantial portion of all municipal taxation. As far as individual holders of securities are concerned, I am not asking for any consideration on their behalf. All I am concerned about is that provision which was in the old act.


Douglas Gooderham Ross: I rise to support
my colleague the hon. member for Danforth in his contention. I agree with him that the municipality should be allowed to make whatever arrangements it likes with individuals or with any other body. The way things are at the present time, unless municipalities are allowed to make arrangements with various institutions and individuals, they will have to send their bonds to New York and they will go through the regular channel.
I draw the attention of the minister to one of the most ridiculous situations which can possibly arise in this connection. Toronto has a sinking fund of some 820,000,000. As they hold these bonds of the city in the fund, it is forced from time to time to pay this tax to the government. That is, when these bonds become due, it is compelled under this resolution to pay the government five per cent. These bonds which the city itself holds are payable in three ways. The city is in the position of debtor and of creditor, and in order to liquidate the debt to itself it has to pay the dominion government five per cent. As the hon. member for Danforth has pointed out, if the government insist upon collecting five per cent under these conditions there will not be many arrangements made between creditor and debtor. The citizens of Toronto, in addition to being taxed in various ways by the federal government, are now to be subjected to an additional five per cent tax. After all, we want to make it as easy as possible for municipalities to refund their debts and to reduce their taxes, so that the dominion government may more readily obtain all the money required for our war effort. I hope the minister will give consideration to this matter.


James Lorimer Ilsley: I just want to point out that if a municipality is the holder of its own bonds, it is not liable to taxation under this resolution.


Douglas Gooderham Ross: I do not quite
understand why.


James Lorimer Ilsley: It is provided for in the resolutions.

Income War Tax Act


Richard Burpee Hanson: I rise to renew the plea of the hon. member for Dan-forth. My attention has been called to section 9B, which I understand is the law at the present moment and was added in 1932-33. It provides that:
(1) In addition to any other tax imposed by this act an income tax of five per centum is hereby imposed on all persons resident in Canada, except municipalities, or municipal or public bodies which in the opinion of the minister perform a function of government, in respect of all interest and dividends paid by Canadian debtors. . . .
The words, "or payable" by Canadian debtors, are not there. I have not yet heard any good reason why the law is being changed in respect to these municipal bodies, except the inference which may be drawn that the government wants to get some more revenue from this source. Is that the real reason? That would be the effect of the proposed change in the law. Of course, we have not the actual legislating section before us, but if the section in the bill follows the terms of the resolution it will have the effect that I suggest, namely, that municipal bodies will have to pay the additional tax to the federal government.


James Lorimer Ilsley: The words in the former section relating to municipalities are to be in the new section. No change is being made in that regard, although the words do not appear in the resolution. The change is intended to prevent the evasion I described this afternoon.


Joseph Henry Harris: As the minister knows, the bank of Montreal has been redeeming these maturities at 1041, and privately the municipalities are paying some off with S100 Canadian, whereas they were worth $110 in New York. The owner, however, waived the premium to the municipality and in quite a number of instances accepted $100 Canadian. With this amendment he must pay -the five per cent tax on $100 Canadian, and he will say to himself, "I might as well take the $110", with the result that the extra ten per cent is a burden which the taxpayer in the municipality has -to pay. I would ask that, with respect to those individuals who are satisfied to take $100 in- Canadian funds, the department do not collect; and, second, that consideration be given with regard to all maturities paid on -the basis of $104.50.


James Lorimer Ilsley: I do not think the government could do that. It would be agreeing to go fifty-fifty with the individual bondholder. It would be offering to forego our tax if he would make a concession to the city, and I do not think it would be the sort of trans-

action to which the government could be a party. It would be too loose.


Robert Wellington Mayhew: I should not like it to be understood that I personally had never collected any premium on coupons of this kind or that in future I would not collect it. As long as this law is in force I am not foolish enough to forego the privilege of helping to pay taxes, for the other fellow to collect them; nevertheless it is not in the best interests of the taxpayers to allow people to collect the ten per cent premium on Canadian bonds. I do think that Canadians should forego that premium, but those domiciled in the United States should get the United States dollar for which they contracted. In proposing to do what they are doing-collecting five per cent

the government are themselves violating the contract, which they are not willing that the other fellow should do. If they can take five per cent of this money they can easily take the ten per cent and give that back to the municipality if they wish to do so. But it would be much more simple and more honest if we merely prevented those domiciled in Canada from collecting the United States premium on the money.


Richard Burpee Hanson: Let me put this case to my hon. friend. A subsidiary company located in Canada and wholly owned by a United States corporation chooses to issue bonds payable in the currency not only of Canada but of the United States and of Great Britain as well. The bonds are offered simultaneously in Canada and the United States, because it is a huge issue of $50,000,000 which could not possibly be all absorbed in Canada, although nominally it is a Canadian company. The coupons and probably the bonds are payable as I have suggested. Does the hon. gentleman suggest that in that event it is an unpatriotic act to accept the ten per cent premium on the coupons of that wholly owned United States company? .


Robert Wellington Mayhew: I would say that they are not parallel cases at all. One is a commercial undertaking, and in the other case something is coming out of the pockets of the taxpayers which they have no alternative than to pay.


[Stage Direction]
Resolution agreed to.
7.	(a) That the income accrued or earned during the life of any deceased person shall, when paid, be taxable income in the hands of his executors or trustees.
(b) That income received by executors or trustees and capitalized shall be taxable income of such executors or trustees.
Joseph Henry Harris: Would it be
taxable again when paid over?


James Lorimer Ilsley: No.

Income War Tax Act


Richard Burpee Hanson: It depends, does it not? I had an idea that this was the law now, but perhaps I am wrong, because the minister is making a change. Income accrued or earned during the life of any deceased person becomes capital in the hands of the executors or trustees.


James Lorimer Ilsley: That is the theory.


Richard Burpee Hanson: I think that is correct, and I do not see why it should not be taxed as income against the estate. But paragraph (b) is quite a departure from the present law. I should like the minister to answer two questions: Under (a) has not that income been always taxable? Second, is paragraph (b) new?


James Lorimer Ilsley: As I understand it, uncollected income of the deceased person becomes part of the capital of the estate, and when that comes in, it is not taxable at present as income. This amendment makes it taxable as income. It is received by the executors or trustees. That is (a) and it is new. Although as the commissioner tells me, it has generally been regarded as having been the law in the past, this is necessary to make it law.


Richard Burpee Hanson: You have treated it as income without legal justification?


James Lorimer Ilsley: Y'es.


Richard Burpee Hanson: That is a frank admission. I thought the king could do no wrong. But I agree that it is income which should be taxed, that it becomes part of the corpus. If this is needed to regularize it, I am in agreement with what the minister proposes to do.


John Ritchie MacNicol: I have in mind the estate of a person who died some three years ago leaving something in the neighborhood of $20,000 in cash in the bank. The will has not been probated but, I am told will be shortly. There are three members of the family. For the sake of easy figuring let us say that the estate amounts to $21,000; that would be $7,000 each. In the meantime at li per cent interest, $315 a year of interest would accumulate. When the estate is divided, do the heirs pay income tax on the interest that has accrued during the past three years?


James Lorimer Ilsley: I hesitate to give opinions on a case like that on the floor of the house, without asking the hon. member some questions about it that do not occur to me now. It is a legal question, and if I gave an opinion it might be taken as binding the department.


Karl Kenneth Homuth: Actually it would be taxed.
95826-93J


James Lorimer Ilsley: That is not covered by resolution 7 (a), which relates to income accrued or earned during the lifetime. If I understood the hon. member's question, it relates to income accrued after death. Section 11 of the act reads:
The income, for any taxation period, of a beneficiary of any estate or trust of whatsoever nature shall be deemed to include all income accruing to the credit of the taxpayer whether received by him or not during such taxation period.
I think that answers the question. It is the income of the beneficiary.


John Ritchie MacNicol: I was speaking of a three-year period. Would he be charged yearly?


James Lorimer Ilsley: Yes, yearly.


[Stage Direction]
Resolution agreed to.
8.	(a) That the qualifications of personal corporations as set forth in the act shall be extended to include revenue derived from the hire of chattels or from charter party fees.
(b) That a company shall not be deemed to be a personal corporation if it carries on an active commercial or industrial business.
Richard Burpee Hanson: Would the minister explain this resolution, and the reason for it?


James Lorimer Ilsley: Personal corporations now, to the extent of at least one-quarter of the gross revenue, must receive that revenue from certain sources set out in the act, namely:
(i)	from the ownership of or the trading or dealing in bonds, stocks or shares, debentures, mortgages, hypothecs, bills, notes or other similar property.
(ii)	from the lending of money with or without security, or by way of rent, annuity, royalty, interest or dividend, or
(iii)	from or by virtue of any right, title or interest in or to any estate or trust.
There has been some controversy as to whether " rent," as defined in the second of the three subdivisions, includes proceeds from the hire of chattels and the making of charter parties, and it is considered that that class of dealings comes within the spirit of these subdivisions and should be added to them.


Richard Burpee Hanson: Have there been any decisions?


James Lorimer Ilsley: No, I do not think there have been anything but disputes. No decisions.


Richard Burpee Hanson: Are there many cases in dispute? If there are only one or two, it seems to me a pity to disturb the law. Let them stand on their legal rights. I hesitate to give adherence to the principle of ex post facto legislation, although I know it is carried out in taxation measures, plugging
Income War Tax Act

holes and leaks. I accept the minister's word of course that there is no case pending; I am sure he would not do that sort of thing. But is the matter important enough to amend the law? Are there many cases?


James Lorimer Ilsley: No, not many.


Richard Burpee Hanson: Then what is the necessity for the amendment? Is the matter important in dollars and cents of possible claims?


James Lorimer Ilsley: I would think it might be. I do not know just how important; I hesitate to go into the details of the transactions that take place.


Richard Burpee Hanson: I do not want the minister to go into details.


James Lorimer Ilsley: They are exceedingly
annoying.


Richard Burpee Hanson: I sugge^ that if personal corporations have been in the habit of dealing with this class of business and making some money in it and the commissioner has discovered that, he should not hasten to parliament to have an amendment made to the act to block a possible leak. I think on principle that is not good legislation.


James Lorimer Ilsley: This is not retroactive.


Richard Burpee Hanson: No; if it were, I would have much more to say. But why not leave these people to their legal rights? Then, if the decision goes against the department and if the crown is losing a great deal of revenue that it ought to have, the act could be amended. I do not think this is good legislation at the moment.


James Lorimer Ilsley: I believe the hon. gentleman would think it is if I told him what is taking place.


Richard Burpee Hanson: Well, of course, one's point of view is governed by his knowledge or lack of knowledge of particular cases.


[Stage Direction]
Resolution agreed to.
9.	That as a means of insuring the collection of tax from non-resident transient persons who earn salary, fees, commissions or other remuneration in Canada, there shall be withheld an amount of fifteen per centum of such remuneration as a credit against the tax found due upon the filing of the income tax return of such person.
Richard Burpee Hanson: Would the minister explain this? Might I be allowed for a moment to turn back? It was admitted under resolution 7 that the department had been collecting a tax on income illegally. I do not mean that in any offensive way, but I understand that the minister is regularizing

the course of procedure that has been followed in the department with respect to revenue derived from the hire of chattels or from charter party fees. Apparently the department has not convinced itself that it has the legal right to collect this tax, and it is taking the legal right to meet a particular situation. Of course the minister has intimated that if I knew all the facts probably I would change my mind, and that may be so; but I must suggest to the minister again that this is not good legislation in principle. Has the minister any observations to make with regard to resolution 9?


James Lorimer Ilsley: Yes. Non-residents who earn salaries, fees or commissions within Canada are liable to Canadian income tax. The present resolution provides for a withholding at the source of fifteen per cent of such remuneration. The amount so deducted will be held as a credit against the tax found due when the person files a return. Under the law as it now stands it is difficult to make sure that persons such as actors, lecturers and others being paid for temporary services in Canada pay their proper income tax before leaving the country. That is the justification for the resolution.


Richard Burpee Hanson: I am quite in agreement with that.


[Stage Direction]
Resolution agreed to.
10.	That the rate of tax applicable to rents and royalties payable to non-residents of Canada shall be on the gross amount thereof, and in the case of non-resident corporations the rate shall be fifteen per centum, and in the case of non-resident persons other than corporations the rate shall be five per centum, and the Canadian debtor shall withhold such tax before making payment to the non-resident.
John Ritchie MacNicol: I have in mind the case of a person who lives in the United States and who owns a property in Toronto, which he rents for less than the tax rate. I believe the taxes on the property are S311 a year, while he receives only SI80 a year as rent. According to this section the renter would have to deduct five per cent of the amount of rent sent to the owner in the United States, which would be $9 a year. Will he have to make that deduction monthly or yearly?


James Lorimer Ilsley: Five per cent on every
remittance.


John Ritchie MacNicol: In this instance the owner might better throw away the property.


James Lorimer Ilsley: Perhaps I should give the
committee some explanation in connection with each of these rather difficult sections. Under section 27 of the Income War Tax Act a non-resident who rents or leases anything

Income War Tax Act
used in Canada, or who receives a royalty or similar payment for anything used or sold in Canada is deemed to be carrying on business in Canada and accordingly is subject to Canadian income tax. At present 12J per cent is deducted from these payments as a credit against the tax found due upon the filing of a return. The present proposal is to levy a straight tax of fifteen per cent on non-resident corporations and five per cent in the case of non-resident individuals, and at the same time remove the requirement for filing a return. The fifteen per cent rate applying to nonresident corporations in respect of rents and royalties shall not apply to corporations now subject to tax under paragraph (a) of subsection 2 of section 9B, which relates to payments in respect of copyrights and motion picture films. There is a similar provision in the United States law.


Agar Rodney Adamson: This is simply a reciprocal arrangement?


James Lorimer Ilsley: It is similar to the United
States provision.


[Stage Direction]
Resolution agreed to.
11.	That the rate of tax applicable to corporations shall be eighteen per centum (in the case of consolidated returns, twenty per centum) on the profits of the year 1940, and in the case of fiscal periods ending in 1940 prior to December 31st, the said rate shall apply to that proportion of the profits thereof which the number of days of the said fiscal period in the year 1940 hears to the total number of days of such fiscal period.
Richard Burpee Hanson: I believe
the statute was amended with respect to consolidated returns after I left parliament. I think I know why the change was made, but I should like the minister to state why a higher rate is fixed on consolidated returns than on ordinary corporate returns.


James Lorimer Ilsley: The losses of a subsidiary
may be set off against the profits of a parent company, assuming that they are parent and subsidiary companies. The loss of one may be set off against the profits of the other when the consolidation is permitted, and in a case of that kind that is an advantage.


Richard Burpee Hanson: And per contra?


James Lorimer Ilsley: If there are profits in both companies, it is a disadvantage to consolidate, but many companies wish to do so in order that they may be able to set off losses against profits.


Richard Burpee Hanson: It would depend on the circumstances in each case.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: From what the minister has said I think I understand why the rate is higher. Of course the sum and substance of it is to protect the revenues of the crown. If a company chooses to operate with a subsidiary, sometimes by design and sometimes by force of circumstances, why should they not set off the losses?
I am not quite clear yet as to just why there should be a difference. I should think the department would have full control over the manner in which the books of the subsidiary were kept. Some people hold the theory that the subsidiary should never be allowed to make any money or that it should be continually in debt to the parent company, depending on the policy of the board of directors. I have always thought the proper course was to let the subsidiary operate on its own and make what it could. If it made a profit, the parent company, which usually owns 100 per cent of the stock of the subsidiary, would get the benefit of that profit and would pay taxes in that way. I am not yet convinced that this is an equitable arrangement.


James Lorimer Ilsley: This is pretty well accepted. As a matter of fact, it is so generally accepted that I really have not given consideration to the fundamental principles underlying it.


Richard Burpee Hanson: In what year was this principle established?


James Lorimer Ilsley: In 1935, I understand.


[Stage Direction]
Resolution agreed to.
12.	That the section of the act in respect of depreciation be amended to provide for the elimination of duplicate depreciation in respect of assets after their transference to persons who have substantially the same equity or interest in the said assets after their transfer as they had before the transfer.
Richard Burpee Hanson: Would the minister state the implications of this section?


James Lorimer Ilsley: There is a decision of the privy council in the Pioneer Laundry case which decides that a company, even though it is owned by the same persons who owned! the predecessor company, may start depreciation over again at the beginning of the life of the new company, even though the assets have been fully depreciated by the predecessor company. And it appears to the crown to be unjust, I may say-


Richard Burpee Hanson: I would
say that is a strategy.


[Stage Direction]
Resolution agreed to.
Income War Tax Act
[Stage Direction]
13.	That the distribution of otherwise tax free profits of a family corporation made after the 31st December, 1942, shall render such profits so distributed liable to income tax.
Richard Burpee Hanson: What is the reason for this?


James Lorimer Ilsley: In 1925 the law provided that closely held corporations where members of a family worked in the affairs of the company, could elect to have the company dealt with as a partnership and the corporation was called a family corporation. On election the corporate tax was not imposed, but the income of the partnership or family corporation was taxed to the individual shareholders, whether distributed or not. On distribution of the profits by dividends no further tax was imposed. The family corporation provision was repealed in 1932. It is proposed that after 10 years from 1932 the exemption afforded family corporation dividends be repealed. The effect of this resolution will be to compel a distribution of these dividends before that year or in that year. They will not be taxable when they are distributed, but if they are kept beyond that year they will be taxable. This is a small matter. It is not of great importance to anybody, but it is a nuisance to have in the affairs of some of these companies certain of their dividends which are not taxable.


Richard Burpee Hanson: I am in agreement with that. I remember the 1925 discussion. I would suggest this, that the limited number of family corporations who are in this position should be notified in this year well in advance, so that they may put their houses in order to meet the situation. I have in mind a substantial corporation in the city of Saint John, which has just this class of undistributed income. They used it as capital in the business. At one time I undertook to reorganize the corporation for the chief shareholder. I outlined a plan whereby this money could be got out, tax-free, and the gentleman in question rather balked on it, because I was suggesting the setting up of a new company with a similar name, and he could not bear the thought of foregoing his old family name. The matter fell through.
This would give that gentleman an opportunity to comply with the law, get his income out and put the whole matter on a regularized basis. I suggest that plenty of notice be given .to these companies.


James Lorimer Ilsley: I believe I can undertake on the part of my colleague the Minister of National Revenue that that will be done. I should correct the impression I gave that

the amounts undistributed are small. As a matter of fact, the amounts undistributed are large.


Richard Burpee Hanson: Yes, they are.


James Lorimer Ilsley: The tax-free surplus still to be distributed is approximately $16,400,000.


Richard Burpee Hanson: I thought it was a large amount.


Mr. CASTLEDEN:: What is the definition of a family corporation?


Mr. HANSON (York-Sunbuiy):: The hon. member will find the definition in the act.


George Hugh Castleden: Does it mean that all the shares are held in one family, or just the voting shares?


James Lorimer Ilsley: By consulting the act I could give the definition, but I believe the question is not a practical one, because since 1932 there have been no family corporations. They are not permitted to operate as family corporations. This is just a relic of the state of the law before 1932.


George Hugh Castleden: Could not the date be brought forward one year to make it December 31, 1941?


Richard Burpee Hanson: Why?


James Lorimer Ilsley: So far as I know there would be no advantage to anyone in doing that.


Richard Burpee Hanson: And it
would only disturb them.


James Lorimer Ilsley: This gives them a reasonable time. When they distribute these dividends they are not taxable.


[Stage Direction]
Resolution agreed to.
14.	That the act be amended to prevent evasion by giving power to the treasury board to direct that a taxpayer be assessed without regard to any transaction or reorganization which in the opinion of the treasury board, is of a specious character designed to avoid or minimize tax, whether any such transaction or reorganization was entered into with persons or corporations resident outside or within Canada.
Richard Burpee Hanson: I suggest the minister might unbosom himself with regard to this resolution, and tell us what he is driving at, and the evil he is trying to correct.


James Lorimer Ilsley: If I could remember the details of some of the transactions covered by this section I would relate them to the committee. The devices resorted to are simply fascinating. But what I had intended to say was that the committee will understand that

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with the very much higher rates of taxes in force, and particularly in view of the heavy excess profits tax rate, the incentive to evade or to avoid taxes is much greater than it would be under lighter taxation. In view of this fact the government have deemed it necessary to take power to deal effectively with such matters in order to prevent revenues from being undermined.
The committee will recall that the act at present contains a provision which empowers the treasury board to rule that any specious transactions entered into by a resident of Canada with persons resident outside Canada shall be disregarded for taxation purposes. The present resolution extends this power to cover such transactions within Canada.
I am free to admit that this is a rather wide power being given to the treasury board, but we propose to permit appeals to the exchequer court of Canada from the rulings of the treasury board. Perhaps under present conditions the ordinary objections have not as much force as they might have under other conditions.
I am informed there is a section somewhat similar to this one in the English legislation, but I am not making any undertaking in respect of that similarity.


Richard Burpee Hanson: If I understand rightly, the minister is trying to get ahead of the high-powered lawyers who are always seeking to evade the act. There are such things as high-powered lawyers who are always trying to think up ways and means to get round the income tax. That is a perfectly legitimate transaction and occupation. Anything which is not against the law with regard to taxation is a legitimate operation, and I could refer hon. members to legal decisions bearing out that principle.
Of course this resolution is designed to give very wide powers to the treasury board, and if it is not exercised with judicial discretion it may do a great deal of harm. I am not going to object to it. I think it is a proper procedure to take, but the power ought to be exercised with the greatest of care.


James Lorimer Ilsley: Yes, it will have to be.


Mr. ABBOTT:: The Minister of Finance has said that the ruling of the treasury board would be subject to appeal to the exchequer court. Will it be subject to appeal on the same conditions as the present section 32A, that is that the exchequer court will not be bound by any finding of fact or ruling of the treasury board? That is of importance, because these transactions obviously involve questions of law and fact.


James Lorimer Ilsley: We do not propose to change the wording of the present appeal section. We propose to extend the provisions of the first part of the section, but the second part will be worded as at present.


Mr. EDWARDS:: Who composes the
treasury board referred to in the resolution?


James Lorimer Ilsley: The treasury board is a committee of the cabinet consisting of six ministers, the Minister of Finance being the chairman.


Manley Justin Edwards: The treasury board as such is not referred to in the Income War Tax Act; all reference is to the minister.


James Lorimer Ilsley: The treasury board is constituted by an act of parliament, so it has a precise meaning.


Agar Rodney Adamson: I am thinking of how this will alter sections 32A and 32B, which deal with the distribution of assets. I am thinking particularly of the Reid-Authier mines case in connection with which there was considerable discussion. How would this affect the distribution of assets by a holding company?


James Lorimer Ilsley: This would not touch such a case at all. This has no reference to that section.


Agar Rodney Adamson: It would have no bearing on a case like that?


James Lorimer Ilsley: It certainly is not designed for that purpose.


Agar Rodney Adamson: That is all I wanted to know. It was not designed to upset the present agreement?


James Lorimer Ilsley: Oh, no.


Richard Burpee Hanson: I suppose anyone interested would have the right to appear before the treasury board to argue his case, or would the case be decided ex parte on the application of the department?


James Lorimer Ilsley: No. One hearing has been held under section 32A and great care was taken, under instructions from the present Minister of National Defence (Mr. Ralston), who was then Minister of Finance, to see that notice was given to the persons interested, giving them the fullest opportunity to appear, either with or without counsel. As a matter of fact, there was a hearing in which the parties appeared without counsel. Evidence was taken and I think the matter was later settled. I do not think the treasury board made a ruling, but the matter was dealt with in a judicial way, at least so far as form was concerned.
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Arthur Graeme Slaght: The minister has indicated that these onerous duties are to be placed upon the treasury board. In these days when the cabinet are so tremendously occupied with war measures, does he not think it would be better to constitute a treasury board made up of personnel other than members of the cabinet? We have been told that there are multiple transactions which may have to be reviewed, and I was wondering if the minister could tell us whether this matter had been considered and if it was thought, to be fair to put the burden of delving into contracts and so on upon the cabinet of the present day.


James Lorimer Ilsley: I expect and hope that under this resolution there will be very few hearings. The resolution of itself will not impose greatly added burdens upon the treasury board. With regard to the treasury board's duties generally, I do not think any consideration has been given to amending the treasury board act. It has always been taken for granted that the treasury board could not consist of anything but ministers, because they have to take the responsibility formatters which are peculiarly the responsibility of the government itself. However, it may be that we have taken too much for granted and that there can be some delegation of responsibility. That would involve amendment to a different act altogether.


Arthur Graeme Slaght: It was not my view that the duties just defined should be interfered with. My thought was that it might be worth while considering whether purely semijudicial duties such as this resolution imposes and which could be-I say this without disrespect-performed just as well by a small board of judges, should be imposed upon six members of the cabinet.


Richard Burpee Hanson: There is a good deal in what the hon. gentleman has said with respect to the present time, but under ordinary circumstances the treasury board would be the proper body to consider this matter. I can tell the hon. member that it is seldom that all six members are present; they are generally satisfied if they can get a quorum. They have many duties to perform, but hearings under this resolution will not happen very often. If there were not a body to which these matters could be referred, such as the treasury board, a body which must assume responsibility, then another body would have to be set up which might not have the same responsibility. I am all for the minister in this thing, but I do hope there will not be too many cases.


Manley Justin Edwards: This is the first instance in the Income War Tax Act where reference is made to the treasury board; in all other cases the reference is to the minister. Why is the treasury board being interjected here?


James Lorimer Ilsley: It is a great responsibility to upset one of these transactions, and this provides an additional safeguard to the taxpayer by having more than one minister pass upon the matter. I think it is just a little too important for the Minister of National Revenue to decide.


Manley Justin Edwards: Will there be an appeal from the decision of this board?


James Lorimer Ilsley: Yes, to the exchequer court of Canada.


Roy Theodore Graham: This amendment is
designed to deal with transactions designed to avoid or minimize the tax. Those words might easily give rise to an excellent argument, and I think the difficulties of the treasury board would be better met if the words "having the effect of" rather than the word "designed" were used, in which case intent would have to be proved.


James Lorimer Ilsley: Oh, yes; it would never do to upset all transactions which have the effect of minimizing the tax.


Roy Theodore Graham: When the treasury board exercise the discretion they have under this resolution, you would not want to be placed under the duty of proving intent to minimize or avoid taxation. It would be better, in cases where you saw fit to exercise that discretion, to base your judgment on the much less onerous provision of having the effect of reducing or avoiding taxation.


James Lorimer Ilsley: Here I take the side of the taxpayers. I think it would be entirely unfair to the taxpayers to amend the resolution as suggested by the hon. gentleman.


Manley Justin Edwards: Has the taxpayer the right to appear before the treasury board?


James Lorimer Ilsley: I just dealt with that. There are no rules covering procedure, but in the one case that was heard great care was taken to see that the taxpayer had notice. He was given an opportunity of appearing, with counsel if he so desired.


[Stage Direction]
Resolution agreed to.
15.	That in order to prevent evasion the Minister of National Revenue (hereinafter called the minister) shall have power to determine what are reasonable disbursements for advertising, repairs, salaries and other operating and administrative expenses.
Richard Burpee Hanson: I happen to be connected with a company which believes in judicious advertising in order to keep its

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product before the country. I suggest to the minister that the proprietors or the sales force of a company would know more about its necessities in connection with advertising than a departmental official. I would hesitate to give any minister, no matter how much confidence I had in his integrity, the right to overrule the judgment of the executive or the board of directors of a reputable company.
This is a pretty large power which the minister is seeking. I assume that there must be a reason, and that the reason is that there has been some abuse. If that is not so, the minister ought not to take the power. Some companies, we know, get along very well without much advertising. Advertising is the lifeblood of other businesses. I hesitate to vest an arbitrary power in the minister, although I am sure he would attempt to be judicial in exercising it. There might be some tendency to overcharge with respect to salaries; perhaps that is the coloured gentleman in the wood-pile. But legitimate expenditures like advertising should not be curbed. The salary problem is quite another matter; one can understand where self-interest on the part of executives or proprietors might step in and affect the legitimate revenues of the crown. That would not happen very often in Canada. Such cases may arise across the line, where colossal salaries are paid to certain executives; the amounts are published every year by the income tax authorities, and they certainly astonish poor, lowly, meek Canadians when they read about them in the newspapers. 1 think the minister ought to give some reason for asking this power.


Arthur Graeme Slaght: Apropos of the same line
of thought, before the minister deals with the point raised by the hon. gentleman, I suggest that repairs are, even more than advertising, a type of expenditure which ought not to be lightly interfered with. "Repairs," if properly interpreted, would not include the expansion or doubling of a plant, a capital investment which should perhaps be controlled. But it seems to me that if bona fide repairs are determined upon by the executives of a corporation, their decision should be supreme and should not be subject to departmental interference. Such operations give employment and involve the purchasing of material, and from no point of view can I, although I say this with some diffidence, see any justification for interfering with an executive's decision in the matter of genuine repairs to a plant in a given year.


Richard Burpee Hanson: I agree
entirely.


Douglas Charles Abbott: I would go a little further than my hon. friends the leader of the opposition and the member for Parry Sound. This resolution goes a very long way and covers not only salary but "other operating and administrative expenses." That is pretty nearly all-comprehensive. The minister and the department may virtually tell you how much you should spend on your business. I realize that it may be necessary to have ministerial decision as to whether expenses of this kind are exaggerated, but I submit that this decision should be subject to review on appeal to the exchequer court; and that is not the case under subsection 2 of section 6 of the act, which this resolution is intended to provide for amending. I humbly suggest that if these wide powers are given to the minister and the departmental officers, there should be an appeal to the exchequer court and that that court should be in a position to review the finding of the minister on that particular point.
There are other examples in the act. The minister is given absolute discretion to provide what amount of interest should be paid on money, and there is no right of appeal.
In this case the minister is taking upon himself to determine what are the fair administrative and operating expenses of the taxpayer. With departmental discretion of that kind, there should at least be an appeal from his decision to the exchequer court, which is set up for that purpose, and the exchequer court should not be bound by the exercise of the minister's discretion. As hon. members who are of the legal profession know, where a discretion is given and it is exercised bona fide and without ulterior motives, the courts are bound by that finding; and I believe this is not a case where the minister or the department should be given an absolute discretion.


Mr. KINLEY:: It seems to me that business in this country would just as soon trust the minister without appeal to the courts, because it is in just those proceedings that expenses begin.


Douglas Charles Abbott: They can accept the minister's decision. They do not have to go to the courts.


John James Kinley: In other words, business likes to be kept free from litigation as far as it can.
With regard to repairs, the question is, what are genuine repairs? A concern might include under "repairs" projects which should be regarded as capital expenditures, and somebody should be empowered to determine when they are overstepping the mark. This resolution deals with what is an open door for

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iniquity as far as corporations are concerned, because big business can, by allowing excessive salaries, expenses, repairs, and other such outlays, present a statement which does not show much profit. As regards advertising, it may be said that many articles which are nationally known are sold through their advertising appeal, and a big item for advertising is needed to promote sales.
It seems to me that if people want to be fair they may safely trust the national revenue experts. I have no doubt that they will act prudently and adequately. As regards the business profits tax, for instance, it is based on three normal years; the profits in a normal period are the basis of taxation. I have no doubt that under this resolution the minister will decide that his basis for computation will be expenses in a normal year. I do not believe that anyone will be hurt by these provisions. I am sure that this is a place where one must keep the door shut if you are to get from excess profits all the taxes to which the government is entitled under this law and in this critical time.


James Lorimer Ilsley: The hon. member for Queens-Lunenburg has very well expressed what I had in my own mind. It must be remembered that after the proposed changes in rates are effected, the corporation tax will be at least thirty per cent. If it happens that the crown taxes seventy-five per cent of the excess, because that is more than the thirty per cent rate, the company will pay to the government seventy-five per cent of the last dollar earned.


Richard Burpee Hanson: Of the
excess.


James Lorimer Ilsley: The last dollar earned is correct, because there is an excess there by hypothesis, seventy-five per cent of which is taken by the government. The incentive to keep that down to the lowest possible amount is going to be terrific by reason of the fact that the rate is so high. I do not know what can be done, but I have understood that businesses may spend sums for repairs which are excessive having regard to the reasonable requirements of the enterprise. They may not be able to effect replacement of machinery entirely, but I have heard persons discussing what can be done in the way of spending a great deal of money on repairs in a particular year.
The same thing can be done in advertising if they wish to do it, and it is worth while to spend a great deal in advertising and to take a chance if you are going to pay seventy-five per cent of the excess to the government anyway.

The same thing applies to salaries. We have had instances repeatedly in the administration of the Income War Tax Act where companies headed for a big profit had paid as much as they possibly dared to pay in salaries to members of the family in order to keep the profit down.
With these high rates it is essential that there shall be some undoubted power of control over business. I am talking as if business were out to get ahead of the government, but that is not so except with regard to a very small minority of businesses, and it is with regard to that small minority that we have to legislate. That is the reason for this provision. I am not sure whether the appeal provisions of the Income War Tax Act do not apply to this now. The hon. member for St. Antoine-Westmount would know better about that than I do. I was under the impression that if we incorporated into the Excess Profits Tax Act the sections which we propose to incorporate from the Income War Tax Act, these provisions would relate to appeals from decisions by the minister. Perhaps I am wrong about that. There is no objection to an appeal, but I do not know that it is necessary. The minister will have to exercise his responsibility very carefully and reasonably in this matter.


Richard Burpee Hanson: It will be a judicial function.


James Lorimer Ilsley: Yes. The minister has
discretionary powers greater than those contained in the act now-a great many of them- and far less to guide him than there will be here, because there will be some sort of standard as to what it is proper to spend for repairs, advertising, salaries and so on. We shall have the history of the company before us.


Richard Burpee Hanson: With
respect to salaries, the position is not quite as bad as the minister would suggest, because the salary itself, in the hands of the recipient, would pay a personal income tax in addition to any other income that the recipient might have. He will save some but he will pay more too.
I hesitate to suggest that this is too much power to place in the hands of the minister. I do not think that business in this country is as bad as some people would suggest. Repairs are repairs, as the hon. member for Parry Sound has said, and new capital expenditure is capital expenditure. It is an accounting problem, a matter of fact to be established in each case, and the department has a right to look into it. In fact, it does look into it to see whether, to-day, capital expenditure is mixed up with legitimate maintenance. That

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is the proper expression, legitimate maintenance. I should prefer not to give such wide powers to the minister.
As the hon. member for St. Antoine-West-mount has properly pointed out, the remaining words in the section are a catch-all that might cover almost anything. I was concerned only with the question of advertising. What standard would the minister have to go on with regard to advertising? Some products sell without advertising at all; other products have to be largely advertised. I remember an old friend telling me that Pears soap was not nearly as good as plenty of other soaps, but the manufacturers had such a wonderful method of advertising fifty or seventy-five years ago that it sold the product. And it was expensive advertising. G.B. chocolates are good chocolates, but they have to meet a great deal of competition and therefore have to be widely advertised and kept before the public. There are all sorts of display advertisements, new forms of advertising, apart altogether from national newspaper advertising.
I should not like to see the minister clamp down upon a board of directors and, because they were allocating $50,000 this year to advertising as compared with $30,000 last year, or $100,000 this year as against $50,000 last year, declare that they were endeavouring to beat the revenues of the country. What they are endeavouring to do is to increase sales by legitimate advertising and they should not be penalized. However, if the minister is going to do it, I hope he will make provision for adequate appeal.


James Lorimer Ilsley: I will give consideration to that.


Douglas Charles Abbott: If there is to be an appeal, if it is clear that there is an appeal from the minister's decision., I am entirely satisfied with the resolution; otherwise I am not. After all, the Department of National Revenue is collecting the tax, and if it is to be both tax collector and the person who decides whether the tax is payable or not, that is an unsound principle. I cannot see any reason why the act should not provide for an appeal to the exchequer court. I have no doubt that the appeal would be taken only on rare occasions; in nine cases out of ten the minister's decision would be accepted as equitable. In the tenth case, however, the taxpayer has the right to go to the exchequer court, which is the court set up for such purposes. With all confidence in the officers of the department, I suggest that a provision for appeal would be an effective safeguard to ensure that they would exercise their discretionery powers judicially.


Agar Rodney Adamson: I suggest to the minister and the hon. member (Mr. Abbott) that possibly there might be a referee clause. Some referee in the form of the Society of Chartered Accountants or the Canadian Society of Actuaries might be used in this connection. They would be a better judge than possibly the minister. These are extremely wide powers to be given the minister, who, as the hon. member has said, will be the judge in his own case. He will be collecting the tax and unquestionably he will be liable to be the judge in his own case. I suggest that the Canadian people have the utmost confidence in the Society of Chartered Accountants and the Canadian Society of Actuaries, and some method might be devised of having them act as referee in cases of this kind, by using these two societies.


James Lorimer Ilsley: On the question of appeal, I have looked at the appeal provisions in the Income War Tax Act and I find that the relevant sections are 58 and 66. Some other sections may be relevant, but I think not. Section 58 paragraph (i) reads:
Any person who objects to the amount at which he is assessed, or who considers that he is not liable to taxation under this act, may personally or by his solicitor, within one month after the date of mailing of the notice of assessment provided for in section 54 of this act, serve a notice of appeal upon the minister.
That is the beginning of the appeal. Finally, if the appeal goes to the exchequer court, the exchequer court has certain jurisdiction; that is found in section 66, which reads:
Subject to the provisions of this act, the exchequer court shall have exclusive jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this act and in delivering judgment may make any order as to payment of any tax, interest or penalty or as to costs as to the said court may seem right and proper.
The only question in my mind-and it has arisen in the last few seconds-is whether the words "subject to the provisions of this act" cut down or limit in any way the jurisdiction of the exchequer court. If not, it would seem that the exchequer court has full power on appeal to pass on the propriety of appropriations for repairs, advertising, salaries or anything else. I think it has.


Douglas Charles Abbott: This gives me concern
because section 32A, which it is sought to amend under the provisions of resolution 14, subsection 2 specifically provides:
In the case of any appeal from an assessment, the court shall have jurisdiction to review the ruling of the treasury board hereunder.
It specifically provides that the exchequer court shall have the right of review for the purpose of deciding whether a transaction is
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undertaken in order to evade taxation. If it is necessary to put it in that section I think it is necessary to have it in here, where the minister is given the widest discretion. From the legal point of view I am afraid that the situation is that the exchequer court would decide that if the minister had exercised his discretion bona fide, it could not interfere with that discretion but could look only at the question whether there 'had been some defective legal procedure. It is important from the point of view of the taxpayer that he be satisfied that he is being dealt with fairly. That should be made perfectly clear, because nothing makes a man more dissatisfied than to think he is paying a tax when someone else is getting away without paying it. And that is the danger if you have a large number of departmental discretionary powers and no appeal.


Richard Burpee Hanson: I agree
with the remarks of the hon. gentleman. In the case of the exercise of judicial discretion by the minister, I do not say that the court of appeal could not allow the appeal, but under the practice they do not allow it unless there has been some excess of jurisdiction or something of that kind of a technical nature.
The hon. member for St. Antoine-Westmount said something that I had it on the tip of my tongue to say but refrained from saying because I was afraid I might give offence to the minister. Here is a case where the minister is not only the taxing authority but the judge too, the judge of his own case. The principle is absolutely bad. A conviction in a criminal court could be upset in a situation like that. It is a most extraordinary power for the minister to assume. I am not questioning that there are other and greater powers given to the minister by the statute, but if they violate this principle it is wrong. The minister at least ought to make certain that there is an appeal. I am sure the commissioner knows whether under section 66 there is anything which would prevent an appeal from this proposed provision. Perhaps the minister might let this resolution stand until that position could be studied. We do not want any injustice done. He might also look into the principle to which the hon. member for St. Antoine-Westmount has alluded with, shall I say, the frankness of youth, and which he has stated very well indeed. The minister might let this resolution stand until to-morrow, and in the meantime he and the departmental officials can confer and reach a just conclusion. It is a wide power. I do not think there would be any intention to pad accounts or spend money for unnecessary repairs rather than have the 
government get it, or to pay out more money in advertising than should be done. Legitimate business people do not do that sort of thing in peace time, let alone in war time. I suggest that the minister let this resolution stand for twenty-four hours.


James Lorimer Ilsley: When the bill is under consideration, would not that be a proper time for this resolution to be reconsidered? Then the committee would have before it the full provisions.


Richard Burpee Hanson: Perhaps the minister is right. He is wiser than I.


James Lorimer Ilsley: I dread making changes in the appeal provisions of this act. Every section in which we give a specific appeal to the exchequer court gives rise to just the argument made by the hon. member for St. Antoine-Westmount, that the court has not jurisdiction in respect of appeals under other sections. I have no objection to there being an appeal.


Richard Burpee Hanson: If the
minister wants to go on now and take the matter up when the bill is under consideration, I am satisfied. With respect to appeals, I do not think appeals should be limited to specific sections; there should be some general right of appeal to the exchequer court.


James Lorimer Ilsley: Well there is; section 66 gives it.


Richard Burpee Hanson: I suggest not, in view of what the minister said. He knows much more about the act than I do. Section 66 has an overriding proviso, "subject to the provisions of this act." Of course one has to look at every section that deals with questions of this kind in order to see whether in the very first instance there is an appeal. If the minister would strike out these first words, it would simplify the matter.


James Lorimer Ilsley: I will consider that.


John James Kinley: The former Minister of Finance (Mr. Ralston) in his budget speech said, as reported on page 1023 of Hansard:
To assist in carrying out these provisions fairly and realistically, the appointment of a board of referees will be proposed.
That relates to the excess profits tax, but it is all the same thing; expenses are an item in arriving at excess profits.


James Lorimer Ilsley: That board of referees, under the draft bill which will be placed before the house, has limited powers. I am not 6ure at the moment whether they would have the powers which the hon. gentleman suggests.

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Agar Rodney Adamson: I suggest that a board of referees would create greater confidence in the administration of this clause, and, second, would relieve the treasury board, certainly in the preliminary stages, of a great deal of perhaps unnecessary work. If these matters could be referred to a board of referees, probably in most instances the company would accept their judgment without taking tht time of the treasury board, which is going ti be extremely busy in the months to come. I think it would make it much more flexible if some such provision were inserted.


James Lorimer Ilsley: These matters would not go to the treasury board.


Manley Justin Edwards: To my way of thinking one of the most objectionable features of this resolution is that the minister is not only the collecting authority but also the judge. He makes his finding but he gives no reasons, nor is he obliged to do so. There is no yardstick which the taxpayer knows is applied to his particular case. I have in mind one business which the proprietor had incorporated. During the first year, as he reasonably expected, profits were practically negligible. A very modest salary, less than $100 a month, was all the business would stand. In the second year business improved materially, and naturally the man felt quite justified in voting himself a respectable salary, which he set up in his corporate returns. But he found that the additional sum over and above what he voted himself the first year was all surcharged back against this company. An appeal was launched to the minister. No reasons were given; no one investigated the books; no one inquired into the circumstances. All that was received was a categorical denial of the appeal.
The offensive part of the whole thing is that there is nothing by which the fairness or otherwise of these charges may be measured by the minister. It is most disturbing to a man who has made his business a life study to be told at the end of the year, after having voted himself S3,000 where he only took $1,000 the year before, that the government is going to charge back that additional $2,000 against the company.


James Lorimer Ilsley: I should like to say just a word about the matter mentioned by the hon. gentleman. I am told that in western Canada there are experts in income tax law who advise that in a case such as that stated by the hon. gentleman, the case of the proprietor of an incorporated business who owns the business himself, the proprietor has the right to fix his salary at the amount of the profit of the business. That theory is firmly held by a
certain circle, and in the administration of the income tax law we have had considerable difficulty in combating that theory.
Let me put the case clearly before the committee. It may not be worth the time, but perhaps it is. The theory is based upon the fact that the man is the sole proprietor of the business. For instance, he incorporates to sell cars; he is a dealer in cars and he makes a profit of $15,000 a year. The argument is that from the very facts of the case he is worth $15,000. Did he not earn $15,000? He, the sole proprietor of the business, made $15,000 and therefore he has the right to pay himself that amount.


Richard Burpee Hanson: Therefore the company would not pay anything.


James Lorimer Ilsley: On that theory the company never would pay anything. The income tax division has taken the view that the sole proprietor of a business cannot, ex post facto, when he finds out how much he is going to make, fix his salary at the total profits of the enterprise.
The hon. gentleman says that no investigation is made and that no reasons are given. As Minister of National Revenue I have signed hundreds of these decisions, not dealing with this particular question, and I have signed a great many decisions with regard to this fixing of salaries. My recollection is that there are always reasons, perhaps not expressed as fully as they might be, but at least reasons in all the decisions handed down by the minister. Obviously it is not possible for the minister himself to go and investigate the business, but the inspector of income tax, who is on the ground, gives his reasons why he thinks a salary should not be more than a certain amount. I can remember some of the reasons given, although I shall not waste the time of the committee by going into them to-night. What I really wanted to do was disabuse the minds of hon. members of any idea that there was an arbitrary, unreasoning administration of the Income War Tax Act, such as I am afraid the remarks of the hon. member for Calgary West might lead the committee to believe.


Mr. TUSTIN:: Is the report of the income tax inspector always taken by the minister?


James Lorimer Ilsley: No.


George James Tustin: Does he give his reasons,
and then does the minister sign on that ground?


James Lorimer Ilsley: Oh, no. They are reviewed by the commissioner before they come to the minister.
Income War Tax Act


Richard Burpee Hanson: Reasons
are not obligatory, are they?


James Lorimer Ilsley: I do not think so.


Richard Burpee Hanson: I can tell the minister the genesis of this sort of thing. It was right in the Customs Act. I do not know if the minister has ever had any experience with that-


James Lorimer Ilsley: Haven't I?


Richard Burpee Hanson: I mean in connection with claims under that act. I had some experience along that line in days gone by, although not in recent years. I remember one case in which we were asked to put up 8100,000 before certain machines could be released, machines which had been undervalued by the manufacturer, who delivered them duty paid in Canada. I told the proprietor not to put up that sum of money, and we came to Ottawa. We managed to get the amount of the deposit reduced to 830,000, and I told the proprietor then that he could say good-bye to his money. It took about a year to reach a decision in connection with the transaction. The department admitted that there was no fault on the part of the importer except that perhaps he had been a little negligent in not seeing that the goods in question had been entered at the proper valuation. But there was no collusion; the other man had simply pocketed the difference. But there was not one word of reason given us, and we never got back the 830,000.
This procedure is a survival of that followed by the department under the Customs Act. The case mentioned by the hon. member for Calgary West seems to me extreme. I cannot conceive that this department would operate on that basis, although no doubt the hon. member must have had some grounds for the statement he made. I should like to point out to the minister, however, that if the department did not obtain taxation from the company on the basis of the corporate tax, the department would get taxation from the individual recipient of the $15,000 on the basis of personal income tax, so that the crown is not suffering.


James Lorimer Ilsley: Oh, yes.


Richard Burpee Hanson: Not very much. The trouble with the income tax branch in days gone by, and I think at the present time, is that it endeavours to collect double taxation, not in a case like this but in the case of the corporate tax and the dividend in the hands of an individual. I well remember when that matter was brought up about-
Mr. ILSLEY; In 1926.
[Mr. Ilsley.j


Richard Burpee Hanson: Yes, about fifteen years ago, I think when Mr. Euler was Minister of Customs administering this act. I tried in my feeble way to point out to him the iniquity of that sort of double taxation, but without effect. The case of the 815,000 transaction- is not nearly as bad as the minister suggests; there is a good deal to be said for it. Of course I can conceive that in a given case it might be a sharper transaction to take the money out. The crown is not suffering much. Certain exemptions would offset it in one case and would not in the other; but it is not by any means a onesided story. There is something to be said for the other side.


Manley Justin Edwards: The exemption to which I referred was an actual circumstance.


George James Tustin: A minute ago I asked the minister where he got the evidence, and he told me the minister signed these orders after the commissioner had reviewed the cases. I would ask this question: Where do the commissioners get their information or evidence? Do -they get it from the inspector of income tax?


James Lorimer Ilsley: From the district inspectors.


[Stage Direction]
Resolution agreed to.
16.	That the amount paid by proprietors of a business, other than a corporation, by virtue of the Excess Profits Tax Act shall be allowed as a deduction from their incomes for purposes of income tax in proportion to their interests in the said business.
Richard Burpee Hanson: What is intended there?


James Lorimer Ilsley: This is a difficult matter to explain. It has to be taken in conjunction with the provisions of the Excess Profits Tax Act, which are dealt with in subsequent resolutions. But the effect of this resolution is to make, in the case of individual persons in business-either alone or in partnership with other persons-the 'tax paid under the Excess' Profits Tax Act the first tax, not the second tax; and to allow that as a deduction from their income for the purpose of computing the income -tax.


Richard Burpee Hanson: As individuals.


James Lorimer Ilsley: Yes, as individuals.
It is based upon the theory that so far as-individuals are concerned, as distinct from corporations, the income tax payable by them is a personal tax. It is a tax on their personal income; it is not a business tax. Therefore it would be less proper .to regard the income tax on the profits of business as the first tax, and allow that as a deduction from the

Income War Tax Act
profits for the purposes of the Excess Profits Tax Act. I said it was a difficult matter to explain, and in this explanation I believe I am proving it.


Richard Burpee Hanson: It is quite the reversal of the standard position.


James Lorimer Ilsley: This is, I think, the standard position in reference to the individual income tax. But we shall find that the position is exactly reversed in regard to the corporation tax, when we come to the Excess Profits Tax Act provisions relating to corporations. I anticipated I would have difficulty in explaining to the house, when questioned, why we approached it from one end in regard to the corporation income tax, and from the other end in respect of the individual tax from the business.


Richard Burpee Hanson: I am now asking the minister why that was done. What was the operation?


James Lorimer Ilsley: In view of the fact thai I have been giving the reasons-


Richard Burpee Hanson: As I
understand it, the minister has been giving the method, not the reasons.


James Lorimer Ilsley: The reason is this, that the income tax is a personal tax. It is imposed on a person, individual, proprietor or partner. Therefore the excess profits tax paid is to be deducted from the individual income as a business expense, before imposing the graduated personal rates. This is analogous to the corporation paying its excess profits tax and then distributing to its shareholders what is left for personal taxation to them.


Richard Burpee Hanson: I shall
read that to-morrow.


James Lorimer Ilsley: I would suggest that we might all call the income tax on corporations not an income tax but a profits tax, or a corporation profits tax. We might perhaps think of it as that, and the tax on individuals as an income tax. Then, in arriving at the income tax, one would see that if the individual derived part of his income from a business, what he had to pay out of that business in excess profits tax should be deducted from his income before he made up the personal income tax he has to make later on.
In regard to corporations, however, I do not think it makes much difference. But it is more convenient, for certain reasons which I am afraid I cannot give at this time, in the ease of the corporation profits tax, if we may call it that, to take first the tax paid under the income tax, and pay the excess profits tax on the remainder.


Richard Burpee Hanson: What effect will it have on the quantum of the tax?


James Lorimer Ilsley: I do not think it will make any difference at all.


John James Kinley: I should like to ask a question for the information of people connected with smaller businesses throughout the country. At page 1023 of Hansard I find this, respecting the Excess Profits Tax Act:
5. The tax will not apply to businesses whose profits are not in excess of $5,000, and allowance will be made for drawings in lieu of salaries not in excess of $5,000 by sole proprietors or partners.
That means that a small business in the country which did not have profits in excess of $5,000 would be exempt from the excess profits tax?


James Lorimer Ilsley: That is correct.


[Stage Direction]
Resolution agreed to.
17.	(1) That the definition of income be clarified and extended to cover the amount of annuity payments made to life annuitants under purchased annuity contracts.
(2)	That the exemption now accorded to dominion government annuities and like annuities sold by provincial governments and insurance companies shall not apply in respect of all contracts issued subsequent to June 24, 1940, nor to contracts or extensions of contracts made since that date to holders of options or contractual rights in existence at that date.
(3)	The purchasers of annuities be entitled to deduct the annual amounts paid out by them in purchasing annuity contracts not to exceed $300 per year.
James Lorimer Ilsley: Before discussion begins I would ask my colleague the Minister of Trade and Commerce (Mr. MacKinnon) to move that paragraph 3 of resolution 17 be struck out.


James Angus MacKinnon: I so move.


James Lorimer Ilsley: Perhaps I may say a word about this resolution. The first part of it, that is 17 (1), will clarify the definition of income under the Income War Tax Act, and will bring under tax life annuities. Resolution 17 (2) withdraws the SI,200 exempted in respect of annuity contracts issued after June 24, 1940, and all new contracts or extensions of contracts since that date. It is not proposed to withdraw the exemptions of $5,000 and $1,200 which now exist in respect of certain annuities purchased prior to June 24, 1940.


Richard Burpee Hanson: It refers only to new contracts.


James Lorimer Ilsley: Yes, and extensions of existing contracts. Contracts are sold under which
Income War Tax Act

the purchaser has the right to increase the amount of the contract at the same rate. After this he will not have that right.


Richard Burpee Hanson: He is not going to suffer in his present position, with that exception?


James Lorimer Ilsley: That is so.


[Stage Direction]
Amendment agreed to.
Thomas Vien: We shall now consider the section as amended.


Harry Rutherford Jackman: Would the minister clarify what is meant by the taking away of the right to income tax exemption from' holders of contractual rights which were in existence on June 24? If I understand him correctly, all people who had taken out dominion government annuities, and perhaps other annuities, on the understanding that they would not have to pay income tax when they became operative, have had that right taken away. Many thousands of our citizens are paying in so much a year, perhaps $300 or $400, on annuities so that when they reach a certain age, say fifty or sixty, they will have a $1,200 income. The understanding was that this income would be tax free as it is stated in the contract, "Income derived from this contract is exempt from dominion government income tax." Is it the intention of the government to repudiate its contract in connection with all these annuities?


James Lorimer Ilsley: If an annuity was purchased before June 24, 1940, whether it contained that clause or not, it is provided that such annuity will be free from income tax. But any annuity purchased after June 24, 1940, will be subject to income tax.


Harry Rutherford Jackman: The resolution reads, "to holders of options or contractual rights." A great many people purchasing annuities do not receive any income from them at the present time; they have only what one might term options or contractual rights.


James Lorimer Ilsley: If an option to purchase a further annuity is exercised, it will not be free from income tax. To that extent the provisions of the contracts are altered by this legislation. A purchaser may pay in a very small sum, say one dollar, for an annuity. The annuity purchased will be tiny, but the contract probably contains a clause such as is generally inserted in contracts of that kind entitling the holder at any time in the future to purchase a larger contract at the same rate and on the same terms. If he does that, he will have to pay income tax on the larger
[Mr. Ilsk'y.J
annuity which he purchases after June 24, 1940. He will not be able to escape income tax on that.


Harry Rutherford Jackman: If a husband and wife are paying $300 or $400 on a contract under which they are to receive an annuity at the age of sixty-five, perhaps twenty years hence, will that annuity be taxable? They are putting by so much every year with which to buy an annuity. It is really something in the nature of a contractual right. When that right becomes operative, will the $1,200 annuity be free of tax?


James Lorimer Ilsley: It will be free of tax if they are paying on a $1,200 annuity; if they are paying on a $200 annuity, and later increase it to $1,200, they will have to pay income tax on the other $1,000.


Harry Rutherford Jackman: A great many of these annuities have been sold on the understanding that no income tax would be payable. A man could pay in only one dollar, as the minister has suggested, and then increase the annuity. If the clause stating that such annuity will be free from income tax does not appear in the contract itself, it certainly did appear in some of the printed matter produced by the agent when the annuity was sold. I am not holding a brief for any person who pays in a nominal sum in order to obtain a larger annuity later on, but the fact is that government agents did tell these people that if they took out small contracts they had the right to increase them up to a maximum of $1,200.


James Lorimer Ilsley: I admit that has been taken away.


Agar Rodney Adamson: A contract for $1,200 in force would be still free from income tax?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: What is intended by the first clause of the resolution?


James Lorimer Ilsley: Insurance which is payable by way of annuity has been held to be not taxable as income; this makes it taxable as income.


Richard Burpee Hanson: I must congratulate the minister upon obscuring his intentions by the language of his resolution; no one could understand the resolution itself.


James Lorimer Ilsley: I have made it clear now.


Richard Burpee Hanson: The minister certainly has. I think we ought to have further consideration of that point. Where a man entered into a contract to purchase insurance to be payable in instalments, the equivalent of an annuity, the law of this country has been that such payments are free

Income War Tax Act
from income tax. The government is now going to tax these payments, so why not say so?


James Lorimer Ilsley: I did say so.


Richard Burpee Hanson: It does not say so in the resolution. It is absolutely misleading. There is no credit reflected upon the government for bringing out the resolution in that way. That clause would have slipped through if I had not asked about it because no one would have understood what it is about.


James Lorimer Ilsley: No.


Richard Burpee Hanson: The minister did not volunteer anything. I do not want to impute motives, but that is the case.


James Lorimer Ilsley: Nothing could be clearer than that section. Let me read it and then ask my hon. friend frankly whether it is not perfectly clear. It reads:
That the definition of income be clarified and extended to cover the amount of annuity payments made to life annuitants under purchased annuity contracts.
That is clear; there is no evasion there. I was clear in any explanation also.


Richard Burpee Hanson: The first part is not clear to me.


James Lorimer Ilsley: With regard to the policy of doing that, may I say that there is no justification for putting annuities from life insurance contracts in a position different from that of other annuities. Whether annuities should be taxable as income is a broad question. By this amendment to the act we are adopting the principle which has been uniformly applied in England. They regard an annuity as income, as a flow of income to the person and not a return of capital. The contrary principle is adopted by the United States. This government had to take the responsibility of deciding which principle it would adopt, and the decision has been to adopt the British principle. It would be idle for me to say that there are not excellent grounds for taking the other view, and excellent grounds for taking this view. There are reams of decisions and many pages containing argument of counsel and opinions of judges in connection with this question. We have now brought our law consistently into line with the English theory that an annuity is income.


Agar Rodney Adamson: The minister has said that rights already in existence will not be abrogated?


James Lorimer Ilsley: Yes.


Agar Rodney Adamson: 
James Lorimer Ilsley: Those already bought.


Agar Rodney Adamson: Will they also be tax free with regard to the national defence tax?


James Lorimer Ilsley: Yes, that is true. It is the same definition of income.


Howard Charles Green: What will be the position in the case of an insurance policy made payable to a named beneficiary who then elects to take payment by yearly or monthly payments? Will they be subject to income tax?


James Lorimer Ilsley: If he has a right to elect to take his insurance in yearly payments for his life, so that it is a life annuity, he will then have an annuity and he will be taxable. He will be electing to take income.


Howard Charles Green: I have more particularly in mind the case of a widow.


James Lorimer Ilsley: It does not make any difference. It does not depend on who it is. It depends on whether it is a life annuity.
Mr. GREEN. If it were taken over, say fifteen years, it would not be subject to tax? It is only in the case of the proceeds being payable on a life basis?


James Lorimer Ilsley: That is correct. That is
just where the line is drawn.


Karl Kenneth Homuth: But it actually is a tax on the return of capital, is it not?


James Lorimer Ilsley: I do not think we had better get into that argument.


Richard Burpee Hanson: It is just the one I was about to advance. It is a tax on the return of capital. If I buy from an insurance company a policy on which I have an option of taking either a certain cash return or a life income, it is part of my capital which is going into that annuity, and the minister is taking it as an income, arbitrarily. Well, if you need the money I suppose that sort of thing is justified, but it seems to me that, ethically, it is not the right thing to do.


James Lorimer Ilsley: I cannot say more than I said. I said there are good grounds for two views not only for the view held by the hon. gentleman but also for the contrary view; and if I had time and the committee wanted it, I could bring the English cases and argue for hours that this is in true essence income and not capital. The Americans take one view and the English another.


Karl Kenneth Homuth: Will not a clause like this one have this tendency? People who have saved up twenty, twenty-five or thirty thousand dollars now say, "The best thing I can do is, buy an annuity," and they do so in the belief that the money they have saved is in a safe place and that so long as they live they are

Income War Tax Act
going to get a certain income. Had they left that money in the bank, all that would have been taxable would have been the earnings; but now the government is going to tax the capital itself, people will say, "I won't buy an annuity, but I can buy certain life insurance."


William Earl Rowe: It is taxable too.


Karl Kenneth Homuth: No, not unless it is in the form of an annuity. They can buy certain life insurance, and at the expiration of a certain number of years they will get the money back. And it is not taxable.


James Lorimer Ilsley: Well, there may be that
tendency.


Mr. CASSELMAN (Grenville-Dundas):: May I ask the minister to elaborate what he said a few moments ago. Take an insurance policy payable for ten years certain or for life; in which class would that come? The company guarantees it for ten years sure.


James Lorimer Ilsley: That is an annuity.


Frederick Clayton Casselman: That is a life annuity?


James Lorimer Ilsley: Yes.


[Stage Direction]
Resolution agreed to.
18.	(1) That in addition to the income tax there be imposed a national defence tax on all persons in respect of their income,
(a)	in the case of married persons, of two per centum on the total net income if the income exceeds $1,200 per year;
(b)	in the case of single persons, of two per centum on the total net income if the income exceeds $000 and does not exceed $1,200 per year; or three per centum if the said income exceeds $1,200 per year.
Provided, however, that if the effect of such tax would be to reduce the income of any person below the relevant amount specified above, then to the extent it would so reduce the income the tax shall not be exigible; Provided, further, that there shall be allowed a tax credit on an amount of $400 at a rate equal to two per centum in respect of each dependent child or grandchild, brother or sister of the taxpayer under twenty-one years of age, and each child, grandchild, brother, sister, parent, or grandparent over twenty-one years of age dependent on account of mental or physical infirmity and resident in Canada.
George James Tustin: Under this paragraph an important question arises affecting persons in the constituency I have the honour to represent. Hundreds of people earn for a short period during the summer months at a rate of more than $600 a year. I refer particularly to seasonal workers in canning factories. They will be employed for from twelve to sixteen weeks. The owners of these factories know that these persons will not earn anywhere

near $600 during the period they are at work. Perhaps I had better enlarge a little on the question and say that employees in a good many of these factories work overtime; that is, they may work at their jobs some time during the day and also go back to the factories in the evenings during a few weeks and work some hours overtime. In a good many instances they are paid piece rates. The question I wish to ask is, in what position are the employers of this seasonal labour as regards the collection of this two per cent national defence tax? I do not know whether the minister clearly understands what I am asking.


James Lorimer Ilsley: I think so.


George James Tustin: Perhaps I might repeat that these employees earn fpr a short period a rate representing over $600 a year, but they do not begin to earn as much as S600 in the entire year.


James Lorimer Ilsley: In that event it is the duty of the employer to deduct the tax, and if the employee at the end of the year has not earned as much as $600 he will receive a refund of the tax. For deduction purposes the overtime is not included. That is, the two per cent deduction is from the regular pay, not the pay plus overtime.


George James Tustin: I rather expected that
answer from the minister, and again I want to draw to his attention this fact, that there are in this country thousands of such employees.


William Earl Rowe: Transient employees, such as apple pickers.


George James Tustin: I wonder whether the minister realizes the amount of work which will be required of his department in making refunds if all these persons make applications for refunds.


James Lorimer Ilsley: Yes.


George James Tustin: A great many of them do no other than this seasonal work, and it is certain that they will not earn $600 a year. Of course I realize that someone must be responsible, but assuredly it will entail a greatly enlarged staff in the minister's department to look after the refunds which will be requested by seasonal workers in this particular industry.


James Lorimer Ilsley: I know that the previous Minister of Finance worked for days trying to think of some way of avoiding the necessity of making refunds. The matter was discussed hour after hour and hour after hour; every alternative was canvassed; and we decided that we would be confronted with cases of such

Income War Tax Act
glaring injustice if we adopted any alternative to the refund system, that we had to resort to that. No one knows better than the commissioner of income tax what he has to assume in the way of detailed work and the amount of work there is going to be. But there is nothing else to do, so far as we can find out.


Karl Kenneth Homuth: Do I understand from
the minister that overtime is not subject to the two per cent tax?


James Lorimer Ilsley: I did not say that. I said that it is not regarded for deduction purposes. The employer's obligation is to deduct two per cent from the regular pay only, not from overtime as well.


Karl Kenneth Homuth: A man works ten hours a day and is asked to work twelve hours a day. He is not charged a tax on the extra two hours?


James Lorimer Ilsley: I may not have been strictly accurate in what I said. The regular pay is used for the purpose of deciding whether the taxpayer is taxable, and the deduction is then made from the whole of it.


Mr. MacINNIS:: Yesterday evening and
for a part of this afternoon and evening we have been discussing the tax to be paid by people receiving incomes of from $5,000 to $20,000 a year. There was a good deal of discussion as to how they could get along after having paid their income tax. We in this group take the position that it is not what an individual or a corporation pays that is of importance but what that individual or corporation has left after income tax is paid. In the first place we should, before we levy a tax of any kind, try to make sure that the person taxed is receiving sufficient income to provide a decent standard of living, an income which will at least furnish the decencies of ordinary life and make for healthy living. I submit that a single person receiving not more than $600 a year is not receiving an income that enables that person to live as a civilized human being and that a married couple, whether they have children or not, cannot live decently-and if they have children they cannot bring up a family under the conditions that prevail in Canada to-day-on $1,200 a year. The situation one finds here is so obvious that we should raise the exemption to $750 and to $1,500 respectively, as in the ordinary income tax schedules.
When speaking, on the unemployment relief and agricultural assistance bill I made reference to a cost of living standard that was worked out after careful investigation by the welfare council of Toronto. That body came to the conclusion that the lowest weekly wage
on which a married couple with three children could get along at all decently was $28.35, which amounts to $1,475.20 a year. The basis on which they worked out that cost of living standard is the lowest minimum on which a family can get along. The schedules are here, and I defy any member of this house to say that there is one item that is too high. 1 have the schedule for a working man's clothing for a year. The amount allowed is $64.81. That, the committee will agree, is a very modest amount, and a man would have to be very careful indeed to manage. He is allowed one suit of clothes in two years, and the price of that suit in the first place is only $16.95. He has to make a $16.95 suit do for two years. Once in a while he is supposed to get an overcoat. The price is $15 and he has to make it do for four years. He is allowed four neckties in a year. Possibly that may seem like a large number, but when the neckties cost only twenty-five cents apiece, it does not represent a very extravagant expenditure.
I submit that the first duty of the government'is to see that the working people of Canada, those who produce the food, the munitions of war and all the necessities and luxuries of life, shall have a decent standard of living, wages sufficient to enable them to live in health and a certain amount of comfort. Unless we do that, there will be essential items of expenditure which the family cannot meet and which some governmental authority will have to look after. There will be sickness that someone will have to take care of, dental treatment and so on. If we take away any part of their small incomes, no matter how small the amount may be, we are depriving them of something that is sorely needed.
There is another point. I think it is well understood that people on a low wage are usually those who are not working steadily but are engaged in intermittent work. Take a family with SI,200 a year. The head is unemployed for three months or six months as the case may be-and during the last few years many have not been employed at all during the year. That means that there are house furnishings, clothing for the family which must be supplied. In order to keep going they get into debt. After getting work, the man must pay back debts and buy clothing, kitchen utensils, small furnishings and so on, which they had to forego when he was unemployed. Tax them ever so little and you are not only not helping the cause for which you are working, but you are really retarding the productive efforts of the nation.
I suggest to the minister that he should raise the exemption, before the national
Income TFar Tax Act

defence tax applies, to at least $750 for single men and $1,500 for married men, just as in the case of the ordinary income tax. After all, you may call this a defence tax or what you like, but it is an income tax, and a tax on those who are not receiving sufficient income to enable them to live decently.


Mr. COCKERAM:: Is it understood that members of the armed forces of Canada are exempt from this tax, or do they have to pay it?


James Lorimer Ilsley: I have an amendment to propose when I come to the resolution which relates to that. We have not reached it yet.


Karl Kenneth Homuth: I want to get this point cleared up. The minister referred to the figuring of overtime. Suppose a man earns $520 a year in regular wages and $300 for overtime, would he be subject to this tax?


James Lorimer Ilsley: Yes, if he is single.


Karl Kenneth Homuth: Then what is overtime? Take, for example, a plant working two shifts; the men on one shift work eight hours, on the other shift the men work ten hours. They change about every few weeks. Some of them may even work a little extra time. There is no set rule as to how many hours they work. I have in mind, for instance, a textile plant where they have dye vats, and they work overtime to finish a vat. Is it going to be left to the discretion of the employer to say what is overtime?


James Lorimer Ilsley: I am not sure that I understand the question-it is my own fault of course. The pay received for overtime is taken into account as well as the regular pay, in deciding whether the person is liable to the tax. For what reason does it become material to know what is overtime and what is not?


Karl Kenneth Homuth: The minister mentioned overtime.


George James Tustin: I just asked the minister that question a few minutes ago, and I understood him to say that the rate of pay was to be computed on the regular day's work, not on overtime.


James Lorimer Ilsley: That is right.


George James Tustin: In other words, I take it that earning two dollars a day would make a man liable for the tax, if he were a single man. That would be at the rate of $600 a year.


James Lorimer Ilsley: Yes.


George James Tustin: Then he must earn that two dollars a day before his overtime is added, to make him subject to tax?


James Lorimer Ilsley: If he earns two dollars a day, that is at the rate of more than $600 a year; therefore there devolves upon his employer the obligation to make a deduction from his pay, and the employer deducts two per cent from the whole pay, regular and overtime. Perhaps I understand a little better now the question of the hon. member for Waterloo South. He wants to know what the employer is going to call overtime.


William Earl Rowe: They get double pay for overtime.


James Lorimer Ilsley: Is that the question?


Karl Kenneth Homuth: Yes, what are you going to call overtime?


James Lorimer Ilsley: There would be the regular hours, and whatever is worked beyond the regular hours would be overtime.


Karl Kenneth Homuth: Under the provincial codes, for instance, certain hours are set out for the textile industry. Anything over that would be overtime. But now these codes are more or less thrown overboard because under war conditions it is essential to have production. Now what is overtime? Of course I realize that it will be a matter of administration; it cannot be all set out in the act, or the act would be all cluttered up with explanations. But some definite standard should be set by the department, otherwise you are going to have a complete checker-board of what is overtime and what is not.


James Lorimer Ilsley: I think if any employer had any doubt he should apply to the commissioner of income tax for a ruling. I do not think there would be any delay or difficulty.


Joseph Henry Harris: One outstanding case, a simple one, is that of truck drivers, who are paid by the hour. No particular number of hours constitutes a day's or a week's work. There is going to be difficulty there.


William Earl Rowe: Will this apply to market gardeners and farmers?


James Lorimer Ilsley: Anyone who earns over $600 or $1,200 a year, as the case may be.


William Earl Rowe: At the rate of over S600 or $1,200. If he is hired by the day and works for ten days, so long as he is getting at the rate of two dollars a day he is subject to the deduction. Market gardeners and farmers throughout the country usually pay so much wages with board. If you pay a man $1.50 a day and his board, at a reasonable calculation for board he would be receiving over two dollars a day. They will have to reckon a reasonable rate for board.

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James Lorimer Ilsley: Yes, they would have to do that.


William Earl Rowe: Is there any rate fixed, or will there be?


James Lorimer Ilsley: The department will have to determine reasonable rates in accordance with local conditions and circumstances.


William Earl Rowe: I realize that the reason for these taxes is that the government need the money, and I do not want to embarrass the minister, because I realize that he and the treasury board have given this tax a good deal of thought in order to try to remove difficulties that they see ahead for themselves and the taxpayers. But this strikes me as almost in the class of nuisance taxes as far as administration is concerned. It is cumbersome. I can see not only many headaches for the minister and his department but also many heartaches almost for employers. I think the minister might almost reconsider the advisability of a straight tax, even though not quite this much, a straight tax on the payrolls, as it were, because I fear this tax will cost almost half its proceeds to administer it.
The hon. member for Prince Edward-Lennox brought up a question which to my mind is important. It affects market gardeners, and I think he mentioned canning factories and employment of that type, where there is so much transient labour, where a man and his wife and perhaps two or three children drive in and pick berries or tomatoes at a certain price a day. They would probably get paid by the hour, at the rate of more than two dollars a day. They might spend two or three days in one place and then go on to another place. There is unlimited room for eonfusion and trouble. They might wind up picking oranges in California and not return and have an opportunity to get any refund. I realize that to enforce this tax there must be a penalty attached, but I see endless possibilities of confusion in that type of employment, and also for farmers. That would be particularly so with regard to men employed by fruit and vegetable growers; apple pickers, who go from one place to another; transients who stay a couple of days and then for some reason feel that they must move on. They collect a few dollars and the employer must deduct two per cent. He must get their names and addresses; he must find out all about them, whether they are married men, how many children they have, and so on. I think the statement of the hon. member for Prince Edward-Lennox indicates even greater possibilities for confusion. It seems to me that
some consideration might be given to establishing a minimum of perhaps $25 or $50 before this tax would be applied.
I might mention also the fruit and vegetable canneries; no doubt the minister is well aware of the manner in which they are operated. Pickers are sent out to do work such as I have indicated. I believe it might be much easier if a minimum of $50 could be established before the tax operated. I can see a great deal of unfairness to the transient employee, much confusion for the employer and all sorts of trouble for the department. This seems to me almost in the category of a nuisance fax, the collection of which will cost almost as much as the revenue that will be obtained.
Other lines of industry might be mentioned, such as bush work, the cutting of pulpwood and so on. The hon. member for Danforth mentioned truck drivers, and the question of overtime work as far as they are concerned. In a smoothly running factory, where employment is perhaps ninety-five per cent permanent, the effect will not be so bad, but in scores of other businesses men are employed by the day. Men are hired to drive a truck or a car for a day, or to pick potatoes, tomatoes or apples, or to cut wood. It seems to me that as far as this sort of employment is concerned, the scheme would be made much more workable if some minimum were established.
Personally I would much prefer to see a straight tax of 1 per cent or per cent on the payroll, and leave it to the employer to deduct that itax. Perhaps that would not make it much easier for the employer, but I think it would cause less confusion in the department and would be more economical from the point of view of revenue and sounder from the point of view of business.


James Lorimer Ilsley: There is no doubt that this tax is going to make a great deal of trouble for all of us. It will make a great deal of trouble for the department, although that is unimportant; it will make a great deal of trouble for employers and employees, but we are in trouble and we have to reckon on being in trouble in these matters. The hon. gentleman suggested that the cost of administration would be as much as the tax would bring in.


William Earl Rowe: I meant in connection with the tax paid by transients; I did not mean generally.


James Lorimer Ilsley: The estimated return from this tax is $35,000,000, and I just asked the commissioner for an estimate of the cost of administration. I asked if it would be a million dollars, and he said, nothing like it. I asked if it would be half a million, and
Income War Tax Act

he thought perhaps it would be something like that, although he did not know. The percentage of the cost of collection is not going to be unduly high. But the government will have to appeal to employers, employees and everybody to regard this as one of the arduous duties caused by the war and to make this tax work. We must have this money, and we must be prepared for a great deal of trouble in getting it in this way. All manner of 'taxes were considered before this tax was adopted. I am not prepared to argue it here; it was the responsibility of my predecessor, and I was not privy to it to any extent ait all. But think of a payroll tax, under which the man with a large family is taxed at the same rate as the single man. When he asks why he is taxed at that rate and why the single man is not taxed at a higher rate or why the married man is not given a larger exemption, the only answer would be that it would be too much trouble for the employer or for the government. That answer is not good enough. He will say, "take the trouble. We must all take trouble these days, but get a little justice into your taxation." In the opinion of the government this is the most just form of a drastic, almost universal, tax-reaching away down-that could be devised.


William Earl Rowe: I do not want to hold up the resolution, but I did not mean that the tax generally would not bring in a large revenue. I had special reference to the transients who might be employed in different branches of industry. I thought a minimum might be established in those cases without much danger.


Karl Kenneth Homuth: Did I understand the
minister to say that a farm labourer would be subject to this tax?


James Lorimer Ilsley: If he is paid at the rate of $600 per annum.


Karl Kenneth Homuth: Then of course the government will have to establish the value of his board.


James Lorimer Ilsley: Yes, the government will have to give some indication as to what would be fair in the respective localities.


Karl Kenneth Homuth: I have had some farmers inquire of me and I really could not answer them, but the general feeling is that farmers are not subject to this tax.


James Lorimer Ilsley: Farmers are subject to it.


Karl Kenneth Homuth: At the end of the year a farmer finds that he has cleared, say $1,300. Will his earnings be subject to this tax?


James Lorimer Ilsley: Yes.


Karl Kenneth Homuth: The farmer does not think so. The feeling in the country is that the farmer will not have to pay the tax, nor will his hired man. I think that point ought to be cleared up.


Mr. WRIGHT:: If the 'hon. gentleman who spoke last would look at the Sirois report, he would find that the average farm income for the whole of Canada for 1937 was $407, so
that income will have to increase considerably before the farmers will come under this tax. I should like to remind the minister also that this tax will apply to harvest labour in the west. As a rule, harvesters are paid S3 or $4 a day. If a farmer hires men for three or four days or a week, does that mean that he will have to pay this tax?. It will become a nuisance tax as far as farm help is concerned, and as far as that goes I agree with the hon. gentleman who suggested that some minimum should be fixed.


James Lorimer Ilsley: There is not.


Herbert Alexander Bruce: I should like to answer a question asked by the minister's predecessor, if I may, instead of asking a question of the minister.


James Lorimer Ilsley: Has it to do with the resolution?


Herbert Alexander Bruce: I think it comes under this resolution. The other evening the former minister asked me a question in regard to a statement I had made, to the effect that if the minister borrowed SI,000,000,000, a tax of $50,000,000 annually woidd service and repay that loan in a certain period of years. The minister asked if I would tell him the number of years. At that time I had not made a computation, nor was I competent to do so; but I asked an actuary to compute the time, and this has been done. Considering that the 5 per cent of the original principal which I had in mind would be at the rate of 3i per cent for interest, it would leave If per cent for repayment of the principal, and that would mean that in 33 years the debt would be liquidated.


George James Tustin: I have asked the minister several questions. I do not wish him to think I am tiying to embarrass him, but I would point out that in my constituency there are a great many persons who are seasonal workers, and who cannot possibly earn $600 or $1,200 a year. Again I am referring to workers in the canning factories. In the first place these people on some occasions do work long hours. For instance, let us say that today an employee may work 15 hours and to-morrow he may work 8 hours. Then possibly he may not work for a couple of days.

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The question I ask the minister is this: How is the employer to compute whether that employee is earning at the rate of $600 a year? Is he to do it by the hour, or by the day or
by the week?


James Lorimer Ilsley: The unit of time for which the employee is paid will have to be considered. That will have to be the basis, even though it is by the hour.


George James Tustin: Most of these people work on piece work. Would one have to figure out on an hourly basis what they earn doing piece work? I am asking this question because I know I am going to be asked many questions along these lines within the next few weeks.


James Lorimer Ilsley: I believe a better way for
the hon. member to get the information would be to confer with the commissioner. I say that because there is a disadvantage in giving these advance commitments or opinions in respect of a measure of this kind on the floor of the house, without a chance for previous consideration, or without a chance of further questioning. I suppose there is an opportunity for me to question the questioner, but it 'would be more satisfactory if the hon. member were to consult with the commissioner, so that he would have full and definite answers to the questions which are sure to be put to him.
With respect to piece work I am under the impression that usually the amount per week can be computed in ordinary piece work.


Richard Burpee Hanson: No doubt about it.


James Lorimer Ilsley: And piece work can be converted into a wage rate, with that to be taken as the basis.


George James Tustin: I understand that. But I
have tried to make it clear that some days these people are employed for a number of hours, other days they are employed for a lesser number of hours, and then possibly they are not employed for a day or two. Then in the following week they may work for fifty or sixty hours. I was trying to find out how the employers were going to compute it, to know whether these people were earning $600 a year.


Richard Burpee Hanson: That will
never be known. As I understand it, they will have to take off two per cent on every pay day. If in the final result the individual's income does not come up to $600 or $1,200, as the case may be, with the proper exemptions, then the individual must apply for a refund. Manitoba has had experience along these lines,
and I believe their experience would be of value to the department. I believe they had it out there on an hourly basis.


Joseph Henry Harris: The predecessor of the minister made a statement which to my mind was plain, and I commented on it previously. He said:
It is recognized that there will be a good deal of additional work for employers and their staffs in making deductions and returns, and provision will be made towards reimbursing employers for expenses so incurred.
That is going to be a difficult suggestion to put into effect and to administer. Before the resolution carries, I should like the present incumbent of the office to give us some idea of what is meant. As I read the resolution, there is nothing in it to take care of that point, and I view the statement I have read with some alarm.
Before the resolution carries, the present minister who is to administer the act ought to give some idea as to what provision will be made, if indeed any is to be made. I am still hopeful that there will not be any.


James Lorimer Ilsley: In the first place I should
like to say that the Minister of National Revenue (Mr. Gibson) will be administering the act-not myself.


Joseph Henry Harris: May I extend
congratulations to the Minister of National Revenue. I hope Ontario gets everything that is coming to it from that minister

and I notice he is listening intently.


James Lorimer Ilsley: I just wish to say I can answer the question now, that there will be some allowance to employers for the necessary work. I wish to read what the minister has said, because I believe I have not read it before. He said:
It is recognized that there will be a good deal of additional work for employers and their staffs in making deductions and returns, and provision will be made toward reimbursing employers for expenses so incurred. Employers, however, can by their cooperation and interest help greatly in working out the methods to be adopted and in making the system operate efficiently and fairly and with a minimum of inconvenience both to their employees and themselves. I feel sure that under the circumstances we can count upon the full cooperation of employers in this additional task which they arc called on to perform in the national interest at this time.
There would not be a great deal of difficulty in fixing something to cover expenses of employers. We had that in one other instance, namely, in respect of banks which take declarations concerning ownership certificates, in order to check up in regard to bearer coupons. There is a small allowance to banks to cover their expenses for doing that work.
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Richard Burpee Hanson: A service charge.


James Lorimer Ilsley: Yes. There is no allowance to manufacturers for making sales tax returns, although repeatedly manufacturers have represented that they should be paid for making sales tax returns. But we have never admitted that anybody but themselves is taxed. Of course that is only theoretically true. They pass the tax on to the others, and many of them have wanted the position recognized that they were merely agents of the government in collecting from their customers. However we have said, no, that they were the taxpayers; and we have not paid them the service charge.
But in this instance the employer is the agent of the government in doing something for the government, namely, making the deduction; and there will be an allowance accordingly. I do not know what more can be said.


Joseph Henry Harris: I just wish to say that something is creeping in here. The minister has started something. I shall give an example: On Friday last in one case affecting 150 employees it took one accountant and a junior clerk six hours to go through a payroll for that week, and tabulate these deductions. I presume they would figure the cost of their work in connection with the pay of these employees. In my opinion the minister is setting a dangerous precedent. Even though the manufacturer is not taxed, he feels he is being taxed because his employee is being taxed. The setting of a service charge is not good business. The government should set a flat rate and not let those who are collecting the money for the government set what they consider should be right for a service charge. It will be found that some industries will charge more than others, while others will want to cooperate to the extent of bearing all the cost themselves. Certain industries are overorganized or superefficient, and the government will be expected to pay, not only the actual cost of collecting this tax but a certain proportion of their overhead cost and what-not all down the line. Other industries, being more patriotic, will want to absorb the cost. By originating this service charge I think the government will cause considerable dissatisfaction among the people of this country. Where there are a large number of employees and where the tax amounts to only a few cents, the work involved in tabulating the tax and collecting the money may be considerable, but at the same time I think it is a tax which industry ought to bear.

The minister referred to the banks. I contend the banks have been too prone to make service charges, especially for What they do for their depositors. As the minister knows, during the last three or four years the banks have instituted service charges for carrying bank accounts and the issuing of cheques against savings accounts. The same thing may be said of public utilities. We have the gas companies making service charges for their meters and so on. This sort of thing should be frowned upon and our conduct of affairs should not be cluttered up with service charges. Mr. Chairman, both you and the minister are learned gentlemen and you know how certain bills are made up. Service charges creep in all the way through and then there is a five per cent charge on top of everything.


Richard Burpee Hanson: Five per cent charge for service? I have not heard of that.


Joseph Henry Harris: I was thinking of trusteeships. I hope when this is put into effect that those industries which are anxious to cooperate to the extent of bearing the full cost will not be discriminated against.


Agar Rodney Adamson: I have a problem somewhat similar to that raised by the hon. member for Prince Edward-Lennox, but mine is in connection with the canning factories. The employees of these factories will work for fifteen to sixteen hours a day during a rush period of a week or two and their wages will be quite large. There must be some way in which the wages of these employees could be evened throughout the year. They may work a week or two at high pressure, and then not work for probably three or four weeks. During the winter the factories are sometimes shut down completely. In England they have had somewhat the same problem in connection with their unemployment insurance. There an employee is given a card, and at the end of the week a stamp is placed on the card to show that he has paid his insurance. I suggest that a similar system should be worked out for Canada. A man would work for a week and at the end of the week his tax would be deducted. When the year had closed he would have immediate proof that his total income had not come up to the taxable figures.


William Earl Rowe: I understood the minister to say that unless a man was earning at the rate of S2 a day, no return would have to be made. Paragraphs 2 and 3 read:
That every employer be required to deduct the tax imposed in respect of earnings of the employee earned or accruing due during and after July, 1940;

Questions
That every employer remit the tax collected at the source on the sixteenth day of September, 1940, and on the fifteenth day of each month thereafter.
I understand that to mean that no matter what wage a man is earning, the tax must be deducted and returned on the fifteenth of each month. Some warning would have to be given agriculturists, vegetable growers and others to get started in order to be able to pay next month.


James Lorimer Ilsley: This resolution relates merely to the machinery by which the tax is secured by the employer, it does not mean that the tax must be deducted in the case of every employee.


William Earl Rowe: A man may receive $2 a day from one employer, $1.70 a day from another employer and $3 a day from another. His total earnings for the year might be $1,300. Where would the deduction be made?


James Lorimer Ilsley: The man who paid $2 would make a deduction; the others would not.


Richard Burpee Hanson: There was the matter of commission compensation to which I referred yesterday.
Resolution stands.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Wednesday, July 10, 1940