[Stage Direction]
On the orders of the day:
Hon. R. B. HANSON (Leader of the Opposition):: Mr. Speaker, I should like to ask the Prime Minister whether the government has taken into consideration the interim report made by the committee on radio broadcasting on the 7th of July, in which the establishment at the earliest possible moment of a high-power short-wave station was recommended. If so, what decision, if any, has been reached?


Right Hon. W. L. MACKENZIE KING (Prime Minister):: The matter is under consideration at the present time, but a decision has not yet been reached.



SOVIET UNION


[Stage Direction]
On the orders of the day:
Richard Burpee Hanson: I should like to direct a question to the Prime Minister arising out of the announcement he made on the 5th of February last that an exchange of consular representatives with the U.S.S.R. was planned. On June 12 the Prime Minister announced that an agreement for the establishment of direct diplomatic relations and the exchange of ministers had been concluded. I now desire to ask the Prime Minister whether he has any further information to communicate to the house in this regard, and particularly as to when an appointment may be expected. If he is not in a position to give any further information to-day will he make an announcement before the house adjourns?


William Lyon Mackenzie King: Mr. Speaker, I hope before the end of the session to be able to announce an appointment. I may not be successful, but I hope to be able to.



BUSINESS OF THE HOUSE


[Stage Direction]
On the orders of the day:
William Lyon Mackenzie King: I should like to say a word

Labour Conditions
to hon. members with respect to the conference which I had this morning with the Leader of the Opposition (Mr. Hanson), the leader of the Cooperative Commonwealth Federation group (Mr. Coldwell), and the leader of the Social Credit group (Mr. Blackmore) with respect to the proceedings for the remainder of the session. We were discussing the possibility of so arranging matters as to have the house adjourn by the end of next week, and it was felt that, if hon. members would lend their cooperation towards that end, it should be possible, particularly if the house were to agree to morning sittings very soon.
I gave notice of a motion which appears on the Votes and Proceedings of yesterday to sit Wednesday evening of this week. I assume the house will be agreeable to that motion carrying. The leaders of the different parties are. It should also be understood that the house will sit as well on Friday night of this week. To ensure getting through by next week it was felt that we should begin morning sittings, if possible, on Saturday of this week, * and that the house should sit Saturday morning and afternoon. Then next week we would if necessary sit morning, afternoon and night throughout the week. That is the proposal that has been agreed to by the different leaders in the house, and unless there is some very decided objection to it on the part of hon. members I will have notice of a motion placed on the Votes and. Proceedings to-day to give effect to that procedure. In the meantime perhaps the house would be agreeable to passing the motion to sit on the evening of Wednesday the fifteenth, and I accordingly move:
That on Wednesday, the 15th of July, 1942, and all subsequent Wednesdays until the end of the session, the sittings shall in every respect be under the same rules as provided for other days.


[Stage Direction]
Motion agreed to.


[Stage Direction]
On the orders of the day:
Mr. THOMAS REID (New Westminster):: I should like to direct a question to the Minister of Labour. Many members of parliament, I presume, have been receiving, as I have, many protests and letters in connection with the Japanese situation in British Columbia. My question is based on an article appearing in the Vancouver Sun, which reached Ottawa this morning, in which it is stated that the British Columbia security commission have issued a statement that the Japanese will not be removed until the middle
of September. A further statement was made that the Minister of Public Works for British Columbia had asked for 600 Japanese to work on various projects, and that only 200 could be supplied. Would the Minister of Labour care to make a statement on that?


Hon. HUMPHREY MITCHELL (Minister of Labour):: Mr. Speaker, I would not like the impression to go out that the back is not broken of the movement of Japanese from British Columbia, because that problem is already under the bridge, in a big way. I have no knowledge of the announcement to* which my hon. friend has just referred. The British Columbia security commission has been instructed to remove all the Japanese from those areas as speedily as possible, and they have acknowledged these instructions from the Department of Labour.	.



LABOUR CONDITIONS


[Stage Direction]
On the orders of the day:
Richard Burpee Hanson: Mr. Speaker, I should like to
ask the Minister of Labour a question arising out of a press report this morning to the effect that a royal commission has been appointed to investigate labour conditions in the British Columbia shipyards. Is that report correct; and what is the occasion for a royal commission when the department has such full powers now under the mobilization and other acts?


Humphrey Mitchell: I was just going to make an
announcement on that matter.
A commission has been appointed under the Inquiries Act to inquire into the means of securing maximum production in the British Columbia shipyards. The commission will report on methods of increasing the output of ships, and on a plan for the operation of the yards six days in the week which was submitted by a dfeputation representative of the shipyard employees. Specifically the terms of reference of the commission are:
1.	To examine into the operation of the plan of continuous operation now in effect and to give due consideration to the substitute plan submitted by the deputation.
2.	To inquire into any factors now impeding production in the shipyards of British Columbia and as to the most effective means of securing maximum production in such shipyards.
3.	To report on the foregoing.
Labour Conditions

The chairman of the commission is the Hon. Stephen Ellswood Richards, of Winnipeg. There are two members representing employers and two representing employees. The employer members are Mr. Don Serviss, general manager of North Vancouver Shipyards, and Mr. Hugh Lewis, general manager of South Yard, Burrard Dry Dock, Vancouver. The employee representatives are Mr. Chris. Pritchard, of the United Association of Plumbers and Steamfitters and President of the Metal Trades Council, Vancouver; and Mr. A. A. McAuslane, Vice-President of the Canadian Congress of Labour, Vancouver.
In announcing the appointment of the commission I wish to state that the Minister of Munitions and Supply and myself are resolved that all steps necessary to secure the greatest possible output of ships from the yards in British Columbia shall be taken. No doubt changes in the existing procedures of management and labour will be necessary, but in the present dire need for vessels to carry the tools of war to the battle fronts, nothing can be permitted to stand in the way.
In March I visited the shipyards on the Pacific coast and conferred with representatives of the managements and of the employees. As a result of these conferences a plan was proposed for the continuous operation of the yards. Three shifts were to be established, and operations were to continue twenty-four hours a day, seven days a week, but each employee was to have one day of rest in seven. After further conferences I left Vancouver feeling that all parties were agreed on the adoption of this programme. I am glad to be able to say that nine unions, representing about 95 per cent of the employees of the coast shipyards, accepted the plan and entered into supplementary agreements for its adoption. Two unions declined to enter into these agreements, despite a request from the unions that entered into the contract that they should do so. The failure of a small minority group to cooperate in this plan for greater production of ships and, I think I may add, one or two missteps on the part of certain of the managements, prevented the plan being brought into full application. This had a disquieting effect on the members of the unions which did sign the agreement. Members of the non-cooperating unions were not in their places on Sunday, while members of the cooperating unions reported for work with the feeling that they were being subjected to discrimination.
In these confused circumstances a joint * conference of shipyards unions was organized. This body developed an alternative plan for six days operation a week, which, in their view,
rMr. Mitchell.l
would prove as effective in promoting production as the plan of continuous operation. The joint conference of shipyards unions prepared a brief in support of their plan, and a deputation from the conference came to Ottawa to discuss it with me. I met the deputation on June 27 and 29. In these negotiations I was impressed by the sincere desire of the representatives of the shipyards workers to cooperate in any effort which would promote greater ship production. I pointed out, however, that the brief they" had submitted had many implications which would take some time to explore. Obviously I would have to discuss their plan with my colleagues interested in the shipbuilding programme and especially with the Minister of Munitions and Supply. I requested the delegation to urge upon the shipyard employees in British Columbia that they should give the plan of continuous operation a thirty-day trial. I agreed that if this were done, their representations for an alternative scheme would be carefully considered, and my decision would be rendered as nearly as possible within thirty days.
It is very gratifying to me that the members of the deputation entered into this undertaking, and I can now report that all employees in the coast shipyards have accepted the recommendations of their representatives and that the yards are now building ships twenty-four hours a day, seven days a week.
The commission to which I refer will begin its investigations in Vancouver on July 20. I am confident that the members of the commission will concentrate on the one allimportant question of how to build the utmost possible number of ships in the shortest possible time, and that they will submit a constructive report.
I should like to point out to the house that, despite various allegations on the irresponsibility of trade unions, in this case a group of trade unions in a very important industry under the guidance of responsible national leaders have met a crisis in one of the most serious phases of our war effort in an altogether creditable manner. I am confident these men will give Canada all they have to give in the production of ships.


Richard Burpee Hanson: I am
obliged to the minister for having made that statement. The only thought that occurs to me is this: if there has been a complete agreement and there is now full cooperation on the plan suggested by the minister, why a royal commission? What other intervening

Hong Kong Commission
circumstances have made it necessary to issue a commission under the 'Inquiries Act? I do not think the minister made that clear.


Humphrey Mitchell: I thought I had made that quite clear. When the delegation came to see me I pointed out to them, and I think quite rightly, that it was not sound to say that a seven-day working week in the shipyards was not practicable until it had been tried out. I said to them that first of all, in fairness to the government, and in view of the urgent need of shipping, it should at least be tried out by all the unions engaged in the production of ships in the shipyards of Vancouver. I pointed out that a decision upon their brief, which was a lengthy document, could not be made within a day or two days; it would have to be analysed by some responsible authority. But I promised them that if they gave this plan a trial, as soon as possible, after thirty days I would make decision whether a six-day week, in my opinion or that of the government, was the most practical approach to the problem, or the seven-day week.
May I also point out that this has been called at the coast the Mitchell plan. It is quite true that I had negotiations there with both employers and employees, and I think it is fair to say that the arrangements made were made in pursuance of the negotiations, in that- the employers and the employees in the British Columbia shipyards, seeing the urgency of the situation, agreed to this seven-day operation without any coercion from the federal government. It was unfortunate, I think, that, mistakes having been made by certain employers and certain trade unions, the plan was not given the trial which in my judgment was necessary in view of the desperate situation in which this nation and all the united nations are placed at the moment with respect to shipping to carry the products of this country, both food and war materials, to those who are really fighting the battle of democracy and of freedom.



HONG KONG COMMISSION


[Stage Direction]
On the orders of the day:
Mr. KARL K. HOMUTH (Waterloo South): In view of what the Prime Minister has said about trying to end the session as soon as possible, could he give the house any intimation as to just what day there will be an opportunity of discussing the Hong Kong investigation?
William Lyon Mackenzie King: Prime Minister): As I have mentioned before, the understanding is that we should first conclude the discussion on the budget resolutions and dispose of Bill No. 80 as well. I think that immediately or very shortly after that the inquiry could be discussed.


Mr. M. J. COLDWELL (Rosetown-Biggar):: I understand that Colonel Drew has submitted a long letter to the government regarding the Hong Kong investigation. Would the Prime Minister table that letter in order that we may have it before us when this debate takes place?


William Lyon Mackenzie King: I may say that I received yesterday a letter from Colonel Drew.-no doubt the letter to which my hon. friend refers, because Colonel Drew states in it that he has sent a copy of the letter to my hon. friend, and also to the leader of the opposition (Mr. Hanson) and to the leader of the Social Credit party (Mr. Blackmore). If the leader of the Cooperative Commonwealth Federation, on his responsibility as a member of the house, will ask me to table the letter, I shall do so, but I certainly will not table it unless some hon. member on his responsibility requests it.


Major James William Coldwell: I will take that
responsibility, and ask that the letter be tabled.


William Lyon Mackenzie King: It will be
tabled to-morrow.



AVAILABILITY FOR PARCELS TO MEMBERS OF THE FORCES OVERSEAS

[Stage Direction]
On the orders of the day:
Mr. KARL K. HOMUTH (Waterloo South): I have had several letters complaining about the fact that no sugar is available to put in overseas boxes. Could the Minister of Finance tell us whether or not some special provision could be made with regard to sugar so that it might be available for these boxes?
Hon. J. L. ILSLEY (Minister of Finance):: I will make inquiries and if I get information I will let m3' hon. friend know promptly.



WAYS AND MEANS


[Stage Direction]
The house in committee of ways and means, Mr. Vien in the chair.
18. That the said schedule I to the said act is further amended by adding at the end thereof as section ten and eleven the following:
Special War Revenue Act
[Stage Direction]
"10. Chocolate, candy and confectionery which may be classed as candy or a substitute for
candy	 30 per cent."
"11. Chewing gum	 30 per cent."
The CHAIRMAN:: The following amendment has been moved:
That resolution No. 18 be amended by adding the following proviso to section 10 of schedule I to the said act, as therein proposed:
"Provided, however, that in respect of the goods mentioned herein the tax shall be:
One cent on each article or unit selling regularly at a retail price of 5 cents;
Two cents on each article or unit selling regularly at a retail price of 10 cents;
Three cents on each article or unit selling regularly at a retail price of 15 cents; and the Minister of National Revenue shall be the sole judge of the classification of the goods, the value, and the unit of the sale for purposes of this tax."


Mr. MACDONALD (Brantford City):: Last night when the committee rose the leader of the opposition (Mr. Hanson), the hon. member for Trinity (Mr. Roebuck) and myself, had made certain representations with regard to candy that was being retailed at one cent. Has the minister considered whether or not it is possible to reduce the tax on candy selling for one cent?


James Lorimer Ilsley: A great deal of consideration was given this question last week, and it has received further consideration since the representations were made in committee last night. The situation is this. The 30 per cent tax as it stands applies to all candies at the manufacturers level, and my information is that about 8 per cent of the candy manufactured is sold for sale in one-cent units. No company that I know of sells candy in one-cent units alone. Some companies sell a larger proportion of their output in that form than do others, and representations have been made by those companies that have the largest proportion of their output in one-cent units. The inevitable effect of relieving part of the output of the candy industry of Canada from the 30 per cent tax would be to divert a larger proportion of the manufacture into that particular form of output. Indeed, it is altogether likely that the one cent part of the output would be advertised as free from taxation. Consideration has been given as to measures by which that diversion, which would be unfair, undesirable and expensive to the treasury, could be prevented, and we have not been able to satisfy ourselves that any measures that could be taken would be entirely effective. The objection that was made last night was that this wmuld mean that units now selling for one cent would hereafter sell for more-perhaps two for three, or three for four, or four for five, or something of the kind. [Mr. IlsIey.J
This increase in the price would not be permitted by the wartime prices and trade board. In the budget it was clearly stated that increases that were necessitated by this tax would be permitted by the wartime prices and trade board. A limited range of articles was selected, and the policy was clearly laid down that these increases would be permitted. It is true that the 30 per cent increase in price as applied to the one cent article comes to a fractional figure, one cent and a fraction, and in that case it would be necessary for the retailer to sell for two cents unless he combined several units and sold two for three, or three for four, or four for five, and my information is that to do so would be regarded by the wartime prices and trade board as objectionable.
It may be said that the dampening effect of this tax on the sale of candy in one-cent units will bring about much distress to candy manufacturers who are heavily in the manufacture of one-cent units, and to retailers heavily interested in selling them. This might be true under normal conditions. I am informed that many years ago-I do not know how many

a candy tax such as this, or of some kindi, was proposed, and abandoned because it would be unfair to the sellers of one-cent candies. But under present conditions I am not convinced that there would be much injury. There may be a little; that is a necessary result of many of our measures. But the reason why there will not be much injury is that sugar is severely rationed. Candy manufacturers are permitted to use only 70 per cent of their normal supply, and they can sell without any trouble all the candy they make. The manufacturer whose output is 50 per cent in one-cent units and 50 per cent in larger units will perhaps find that the one-cent part of his output will be reduced, but he will sell more of the other. It will render some little adjustment necessary, but it will not have the serious effect that there might be if there were a scramble for a market, or if it were difficult to sell the output, when the loss would not be compensated by the increased sale of another type of output.
On the whole, therefore, I am inclined to think that the tax should stand as it is. The argument that was used last night was as to the children. The hon. member for Trinity argued that it is not for us to judge; that the children want to buy one-cent sticks of candy and we ought to let them do so. It all depends on how important one considers these things. I do not think it would be a great hardship on the people of this country if the children had to pay three cents for two sticks of candy instead of one cent for one. I cannot

Special War Revenue Act
get much worked up over that. We should be careful not to work any injustice on the manufacturers and retailers, but I do not think the adverse effect of this tax will be at all substantial. On the other hand if we make this exception for one part of the output of the candy factories we are going to have similar demands as regards chewing gum, and we would be called upon to exercise very fine discretion as to how far we could go in that regard. It certainly sets a precedent that I want to avoid if at all possible. If for instance the diversion, as a result of exempting part of the output of the candy factories from this 30 per cent tax, would be that 16 per cent of the total output instead of 8 per cent went into one-cent pieces-that is, if it were doubled, which would be quite possible unless we could take counter measures, the practicability of which is disputed by those who advise me-it would mean a loss of revenue of between $500,000 and $600,000.


Mr. FRASER (Peterborough West):: I have no brief for the candy manufacturers but, I have for the small corner store owner. Last night several hon. members mentioned the big firms. They can buy and sell at reduced prices, but the corner grocery store man is in a tight spot with the wartime prices and trade board regulations. In a check-up it was found that some of these corner stores near schools will lose about five per cent of their trade owing to this one-cent candy being cut out. That sounds like a lot, but these storekeepers claim that if the children do not come to their stores to buy the candy, then when it comes to buying other and more expensive articles the families will go to other stores and take the trade away from the small stores. Last week there was an article in the Ottawa Journal regarding one-cent candy, and it said that relief was to be given to the corner grocery store. Did the minister see that article?


James Lorimer Ilsley: What kind of relief?


Gordon Knapman Fraser: It did not say-just that relief was to be given to the corner grocery in regard to this one-cent candy. The small storekeeper is the one who is going to feel it, and he has a tough time now. When he has to buy a bag of sugar he has to gather 40 one-pound coupons, bundle them up and take them to his wholesaler. The wholesaler is in the same fix; when he wants to buy a car of sugar he has to have 40,000 of these one-pound coupons. I have a letter here from a firm which states that it means counting out 40,000 tickets to get a car of sugar; they may sell three cars a month, so that they have to have an extra clerk to look after the details of these transactions alone.
The storekeeper is in the same position. He is selling less and less every day, and this one-cent candy wrould help him out.
As to the cards that are sent out by the wartime prices and trade board urging people to save sugar, in most cases they are thrown into the wastepaper basket. There has been more sugar sold since the rationing went into effect than when people were on the honour system.


Mr. FAUTEUX:: I protest against this tax on the one-cent candy business. I realize that all the people of Canada should make some sacrifice to help win the war, and everyone is ready to do it, but why put it on the children's one-cent candy? The leader of the opposition pointed out yesterday that the province of Quebec is interested in this. We have many manufacturers of one-cent candy. Really the one-cent candy is an institution for our children in the province of Quebec. I do not see why we should impose a tax which would have the effect of ruining that industry. Some hon. members said yesterday that it is doubtful whether candy or sugar is good for children. It is like everything else; if they eat too much it is not good for them, but sugar is necessary in the diet of children. So far as the one-cent candy is concerned there should be no tax on it, to help the children and to help the manufacturers.


Mr. QUELCH:: I look on this as a very
undesirable way of raising revenue. I think that is the main purpose of this provision- to raise revenue, rather than to restrict the sale of chocolates. Whatever the motive or objective of the proposal, the result is an inflation of price. In the past the minister has pointed out that one way of reducing the purchasing power of the people is by inflation, but he has deplored that method. In past months and years, he has wept crocodile tears over the tremendous dangers of inflation; yet by this very legislation we are now bringing about inflation of prices in order to curtail the purchasing power of the people, in this case the purchasing power of the children. I do not think the minister is being consistent in his attitude. If it is necessary to curtail the purchasing power. of the children, or of the people generally, so that they will buy less commodities, surely the only sound way of doing it is by a more direct form of taxation. If on the other hand the objective is to restrict the sale of chocolates, then I would say the logical way to do it would be by rationing. Nevertheless I point out again that whatever the objective may be, the result is nothing more or less than inflation, the very thing the minister has been warning the country against for years.
Special War Revenue Act


Richard Burpee Hanson: I desire
to add a word or two to what I said last evening on this question. I have now had the opportunity of reading the proposed amendment which was moved last night with respect to small packaged goods, which I think refers not only to 'bare but to other items retailing ordinarily at 5, 10 and 15 cents. Originally the minister proposed to impose a tax of 30 per cent ad valorem on the manufacturers' prices. Now he has changed that to a specific tax of one cent, two cents and three cents, as the case may be, to be added to the retail price of the five-, ten- and fifteen-cent packages. I assume that this will meet the objections advanced by the manufacturers to the imposition of the 30 per cent tax. Under some arrangement the retailer will be allowed to add the tax to the retail price. The effect of that, of course, will be to reduce somewhat the volume of that business, but as I see it-and I hope the minister will correct me if I am wrong-this overcomes the difficulty which would have been experienced in maintaining the price ceiling and at the same time giving effect to the new' taxation. I hope that deduction is correct; if it is, I should think half the objection to the proposals would be eliminated, because I am informed that the so-called bar and small package business amounts to 50 per cent of the whole production of the country. So much for that, if I have the correct understanding.
With respect to penny goods, so-called, I am told that these represent only about 8 per cent of the total production of the manufacturers of the country. I believe that is the representation that has been made to the minister. Perhaps that includes gum; I do not know.


James Lorimer Ilsley: No.


Richard Burpee Hanson: I am not arguing the case for the gum people. They may be able to meet the situation in another way, by reducing the amount of the gum, for instance. In any case I am not arguing that matter, because I have not had any information on the subject. There may be great merit in any complaints they make, but I am not attempting to deal with that point to-day.
The penny goods may amount to much more than 8 per cent of the production of some manufacturers, and much less in the case of others. With regard to those in the latter class, of course if this proposal goes into effect and the price becomes two for three cents, undoubtedly there will be some reduction in the volume of trade which will affect the small comer grocery and candy shop much more
[Mr. Quelch.I
than anyone else. I think the greatest detriment will be to the small candy stores in our cities and towns, near the schools, and so on. But the total volume is small, and it does seem to me the amount of revenue that would be received from this tax also would be relatively small. I think the minister could well forgo that revenue, because in the cost to the country the increase otherwise will be relatively very large. The minister says he is not concerned about the children. Well, in the end it is the parents who have to pay. People become accustomed to candy. Three cents may not be a very large sum of money, but I remember very well that when I was a boy one cent was all we were ever handed, and when I reached the stage when I was given a nickel or a dime I really thought I was a millionaire. I am afraid that condition does not obtain to-day; people hand out money to their children much more freely than in days gone by, and perhaps that is wrong. But I do suggest to- the minister that in justice to the industry, and more particularly in justice to the small retailer, he could very well forgo the tax on the penny goods.
The chocolate bar situation has been taken care of, and I believe that amounts to about 50 per cent of the w'hole business. I am told that business is growing, I think largely due to the purchases made by the young men in the armed forces, who do not get enough sugar in their food and who buy these bars in quantities. If the minister would forgo this tax, which affects about 8 per cent of the total business, that would leave about 42 per cent of the trade, which is distributed over all the other varieties of candy. With respect to the higher class goods, which ordinarily sell in fancy boxes at a dollar a pound, I think in days gone by 1 had the figures with regard to the total production in Canada, though I do not recall them now; but during the depression period the volume of that high-class candy was very materially reduced. People did not buy it; they just did not have the money. I am not asking anything for the people who buy that class of goods; I think they can pay the tax, which I believe runs around 18 cents a pound on certain qualities. Perhaps that situation can be met in large measure by reducing the cost of the package. We see these beautiful ornate candy boxes in the windows, which occasionally young men buy for their girl friends. I hear now that cigarettes are the appropriate thing to give your girl friend, but it was not so when I was a boy. We bought candy for our girls when we were courting. The manufacturers can reduce this cost very largely by cutting down these unnecessary expenses, and they should be cut down. There will be a

Special War Revenue Act
loss to the manufacturer, but he is not complaining about that. He is operating under pretty difficult circumstances, with the reduction in the quantity of sugar he may use, but as a rule he is a patriotic citizen and he will carry on. The sugar tax has hit him hard in the past, and he has not always been able to pass that on. During the depression he passed very little of it on, and none of these companies has made a dollar since 1930. I do not know one of them that has paid any dividends on its common stock since that year. I am afraid some of them have been close to the point where they will have to go through the wringer.


William Ross Macdonald: None
of the candy companies has paid dividends since 1930?


Richard Burpee Hanson: None that 1 know of-I will limit it to that, and I am not familiar with them all-has paid any dividends to the common shareholders for a long time. This perhaps is not true of ihe companies which combine a large baking business with their candy business. I know of one company in eastern Canada which has a baking business as large as its candy business, and while it is not making any money out- of its candy business, it is making some money out of its baking business. As I say, some companies do not have a baking business; they do not make bread and cakes and the like. I understand the Laura Secord company are still paying dividends.


William Ross Macdonald: They have no confectionery business.


Richard Burpee Hanson: They have no baking business. They have been very successful. This question having been settled without the companies themselves raising any great objection, I suggest that we should at least take the tax off the penny goods. The present proposal is really a species of inflation, since the price is going to be six cents instead of five cents.


Mr. DUROCHER:: The minister has suggested that the penny candies should be sold two pieces for three cents instead of a cent apiece. With, the new tax this candy will cost the manufacturers sixty-eight cents, and if they abide by the price ceiling regulations they will have to sell it for seventy-two cents. That gives a profit of a little better than 5 per cent, and they cannot do business in that way. If the retail merchant is allowed to increase his price it will mean an increase of 50 per cent. The increase is all going one way. I do not know who is going to absorb this tax, the manufacturer
or the retailer. If the retailer is to be allowed to increase his price, the manufacturer should be entitled to do the same. As other hon. members have said, candy is a necessity for children, even though it is not so necessary for grown-ups. There should be some way of arranging it so that the youngsters can get their candy when they need it, even if it be necessary to cut out the manufacture of the higher grade candy.


Mr. HILL:: I urge upon the minister and his officers that this tax on penny goods be reconsidered. I think we all admit that candy is really a children's food; most adults would be a great deal better off if they did not have it. The minister says that to eliminate the tax on penny goods would reduce his revenue. Bar candy represents about 50 per cent of the output of candy in Canada. A tax of one cent per unit is now being imposed, in place of the 30 per cent basis, this means an increase of 9 per cent. A 9 per cent increase on 50 per cent of the candy output would offset the revenue that would be lost if this tax on penny goods were not, imposed. Chocolate bars will continue to be used, because they are handy to buy and fit the needs of pretty nearly everybody. I am not concerned about the retailers or the manufacturers or anyone else; I am concerned only about the children. After all, this is the children's food; with the rationing of sugar there will be fewer cakes made in the homes, and the only way the children will be able to make up this deficiency will be by buying penny goods. I believe if the minister and his officers carefully consider this matter they wall realize that they could offset any loss of revenue by imposing a higher tax on the higher grade candies.


Mr. McCANN:: Much has been said about children needing candy. All persons need a considerable amount of sugar in one form or another, because sugar is the great energizing food of the human race. It does not make any difference whether people take this food in the form of sugar or in the form of candy. The very fact that sugar has been rationed and there is only a limited quantity of it available in the household is one of the best arguments against a tax upon candy. What has brought about this increased consumption of candy? In the days of prohibition candy took the place of alcohol. In the normal process of digestion sugar is changed into alcohol, and when a man could not get that commodity his natural taste and inclination was toward an increased consumption of sugar. The fact that sugar is rationed will stop many
Special War Revenue Act

people from making home-made candy, and the children will have to buy candy at the stores. Sugar is a necessary food and should be part of the daily diet of every person, either in that form or in the form of candy. To put a tax upon candy is like putting a tax upon bread. I ask the minister to reconsider the whole question of the tax on candy. While the measure proposed may be productive of some revenue, I think any good will be counteracted by the harm it will actually do to the people of this country.


Gordon Knapman Fraser: The minister should reconsider this matter, because the present proposal if it is adopted will work a hardship, not only upon our children but upon the small storekeepers. Some people say that candy is injurious to children's teeth, but it is not the candy that does the harm; it is a lack of milk and calcium. This will be found among the poorer children. As the hon. member who has just taken his seat has said, children need candy; it is part of their food! \ ou will find that welfare work among children will be much greater if they cannot get candy. They need this energy.
Mr. HANSON (York-Sunbury); I hope the minister will give some heed to the argument of the hon. member for Renfrew South (Mr. McCann). I hardly dared to go as far as he did in the statement I made, although I did go that far in my speech on the budget. This is the only item in all the budget resolutions which imposes a tax on food. I am supported in my contention that it is a food by the remarks of the hon. gentleman who is a member of the medical profession and who has studied this situation. I think the minister could very well abandon the whole tax, but if he will not do that, if he needs the revenue, surely he will abandon the tax on the penny goods.


James Lorimer Ilsley: I have nothing to add to what I have already said. The tax on candy and chewing gum is estimated to yield 87,000,000, and I cannot agree to dropping it.


Richard Burpee Hanson: How much from the penny goods?


James Lorimer Ilsley: I said something over
$500,000. I arrived at that figure by taking 8 per cent of $7,000,000, which is hardly correct. I would really have to separate the chewing gum from candy and take 8 per cent of the amount applicable to candy alone.
I do not know that any separate estimate has been made.


Mr. MacNICOL:: Could the minister not distinguish between the penny goods and the 
higher priced goods, so that the children can get their sugar from candy while the adults pay a little more for their boxed chocolates?


James Lorimer Ilsley: One would think to hear
all the speeches that hereafter no child can buy any candy at all. That is so far from the real facts of the situation that it is fantastic. The penny goods will continue to be made and sold, and when sold I presume they will be sold two for three, three for four, four for five cents, or something like that.


Richard Burpee Hanson: Has the price board agreed to that?


James Lorimer Ilsley: Not to any one of those particular figures, it must be distinctly understood ; but they have agreed to permit the tax to be added, and in such a way that there will not be a fractional result arrived at but that a full one cent will be payable. I do not anticipate that there will be any reduction in the purchases made under present conditions, or that, if any, it will be more than a slight reduction, and surely that is not a tremendous thing. There is just going to be so much sugar in the country, and the people of the country are going to eat that sugar. We had a tax on sugar of two cents a pound. That has been reduced to one and a half cents a pound. I am sure that all the candy that is made will be sold. The hon. member for Renfrew South is afraid that the people will have less candy, but in my judgment that is not so. They are going to eat all the candy that can be made from the amount of sugar available for the making of candy. It may be that a smaller volume of penny goods will be made and a larger volume of five-cent goods, but I do not think there will be very much of an upset in the present proportions.
So far as the retailer is concerned he will continue to sell his candy, and it is just possible that he will make a little more profit on it than before. I think that should meet the worries of the hon. member for Peterborough West. I do not know how the hon. member knows how much of a loss the retailer is going to have in his business as a result of this tax. He says that the storekeeper is going to suffer a 5 per cent loss inbusiness. That is on the assumption that none of these units of candy is going to be-sold. That is not correct at all. If we free penny candy from the tax what is the result going to be? In the absence of strict policing and counter-measures forbidding practices of this kind, which I am informed could not be enforced without a tremendous amount of policing, a person with 10 or 15 cents to-spend on candy would buy the untaxed candy,, the penny candy.

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Richard Burpee Hanson: Can you not ration the whole volume through the manufacturers? Suppose the total volume of penny candy was 8 per cent before this tax. Could it not be arranged that only 8 per cent of the total volume shall in future be put into penny goods? I think that would be a help. I made inquiries a week ago Saturday in a substantial retail establishment in my own city, and this man told me that as a result of the tax imposed by this budget, which was in effect on that date, purchases of the higher class goods had been almost cut in two, that just about half the usual amount was being sold. That was the experience of one man.


James Lorimer Ilsley: The result of budget taxation is that for a day or two the demand falls off. For instance I heard of one place in which soft drinks were sold where the day after the budget, instead of selling ten cases, they sold only six or seven bottles. The next day it was two cases, the next day five or six cases, and soon they were up to ten cases again. These immediate reactions are not lasting.


Mr. JACKMAN:: Has the minister given consideration to the fact that many of the families and friends of the soldiers overseas are in the habit of sending them chocolate bars and solid chocolate? The tax may not amount to a large sum, but 30 per cent is quite an item. There is a differentiation between parcels addressed to soldiers overseas and parcels addressed to civilians. Chocolate is a commodity one does not see in the old country, and it is human nature that when you cannot get something that you are accustomed to having you want it very badly. I know from talking to our own soldiers overseas that they appreciate nothing more than the solid chocolate they have been receiving from Canada. I would ask the minister to take that into consideration.


James Lorimer Ilsley: I do not know whether some similar arrangement could be made with regard to chocolate for the soldiers overseas as exists with regard to cigarettes. The general principle is that exported goods are free of this tax, but goods that are bought by persons in this country and then sent overseas do not come within that classification. If they were exported by the manufacturer, that would be the case.


Richard Burpee Hanson: That is true. Goods in this category exported to Newfoundland are not taxed.


Harry Rutherford Jackman: Will the minister look into the matter and give favourable consideration
to my suggestion, if it can be done without too much difficulty?	.


James Lorimer Ilsley: It is a matter between the manufacturer and the Department of National Revenue, I think. I can bring it to the attention of my colleague the Minister of National Revenue.


Mr. ROSS (Souris):: I was impressed by the remarks of the hon. member for Renfrew South. I would ask the minister to let this item stand so that he may give it further consideration, and give us a break-down of the estimated revenue, showing what he expects to receive from chewing gum and what from penny candy. This tax on candy is wrong in principle. We have difficulty in some parts of Canada in providing for the children of underprivileged families, and this tax on candy will affect them more than anyone else. Surely we could make up, by a tax on something else, what the minister expects to receive from this tax on candy that is necessary particularly for the children of underprivileged families.


James Lorimer Ilsley: I would not consent to letting this item stand, because I am afraid there would be just as much reason for letting any other item stand.	[DOT]


James Arthur Ross: Can the minister give us an estimate of the anticipated revenue?


James Lorimer Ilsley: My recollection is that the candy manufacturers who came to see me gave an estimate of $500,000. That would mean that most of the $7,000,000 would be from candy, which I presume would be the case.


Richard Burpee Hanson: Half of it being from chocolate bar business.


James Lorimer Ilsley: I do not know about that.
I mean $500,000 from the penny goods.


Gordon Knapman Fraser: The minister has referred to my statement that the corner grocery store would suffer a loss of 5 per cent by this tax. His loss would really be much more than 5 per cent, because when a mother gives a child a cent to buy some candy at the corner grocery store, she is usually sending him there to get some household necessity at the same time, and the corner grocery depends upon that business. Otherwise the people would go to the big stores to make their purchases.


Mr. BLACKMORE:: Would the minister
examine this side of it? I will repeat the questions I asked last night. Is the purpose of this impost primarily to gain revenue, or is it to restrict the consumption of goods
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and services? Or is it primarily to restrict purchasing power? What does the minister say? Is it primarily to gain revenue, or is it to restrict purchasing power, or is it to restrict the use of sugar?


James Lorimer Ilsley: I would not care to balance those factors and arrive at a decision in favour of one against the others.


John Horne Blackmore: Suppose we assume
that it is primarily for revenue purposes. Then the minister will have to acknowledge that the revenue could be obtained by the creation of money. In other words, all this hardship which is being inflicted on the children throughout the land is brought upon them in order to save the face of men who have contended that money could not be created; that is all.


Richard Burpee Hanson: Let us
not go into that now.


John Horne Blackmore: No! The minute
we begin to discuss anything worth while the leader of the opposition starts to shy off it like a horse meeting a bear.


Richard Burpee Hanson: Which is
the horse and which is the bear?


John Horne Blackmore: A solution has been found, but he does not want to hear it.


Richard Burpee Hanson: Not
to-day.


John Horne Blackmore: No, of course not.
But just the same we are going to be faced year after year with a more and more onerous, irksome, and burdensome tax structure, until the people can no longer sustain it; and apparently we are going to do that rather than be open-minded enough and progressive enough to acknowledge a new principle. I just want that point brought out, Mr. Chairman. It is time hon. members knew the price that is being paid for the stupidity which actuates the management of this country in respect to financial affairs. This is part of it.


Richard Burpee Hanson: Talk to the minister; don't talk to me.


John Horne Blackmore: I do not care who receives this statement I make; it is stupidity beyond any question to neglect new financial techniques, and it is behaviour which even authorities in Canada who must be respected by the minister will condemn. While we are on the subject, I wish to read a statement which I have read in this chamber once or twice before. It appeared in the Financial Post,
[Mr. Blackman.'. 1
which certainly dignifies the statement I shall quote, and it is the statement of A. F. WT. Plumptre, which certainly dignifies it, I think:
It must be remembered, primarily and seemingly paradoxically, that the government's object is not to get money but merely to reduce the public's spending. The government can always "get money" because it may, as an alternative to borrowing or even to taxation, create the required funds.
When the leader of the opposition is prepared to laugh that off or to explain it away, we shall all be here listening to him.


Richard Burpee Hanson: The basis of this taxation is to get money.


John Horne Blackmore: Exactly. This shows the way in which the minister can get money without such an absurd reflection on the intelligence of Canada as a candy tax. That is the important point. The leader of the opposition has been complaining for a long time this afternoon-I sympathize with him; he did a good job-but he has offered no alternative. I am offering an alternative, and immediately he is displeased.
Let us examine this item from another point of view. If the object of this impost is to restrict sugar consumption, it fails of its objective, according to the acknowledgment of the minister himself; for he has just said that the candy will be used anyway, or all that can be manufactured with the sugar which will be permitted to the manufacturers.
If the object of the impost is to withdraw purchasing power, then it is well that hon. members should know that a hardship is being visited on the children throughout the country for the pure purpose of withdrawing purchasing power. I do not believe the minister is prepared to say that that is what the object is.


Mr. SLAGIIT:: The hon. gentleman who has just spoken offered what he suggested was an alternative. I have an alternative to offer the minister which I think will get him his money and also satisfy the advocates of plenty of candy for the children. It is this: that he should bespeak the cooperation of the Minister of Justice and the justice department to enforce the law and to obtain assurances from the nine attorneys-general of the provinces that they will enforce the law against slot-machines and push-boards and pin-boards which occupy prominent positions in many of these candy shops and small stores throughout the country. More money, in my opinion, goes through these stupid gambling devices than the children spend on candy in a whole year, and if that law is properly enforced everybody will be happy.

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James Lorimer Ilsley: I am glad to hear the hon. gentleman say that. If there is anything that I can do to facilitate that end I shall be very glad to do it.


James Arthur Ross: I think that if the minister is not careful this budget may go down through the country as the home-wrecker's budget. There are aspects of it which certainly are discriminatory against the family man, and at a stage like this I think it is going altogether too far to try to "take it out" on the kiddies of the underprivileged. Probably I cannot claim to be in more than a very small degree a real family man, but my sympathies are with the family people, and I am sure that you cannot have a virile and successful nation unless you encourage larger families. The minister will agree that the number of underprivileged families in this country has been a matter of great concern to many of us. To tax the underprivileged kiddies on their penny candy is going altogether too far. Surely we can give consideration to eliminating the tax in that respect and make up the loss in some other way, for instance, as has been suggested by the previous speaker.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
Resolution 19 agreed to.
20. That section two of the said schedule II to the said act be repealed and the following substituted therefor:
"2. Sugar, etc.:-
(a)	Materials enumerated in customs tariff items 134, 135, 135a, 135b.... one and one-half
cents per j>ound;
(b)	Materials enumerated in customs tariff items 139 (except glucose and grape sugar), 140 (except molasses) .... two cents per pound;
(c)	Glucose and grape sugar (except when for
use exclusively in the manufacture of leather and artificial silk).... one cent per pound."
Richard Burpee Hanson: Would the minister tell us what these are?


Gordon Knapman Fraser: I think the minister ought to give us a statement, but first of all I wish to say this, that I have discovered that the sugar voucher cards which are Bent around to the different stores are also being sent to wholesale tobacconists, who are just dumping them in the waste-paper basket. I know that is true because a sugar wholesaler told me that he picked up a number of them. . I think there should be a check on them.


James Lorimer Ilsley: If the hon. member will
send me the card he has I will have a look at it.


Richard Burpee Hanson: What is
the effect of this?


James Lorimer Ilsley: The committee may recall
that last February there was announced a reduction of a half-cent a pound in the sugar tax. This reduction was made on the recommendation of the wartime prices and trade board in view of the increased price of raw sugar to the Canadian refineries. The present resolution gives effect in law to the announcement made at that time, and, as will be noted, the amendment reducing the tax is to date back to February 16.


[Stage Direction]
Resolution agreed to.
Resolution 21 agreed to.
22. (1) That the tax imposed upon mutual companies authorized under the laws of the Dominion of Canada or of any province thereof to transact the business of insurance, other than life insurance, on the premium deposit plan, and the tax on every exchange so authorized shall be increased from 2 per centum to 4 per centum upon the net premiums received by it in Canada during the calendar year 1941 aiid each calendar year thereafter.
(2)	That the tax imposed upon mutual companies, other than those mentioned in sub; paragraph (1) hereof, and upon associations of persons formed upon the plan known as Lloyd's, authorized under the laws of the Dominion of Canada or of any province thereof to transact the business of insurance, other than life insurance, be increased from 1 per centum to 3 per centum upon the net premiums received by it in Canada, less net premiums paid for reinsurance to companies or associations to which the tax authorized by this subparagraph or subparagraph (3) hereof applies during the year 1941 and each calendar year thereafter.
(3)	That the tax imposed upon every company, other than those mentioned in subparagraphs (1) and (2) hereof authorized under the laws of the Dominion of Canada or of any province thereof to transact the business of insurance, other than life insurance, shall be increased from 1 per centum to 2 per centum upon the net premiums received by it in Canada, less net premiums paid for reinsurance to companies or associations to which the tax authorized by this subparagraph or subparagraph (2) hereof applies during the year 1941 and each calendar year thereafter.
(4)	That there be imposed upon every company authorized under the laws of the Dominion of Canada or of any province thereof to transact the business of life insurance, a tax of 2 per centum upon the net premiums received by it in Canada, less net premiums paid for reinsurance to companies or associations to which the tax authorized by this subparagraph or subparagraphs (2) or (3) hereof applies during the year 1941 and each calendar year thereafter.
Richard Burpee Hanson: This is
an increase of 100 per cent. In the end, this
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of course comes out of those who pay the premiums; it does not come out of the company. What is the justification for it?


James Lorimer Ilsley: The resolution proposes
certain changes in our existing tax on insurance premiums, and in addition imposes a premium tax on life insurance as a result of the provincial agreements. The committee may recall that when I announced the offer to the provincial governments I said that if it were accepted it might subsequently be necessary for the dominion government to levy certain taxes in order to prevent some groups from securing an undue advantage as a result of relief from provincial taxes. It was found in the case of insurance companies that certain additional taxes might properly be imposed. Generally speaking, the dominion government is levying a 2 per cent tax in place of the provincial taxes, which on the average were slightly above this figure. At the same time, we have used this occasion for making minor changes in our own taxes applying to ordinary stock, fire and casualty companies. By way of summary, I may say that the new rates of taxes will be 2 per cent on premiums on life insurance, 2 per cent on stock, fire and casualty companies, 3 per cent on mutual, fire and casualty companies, and on those insuring under Lloyd's, with a 4 per cent rate applying to reciprocals and companies operating on premium deposit plan. It is estimated that in the full year these increases in the existing rates of imposition of new premium taxes will yield about $6,500,000, while for the rest of the current fiscal year the yield will be about $13,000,000, in view of the fact that two years' revenue will accrue to the dominion government in the current year. This occurs because the provincial governments' premium taxes were suspended with respect to 1941 premiums, and the new dominion law is made retroactive to cover 1941.


Mr. WRIGHT:: Why is the additional tax imposed upon the mutual companies?


James Lorimer Ilsley: Previously the mutual companies paid one per cent on their premiums. Those companies were free from income tax, and therefore there was no possibility of deducting the premium tax from their income tax. That was not true of the stock companies. The stock companies paid one per cent on their premiums, but there was a provision that they could deduct that from their income tax. If they are paying income tax-and every company that is not making a loss is paying income tax-they will continue paying what they were before; that is to say, they will be paying that much more income tax.

Previously they paid one per cent in premium taxes, subtracting that from the income tax. Now that one per cent, is taken out altogether and they just pay the income tax, which will be the same amount in taxation, provided they are making profits, which they are. But that is not true in the case of the mutual, fire and casualty companies, and in order to maintain the same relative position that existed before it is therefore necessary to levy the one per cent which was always on the mutual company premiums and add two per cent to that. In the case of fire insurance companies the one per cent is taken out of the act, for the purpose of simplicity more than anything else; so that the result is that you have two per cent on premiums of stock companies and three per cent on premiums of mutual companies. The preexisting relationship is perfectly preserved.


Percy Ellis Wright: That was the point that I wanted to have brought out. I wondered if the previously existing comparison between the two had been changed by the act.


James Lorimer Ilsley: No, not if they are making profits. If there were such a thing as a loss, this would make a difference, but I think that is improbable.


Richard Burpee Hanson: It is made retroactive- for the reason the minister gave. Have any representations been made by these companies in this matter, or has it been worked out with them in any way? Did they object?


James Lorimer Ilsley: Not since the budget. They did make extensive representations before, because they were curious to know what we would impose to take the place of the provincial taxes. They knew that something would be imposed, and they made representations. When I say that no representations have been made since the budget, I should say that there have been representations by Lloyd's. That is the only one.


Richard Burpee Hanson: Was it the theory that when the provincial governments gave up their impositions on individual income tax payers and on corporations, this jurisdiction would of necessity reimpose those taxes in some other form, while at the same time there would be huge increases in the income tax or in other forms of taxation? Was it felt that these imposts, some of which I think were very unfair, were just a chance to grab off for provincial government purposes a slice of money which all comes out of the premium payers in the end? Was it always the intention that all that money that the provincial governments gave up was to come

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back? I always thought it was to come back in the form of increased income tax, not new side impositions, so to speak.


James Lorimer Ilsley: There has been some dispute as to the appropriate interpretation of the words I used in the budget speech of April 29, 1941. I did not intend that this special class of companies was to get an advantage over the general run of Canadian companies as a result of the dominion-provincial agreements. The increases in income tax are common to all companies, but there were these special taxes on certain classes of companies; therefore in the budget speech of April 29, 1941, I stated that it might be necessary to impose special taxes on a special class of companies so that the result of the dominion-provincial agreements would not be the relief of this special class of companies. What I meant was the relief of them in relation to other corporations; I did not want to give them a favoured position in relation to the others. As a matter of fact this two per cent tax on life insurance premiums is slightly less than the average of the provincial taxes. I think the average in the provinces was 2-32 per cent. I am talking about life insurance companies.


Richard Burpee Hanson: Under
subsection 4, that is on the net premiums. Of course the tax comes out of the participating policyholders. It does not come out of the non-participating business. With the mutual companies of course it comes out of all. That I think is the fact. The company does not pay it.


James Lorimer Ilsley: Well, yes; it comes out of the income. In a stock company certain of the earnings are placed to shareholders' account, and the taxes come out of the gross income of the company.


Richard Burpee Hanson: It is all very well to say that, but in the last analysis this two per cent tax upon the net premiums received comes out of the participating policyholders. That is the only place it can come from. It cannot come out of the nonparticipating policyholders because there is a contract. I am not objecting to this, but I want to know if that is not the view of the insurance department.


James Lorimer Ilsley: It is news to me that this
whole two per cent is charged up to the participating policyholders.


Gordon Knapman Fraser: I was going to ask the minister what difference this will make to the policyholders who participate
in the profits of these companies. A new policyholder is penalized in any event, because he is not allowed to take his premium out of his compulsory savings.


James Lorimer Ilsley: The policyholder is relieved somewhat by this provision. The total tax payable by a stock company before the dominion-provincial agreement included a provincial tax which on an average was 2-32 per cent. The dominion tax which takes its place is only two per cent, so there is a small measure of relief to the company and therefore indirectly to the participating policyholder. I do not think it is large enough to have any effect on dividends.


Gordon Knapman Fraser: Even half of one per cent has an effect on dividends.


James Lorimer Ilsley: That may be.


Percy Ellis Wright: Under the law before the change was made and the dominion took over the corporation tax the mutual companies were not paying any corporation tax. They have no profits to distribute. Under this arrangement they will be paying the tax, because it is charged on premiums. It will make a direct difference to their relationship with the line companies.


James Lorimer Ilsley: No. Previously, when the provinces were imposing a tax, the dominion was imposing a tax of one per cent on the premiums of mutuals, and the provinces were imposing taxes averaging two per cent. The provinces agreed to cease and did cease imposing those taxes, and the dominion has stepped into the field and is imposing a tax of two per cent on the premiums of mutuals, so that the total tax on mutuals is exactly what it was before, with the dominion imposing both taxes instead of the dominion one and the province one. The relationship between the mutuals and the stock companies that are making profits is also preserved, for' the reason that I mentioned a while ago.


[Stage Direction]
Resolution agreed to.
(1)	15. That in addition to any other duty or tax which may be payable under the said act, or any other statute, there shall be imposed. levied and collected from the consumer or user a retail purchase tax payable by excise stamps in respect of the goods mentioned in the schedule hereunder, purchased or imported by the consumer or user, at the rate set opposite each item in the said schedule, computed on the retail selling price, if the goods are purchased in Canada, and on a value which includes all other duties and taxes if the goods are imported by a consumer or user, provided that the said tax shall not apply to goods of which the total retail selling price or the total cost to the consumer or user is not in excess
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[Stage Direction]
of one dollar in the case of any item mentioned in subparagraphs 1 and 3 of the said schedule, or in excess of fifty cents in the case of any item mentioned in subparagraphs 2, 4 and 5 of the said schedule:
1.	Clocks and watches adapted to household
or personal use	 25 per cent;
2.	Articles commonly or commercially known as jewellery, whether real or imitation, including diamonds and other precious or semiprecious stones for personal use or for adornment of the person; goldsmiths'and silversmiths' products including all gold, silver, chromium or other plated ware and pewter ware. .25 percent;
3.	Articles of all kinds made in whole or in part of ivory, jet, amber, coral, mother of pearl, natural shells, tortoise shell, jade, onyx, lapis lazuli, or other semi-precious stones
25 per cent;
4.	Articles of cut glassware, crystal glassware,
cut or not, etched glassware, metal decorated glassware or marble	 25 per cent;
5.	Articles of china, porcelain, earthenware,
stoneware or other pottery ware, except articles for use in the preparation of serving of food or drink	'	 25 per cent;
(2)	That in addition to any other duty or tax which may be payable under the said act, or any other statute, there shall be imposed, levied and collected an excise tax of 35 per cent on the sale price or the duty-paid value of the following items manufactured or imported into Canada;
1.	Trunks; suitcases, bags and luggage of all kinds; purses; wallets; billfolds; key and card cases; handbags; jewel cases; dressing and toilet cases; shopping bags, except paper bags; golf and other sports bags; all the foregoing whether fitted, or not;
2.	Ash trays: tobacco pipes, cigars and cigarette holders; cigarette rolling devices and other smokers' accessories, not to include lighters, matches or tobacco;
3.	Fountain pens; propelling pencils, desk sets and all other desk accessories.
Provided that in the case of items mentioned under subparagraph (1) the said tax shall not apply when they are manufactured expressly for a customer for his use in the operation of his business or profession.
Richard Burpee Hanson: The minister was going to give us some information.
Mr. ILSLEY; Yes. My colleague the Minister of Trade and Commerce has handed me a memorandum addressed to him from one of his officials. It states:
The bureau of statistics have never made a practice of getting figures on inventories in the retail trade. Their returns deal only with sales. They have tabulated inventories of wholesale stocks but this would not be of any particular assistance in the points raised last evening. Certainly there is no information whatever as to stocks of individual commodities. Any figures which are received by the bureau in regard to retail sales are all in dollars and do not deal with commodities.
In the last few weeks at the instance of the wartime prices and trade board a survey has been made of the whole retail field, including

departmental, chain and independent stores, requesting figures on inventories as at the first of the year and sales and purchases for monthly periods since that time.


Richard Burpee Hanson: That
would be in dollars?


James Lorimer Ilsley: Yes.
This survey was only commenced a few weeks ago and there has been no opportunity of compiling the figures which so far have come in and which are very incomplete. These figures may be available within possibly six weeks or a little longer. This survey, however, will only give dollar volume and will not give any indication of the quantity of different commodities.


Mr. DIEFENBAKER:: There are some
representations I should like to make, particularly concerning trunks, watches, tobacco pipes and fountain pens. These items are particularly necessary for the men in service. So far as the officer is concerned it is necessary for him to secure a trunk. As to these other items, they are not luxuries for the men in the armed forces; they are necessities. To-day the position of officers, particularly in Canada, who are on active service, is that their outfit allowance does not cover the extra expenditures which will have to be made should this tax go into effect. To-day they are not exempted from income tax in Canada. I personally believe the officers on active service in Canada, in whatever branch, should be exempt, but that is beside the point at the moment. These items, however, are necessities, and under this section the men in the services and their relatives and friends will have to contribute the major portion of the amount that will be realized from the imposition of this tax. Other people are not buying them, as the leader of the opposition points out. The items I have mentioned are absolute necessities for the men in service, and are purchased either by them or by their relatives. I am going to make the suggestion to the minister that these items be exempted from the tax. I realize that the minister will point out the difficulties in administration, but I think any difficulties of that kind could be obviated by having the man in the service who purchases any of these things for use in the service swear to a declaration to that effect, and if his relatives or friends wish to make him gifts of that kind, they in turn could swear to the necessary declarations pointing out that the recipient was to be a man in uniform.
The minister has consistently refused to accept suggestions for changes in the regulations, and we have come to take it for granted that regardless of what representations may be made, they will not be accepted. But I

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think this is one representation, very much along the line of representations made here earlier to-d'ay, which could be accepted. It is absolutely necessary that an officer have a trunk. If it costs $25 or $30, you are adding another $10 to his cost. If a sendee man buys a watch it is subject to a 25 per cent tax; if he buys a fountain pen or a pipe, he has to pay a 35 per cent tax. It would be a nice gesture on the part of the minister, as well as a very considerable benefit to the men in service both here and abroad, if this exemption should be granted.


James Lorimer Ilsley: That opens up the whole question of how far we should go in granting taxation exemptions to men in the service. I must say that I am very reluctant to shoot our whole taxation system full of holes on these grounds. If men in the service are not receiving sufficient remuneration, that is a matter that should be considered and is considered from time to time; but to give them special consideration through a series of tax remissions is in my judgment wrong in principle.


Richard Burpee Hanson: We have done it, have we not?


James Lorimer Ilsley: Well, yes. I should be very much surprised, however, to find that Great Britain does it.


Richard Burpee Hanson: I believe they do not, nor does the United States.


James Lorimer Ilsley: There is no exemption even in the case of income tax; everybody pays it in Great Britain, whether he is in the army or not. Last year when we were discussing the motion picture tax, for example, I believe one hon. member, I have forgotten who it was, suggested that men in the sendee going to the motion pictures should not have to pay that tax. The suggestion did not meet with any favour, but it would be the logical result of granting taxation exemptions to those in the armed forces. With regard to travel on the railways by members of the forces, we did make an exemption. There seemed to be a particularly good reason for it, because we were taking those men long distances from their homes, and if they wanted to go home they were obliged to use the railways, so that perhaps there was some reason for that. Personally I am averse to adding to the list of exemptions from taxes, and I should be surprised if there was very much demand for it. I do not think we should take our taxation system and wherever possible say, "This should not apply to members of the armed forces." The adjustment there should be in pay rather than exemptions from this, that and the other tax.


John George Diefenbaker: The minister's explanation is that it would be unfair to exempt any particular group, yet the amendment to section 15 provides for doing so. It says:
Provided that in the ease of items mentioned under subparagraph (1) the said tax shall not apply when they are manufactured expressly for a customer for his use in the operation of his business or profession.
What difference is there between exempting lawyers and doctors and exempting an officer or man in the services who as part of his equipment must have a trunk or a watch or a fountain pen or the other articles I have mentioned? I cannot see the difference in principle at all. As a matter of fact I cannot see any justification for the exemption of professional men from the operation of this section. I cannot see any purpose in it. How are you going to enforce it? You are going to set aside a small group of professional men in Canada, and they will be able to claim an exemption. They will be able to shoot holes in your taxation system just as the minister claims exempting the men in the service would. Personally I cannot see the argument advanced by the minister, particularly in view of the proviso he added to section 15 last evening.


James Lorimer Ilsley: The proviso was to except a business investment; that is really what it amounted to, on the ground that this is a consumer's tax, not a business tax. A business tax is imposed in a hundred other ways, especially by the excess profits tax, the income tax, and so on. The hon. gentleman is arguing that trunks and luggage and so on are part of the professional or business equipment of officers.


Richard Burpee Hanson: Trunks,
vetches and fountain pens are part of their equipment.


James Lorimer Ilsley: I do not know about that, but I should hardly think so. I believe that in most cases it is just personal luggage.
Mr. O'BRIEN: Could not these items be standardized and supplied by the department?


James Lorimer Ilsley: Yes, I should think so. Amendment agreed to.
Resolution as amended agreed to.


Thomas Vien: Do I understand that brief and catalogue cases are removed?


James Lorimer Ilsley: Yes.
23. (1) That any enactment founded on paragraph twenty of these resolutions shall be deemed to have come into force on the sixteenth day of February, one thousand nine hundred and forty-two.
Special War Revenue Act

(2)	That any enactment founded on paragraph fourteen of these resolutions shall come into force on the first day of July, one thousand nine hundred and forty-two.
(3)	That any enactment founded on paragraphs one to thirteen inclusive, paragraphs fifteen to nineteen inclusive and paragraph twenty-one of these resolutions, except as hereinbefore provided, shall be deemed to have come into force on the twenty-fourth day of June, one thousand nine hundred and forty-two and to have applied on all goods imported or taken out of warehouse for consumption on and after that day and to have applied on all goods previously imported for which no entry for consumption was made before that day.


James Lorimer Ilsley: I have an amendment to this resolution, changing the effective dates in connection with one or two of these items.


Mr. MULOCK:: I move:
That resolution 23 be amended by substituting the word "sixteen" for the word "fifteen" in subsection (3) thereof, and by adding the following:
(4)	(a) That any enactment founded on subsection (1) of resolution 15 shall be deemed to have come into toree on the 24th day of June. 1942, and to have applied to all goods sold by any retailer on and after that day;
(b)	That any enactment founded on subsection (2) of resolution 15 shall be deemed to have come into force on the 14tli day of July, 1942, and to have applied to all goods manufactured, imported or taken out of warehouse on and after that day and to have applied on all goods previously imported for which no entry for consumption was made before that day;
(c)	That for the period June 24 to July 13. 1942, inclusive, there shall be imposed, levied and collected from the consumer or user a retail purchase tax payable by excise stamps in respect of the goods mentioned in subsection (2) of resolution 15 at the rate of 25 per cent of the retail selling price, provided that the said tax shall not apply to goods of which the total retail selling price or the total cost to the consumer or user is not in excess of one dollar.


Mr. STIRLING:: It is not very easy to follow this, without the printed amendment before one. My recollection of the amendment which the minister had moved to section 15 was that paragraphs 1, 3 and 7 were taken out of the 25 per cent class.


James Lorimer Ilsley: No, paragraphs 1, 7 and 8.


Grote Stirling: I think some reference ought to be made to the time these will come into force.


James Lorimer Ilsley: These came into effect to-day, July 14. The taxes on these three items are at the manufacturer's level, and take effect as from to-day. If the hon. member was present he will remember that I made that clear last night.
(Mr. Ilsley.]


Grote Stirling: The amendment which was proposed refers only to subsection 2 of resolution 15, and I would have thought thSU it ought to refer to 1, 7 and 8.


James Lorimer Ilsley: Probably the numbering is different. My officers tell me that it is in order.


[Stage Direction]
Amendment agreed to.
Resolution 23 as amended agreed to.

James Lorimer Ilsley: I may say that resolution No. 5 is to be dropped.
Resolved, that it is expedient to introduce a measure to amend the Dominion Succession Duty Act and to provide-
1.	That superannuation benefits granted by the dominion, the provinces or any superannuation or pension fund or plan shall be subject to succession duty.


Richard Burpee Hanson: It is proposed to add a section to the succession duty act to make superannuation benefits granted by the dominion, the provinces or any superannuation or pension fund or plan subject to succession duty. This, I think, is a departure in principle from anything which has obtained heretofore. I do not believe it is in effect in any of the provinces. I should like to be informed on that point. If I understand the superannuation law correctly, the allowance paid to the widow of a deceased civil servant is equal to one-half of what the deceased would be entitled to receive. To each child under eighteen years of age an allowance is paid of 10 per cent of what the deceased was entitled to receive, but this is not to exceed 8300 per annum. The allowances paid to all children shall not exceed the allowance to the widow, and the total allowance to the widow and the children shall not exceed 75 per cent of the allowance to which the civil servant would have been entitled. In other words, for the remainder of her life the widow will receive one-half the superannuation to which her husband would have been entitled, while each child under the specified age will receive 10 per cent. Is it proposed to capitalize these annuity payments to the widow and children?
I use that term for lack of a better word. Is this done in any other jurisdiction? Where will they get the money to pay this levy? In the case of the dominion superannuation fund I suppose it could be taken out of the hides of the widow and the children. It could be deducted at the source.
I am wondering about the equity of this proposal. Part of these payments is contributed by the civil servant during his service and part is contributed by the government.

Succession Duty Act
There is practically no management of the fund, because it exists only in the books of the nation. We have not a sound superannuation system because we do not have any investments bearing interest. It is just a bookkeeping entry, and I always thought it was deficient in that regard. However, that is the system, and I do not think this is the best time to change it. What is the equity of taxing these payments? Do civil servants get so rich during their lifetime that they come within the category of men whose estates must pay succession duty? I should like to know the justification for this new form of taxation.


James Lorimer Ilsley: I am not sure whether the provinces tax this, but I believe they do. These superannuation payments to the widow and children I submit are within the spirit of the act which taxes annuities, insurance moneys and benefits of the kind which pass on the death of the deceased. There would be no question about the taxability of superannuation payments if the Civil Service Superannuation Act provided that the government "shall" pay the widow and the children so much per year.


Richard Burpee Hanson: What does it provide?


James Lorimer Ilsley: It provides that the government "may" pay the widow and children, and the point has been raised that that makes it a discretionary payment and does not entitle the widow as a right to receive anything.


Richard Burpee Hanson: What is
the practice?


James Lorimer Ilsley: The practice is always to pay. Using the word "may" instead of "shall" is a mere technicality. There may have been instances-I have no knowledge of any-where the government has refused to pay for some reason or another, but certainly every man in the service thinks that his wife and children are protected by his superannuation payments and regards the superannuation payments as just as safe as an annuity provided under a life insurance policy, which would be taxable. Therefore, it was thought that this should be put beyond any doubt.


Richard Burpee Hanson: On the theory that this is a capital asset?


James Lorimer Ilsley: We do not need to say that it is a capital asset. It is property.


Richard Burpee Hanson: It is
property passing.


James Lorimer Ilsley: It is a succession.


Richard Burpee Hanson: It is done only because the legislature declares it to be done.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Is it
necessary to do it? I can imagine cases where a superannuated civil servant left an estate of X dollars to his wife and children which, under the exemptions in the succession duty act, without the evaluation of this annuity to his wife and children, would not be liable to any taxation at all. There are border-line cases where, by the evaluation of the annuity, which the minister in one case at least has designated as a contract with the civil servant and treating it as property passing, the value of the estate would be raised above the amount of the exemption, and the whole estate would thereupon become liable to pay succession duties. That is a. pretty rough kind of legislation, and I would like to know the reason for it. Evaluating the annuity might just tip the scale by $50 and make the whole estate liable to pay a tremendous amount of duty. I do not think this is just. If the retiring allowance were large, and the widow were young and the children under eighteen, the evaluation of the annuity might be quite substantial. I am trying to visualize the border-line cases where the evaluation might just tip the scale and result in a very substantial sum being taken from the estate. I deprecate this, and I wonder why it is being done. It was not formerly done in provincial statutes. I do not know what the provincial law is now, because I have not looked at the statutes for two or three years. What is the occasion for this amendment? Why was it not done last year if it was the proper thing to do? What has drawn it to the attention of the department now? Have there been cases where it would be unjust not to tax? I think we ought to be told the story behind the story of this resolution.


James Lorimer Ilsley: It would be unfair and indefensible in my judgment to tax annuities which were purchased by the deceased and which might just tip the scale to taxability of the estate, and also to tax insurance moneys provided by the deceased, and not to tax the superannuation payments.


Richard Burpee Hanson: We are
accustomed to taxation upon insurance moneys.


James Lorimer Ilsley: Suppose a critic of our legislation were to point out that whoever drafted this act had very carefully left out such a provision as this so that civil servants got
Succession Duty Act

away without paying any succession duties on their superannuation, while for the rank and file of people all over the country any annuity which is provided for the widow and children makes the estate taxable. What would the answer be? I do not think there could be any answer. I think it is only fair that these superannuation pensions, because that is what they are, annuities, should be treated the same as other annuities, the same as insurance payments, and I am sure that the public would be of that opinion. There would be no doubt at all about the matter if the word "shall" were used instead of "may" in the Civil Service Superannuation Act. Why "may" was used I do not know, but I presume it was used on the theory that "may" is the word that ought to be used when obligations are saddled upon the crown, or something of that kind. I think there is a recent case in which it was decided that these payments are not taxable because of the use of the word "may." I think that is the reason for the legislation.


Richard Burpee Hanson: How
much does the minister expect to get out of this?


James Lorimer Ilsley: I do not know.


Mr. GREEN:: Is the change applicable to
other pension funds such as those of the railways?


James Lorimer Ilsley: They are taxed now.


Howard Charles Green: This change is to apply
only to governmental annuities and superannuation?


James Lorimer Ilsley: That is correct.


Howard Charles Green: It seems to be broader than that because it says "any superannuation or pension fund or plan." Are these words meant to apply only to a governmental plan?


James Lorimer Ilsley: They are being inserted
because governmental plans were in mind. If the act does not cover these other funds, it will now. But I think it does already. It was thought by the draughtsmen and by myself that the act covered superannuation payments, and I was very much surprised to learn that it did not.


Howard Charles Green: That is under section 3 (I)
(g) of the act?


James Lorimer Ilsley: And (h). Section 3 (I)
(g) of the act states:
A "succession" shall be deemed to include the following dispositions of property and the beneficiary and the deceased shall be deemed to be the "successor" and "predecessor" respectively in relation to such property:-
(g) any annuity or other interest purchased or provided by the deceased, either by himself [Mr. Ilsleyd
alone or in concert or by arrangement with any other person, to the extent of the beneficial interest accruing or arising by survivorship or otherwise on the death of the deceased.
I certainly thought that included superannuation payments, and when I learned that it did not, by reason of some opinion or some court decision-I think there was a court decision-I said that the act would have to be amended at once to ensure that superannuation payments were included, because otherwise there would be a discrimination in favour of civil servants against the rank and file of the people of this country.


Harry Rutherford Jackman: If the widow of a civil
servant remarries, do the superannuation payments cease?


James Lorimer Ilsley: I am sorry that I cannot
give that information, but it will be found, I think, in the Civil Service Superannuation Act..


Harry Rutherford Jackman: It makes it difficult to
calculate the capital value of the annuity when you have a hazardous condition like that, and sometimes you might be taking an unfair advantage.


James Lorimer Ilsley: The same is true with respect to many wills under which payments to the widow cease upon remarriage.


Harry Rutherford Jackman: How do you calculate the capital value of an annuity to a widow which ceases if she remarries?


Richard Burpee Hanson: I have had that problem.


James Lorimer Ilsley: I am informed there would
have to be a refund.


Richard Burpee Hanson: I have
had that problem, and I have never been able to find a solution. Take the case of a widow with an annuity of $5,000 which is Cut in half if she remarries. I never knew just how to deal with it, but I always advised the widow that if she did remarry she would lose one-half or three-quarters of her income, as the case might be, and that had a salutary effect,
I think the minister has made a case for this amendment,


John George Diefenbaker: Under the act as
it now stands, railway employees are not subject to succession duty, are they? The pertinent sections which were mentioned by the minister were (g) and (h), and I cannot see that either would apply at all to the situation of an employee, for instance, in the railway service who upon discontinuance of his services with the company would be

Succession Duty Act
in receipt of a pension and who subsequently dies. As at present constituted, the act does not cover that.


James Lorimer Ilsley: Does his widow get a pension then?


John George Diefenbaker: I think she gets a pension.


Richard Burpee Hanson: I do not think she does.


John George Diefenbaker: I am sure widows do, and this amendment goes a long way farther than is apparent on the face of it.


James Lorimer Ilsley: Is it not an annuity provided by the deceased?


John George Diefenbaker: It is not in the form of an annuity. It is really a pension scheme. What this amendment actually means is that the widows of all these men, employees, who heretofore have not been subject to succession duty, will now find themselves in the position of being subject thereto.


James Lorimer Ilsley: But is not the pension payable yearly in the instance mentioned by the hon. gentleman? If it is payable yearly, it is an annuity.


Richard Burpee Hanson: They are payable monthly as a rule.


James Lorimer Ilsley: Well, periodically.


John George Diefenbaker: The matter can be cleared up simply by what occurred during the past year. There must have been instances where railway employees have been deceased. Has succession duty been charged on the amounts received by the widow?


James Lorimer Ilsley: If the estate is large enough, yes.


John George Diefenbaker: That course has been followed?


James Lorimer Ilsley: Yes. The widow gets $20,000 exemption under our act.


John George Diefenbaker: I appreciate that, but has the amount received from the railway company been included in the computation of succession duties?


James Lorimer Ilsley: The commissioner tells me that it is included. He does not remember particular individual cases, but they certainly would be treated as subject to the provisions of the act.


John Ritchie MacNicol: A returned soldier 100 per cent disabled receives $100 a month, as I understand it. In the event of his death his widow then receives $60 a month. Will she have to pay succession duty on a capitalization of $60 a month?


Richard Burpee Hanson: She will if he leaves over $20,000 or whatever it is.


James Lorimer Ilsley: The succession is governed by the act, but I would point out that there is a partial exemption in the case of persons who die of wounds inflicted, accident occurring, or disease contracted while Canada is or was at war.


Richard Burpee Hanson: What section is that in?


James Lorimer Ilsley: That is section 7, subsection 3.


Richard Burpee Hanson: There is special consideration there?


John Ritchie MacNicol: For the returned soldier and the widow?


James Lorimer Ilsley: Yes; not a complete exemption. necessarily, but the act is made very much more lenient with regard to the cases covered by that subsection.


Richard Burpee Hanson: Have any cases arisen out of that?


James Lorimer Ilsley: Not that I can find out.


Mr. CASTLEDEN:: In the case of these exemptions from succession duties I understand the amount for a widow is $20,000. How do you compute the value of a superannuation or a monthly allotment as of a certain value? Is it amortized?


James Lorimer Ilsley: There is an internationally used table which is applied. I cannot give the committee at the moment the name of the table-


Richard Burpee Hanson: Well, it is a well-recognized standard table.


James Lorimer Ilsley: -or the rate of interest.


Richard Burpee Hanson: There are two or three tables, and they are all based on long experience. Do I understand that this pension is to be amortized on the lowest possible interest scale-3 per cent or less? Is that in the statute? Under what authority is that done?


James Lorimer Ilsley: The only person I heard say that that was done was the hon. member for Rosedale.


Harry Rutherford Jackman: I did it on the analogy of succession duty applicable to a young man who was killed overseas. You took the present value of his estate, assuming that he would have lived to the normal expectancy, and then you used the base rate of 3 per cent, which I thought was a very unfair rate to have used, last year. If that is the policy of
Succession Duty Act

the department, I feel sure it would be at least as severe in this case, which is perhaps not as deserving a ease as the other.


Richard Burpee Hanson: What is the rate used in practice? We have a year's experience.	.


James Lorimer Ilsley: I shall have to get that information. I do nof have it.


John Ritchie MacNicol: I want to ask a question along the lines of the one I asked a few moments ago. If a returned soldier with 100 per cent disability dies, and his widow receives 860 a month or $720 a year, at a 3 per cent rate, if that were capitalized, it would amount to $24,000.


Richard Burpee Hanson: It is only for the period of her life.


John Ritchie MacNicol: Would she be taxed on the capitalization of her pension?


Mr. McCUAIG:: The returned soldier question is dealt with in section 7, subsection 3 of the succession duty act passed last year. It states that the pension to the widow is not taxable if the man dies from wounds, accident occurring or disease contracted while Canada is or was at war and while on service with the Canadian or any other of his majesty's naval, military or air forces. As long as he died at the time he was on service the pension would not be taxable. If he was a returned soldier and was not on service when he died, the pension would be taxable the same as that of any other person.


James Lorimer Ilsley: With regard to the question which was asked by the hon. member for Davenport, I am not sure whether that is an annuity provided by the deceased within the meaning of section 3 (g), and the question has not arisen. I shall have to give that some little consideration before I give an answer.


Richard Burpee Hanson: I think that is right; it is not provided by him.


Howard Charles Green: Of course it would be if the resolution goes through.


James Lorimer Ilsley: No; the resolution refers to pension funds or plans.


Howard Charles Green: Is that not a plan?


James Lorimer Ilsley: It depends on the wording of the act. It was not intended to cover any such-


John Ritchie MacNicol: Certainly if the widow under such circumstances is to pay a succession duty, in ninety-nine cases out of a hundred it would be most unfair to require her to do so, because, under present conditions. these people have a terrific struggle to get along on the pensions they are receiving.


James Lorimer Ilsley: Could the point not stand for the moment? We could pass this resolution and, when the bill comes before the house, the amendment that is foreshadowed will be placed before the house and will be debated. I will read it then.


Richard Burpee Hanson: It could be drafted having regard to this discussion.


James Lorimer Ilsley: Yes. We will bear in mind the representations that have been made. Several points have arisen. One is whether a pension payable under the pension act is an annuity provided by the deceased. That is the first point. The second point is: Is the pension act a pension plan within the meaning of the resolution and within the meaning of the legislation that will be based upon the resolution?


Richard Burpee Hanson: Perhaps it could be safeguarded in the bill.


James Lorimer Ilsley: I should like to let this stand until the bill itself is before the house, because these resolutions do not mean much in themselves. They are very short, giving an indication of what the bill will be.


Howard Charles Green: Is it clear that the minister does not intend by this resolution to extend the act to cover service pensions?


James Lorimer Ilsley: I did not have any intention one way or the other about it. I never thought about it, and I do want to think about it.


Richard Burpee Hanson: Under the other sections of the act service pensions may be taxed.


[Stage Direction]
Resolution agreed to.
2.	That one-half of the estate may be given to charitable organizations in Canada free of succession duty.
John Ritchie MacNicol: Some time ago a gentleman told me that he intended leaving a considerable sum of money to some institution or board which looks after the blind. He wanted his money to go to some charitable institution of that kind. Suppose he left $20,000 for the use of the blind after his death; would one-half of that $20,000 come under the succession duty?


James Lorimer Ilsley: In the instance suggested by the hon. member the whole bequest would be free of succession duty up to one-half of the estate. If the estate were $40,000, or more, a bequest of $20,000 to charity would be entirely free of succession duty.


John Ritchie MacNicol: Then I should have said $40,000, because I did not notice that up to $40,000 was exempt.

Succession Duty Act


James Lorimer Ilsley: That is not right. I was merely trying to accommodate myself to my hon. friend's figures, but there is no $20,000 or $40,000 in the act.


John Ritchie MacNicol: Would one-half of
$20,000 be exempt?


James Lorimer Ilsley: As the act was passed last year, half of every charitable bequest is subject to succession duty and half is free. It will be found by reference to Hansard that I did not realize that was what was being done, and I do not think that the committee or the house did. The wording of this section is to a certain extent ambiguous, and I am introducing an amendment this year which will make that part of the act conform to my intentions of last year as expressed to the committee and to the whole house.


Richard Burpee Hanson: Will it
be made retroactive? It should be if that is the basis of this amendment.


James Lorimer Ilsley: It will be retroactive, yes.


Richard Burpee Hanson: That is very good; I am glad to hear that. The position is this. The act provides, by section 7 (1) (d):
In determining the dutiable value of any property included in a succession, the following exemptions shall be allowed and no duty shall be leviable in respect thereof:
(d) Where the successor is a charitable organization in Canada operated exclusively as such and not for the benefit, gain or profit of any person, member or shareholder thereof, provided that in the case of any property devised or bequeathed by the will of the deceased this exemption shall only apply to an amount not exceeding 50 per centum in the value of such property.
In other words, half the rate applied, and it might be up or down depending on the size of the estate and so forth. It would be graduated. The minister realized that that was not what he intended to do. I do not remember the circumstances last year; I have not looked up the debate. But half of the estate may be given to charity and pay no duty at all; but if the whole estate is given, or anything above half, then on the excess over 50 per cent the duty will be paid. I think that is good, and I am glad to hear the minister say that it will be made retroactive. We ought to approve this right off the bat.


George Hugh Castleden: In view of what the minister has said with reference to resolution 2, will resolution 1 also be retroactive?


Richard Burpee Hanson: It is a different thing.


James Lorimer Ilsley: There may not be the same enthusiasm for retroactivity there, but I think it will be, yes.


Richard Burpee Hanson: The minister is not going to make resolution 1 retroactive?


James Lorimer Ilsley: I think it is intended to make it retroactive.


[Stage Direction]
Resolution agreed to.
3.	That the exemption in respect of gifts made prior to the twenty-ninth day of April,
1941,	shall be allowed only in respect of gifts which are absolute and without any reservation of benefits to the donor;
Howard Charles Green: Will the minister explain this?


James Lorimer Ilsley: The law at present allows exemption from succession duty in respect of any gift made by the deceased prior to April 29, 1941. The proposed amendment is intended to make it clear that, in order to qualify under this section, gifts must have been completed prior to the specified date, and in connection with them there shall be no reservation of benefit to the donor. Otherwise the gif to will not qualify for exemption.


Richard Burpee Hanson: In other words, there shall be no resulting trusts or benefit to the donor, and the gift must be completed. Is that not the general principle in nearly all succession duty acts? If the donor holds a string it is not a gift; if he gets anything back it is not a gift. It must be a genuine bona fide gift vested before a certain date.


James Lorimer Ilsley: I think that is correct.


Howard Charles Green: I can understand why that provision should apply to gifts made after the act came into force or in fact after April 29, 1941, which was the date set by section 7, subsection 1, parargaph (g); but I do not understand why that provision should now be carried back to apply perhaps to a gift made, say in 1900 or in 1930. It seems to me that is very unwise legislation.


James Lorimer Ilsley: If a person made a gift in 1900 and reserved to himself control over the corpus of the gift until his death and he died in
1942,	he did not make a gift at all. This section is not needed as far as pure gifts are concerned; it is needed because the language of the act is not clear as to what is a gift.


Mr. CASSELMAN:: If the word "absolute" had been in the section last year before the word "gift", you would not need this section at all.
Mr. ILSLEY; That is correct, I think.

Succession Duty Act


Howard Charles Green: Why should it not be covered by a change in paragraph (g)? If there has been a gift made say in 1935 and there is a right to change that gift but it is not changed up to the time of death, why should the act cover such a gift?


James Lorimer Ilsley: Because the person dying had control of the property up to the day of his death.


Howard Charles Green: But suppose he did not make any change at all. The gift was given before this succession duty act came into effect. What right has the dominion to go back to something that happened before the act came into force? It seems to me that is similar to what has been done in Ontario, which has caused so many complaints.


James Lorimer Ilsley: I do not think it makes any difference for our purposes when the disposition of the property was made. If the person disposing of the property kept a string on it, then it should be taxable when he dies.


Howard Charles Green: Are you not going to get into this position; a father may die next year; there may be something that was given to a daughter ten years ago which she has considered as her own all that time, although there may have been some legal right retained by the father to take back that gift. Surely it is not the intention to tax that as a succession under this act which did not come into force until last year. If that is the intention, it is going very far.


James Lorimer Ilsley: I do not agree. I do not think we can go by what the daughter thought was hers in that case: it is a question of fact. The father kept control of the thing so that if the daughter did something which he disapproved he could take his property back; then it was his property for the purpose of taxation and in reality.


Howard Charles Green: But he did not take it.


James Lorimer Ilsley: But he could have.


George Hugh Castleden: I support the hon. member for Vancouver South in this respect, that I think there is going to be a terrific amount of investigation and litigation arising out of this. If this were made retroactive to last year, it would simplify the matter. This is going to lead to no end of complications.


Richard Burpee Hanson: I think it brings the law in conformity with the general principle, what it ought to be. I think this is all right.


[Stage Direction]
Resolution agreed to.

4.	That officials of foreign countries accredited to Canada owning real estate in Canada for residential purposes, shall in respect of such residential property be exempt from succession duty, if the country they represent grants similar relief.
Richard Burpee Hanson: Is this intended to be reciprocal?


James Lorimer Ilsley: Yes, by its terms it is reciprocal.


Richard Burpee Hanson: Is there anything in contemplation to arise out of this?


James Lorimer Ilsley: It was requested by one dominion having representatives in this country.


Richard Burpee Hanson: Well, let it go. It does not take effect until it is reciprocal.


[Stage Direction]
Resolution agreed to.
5.	That the proceeds of life insurance policies, including annuity contracts, shall be exempt from duty if the deceased was domiciled outside of Canada at the time the contract was entered into and at the time of his death and further that the beneficiary also was resident outside of Canada at the time of the death of the deceased;
William Pate Mulock: I move that resolution 5
be deleted.


Richard Burpee Hanson: You did
not have any right to do this anyway, did
you.


James Lorimer Ilsley: Oh, yes.


Harry Rutherford Jackman: You are simply going to rest on the present provision.


James Lorimer Ilsley: Yes.


Harry Rutherford Jackman: The present provision
does not include both life insurance policies and annuities, does it?


James Lorimer Ilsley: No, it dots not mention
annuities.


Harry Rutherford Jackman: Would the minister consider including annuities along with life insurance policies, because they are both in the same class.


James Lorimer Ilsley: Yes, I will consider that.
It may be we can put something like that in the bill if it is not there.


[Stage Direction]
Amendment agreed to.
6.	(a) That executors be protected against court action by successors having any interest in expectancy in the property of the deceased if the executor elects to pay the duty in respect thereof at the time of death and not at the time when the expectancy falls into possession.

Succession Duty Act
(b) That in order to secure payment of the duty a statutory lien be provided for in respect of any real or immovable property in Canada owned by any person who dies domiciled outside of Canada.
William Pate Mulock: I move that resolution 6
be renumbered 5.


[Stage Direction]
Amendment agreed to.
Richard Burpee Hanson: This is a
very technical subject, to me at least. The question of interest and expectancy is governed by section 28, subsection 5, of the act, is it not? It is now proposed to give protection to executors against any action by successors who have any interest in expectancy in the property of the deceased if the executor elects to pay the duty at the time of death and not at the time when the expectancy falls into possession. In other words, the executor as against the successors has the right to say what he will do. What is the reason for the change? It is well enough to protect him if this is done in good faith, but there may be a question of policy, say about liquidating securities. According to this resolution, the successor has nothing to say about that.


James Lorimer Ilsley: The object of the amendment seems to be that where there is an expectancy which may decline in value, the executor is taking a chance in paying succession duty shortly after the death. He may find himself liable.


Richard Burpee Hanson: Does this arise out of the Jost estate decision, the Eastern Trust company?


Harry Rutherford Jackman: When does the fixation
of value take place?


James Lorimer Ilsley: I do not think it arose out
of any particular case. Representations were made that executors were in a difficult position, that they would not dare to pay succession duty shortly after the death if there was a chance that property might decline in value; that estates in expectancy might decline in value and they would find that they had paid too much. This protects them if they pay promptly.


Richard Burpee Hanson: Well, there must be a reason for legislating along that line. Surely the successor has an interest. He is a party in interest. The executor is merely an administrator. He has no interest at all. Is no consideration to be given to the successor? I believe in protecting executors who act in good faith. They should be protected.


James Lorimer Ilsley: That is all.


Richard Burpee Hanson: But the
person who ultimately is to come into possession has nothing to say about the matter if the executor chooses to exercise that discretion. It seems to me pretty arbitrary. Why not leave the thing alone and let them settle their differences between them, or wait? Under the statute they can wait, can they not? Section 28, subsection 1, has a statutory provision with regard to the payment of duty:
Where an annuity, term of years, life estate, or income is created by the will of a deceased person-[DOT]	.
Does that deal with expectancy?
-or by any other disposition deemed to be included in a succession, the duty for which any person, who benefits by such annuity, term of years, life estate or income, is liable, shall, unless otherwise provided herein, be paid in four equal annual instalments at the end of one, two, three and four years, respectively, after the death of the deceased.
Then subsection 2:
Where the deceased had an interest in expectancy the duty levied on such interest in expectancy or on the successor or beneficiary in respect thereof may be paid as provided by section twenty-four of this act. . . .
Just what is the reason for the change? Apparently that was the settled law, and we ought not to make changes just for the sake of change. Why is this provision being inserted now?


James Lorimer Ilsley: It is to make it safe for
the executor to pay shortly after the death of the deceased, and not wait perhaps for many years for the expectancy to fall in.


Richard Burpee Hanson: Of course
that is a phase of it; it is protection for the executor. Has he asked for it? Has anybody asked for it on his behalf?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: That i3 your reason?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: And he
cannot be protected in any other way?


James Lorimer Ilsley: I do not think so.


Richard Burpee Hanson: He is
going to be given this protection, although the successors may be damnified by his action?


James Lorimer Ilsley: Yes. They may be benefited, too; the value of the property may increase.


Richard Burpee Hanson: Of course in that case they would get the advantage, and in the other case they w- not.


James Lorimer Ilsley: Yes.
Succession Duty Act


Richard Burpee Hanson: It seems
to me you are interfering, perhaps needlessly, with the rights of certain people; that you are barring their rights. I do not know that it is altogether just; I should like to think about it.


John Ritchie MacNicol: If the property increased in value, the executor's fees would increase too.


James Lorimer Ilsley: Yes, but our succession duty would not.


Percy Ellis Wright: When is the valuation of
the assets of the deceased made for succession duty purposes? Is it made immediately on death?


James Lorimer Ilsley: It is the value at the time
of decease. Is the hon. gentleman's question as to when the value is ascertained?


Percy Ellis Wright: Yes.


Harry Rutherford Jackman: At the time the gift
is made, if it is in cash, or at the time of death, at least in Ontario.


James Lorimer Ilsley: Normally it is done shortly
after the death of the deceased.


Percy Ellis Wright: Would the executor not oe protected if the valuation were made at that time? If the assets depreciated1 later *on, the fact that the valuation had been made .-already would1, I should think, protect the .executor.


James Lorimer Ilsley: He is not protected, anyway, and that is the point.


Richard Burpee Hanson: He is not protected in a given case, but my recollection of the Jost case is that Mr. Jost, owned, we will say, two or three million dollars worth of highly speculative securities. He died just when the market reached its peak, and the duty value attaching at that time was the top market price. Immediately afterwards came the slump and these shares were cut in value several times; in fact they were reduced to nothing. The trust company -paid the duty; I suppose they were being pressed by the government of Nova Scotia, and there was a deficit. Not only was there nothing coming by way of residue, which was to have gone to the university with which I am connected and which thought it was going to get a substantial sum; there was $80,000 of a deficit in connection with the succession duties paid by the trust company, for which under certain conditions they might become liable. There is more to it than that, of course, but they had to go to the supreme court to get a declaration, and one decision went directly against them. They appealed to
I Mr. Il8ley.l
the Supreme Court of Canada, and I am not sure whether judgment has been given. But I do not know why an expectancy could not be valued as of the date of death, and the duty settled. The deferring of the payment is to prevent hasty liquidation which might be necessary in order to get the money out of that particular fund, but I suggest that the assessment of value could be made as of the date of death on the basis of values at that time, and capitalized according to the period of time that would lapse before it was vested.


James Lorimer Ilsley: That is what we want to have the right to do. Take section 28, subsection 4:
The duty mentioned in subsection two and subsection three of this section-
That is, the duty on assets in expectancy.
-if not paid within the time limited by section twenty-four of this act-
That is, within six months of the decease.
-shall be due when such interest in expectancy falls into possession and shall be paid within three months thereafter on the basis of the fair market value at the date of falling into possession of the property in respect to which such interest in expectancy existed. . . .
I think that is all that is material in that section. Apparently under that the executor has his option. It seems to be the intention to give the executor or the beneficiary his choice as to whether he will pay within six months after the death or within three months after the expectancy falls into possession. If the executor makes a wrong choice; if he chooses to pay within six months after the death and it turns out that a great deal of money has been needlessly paid to the government as a result of his wrong choice, which apparently was the case in the instance mentioned by the hon. gentleman-


Richard Burpee Hanson: No, I do not think it is quite that.


James Lorimer Ilsley: He does not want to be liable.


Richard Burpee Hanson: He wants to be relieved from liability.


Howard Charles Green: What is the reason for paragraph (b) of this resolution, and just how far will that statutory lien go?


James Lorimer Ilsley: There is no other effective remedy against a non-resident. This applies to cases of persons who die while domiciled outside Canada and owning real property in Canada.


Howard Charles Green: For example, someone in the old country owning property in Canada?


James Lorimer Ilsley: Yes. There might not be any real remedy against the person. He might sell the property in Canada while he himself

Succession Duty Act
was abroad-I am assuming that the beneficiary, the person who succeeds, is abroad- and the government would have no recourse against anyone. There is no reason why there should not be a lien on. the real property in Canada owned by a non-resident, or a person not domiciled here.


Howard Charles Green: How is the act working at the present time? I think in our province releases are obtained from the succession duty officer, which have to be presented at the registry office. Why cannot some plan of that sort be worked out rather than a statutory lien?


Richard Burpee Hanson: Is there not a lien now on property owned by a person domiciled in Canada?


James Lorimer Ilsley: No, there is not.


Richard Burpee Hanson: There is no lien in the act?


James Lorimer Ilsley: No.


Mr. GRAYDON:: I do not think there is any.


Duncan Fletcher McCuaig: In Ontario property does not vest unless you attach to the conveyance the consent of the treasurer of Ontario. If a solicitor takes an executor's deed into the registry office, the registrar will not accept it unless that consent is attached. But he will register it without the consent of the dominion succession duty officer. It seems to me that there should be some provision that property would not vest unless the dominion succession duty is paid. There may be some difficulty in that because we have no control over property.


Gordon Graydon: The Torrens system in Ontario goes a little further than that. They will not allow you to attach the dominion release to their documents because it might be a recognition that the dominion department had some rights over real property transfers. If we take into consideration the position of the dominion with respect to real property rights, it would appear that there is no real protection so far as the duty is concerned, that is, having regard to the normal transfer of real property.


Howard Charles Green: If this change is made, there will be a statutory lien created by a dominion statute, and this will place a cloud upon the title, particularly if the provincial land office will not accept a release from the dominion succession duty officials. How do you get rid of that cloud on title?


James Lorimer Ilsley: It is not a question of their not accepting it; we did not assert any lien
until now. This will apply in only an insignificant number of cases where property is owned by non-residents who are domiciled abroad.


Gordon Graydon: You cannot get a lien on a title to land in Canada any more against a non-resident than you can against a resident.


James Lorimer Ilsley: Perhaps I did not follow the hon. gentleman. Was he arguing that it was beyond our powers to do it?


Richard Burpee Hanson: I think that is what it amounts to.


James Lorimer Ilsley: That may be, but I think we had better try it.


Howard Charles Green: Why should the dominion step in and put on a statutory lien which must be disposed of before a purchaser can obtain a clear title? If the dominion government do not know whether they have the power to put on a lien of that type, I do not think they are doing right by just going ahead and putting it on.


James Lorimer Ilsley: I said I thought we had better find out. I should think that we would have the power, that it was ancillary to our powers to tax. If we have not, perhaps we had better find out, but I certainly think it is better to try to get our taxes. The lack of interest in the crown's desire to get taxes always surprises me. Why should the crow'n not have its taxes from non-residents who have property in Canada? Otherwise they can sell the property right out from under our noses. Why should we not try to get our duty on real property? Why should there be all this terrific tenderness about somebody being inconvenienced?


Gordon Graydon: The only tenderness is in the minister's disposition. The minister is the only one who is being tender about this matter. We are only trying to point out the obvious pitfalls which may be met. As the hon. member for Vancouver South (Mr. Green) has said, if you create a cloud upon the title before a transfer of property is made, some action must be taken to find out whether the duty has been paid or to remove the cloud.


James Lorimer Ilsley: We will know whether it has been paid.


Gordon Graydon: It will mean that you cannot transfer property within the six months period. Is this going to tie up estates in the manner indicated by the hon. member for Vancouver South? It is not a question of being tender over anybody; it is a question
Succession Duty Act

of getting this thing regularized so that the government will not put everybody in an awkward position.


James Lorimer Ilsley: Is this not done in the provinces?


Mr. ABBOTT:: A clearance from the
collector of succession duties must be registered before a title can be conveyed. This cloud can be easily removed by paying the tax. There is no provision in this resolution to provide that a clearance should be registered against the property, but in Quebec a clearance from the collector of succession duties must be registered against movable property. I think this is a most reasonable precaution. As the minister said, non-residents can in effect thumb their noses at the tax collector. They can say, "I have sold my property; you can do what you like".


Howard Charles Green: We had the same trouble in British Columbia some years ago. I do not remember the wording of the legislation, but it caused all kinds of trouble and confusion in clearing up estates and eventually it was dropped. Surely the proper way to arrange this matter is by agreement with the provincial governments who control the land registry offices. I should think you could easily get them to call for a release in connection with the dominion succession duty You are going much farther here; you are creating a statutory lien without any provision for the registration of that lien.


James Lorimer Ilsley: Oh, yes, there is. That will be provided for in the legislation.


Howard Charles Green: I suggest that the situation should be examined more thoroughly before this step is taken. Nobody is trying to help people to evade taxation.


James Lorimer Ilsley: I do not think we would be justified in asking for a stated case to find out whether we have the power to do this.


An hon. MEMBER:: What about the Bank Act?


James Lorimer Ilsley: We have the power to tax, and we have the power to impose succession duties. We have approached this matter with a considerable feeling of responsibility. I thought hon. gentlemen would be suggesting that we should make sure that we were going to get our taxes from residents by providing for a lien and release before the property of a deceased could be vested. However, we are not going that far.


Gordon Graydon: That was the next point I had in mind. I think we should adopt the suggestion of the hon. member for Vancouver

South and have provincial legislation passed to provide that no property may be transferred unless there is attached to the conveyance, not only the consent of the treasurer of the province as to the provincial succession duties but also the consent of the dominion succession duty department. In that way you could get away from all your troubles.


James Lorimer Ilsley: You might get away from all your troubles after you have had about ten years of trouble. If anyone thinks that we could get the consent of the nine provinces to pass legislation like that, he is certainly an optimist.


Richard Burpee Hanson: Here is what I marked down when I read this over. I noted that this is for the protection of the treasury, and I have not changed my mind. How it may be done might be the subject of consideration when we see the bill. You can impose a lien by statute, but the enforcement of that against real property is a different thing.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


Richard Burpee Hanson: Mr. Chairman, referring to resolution 1 and the Civil Service Superannuation Act, I have ascertained that if the widow of a civil servant remarries she loses her pension. If a widow were to remarry shortly after the decease of her husband and succession duties had been paid upon the evaluated pension, would the department give a refund?


James Lorimer Ilsley: So the commissioner informed me this afternoon.


Richard Burpee Hanson: They
would give a refund?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: If that is the policy of the department, I have nothing further to say on that point.


Howard Charles Green: With regard to this resolution, now renumbered 5, will the minister, before the bill is brought in, give consideration to the questions we raised this afternoon concerning the registration of a statutory lien and the general effect of such a lien?


James Lorimer Ilsley: Yes.
Resolution as amended agreed to.

Succession Duty Act
7.	That executors be permitted to pay out, without the consent of the minister, sums not in excess of-
(1)	$1,500 in the case of moneys payable:
(a)	under any contract of insurance;
(b)	by any friendly society; or
(c)	under any superannuation or pension fund or plan.
(2)	$500 in the case of moneys payable:
(a)	out of any bank account; or
(b)	out of any trust or loan company's deposit account; or
(c)	in satisfaction of wages or salaries.


William Pate Mulock: I move that resolution 7 be renumbered 6.


[Stage Direction]
Amendment agreed to.
Mr.	HANSON	(York-Sunbury):	This	isa new	provision, is	it not? There is	no such
provision in the act now?
James Lorimer Ilsley: The present provision is that money cannot be paid.
Mr.	HANSON	(York-Sunbury):	But	in
practice I assume that the department found it necessary that some money should be made immediately available to be paid by the executor without the consent of the minister?


James Lorimer Ilsley: Yes.
Mr.	HANSON	(York-Sunbury):	This	is
rather a small sum of money in subsection 2: $500 "out of any bank account; or out of any trust or loan company's deposit account; or in satisfaction of wages or salaries". In the province from which I come that provision has been found very difficult in practice, because circumstances may arise when very much more than that sum is required immediately, but until the return is made it is difficult to get a release in the case of a substantial estate. In such cases the executors have been obliged to go to the bank and borrow the money on their own responsibility. That is a position which ought not to obtain.
The deceased may have been the owner and manager of a business, and money may be required immediately for, we will say, the payroll. What is going to happen if only $500 is available? Are the men to go without their wages, or must the executor borrow the money on his own responsibility? It seems to me that some further provision should be made for a situation like that. By subsection 2 (c) the executors are permitted to pay in satisfaction of wages or salaries a sum not in execess of $500. But suppose the banks will not give the money to the executor without a clearance. I know what has happened in two cases within a year, but not under this act. The executors were
forced to borrow the money themselves. Does the minister think that $500 gives leeway enough? I suggest it is not enough.
I am raising no question about the $1,500. It has been found in practice, has it not, that there must be some amount of leeway given? The minister says that under the statute there is no provision now for paying without the consent of the minister, and I have no doubt that that has been found in practice to work a hardship. I suggest that the sum of $2,000 ought to be made available. If it is a substantial estate the government will lose nothing. Otherwise the executor will have to borrow the money.


James Lorimer Ilsley: I do not know. I have not given very much consideration to these amounts. They were requested by the officers of the national revenue department, who thought they were necessary for the proper administration of the act. That ^ is about all I know with regard to them, which I admit is not very much.


Richard Burpee Hanson: They are necessary for the proper carrying on of the business of the estate of the deceased, I tried to impress upon the provincial authorities in New Brunswick that $500 was too small an amount. If a man dies away from home, in Florida, for example, it would not cover funeral expenses. You could not bury him under $1,200 or $1,500. It is very expensive. That has happened, I know, because I have paid the bills.


James Lorimer Ilsley: The minister can give his consent.


Richard Burpee Hanson: Yes, but you have to come clear to Ottawa to get it.


James Lorimer Ilsley: You do not have to travel here physically.


Richard Burpee Hanson: No, but you have to go through all the forms. I have no doubt that if the minister knew the parties he would do it, but if he did not know them he would not do it. Why could this not be made $2,000, or at least raise the $500 to $1,500, the same as for life insurance? If the minister will raise it to $1,500 I shall be quite content.


James Lorimer Ilsley: This provision is just to give a little leeway in the very early period after the death of the deceased. The minister may consent to the payment of such sums as it is necessary to pay out, but even before there is time to get the minister's consent it may be necessary to pay out something, and so these small sums are put in here to make
Succession Duty Act

sure that there is no undue inconvenience or hardship to the estate. I think they should be sufficient.


Richard Burpee Hanson: They are just arbitrary amounts. The minister is so inflexible over a small matter that I hesitate to urge him further, but I do suggest that $500 is not enough in the case of a large estate, where there will be greater expenses than in the case of a smaller estate.


John Ritchie MacNicol: It is not half enough.


Mr. HANSON (York-Sunbuiy):: It is not half enough. If the minister will make it
SI,500 instead of S500 I shall be content, but $500 would go nowhere.


James Lorimer Ilsley: Consideration can be given to the suggestion before the bill is brought down.


Richard Burpee Hanson: Why not give in on that now?


James Lorimer Ilsley: I do not know enough about it. I do not think a case has been made for it. I cannot see why anything but a very small sum is required here. The act was drawn without any permission in this regard at all, on the assumption that the minister would give his consent. A little delay is sometimes necessary, and to bridge that period of delay small sums are provided.


Richard Burpee Hanson: I suggest
that when the act was originally drawn this was an injustice, and the minister is only partly relieving the injustice. In every act I have ever looked at there is a sum available without the consent. I do not know of a single succession duty act which does not provide some sum. If this had come to my attention when we were putting through the bill last year, I would have suggested an increase, but with the weight of things one has on one's mind one cannot think of everything. It is true that it is an arbitrary sum. But let me give a concrete case, if my hon. friend the member for Northumberland, New Brunswick (Mr. O'Brien) will permit me. He is the owner of a business which he operates in his own name. He may die suddenly, and there may be liabilities accruing within a day or two after his death. Funds may be in the bank, but the bank cannot touch the funds and pay that liability. He may not have enough money to meet his payroll. In such a case some provision must be made to meet a business situation, especially where a business is going to be carried on. It is asking very little to increase this amount from $500 to $1,500. The crown is not going to lose anything in the case of an important estate or an estate with substantial assets. It would make it that much easier to get along.


James Lorimer Ilsley: I will look at the provincial acts and see what sums are in them.


Richard Burpee Hanson: I believe
in New Brunswick it is $500.


John Ritchie MacNicol: This is a question which I believe I asked a year ago, and I have forgotten the answer. It has to do with the estate of a person deceased some years ago. Apparently, according to the Ontario succession duty act, the estate was not of sufficient size to compel the will to be probated, and it has not been probated. Is that estate affected in any way by this bill?


James Lorimer Ilsley: When did the death take
place.


John Ritchie MacNicol: Several years ago.


James Lorimer Ilsley: Estates belonging to people
who died before the passage of the act are not subject to the provisions of the act.
Resolution as amended agreed to.
8.	That the foregoing resolutions shall apply from the commencement of the Dominion Succession Duty Act.


William Pate Mulock: I move that resolution 8
be renumbered 7.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend tne Excess Profits Tax Act, 1940, and to provide-
1. That the rates of tax as set out in the second schedule to the said act he repealed and the following substituted therefor:
First part-
Ten per centum of the profits of corporations and joint stock companies and 15 per centum of the profits of all persons other than corporations, before deduction therefrom of any tax paid thereon under the Income War Tax Act.
Second part
[Stage Direction]
One hundred per centum of the excess profits.
Third part
[Stage Direction]
Twelve per centum of profits of corporations and joint stock companies before deduction therefrom of any tax paid thereon under the Income War Tax Act.
Richard Burpee Hanson: This is a very difficult, technical taxation measure. The whole question of excess profits is difficult enough, and I confess that from the minister's statement in the budget I was not able to understand all that he was driving at, in two particulars: first, the changes in the base of the E.P.T., as it is called, and second, the question of the refundable portion, to be found in resolution 5. Would the minister please state just what the present position is up to the point where he leaps from 75 per

Excess Profits Tax Act
cent to 100 per cent of the excess profits, and then what the change is? There has been a change on the way up, I think.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Put it on
the record anyway.


James Lorimer Ilsley: The present rate structure of the Excess Profits Tax Act provides for either
(a)	a tax of 22 per cent on total profits, or (b) a tax of 75 per cent on excess profits, whichever is the greater. Under this rate structure it works out that the 75 per cent tax on excess profits is the greater of the two taxes when profits have increased by slightly more than 56 per cent of standard profits. All companies paid at least 40 per cent tax on total profits; that is, 18 per cent under the income tax, and 22 per cent under the Excess Profits Tax Act.


Richard Burpee Hanson: Under two parts? Is it not in two bites?


James Lorimer Ilsley: Yes. The 18 per cent was under the Income War Tax Act, and the 22 per cent was under the Excess Profits Tax Act.


Richard Burpee Hanson: The 10 per cent under the first part and the 12 per cent under the third?


James Lorimer Ilsley: No; I am talking about the
[DOT]old act.
If, however, profits were more than 156 per cent of the standard-the correct figure is 156-7 -then the effective rate of tax on additional profits amounted to 79-5 per cent. Under the new rate structure the 22 per cent has been broken down into a tax of 12 per cent, which applies to total profits in all cases, while the remaining 10 per cent constitutes the tax which is the alternative to the tax on excess profits which was previously 75 per cent but which now becomes 100 per cent.
I have stated that the alternative taxes under the present set-up are equal when a company's profits have increased by just over 56 per cent. Under the proposed rates the alternative taxes are equal when profits have increased by only 16J per cent. It is obvious then that the proposed changes in the rate structure bring into effect the high rate on excess profits at a much lower point than is done in the present law.
To sum up the proposal, I may say that all corporate profits will be taxed at least 40 per cent; and when profits are increased more than 16$ of standard profits, the whole of this excess is taken under the 100 per cent rate, with the 20 per cent refund provision provided for in resolution 4.
In the case of taxpayers other than corporations the 15 per cent flat rate tax remains unaltered as the alternative to the new rate of 100 per cent on excess profits.


Richard Burpee Hanson: I was going on to ask the minister if he would give a concrete illustration such as I received to-day from one of the officers of the department, we will say based on a tax on $17,000, which happens to be the figure given, and spread it on the record in tabulated form: first, under the old system; second, under the proposed system, which would show exactly how much tax there would be under the old system, and how the tax was made up in the new system and what it will be. It seems to me that that would be valuable to everyone.


Harry Rutherford Jackman: When the minister is putting such an example on the record-I am sure there are very few hon. members who understand exactly how this works out, and I have not had an opportunity to produce practical examples-would he give sufficient examples to illustrate the position of a company which has a fairly steady profit as related to its standard base, and also companies showing very large gains as a result of working on some war contracts?


Richard Burpee Hanson: This, of course, is corporations.


James Lorimer Ilsley: I will explain in my own words the change that has been made. It is a very technical matter and, if I make a mistake in the course of the explanation, I shall have to correct it to-morrow. I do not think, however, that I shall make a mistake because I am fairly familiar with the legislation from the beginning.
First, let me tell the committee the rule that is applied in ascertaining the taxes payable under the Excess Profits Tax Act now before it is amended. There is an 18 per cent tax under the Income War Tax Act. That is the first thing to remember. Then there is the excess profits tax. Profits are taxed at 75 per cent, and1 there is a provision that the amount in any event shall not be less than 22 per cent of the total profits. That is to say, you must determine whether 75 per cent of the excess, - after deduction of the 18 per cent income tax on the excess, is greater than 22 per cent on the total profits. If it is greater, then one takes the 75 per cent on the excess, w-hich means 79J per cent on the excess if the 18 per cent income tax is first taken into account. The result is that every company must pay at least 40 per cent on its total profits-18 per cent under the Income War Tax Act and1 22 per cent under the
<4561-266

Excess Profits Tax Act

Excess Profits Tax Act-and some companies will pay more than that. If their excess profits are so large that this 79J per cent on the excess is greater than the 22 per cent on the total profits, then they will pay 79J per cent on the excess. One could imagine a company where the two would be exactly equal, and as a matter of fact a company which earns in the taxation year 156-7 per cent of its standard profits would pay exactly the same under both rules.


Richard Burpee Hanson: That is the point at which they balance.


James Lorimer Ilsley: That is the point at which the two rules bring the same result; 79=j per cent of the excess is equal to 22 per cent of the total profits. So that in practice a very simple rule is applied. One just finds out what the percentage of the company's profits is of its standard profits. If its profits are anything up to 156-7 per cent of its standard profits, one just takes 40 per cent of the profits and that is the tax; that is the combined tax, income and excess profits tax. But if its profits are more than 156-7 per cent of the standard profits, one has to take 40 per cent of the 156-7 per cent and 79J per cent on the remainder over that. That is a simple rule which is applied under the present system to the working out of the taxation on companies. That 156-7, in the minds of chartered accountants, lawyers, income tax officials, and finance department officials, is a well known point; it is the breaking point, the critical point. It is an important figure. Now we have come along and changed our act so that instead of there being an 18 per cent flat rate on all profits, there is now a 30 per cent rate on all profits, which is described in the budget speech as 18 per cent income tax and 12 per cent excess profits tax. But whatever it is called, it is a 30 per cent rate.


Richard Burpee Hanson: That is the total in any event?


James Lorimer Ilsley: Yes.


Mr. TUSTIN:: Does that apply to anything under $5,000?


James Lorimer Ilsley: Yes; according to the resolutions it does. With regard to the option, instead of 22 per cent of the total, or 79J per cent of the excess, whichever is greater, now it is 10 per cent of the total or 100 per cent- of the excess, which ever is greater. So that now every company pays at least 40 per cent of its profits, but it may pay more. For the purposes of the record I will stop

there. The rates are now such that the breaking point, instead of being 156-7 is 116-666, and, therefore the simple rule to apply7 to the computation of the new excess profits tax is to reckon 40 per cent if the company earns less than 116-6 per cent of its standard profits. The simple rule is to take 40 per cent of total profits; but if it earns more than that, one takes 40 per cent up to 116-6 and 100 per cent if it is over, and of the 100 per cent 20 per cent is returnable. That 20 per cent does not apply to excess over standard profits but excess over 116-6 per cent.


Richard Burpee Hanson: Twenty per cent of that and that alone.


James Lorimer Ilsley: Twenty per cent of that and that alone. I have seen some recapitulations of this in business papers and, as usual, there is some misunderstanding. I am not surprised, but there is a misunderstanding. It seems to be thought that 20 per cent of the excess over 100 per cent is returnable. It is only 20 per cent of the excess over 116-66 per cent.
That is a brief explanation of the new measure, and the best I can give. It will be seen that since 40 per cent of any profits are taken and 100 per cent over 116-66 per cent, the most any company has left is 70 per cent of its standard profits, because 40 per cent of 116-6 is 46-6, which, subtracted from 116-6, leaves 70. So that the most any company can have left available for dividends under this measure is 70 per cent of its standard profits. It may have in addition a credit with the government of the 20 per cent excess. If it earns more than 116-6 per cent of its standard profits, it will have to its credit 20 per cent of the excess over 116-6.


Richard Burpee Hanson: If the
minister could put on the record something such as I have here from the department, it would be of great value. That is, certain examples of corporations and of individuals. It must be understood that the minister has been talking about corporations, and there has been an increase in the tax on small corporations; or rather the exemption that small corporations had heretofore has been wiped out to a degree if not altogether. Is that not true?


James Lorimer Ilsley: The small corporation has been paying 18 per cent. Hereafter it is proposed that the small corporation shall pay 30 per cent. I might tell the committee the background in my mind of that change. The small corporation, that is the one having less than $5,000 income, before the dominion-provincial agreements, in British Columbia, for example, was paying 28 per cent; that is, 18 per cent to the dominion and 10 per cent

Excess Profits Tax Act
to the province. In Ontario it was paying 23 per cent; that is, 18 per cent to the dominion and 5 per cent to the province; in Quebec, 23 per cent, being 18 per cent to the dominion and 5 per cent to the province. Then we entered into the agreements, and we wiped out the provincial corporation tax on the income of 1941 and did not put on any tax in its place. Therefore the small corporation last year had a favoured position as compared with the position it enjoyed in the past.


Richard Burpee Hanson: However, the amount of money involved would not be very large.


James Lorimer Ilsley: Well, I do not know; I did not make a computation. But it becomes a matter of judgment as to what tax should be imposed on the small corporation. On the one hand it is in competition with the proprietorship which pays an excess profits tax of 15 per cent; that is the minimum for the proprietorship. On the other hand it is in competition with the corporation which earns a little more than $5,000, to which corporation the rates I have been talking about apply, a minimum of 40 per cent. It is anybody's judgment whether the rate on the small corporation should be 25 per cent or 30 per cent or any intermediate figure or any figure near there. I do not see why 30 per cent is not as near a just tax on the small corporation as anything else. They may think they are unjustly taxed as compared with the unincorporated company, but they enjoy certain advantages in being incorporated, and also they are advantageously treated as compared with the slightly larger company which pays a minimum of 40 per cent.


Richard Burpee Hanson: The minister means they have been advantageously treated?


James Lorimer Ilsley: No; they will be in the future, because a company having more than $5,000 profits is taxable at a minimum of 40 per cent now, and under the new legislation there has been no change in that 40 per cent minimum. But the company with $5,000 profit or less will pay a minimum of 30 per cent. There is nothing about 40 per cent in regard to that company.


Richard Burpee Hanson: I suggest to the minister that he put these examples on record They would be valuable to hon. members.


James Lorimer Ilsley: I have not looked at them. I understand the commissioner of income tax let the hon. gentleman have a memorandum.
44561-260i
I have not seen that memorandum myself. I should like to look at it before I put it on record, although I have no doubt it is correct.


Harry Rutherford Jackman: The minister stated in regard to the returnable portion of the excess profits tax, that it referred to only 20 per cent above a certain amount. Is it 20 per cent above the normal 18 per cent, or 20 per cent of wdiat?


James Lorimer Ilsley: It is 20 per cent of the amount of profits over and above 116-6 per cent of the standard profits.


Richard Burpee Hanson: I should like the minister to clarify the position with regard to the second part of this proposal of resolution 4, which he evidently overlooked, that is to say the principle upon which the refundable part is to be repaid. If one looks at resolution 5, it will be observed that a very long delay is going to take place between the payment and the return. For instance, the refundable portion of the tax in respect of the profits of the present year is to be paid not later than the end of the second fiscal period of the government commencing after the cessation of hostilities. I suggest that might be two years after the cessation of hostilities, depending of course on when the proclamation is made. Suppose the proclamation came next March, it is possible this money might be with the government for nearly three years without any interest. I was going to suggest that perhaps that is too _ long, or to ask why the delay of two years.


James Lorimer Ilsley: It may be repaid before
that, but it may be retained until that time. It may be that conditions during the first year and perhaps part of the second year after the termination of hostilities will be such that the expenditure of money in the country would in the opinion of the government be economically injurious-


Richard Burpee Hanson: The government will not have the money to pay it. That is w-hat the minister is saying?


James Lorimer Ilsley: No, I did not have that in
mind, but perhaps that is true.


Richard Burpee Hanson: I think
that would be the only reason why repayment would be withheld.
* Mr. ILSLEY:	No; after the last war the
armistice was in November, 1918, and it was in 1919 and the spring of 1920 that the most inflationary period of all came. It might be foolish for the government to turn loose more money in a period like that. It would, I think, have been advantageous after the last
Excess Profits Tax Act

war to retain any such money as this until late in 1920 or thereabouts, or 1921, instead of paying it back in 1918 or 1919.


Richard Burpee Hanson: On the
other hand, if industries are going to turn from war activity to peace-time activity and they have to change their machinery and undertake rehabilitation, they will want to begin as soon as war orders cease. With what funds are they going to do this? These refundable tax payments are not assignable to a bank as security. A company cannot borrow on the strength of them. However, I would assume that any responsible government, upon appropriate representation being made that the situation was one in which the money ought to be repaid, would not unduly withhold the return of this 20 per cent. It is going to be a very important feature in rehabilitation. As the minister has stated, this two-year period is the maximum period that the government can withhold this money. I am sorry -we have not had a little more clarification of the whole position. I think I understand it, though I am not sure I do, but I am not going to delay the committee further. If other hon. members do not think they understand it, they can ask questions.
Mr. O'BRIEN: A few moments ago the leader of the opposition used me in a figure of speech as a horrible example, and it was rather an experience to find myself travelling heavenward. Now, however, since reincarnation has set in, I should like to bring to the attention of the minister my feeling that in this excess profits division there should be a difference in the treatment given two classes of industry to-day. For instance, there is the large business which has been developed purely as a result of the war; in most instances with government capital; certainly with all business coming from the government. In these instances the government furnishes the orders, the cash to pay for them, the inspectors, the capital required to set up the plant, in some-instances perhaps the money required to process the material. In addition, the material is furnished. Of course these companies are doing excellent work in the war effort; but, after all, their position is relatively simple. I am thinking of the primary producer, what I might describe as the owner-manager type of business, such as lumbering, fishing and presumably farming, though farming is not usually called a business.


Mr. PERLEY:: You need more brains in that than in anything else.
Mr. O'BRIEN: Quite so. People engaged in business of that kind are entirely on their own. Not only do they have to supply their own
IMr. Ilsley.j
capital, but they have to face all the hazards of obtaining their raw material. Those hazards, of course, are provided by the elements. I can imagine a large company, let us say with a pre-war turn-over of perhaps 85,000,000, taking a 10 per cent profit. But that business has been so blown up as a result of the war- and of course it is now exclusively war business that is being done-that the $5,000,000 turn-over has possibly become a $100,000,000 turn-over, so that the 25 per cent they were allowed to retain under the budget of last year is in itself an enormous income, because of the way in which the volume of business has been increased. Every time an order passes through the office of that large corporation, 25 per cent of the profit is retained, and this adds up to an enormous total. On the other hand, in another business the volume may have increased only moderately, and next year that business may suffer a very severe loss. So I maintain that smaller business should be given * a more liberal share of the profits as a protection against the unknown dangers ahead.
Some days ago, I think when delivering his budget speech, the minister said that Canada's war effort had now reached the point where it was not necessary to take capital from profits. That I can quite well understand in connection with the large corporations to which I have referred, but it does not apply to businesses of the other smaller class. In connection with these small companies it is possible that debts incurred during the depression are now being liquidated; yet a small business may want to improve its position, perhaps by putting in a new machine. The only possible source from which money can be secured to put in that machine is profits. These people cannot go to the public and ask for financing, nor are they in a position to come to the government and request capital assistance. So if business of this kind is to continue during the war, not to mention conditions post-war, it is essential that it be given more consideration than is given these large corporations, which, after all, are virtually a branch of government today. The small fellow is simply going along, fighting the hazards on his own responsibility, using his own capital and depending upon his own ingenuity. I believe a system such as I suggest is in operation in the United States, and I would strongly recommend to the minister that if small business is to be developed in this country for the benefit of the war effort, and to meet post-war conditions, this should be done.
Perhaps I might refer briefly to the $500 limit that may be left in any business, which of course comes under the succession duties division. It was in this connection that the

Excess Profits Tax Act
leader of the opposition referred to my particular case. Of course when I die and daisies begin growing over me it really does not make very much difference to me what happens to my estate, or to anyone else except those men whom I am to-day employing. I am only a symbol in the social order to-day; because I have position, and all that sort of thing, I am able to pass on to others the advantages to which they are entitled. There is a theory abroad in this land that the world owes a man a living. It does not; but it distinctly owes him a chance to earn a living, and if capital is going to be taken away in this manner, the person from whom the money is taken is not injured, but those left behind, facing responsibilities with which they are not able to cope, are the ones who are going to suffer.


Mr. GERSHAW:: I should like to bring to the attention of the minister the situation with regard to one industry, that of ranching, which might well be described as a depressed industry. During the standard years conditions were very bad for those engaged in ranching, so that instead of having any profits at all, they suffered losses. During the last year or so conditions have been somewhat better, but the ranchers are all in debt, and now they will have 100 per cent of their profits taken away, since all their profits will be excess profits because, based on the standard years, they had no profits at all. Is there any likelihood of the board of referees considering such cases?


James Lorimer Ilsley: The board of referees under the Excess Profits Tax Act is under the jurisdiction of the Minister of National Revenue, who might have some knowledge of what action if any has been taken in reference to the ranchers of Alberta. I know that when I was in the west a year ago a delegation came to see me, making representations that the ranching industry should be classified as a depressed industry within the meaning of the Excess Profits Tax Act, but I do not know what happened afterwards. There is abundant machinery for dealing with cases of that kind. I assume that they have applied to the board of referees in the usual course and have received the fair and just treatment which business men tell me is the treatment they receive from that board.


Richard Burpee Hanson: I wanted to ask something in that connection also. There is no doubt that the setting up of this board has served a useful purpose. I think it is the accepted opinion that it was a very high-class board, that they had skilful and competent auditors and advisers who prepared the
docket for them in each case and that once they got into their stride they were able to handle a great many cases quickly. On the assumption that a company was in the depressed industry class, that it was a company that had no standard profits, then the board of referees would have the case referred to it by the minister. I understand that, must be done under the law, that a case does: not go to the board automatically but must be referred to it by the minister, and that' the board deals with a man's case on the1 basis of the examination that has been made1 of his position. If he comes within the category of a depressed industry, then under the law he is allowed a return of so much per cent on the capital investment. Is that a correct statement to make?
Mr, ILSLEY: That is right.


Richard Burpee Hanson: On that basis, when he begins to earn sufficient to come under the Excess Profits Tax Act, he then pays the ordinary corporation income tax; he pays that in addition to the excess profits tax?


James Lorimer Ilsley: Oh, yes, if he has had excess profits.


Richard Burpee Hanson: He has a different base. One company which is not in the depressed industry class has a historical base, and the other has a base which is computed by the board. Whatever is earned is then subject to the ordinary operation of the law?


James Lorimer Ilsley: Yes.


Grote Stirling: What reason has the minister for not paying interest on the returnable portion? The government is making full use of this with intention that it shall go back to< the industry, and I think it would be a reasonable thing to pay interest.


James Lorimer Ilsley: The first intention of the government was to treat this returnable portion as being something less than the property of the company. I believe they did this for a while in Great Britain. However, after consideration we thought that we should regard it as the company's money to be refunded, but we did not take the final step of making interest payable on it. There is nee particular rule which would indicate that we should. When I say that our first intention was to treat it as being something less than the company's money we had in mind providing that the company should put it to a certain use, otherwise they would not have it back.


Richard Burpee Hanson: The government held a string on it?
Excess Pro fils T ax Act


James Lorimer Ilsley: Yes. The hon. member for Rosetown-Bigga, (Mr. Coldwell) argued most forcibly that that is exactly what we ought to do, but there were many difficulties in the way. To begin with, a condition which the government might feel justified in attaching to the return of the money could be that it be used to furnish employment or be invested in capital investments. That would be impossible for a large number of companies. There are commercial enterprises, insurance companies, and other companies of that type which could not invest money in any employmentgiving asset. We thought there would be serious discrimination arising between different types of companies.
To a certain extent we were guided by the experience of Great Britain. I have not a thorough knowledge of their law, but my impression is that the first year the British government levied a tax of 100 per cent on excess profits, they agreed to return 20 per cent. The agreement had certain elements of vagueness about it, and the result was that the companies did not consider the 20 per cent as an asset. The British government found that the incentive to economy and efficiency in management and operation was lacking because from the companies' point of view the whole 100 per cent excess was gone. Why be economical, why try if the whole thing is gone? The government then began to move toward the companies, so to speak. Either the second or the third year, I am not sure of my dates, but certainly this year the British government made it clear that the money was the companies' money. I assume they did so because they felt it was necessary to agree to that in order to provide some incentive for economy and the cutting down of expenses and the running of business as business ought to be run.


Richard Burpee Hanson: They
created a credit.


James Lorimer Ilsley: They created a credit. There was no mistake as to whose money it was. It was money refundable to the companies, and that provided some incentive to carry on in the usual prudent and economical way in which business enterprises conduct their affairs. For one reason or another we felt that if we were to preserve that incentive in this country we should do that. We decided to do it as a matter of policy rather than to rely entirely upon a desire to do the right thing or a willingness to do the right thing on the part of all companies. We felt that we would have to make it clear that this money was the company's money and that this credit would be returned within the period
IMr. R. B. Hanson.]
provided, but we did not feel any obligation to go farther and pay interest. The government had every right to take 100 per cent and keep it if they wished to, to take it as a tax, but we decided as a matter of policy, to take the course we have followed.


Richard Burpee Hanson: Interest is paid on the compulsory saving portion of the personal income tax.


James Lorimer Ilsley: We are treating the individual better than the corporation, and there is an excellent reason for that. The money that we get from the individual is not excess profits. It must be remembered that the money we are taking from these companies is excess profits presumably made out of the war and, morally, the government has every right to take all of it and keep it.


Harry Rutherford Jackman: Not all of it.


James Lorimer Ilsley: Any excess.


Harry Rutherford Jackman: The difference between 18 and 40 per cent is not money made out of the war. That is how I characterized the so-called excess profits tax when it was imposed two years ago. It is an excess tax on profits in connection with a substantial part of it. Any company which is earning the same amount as it did prior to the war is taxed 40 per cent rather than 18 per cent because of the imposition of the excess profits tax. If it is earning less than it earned in the pre-war years, it is still taxed 40 per cent. This is the only type of activity in the country that is taxed in this manner; farming and other forms of activity are not taxed unless they are in a corporate form. I think we should be fair about the matter.


James Lorimer Ilsley: Perhaps I went too far in saying that the government is morally entitled to the whole excess. Opinions differ as to what the government has a moral right to do, but I think it has a moral right to appropriate that part which is war profits. There could be no exception taken even by the most enthusiastic upholder of private initiative to that point of view. It was not on moral grounds that we provided for the return of the 20 per cent; it was on the ground of meeting an expediency and providing an incentive. We felt that we would get a much better result, but we did not feel there was an obligation to pay interest.
When we came to the individual we were not necessarily taking his money out of excess earnings. In most instances we were not. We are providing that if they have certain kinds of savings we will accept those in lieu of the payments made to us. They will

Excess Profits Tax Act
get interest on these other savings, or something equivalent to interest, and therefore it is appropriate to allow the short term rate of interest.


James Joseph McCann: The returnable portion of
the excess profits tax is a corporation or company asset, which, however, for the duration of the war and a period thereafter is frozen. In the event of a company having to go into bankruptcy or liquidation, is there any process by which that returnable portion can be returned to. the company in order to help liquidate or wind up the estate? Emergencies may arise necessitating the quick winding up of an estate, and yet the company may have this asset which is in the hands of the government. Can these companies get anything to indicate that they have an asset of this kind, and is it transferable or negotiable, or is there any process by which under special circumstances it can be returned at an earlier date than indicated in the resolution?


James Lorimer Ilsley: That was considered when
the resolution and the legislation were being prepared, but we felt that the liquidator would just have to wait. It is not an unusual thing for liquidators to wait, sometimes for years, but we hope it will not be for many years. There is no provision for paying that money out to bankrupt companies any earlier than we pay it out to solvent companies. It cannot be paid out under this legislation until after the cessation of hostilities, and I do not think we would be justified in providing that if a company went into bankruptcy it could get the money any earlier.


James Joseph McCann: Suppose that death necessitates the winding up of a solvent company. Is there any process by which the returnable portion could be turned over to the estate?


James Lorimer Ilsley: No.


Major James William Coldwell: Mr. Chairman, I should like to say a word on this subject, but I have been waiting until we reach resolution 5, which I think would be the appropriate one.


Thomas Vien: I would suggest to the committee that resolutions 1 to 5 be taken together because they are interlocking. If that be agreeable to the committee, we shall proceed accordingly.


Some hon. MEMBERS:: Agreed.
2.	That in computing the amount of excess profits subject to the tax of 100 per centum, corporations be allowed to deduct such portion of the income tax and the tax payable under the third part of the second schedule to the excess Profits Tax Act as the excess profits bear to the total profits.
3.	That the exemption from excess profits tax of. corporations with profits not in excess
of $5,000 be limited to an exemption from the tax under the first part or the second part of the second schedule but that such corporations be subject to the tax under the third part of the second schedule, namely, a tax, of 12 per centum of profits.
4.	That there shall be refunded to the taxpayer in accordance with paragraph five of these resolutions an amount equal to 20 per centum of the profits above the point at which the tax calculated under the first part of the second schedule is equal to the tax calculated under the second part of the second schedule, provided that the said profits have been paid by way of taxes under the Income War Tax Act and the Excess Profits Tax Act, 1940, to the Receiver General of Canada.
5.	That the refundable portion of any tax exigible under any enactment founded on these resolutions shall be repaid to the taxpayer or to his legal representatives, after the cessation of hostilities between Canada and Germany, Italy and Japan, and in the following manner: The refundable portion of the tax in respect of the profits of 1942 and fiscal periods ending therein, shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the second fiscal period of the government commencing after the said cessation of hostilities; the refundable portion of the tax in respect of the profits of 1943 and fiscal periods ending therein shall be repaid at such times and in such instalments as the governor in council may determine but not later than the end of the third fiscal year of the government commencing after the said cessation of hostilities and so on in resjrect of the refundable portion of the tax on the profits of successive years or fiscal periods.
The date of the cessation of hostilities shall be deemed to be the date of a proclamation issued under the authority of the governor in council declaring that, for purposes of the said refund, the war no longer exists.


Major James William Coldwell: I was very sorry to hear the minister say a few moments ago that the point which I had raised in the budget debate, had been carefully considered but had been more or less discarded for the time being. As a matter of fact I have drafted an amendment to resolution 5 which I intend to put forward to test the feeling of the committee, and I hope yet that the minister will reconsider this question. After all, we are dealing, not with profits but with excess profits. These excess profits are being made largely out of the distress of the nation, and to my mind they ought never to be considered as an asset of a company, corporation or individual. They ought to be the property of the people of Canada out of whose distress these profits are being made. Therefore I think we should take 100 per cent of all excess profits over and above the base allowed, but the government has decided otherwise.
The minister said a few minutes ago that one of the considerations which had governed in the decision of the department was that it was very' difficult to differentiate between what
Excess Profits Tax Act

I might term an industrial corporation operating an industry and a commercial one, such as an insurance company or something of that sort. If we are going to return any part of the excess profits-and the minister proposes under this to return 20 per cent-the only justification for returning any part would be that the profit was to be used for the rehabilitation of the industry in its transition from war-time to peace-time activity, or for the creation of employment during a consequent period of unemployment or during the demobilization period, or to bring some good of some sort to the people of Canada. I would suggest that a commercial organization like an insurance company is not required to rehabilitate itself in the post-war period in the same way as an industrial company, and1 therefore that consideration should not enter into the decision at all. If such companies make an excess profit, we should take 100 per cent of that excess profit.
I read an article in this morning's Montreal Gazette with which I thoroughly agree. It was by Professor Harold Laski, of London. Professor Laski pointed out that we are losing this war to-day because we insist on maintaining a system which makes it impossible for us to conduct this war in the same manner in which our opponents are conducting their war, and the result is that our compromises bring chaos and inefficiency.
I wanted to move something which I thought would be acceptable, and I am going to place it before the committee now so that when we come to resolution 5 it will receive more consideration than it has received up to the present time. My suggestion is this:
That section 5 be amended by the insertion of the words "under such conditions" after the word "times" in the sixth line of the section, and by insertion of the same words "under such conditions" after the word "times" in the tenth line of the section.
Further, that after the word "periods" at the end of the first paragraph, the following words be added:
"Provided, however, that all such refundable portions of the tax in respect of the profits aforementioned, shall not be used for the payment of dividends, bonuses, or otherwise disbursed except for the rehabilitation of the industry, the provision of employment or such other service to the Canadian people as the governor in council may determine."
I am going to pass that to the Chairman so that the amendment may be considered when we reach the appropriate clause. I think it is altogether wrong for us to leave any loophole whatsoever which will allow at the conclusion of the war any corporation or company to defeat the very objective of the excess profits tax and to use the accumulated refundable portion of the tax for dividends 
and bonuses to their shareholders. I say that no one has the right to make a profit out of the blood and agony of the people of this country in this war, and it is our duty to see to it that nothing of that sort is done now or in the future.
I want to be quite clear about what I have in mind. First of all I do not think any portion of the excess profits tax should be refunded, but since it has been decided to refund 20 per cent, then I would say that if it is to be refunded it should be refunded to be used as the governor in council may determine, for the creation of work or for the transition of industry from war-time to peacetime activity. In other words, we should not regard the refundable excess profits as the property of a company or corporation to do with as they wish, but as a common gift to all the people of Canada to help rehabilitate some of the industrial life of this nation after the war is over. I again urge the minister to give consideration to the point of view I have suggested.


Mr. GRAHAM:: I wish to tell the committee a homely story which was given me the other day, and which I think has value and has a bearing on the point raised by the hon. member for Rosetown-Biggar. Out at the western coast the owner of a fishing boat came into a marine depot at the height of a very good fishing season. The owner of the depot asked him if he wished to fill up his tank with oil, and the proprietor of the boat said, "No, I just came in to return an article which I borrowed the other day." "Well", the owner of the marine depot said, "I am very much surprised that that is the case, that you are not filling up. Surely you are not laying up your boat at the height of a good fishing season?" The owner of the boat said, "Yes, that is just what I am doing. I have had a very good season so far, an excellent season. If I take the boat out again I run a certain risk of losing it, and if I make any more money the government will take whatever I earn, and I have decided that my wisest course is to lay up the boat and go down to the prairies and make a visit to some friends which I intended making."
As I say, that is a homely story, but it has an important lesson for us who are attempting to improve methods of taxation and at the same time raise the moneys which necessarily must be raised for our war effort. I have always thought that, while nobody would care to argue against the proposition-it is the natural desire of every hon. member-that no person shall make any profit out of the suffering of the people as a result of the war effort,

Excess Profits Tax Act
we must keep in mind that there must be the incentive to the whole of the people of Canada to produce annually just as much goods and services as is humanly possible. If we remove the natural incentive to produce other than the minimum, we destroy any hope of producing the maximum. I for one would suggest to the Minister of Finance that he see to it that the fact that 20 per cent is taken and kept as a saving for the individual is made well known to the people of Canada, and that a special campaign of advertising is used for that purpose. In the ordinary corporation with legal or accounting advice there will be no misinterpretation of this particular provision in regard to the 20 per cent; but the great majority of individuals is rather of the opinion that when the government takes money without giving in return a bond or some other formal acknowledgment, it intends never to give it back, and the promise contained in a statute which most people do not read leaves them in the unfortunate position of not recognizing that this section does supply the incentive I spoke about, and that by continuing to produce fish, or whatever it may be their task to produce, they add to the annual wealth from which we can take these taxes. I suggest it will be wise economy for the minister to attempt to bring home to the people of Canada that it is both patriotic and profitable to work as hard and produce as much as possible during this war period.


Mr. NOSE WORTHY:: Would the minister explain to the committee how he has arrived at the conclusion that you must give a corporation or a company a certain amount of excess profits tax as an incentive to produce, but you can expect the hundreds of thousands of people, the workers, who actually do the production, to produce without any incentive as far as this particular budget is concerned? I fail to see in it any provision where any individual worker is given any incentive to produce. His wages are frozen; his income tax is increased; he apparently needs no incentive. Yet production, in the final analysis, depends upon the multitude of workers as much as it does upon the industrial corporation oi company.


James Lorimer Ilsley: The ordinary run of mankind does require an incentive, even in time of war, to produce. We have delegations repeatedly from farmers and others who say they cannot be expected to produce farm products unless the price is sufficient to give them some incentive, and we are blamed for not arranging matters so that the price does give them that incentive. We hear in this chamber hon. members who say that if we desire greater
production it is a simple thing to get it by increasing the price. For instance, I have heard the hon. member for Lethbridge say that if we were to make the price of farm products high enough we need not worry about getting the farm products.
With regard to labour I am a little bit out of the field. The Minister of Labour would be much better to expound this matter than I am. But I do not think we would get men to work overtime unless we paid them the wages for working overtime. There are some men who work overtime on the ordinary day rate, but I think most workers require time and a half, or in some cases double time, in order to work overtime. That is what I mean by incentive; and they would not work without the incentive, or a great many of them certainly would not.
Then, I under-stand, there are reclassifications and promotions in industry. An apprentice goes in at a certain wage. If he qualifies himself for a better position, a higher classification, he gets that higher classification. But he does not do the work in the higher classification unless he gets a higher wage. The higher wage he is to get is the incentive which induces him to qualify himself for the higher-range. of duties, and he gets it. That is a profit, for under our laws that is not denied by any order in council or any law that I know of. Indeed, promotions and reclassifications of labour in industry are continually taking place. We are told that unless we want to disorganize the whole productive machinery of the country we must give labour some monetary incentive. The labourer is given it, and he responds to it.
I wish we did not have to do that. I wish that everybody would, in a time like this, work as a great many do, apparently, without any incentive at all.


Richard Burpee Hanson: Service to the state ought to be a good incentive.


James Lorimer Ilsley: I know there are executives, boards of directors of companies, and others who, if I am any judge, do not require a monetary incentive to do everything they possibly can, because they believe everything is at stake. Then there are others who have not attained that high state of sacrifice, or perhaps comprehension, and they say, "Well, what is the use? Am I going to run the risk of a loss if, when I make a profit, it is all taken away from me?" That is the way some talk. I did not make people that way. If I were constructing them perhaps I would construct them in a different way, but that is the way they are. It is not confined to business. It is not confined to big corporations. You will find it, I fancy, among
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members of this house. You find it among all classes and all callings, high and low, rich and poor. It is what might properly be called human nature. I think that answers the hon. gentleman.


Mr. NOSEWORTHY:: I would ask the
minister to observe that we have been talking about excess profits, and I fail to see where workers in any classification are likely to get much in the way of excess profits as an incentive to produce. I am glad to hear the minister say that consideration has been given to the incentive motive as far as the worker, the actual producer, is concerned. You will find in the budget later that there are points in it which suggest that the worker would be just as well off if he did not work overtime. I have had a number of instances of that called to my attention which will come up in another connection. But as to the question of getting excess profits as an incentive to produce, I do not think the minister is consistent in his dealings with the companies as compared with his dealings with individuals as workers.


James Lorimer Ilsley: Let me say something about" these excess profits which it is assumed it will be possible for companies to earn. If a company makes any excess profits whatever; if it makes 100 per cent of its pre-war earnings-exactly 100 per cent-it will be permitted under this taxation to retain 60 per cent. If it makes 116-6 per cent, it will be permitted to retain 70 per cent. If it makes 150 per cent of its pre-war earnings, it will be permitted to retain 76-7 per cent. If it makes 200. per cent of its pre-war earnings, it will be permitted to retain 86-7 per cent. If it makes 250 per cent of its pre-war earnings, it will be permitted to retain 96-7 per cent. If it- makes 300 per cent of its pre-war earnings, it will be permitted to retain 10&-7 per cent-and when I say retain, I am including the 20 per cent refundable. No company can retain more than 70 per cent of its pre-war earnings leaving out that 20 per cent refundable, so that I have tried to make this taxation such that my hon. friend and his associates will not need to worry about the amount that will be left in the hands of the companies. The figures I have given are rather significant.


Mr. COLD WELL:: It is a great improvement.


Victor Quelch: I do not think the statement of the Minister of Finance (Mr. Ilsley) with regard to agriculture should be allowed to pass unchallenged. He has said that agriculture has asked for a price that will give some incentive, and he referred to statements

made by the hon. member for Lethbridge. The hon. member for Lethbridge has never asked that the farmer should be allowed prices which would return excess profits. All he has asked for is that the farmer shall receive a parity price which will return to him his cost of production; in other words, a price which is commensurate with the price that he has to pay for other commodities. Unless the farmer receives that price, he cannot pay his costs and he is bound to go into debt. To try to draw a comparison between that situation and the situation where the manufacturers want to have refunded to them excess profits is certainly not very fair. The farmers are not even asking for a price that will return a fair profit; as I say, they are simply asking for a parity price that will make it possible for them to pay cost of production. I do not think the minister made a sound argument when he tried to compare agriculture with other industries which made substantial profits before the war and which are now making handsome excess profits.


Mr. GILLIS:: I am prompted to say a
few words on this matter because of remarks made by the hon. member for Swift Current (Mr. Graham). I know him to be a pretty solid person, and I was surprised at the homely story he told the committee in order to protect those who require excess profits. Evidently he believes in profitable patriotism; if you do not get well paid for fighting the war, you should not fight it. The hon. member for Rosetown-Biggar (Mr. Coldwell) has made our position clear with the amendment with respect to excess profits. The industrialists to-day are doing a job to save their own skins as well as those of the rest of the nation, and they are guaranteed pre-war profits.


Harry Rutherford Jackman: Oh no; how do you make that out?


Clarence Gillis: Oh, yes. The normal profits of the last three years are taken as the base, and it is computed from that. If we had facilities at our disposal to probe thoroughly the excess profits question, it would startle some of us. I am not satisfied that the figures we have been getting are correct. The hon. member for Rosedale (Mr. Jackman) may have reason to think they are, but we are not satisfied. The hon. member for Swift Current makes certain statements with regard to fishermen, and I am doubtful whether there are any fishermen in Canada who would take the attitude suggested by that hon. gentleman. I do not think there is any fisherman who would use 25 per cent of the fishing season to make sufficient money to care for his own
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needs and then, because of taxation, decline to produce any more, taking a vacation to visit his friends, and contributing nothing to the treasury. Any man who takes that attitude at a time like this should be interned, because he is definitely no asset to the nation. What would the hon. member for Swift Current think of the average industrial worker employed six .days a week who took certain time off for similar reasons? He does not wish to work overtime, but in the majority of cases he is forced to do so by circumstances.
It is not because he wants to do so. By working six days a week the great majority of them bring themselves within the range of the income tax. The great majority of them contribute the last two days they work by way of taxation. What would the hon. member think if each week they worked for four days and then stayed at home for two days, taking care of their recreational requirements, looking after their health, going on a fishing trip, and so on. What would he think of them if they took that attitude and argued that because they worked two additional days a wreek they would be contributing to the treasury by way of taxation. He would call them saboteurs, and rightly so. But the industrialist or manufacturer who takes advantage of the war situation to put a gun to the head of the Minister of Finance or anyone else in the country charged with the responsibility of directing that particular phase of our war effort is just as much a saboteur as those who would spend two days a week at home instead of producing because, by producing, they would come within the scope of the income tax. There is no difference. I would advise the hon. member to advise his friend who refused to fish because he might have to pay tax that if he is visiting in Saskatchewan now he should take that boat out and be a Canadian citizen and1 make his contribution.
I rose to say that because the position is absolutely analogous. I have a document showing the contribution some industrial workers are making by way of taxation a large percentage of what they get. What is shown as paid directly is a very small proportion of their tax, direct and indirect, but they are not doing any squawking about it.
The hon. member for Rosetown-Biggar in his remarks and the amendment proposed has made the position clear; there should be no excess profits; no one should make any money out of this war. Our attitude should be that of New Zealand, that no one shall be any richer because he has not gone to the war, that no one who has gone to the war shall be any worse off when he comes back because he went to the war and made his
contribution. If that 20 per cent of the excess profits tax is not used in rehabilitation after the war, then I say that those who are charged with the responsibility and have the authority of legislating are failing in their duty to those who have offered their all.


Richard Burpee Hanson: Does the hon. member consider that excess profits and war profits are synonymous? I think there is a distinction. One may include part of the other, but they are not synonymous.


Clarence Gillis: No, they are not.


Richard Burpee Hanson: Then the hon. member must make a distinction between the two.


Major James William Coldwell: I should like to endorse what the hon. member for Acadia said. I was surprised when the minister spoke of the farmer as *wanting excess profits.


James Lorimer Ilsley: I said nothing of the kind.


Major James William Coldwell: That was the implication.


James Lorimer Ilsley: No, it was not. There was no such implication. The hon. gentleman was asking me why people needed incentives, and I was explaining that every normal person wants incentives. I was not blaming the farmer.


Major James William Coldwell: Put it this way; the incentive the minister was talking about was the incentive of making a profit.


James Lorimer Ilsley: Right.


An hon. MEMBER:: Excess profits.


Major James William Coldwell: Well, the minister says no. I accept his word. The reason why there have been so many delegations of farmers waiting on the government during recent years was not that the farmers were asking for a profit, but that they were asking for a price which would be more nearly commensurate with the cost of production, which they were not getting at that time. Let us not get these things mixed up.


Mr. EVANS:: They want a profit over the cost of production.


Major James William Coldwell: They were not asking for a profit over the cost of production; the figures we have produced from time to time amply show that over a period of years they were not getting cost of production when they were getting 70 cents or even 90 cents a bushel for wheat at Fort William. As long as men and women are able to see life now and security in the future, that is what they ask as a rule. The bulk of our population
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never see that at all. We are not discussing that; we are discussing the question of excess profit, and, as I said earlier, if I had my way at this time-and this would be a compromise-I would take 100 per cent of all profit over, say a base profit of 4 per cent.


Charles Robert Evans: Would the hon. member take that from the farmer too?


Major James William Coldwell: The farmer does not get 4 per cent. If he got 4 per cent in addition to the cost of production year in and year out, he would be tickled to death. But let us not get into that. I would take 100 per cent. I say this again, that until we recognize that in this war there ought to be no profit, and get as near as we can to equality of sacrifice in that particular field*-of course there can be no real equality of sacrifice when men are giving their lives-we shall not have the kind of war effort that we ought to have. As I said in quoting the article I read to-day by Harold Laski, we are to-day in the position we are in because we have refused to recognize that this is not a war in the sense we have talked about war in the past; it is in effect a world revolution; it is in effect the demand of the plain ordinary man for the right to live decently apart from monopolies and with no one making a profit out of his production and labour.


Humphrey Mitchell: That is what Hitler
says.


Major James William Coldwell: We should take all
profits above a minimum amount.


Mr. ROEBUCK:: I am glad to hear this discussion on the general principle of the excess profits tax, because I would call into question the fundamentals of this legislation. It is arbitrary in its arrangement; it is based on no sound principle. The excess is what a manufacturer or business man makes over and above what he made in some standard period. What he made in the standard period may itself have been excess.


Harry Rutherford Jackman: Or less.
i


Arthur Wentworth Roebuck: Or on the contrary it may have been below what is a normal profit. So the excess profits tax is geared up to allow perhaps more than normal profits to those who were in business and doing well during the standard period, and with almost diabolical ingenuity to exempt from extreme taxation those concerns which are well established as against those which were not doing business, or were making very small profits, or no profits, during the standard period. The great gold mining companies were doing very well during the standard period.


Harry Rutherford Jackman: They saved the country during the great depression.


Arthur Wentworth Roebuck: They did very well, they and their employees, in producing gold which helped our exchange position. I am not attacking them. We are now talking about what is fair as between various classes of producers. The gold mining companies were making big money during the standard period, and what they then made is the standard now of normal profits to that industry. It is only profits in excess of the great profits they made in those years that are now considered excess profits.. The financial institutions, the thoroughly established ones, were doing well during that period. So were the manufac-. turers-


Richard Burpee Hanson: Not all.


Arthur Wentworth Roebuck: Not all, but the big
standard ones were doing well. The fact that some were not doing well does not answer my criticism of the general principle of this taxation.
I submit there is something to be said in favour of the principle laid down by the leader of the Cooperative Commonwealth Federation; that is, that all companies should be treated alike and that whatever your rate of normal tax may be, it should be applied to all, big and small, those who were making profits previously and those who were not. I do not say 4 per cent is sufficient; I do not know, but it would be fairer were we to allow profit at some standard rate upon the investment of the company and call all profits above that rate excess profits.


Harry Rutherford Jackman: Would you guarantee the profits of those companies that did not make any?


Arthur Wentworth Roebuck: I do not think the question is asked seriously. Of course you will not guarantee profits; if you do you keep in existence unprofitable businesses, which would be a loss to the country. That has been a principle of the Conservative party throughout the ages, to bolster those concerns which did not make a natural, normal profit, to give them, by tariffs and other favours, profits which they could not otherwise make, and to charge the losses up to the paying business of the country. That is abnormal; that is not sound, and I do not believe in it. A business that cannot make profits should close its doors.


Richard Burpee Hanson: I suppose the Liberal party never did anything like that.?


Arthur Wentworth Roebuck: Why are you trying to bring party politics into this discussion? At all events, the Conservative party has no

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reason to complain about the tariff measures of the Liberal party, which have always been very much more moderate than when hon. gentlemen opposite have been in office.


An hon. MEMBER:: Are you sure?


Arthur Wentworth Roebuck: I am perfectly satisfied as to that. But that sort of talk is a red herring across this trail.


Richard Burpee Hanson: Who
started it?


Arthur Wentworth Roebuck: You started it. I was trying to discuss the principles underlying the excess profits tax.


Richard Burpee Hanson: And you levelled a charge against the Conservative party.


Arthur Wentworth Roebuck: Well, if I have made any charges against the poor Conservative party I withdraw them. It is in a bad fix now, and I do not want to do it any more damage than has been done.


Some hon. MEMBERS:: Oh, oh.


Arthur Wentworth Roebuck: There will be a chance for all of you to make speeches when I get through.


Gordon Graydon: I doubt it.


Arthur Wentworth Roebuck: Well, you have made a good many more than I have so far. A good deal of the time of the house is consumed in chit-chat from across the way. Now let me get back to what I was saying, because I was trying to make a point clear.


Richard Burpee Hanson: So important you cannot remember.


Arthur Wentworth Roebuck: Will hon. gentlemen
please not interrupt?


Mr. MACKENZIE (Vancouver Centre):: I object to all this moaning from across the way.


Thomas Vien: Order.


Arthur Wentworth Roebuck: Moaning is right; moaning at the bar.
I endorse the general principles, though not the exact amount, stated by the leader of the Cooperative Commonwealth Federation party. I think there is something sound in the principle he has enunciated, that all companies should pay the same; that all companies should be allowed the same rate of normal profits, and that everything in excess of that rate should be considered excess profit. During war time I have no objection to taking all truly excess profits and not paying back anything.


Thomas Vien: Shall the resolution carry ?	.


Richard Burpee Hanson: Which one
is carried?


Thomas Vien: We were considering resolutions 1, 2, 3, 4 and 5.


Richard Burpee Hanson: Before
resolution 5 is carried I want to ask the minister a question with respect to the words "cessation of hostilities". Is the committee to understand that the cessation of hostilities referred to there is to be a special date for the purposes of the refund, or will it be the official date of the cessation of hostilities?


James Lorimer Ilsley: It is not intended that it shall be selected for the purpose of determining the date of the refund.


Richard Burpee Hanson: That is what I am asking.


James Lorimer Ilsley: The only reason for providing that it shall be fixed by the governor in council is that the date of the cessation of hostilities may be difficult to ascertain as a matter .of fact. It is impossible to foresee what the condition of affairs will be. Some nations may be fighting on; there may be none fighting; the fighting may stop and then start again. One can hardly tell what sort of world we shall be living in; we are using a term in this measure which is not susceptible of exact determination by evidence, and therefore it must be fixed by the governor in council. I think wherever terms such as "the end of the war" or "the cessation of hostilities" are used in legislation there is always some means provided for making an exact determination of that date. I know under the War Measures Act a proclamation is provided for.


Richard Burpee Hanson: That is the proclamation which I assumed to be applicable in this case.


James Lorimer Ilsley: That proclamation may not be accurate; the War Measures Act may run for a period after the termination of the war, as it did before.


Richard Burpee Hanson: Did it run after the proclamation?


James Lorimer Ilsley: No, but the war ceased, I would say, on the date of the armistice in November, 1918. The War Measures Act, however, did not pass out until 1919 or 1920.


Richard Burpee Hanson: The armistice was only the cessation of actual fighting; there was a long period in between the armistice and the latter stages, so the war was not over officially until the peace treaty was signed.
Excess Profits Tax Act


James Lorimer Ilsley: I do not know whether it was over then, but that is the very point. I would have said the armistice was the date, but my hon. friend thinks it was the date of the peace treaty. Maybe neither was the actual date of the cessation of hostilities; and because that is an ambiguous term provision is made for fixing the date by order in council.


Olof Hanson: But you do not intend to have any date fixed for the purposes of this question of refund? That is not going to be fixed having regard only to that feature; the general date of the cessation of hostilities or of the peace will be the date contemplated here?


James Lorimer Ilsley: That is correct.


Thomas Vien: The question is on the amendment.


Mr. SHAW:: Mr. Chairman, the members of the group of which I am a member intend to support the amendment moved by the hon. member for Rosetown-Biggar. We feel as he does with regard to the matter of excess profits. These excess profits-and I am sorry to say that I believe the minister confused them with ordinary profits-as the hon. member for Rosetown-Biggar has said are obtained as a consequence of the agony of the people of this country. We feel that the 20 per cent which is returnable should be returnable only with the clear-cut understanding that, as the amendment sets out, it is to be used during the transition period, when industries now producing materials of war will revert to the production of peace-time consumer goods. To the extent that this 20 per cent is used for that purpose we would have no objection to its refund, or to the extent that it might be used to assist in the estblishment of workers who of necessity will lose positions in war industries and must be given positions in the peace-time industrial life of this country. Many of the boys who are now overseas fighting will come back to this country maimed, and will find that they have to fight for all they are worth to secure a mere pittance as a pension. We do not feel that there is anything in the way of excess profits being paid to them after the war, and therefore we are of the opinion that the industries have no claim upon excess profits which may be used, as the hon. member for Rosetown-Biggar has said, to pay dividends to shareholders. We are in favour of the amendment and intend to support it.


Ernest Edward Perley: I am going to support this amendment. The hon. member for Rosetown-
(Mr R. B. Hanson.]
Biggar has put the case very well. This returnable portion of the tax should not be used by the companies to pay dividends; it should be used to provide employment. So far as farmers are concerned, I think the money should be used for rehabilitation purposes and improvements. I do not agree with the hon. member for Northumberland, New Brunswick (Mr. O'Brien) who said that farmers are not business men. I say it requires more brains to make a success of farming than it does to make a success of any other industry.
Mr. O'BRIEN: I meant that farming is generally carried on by the individual and does not provide the same form of employment as industry. Of course, the larger the farming operation, the more like a business it becomes.


Ernest Edward Perley: I think it is agreed that the agricultural industry requires brains to make a success of it. It has been said that no one should be better off after this war. The hon. member for Medicine Hat (Mr. Gershaw) has said that the agricultural industry has been a depressed industry, not only since the war but for many years before. This industry provides more new wealth than any other industry in Canada. There are many farms in western Canada where new machinery and improvements are needed, and if any farmers are in a position where 20 per cent will be returned, I think it should be used for that purpose. I am going to support this amendment. As the member for Acadia (Mr. Quelch) says, the farmers have not been unreasonable or have not asked for too much. All they have been asking for is parity so far as production costs are concerned. They have been producing at less than cost without complaining too much.


George Hugh Castleden: ' I think it should be said at this time that the farm delegations which came here were not asking for profits. The average cost of producing a bushel of wheat in the west before the war was $1, and all the farmer is getting is 70 cents a bushel at the farm. The farmers are continuing to grow wheat-they must grow it to live-and yet they must sell it at 30 per cent below the cost of production. They continue to grow wheat because they know it is needed in the winning of this war. The present indications are that they will grow 400,000,000 bushels this year, but they are doing it at a loss. They feel badly when they hear about companies making excess profits. When they know that a discussion is going on as to how those excess profits will be dealt with and what will be done with the portion to be

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returned, they will be looking carefully to find out what the House of Commons thinks of this principle. There is a deep and important principle involved. Large profits are being made out of war industries, out of the making of implements of destruction. The armament makers of the world have created wars in the past for the sake of the profits they might make. What do' the members of this House of Commons think should be done with the profits made out of war industry?
A. member who votes for this amendment is voting that such profits shall be used for the reestablishment of the nation, and a member who votes against the amendment is voting in favour of these companies being permitted to make their profits, being permitted to make what I call blood-money.


James Arthur Ross: I should like to say a word in support of this amendment. I was rather surprised at the statement of the Minister of Finance (Mr. Ilsley) with regard to agriculture. I know many farmers who would have sold out had they not felt that it was patriotic to keep going during the last year or two, even though they were short of help. As I have pointed out before in this house, I do not know how many farmers are going to be able to pay their way and take care of past obligations. Why should we have, on the one hand, a set-up for industry, and expect, on the other hand, the agriculturist to produce at below cost? If industry is to have this 20 per cent which is to be set aside until after the war-


Harry Rutherford Jackman: If they earn it.


James Arthur Ross: If they earn it, all right. If it is set aside, it -certainly should be used for rehabilitation purposes. In my part of the country the farmers have been going behind for a number of years, and with the present budget resolutions I do not know how they will be able to take care of past obligations and pay their income taxes, even though they have good crops. They are in a hopeless position. I am going to support this amendment, and I hope the minister will see his way clear to do something for the agriculturists.


Grote Stirling: Has the minister stated whether the company to whom this 20 per cent is returnable may use it for any purpose they wish?


James Lorimer Ilsley: Yes.


Grote Stirling: It is left open to the companies to use it for any purpose they wish?


James Lorimer Ilsley: It is just as though they lent the money to the government without interest.


Grote Stirling: Surely the minister is riding two horses when he says that. I advanced the opinion a little while ago that since this was the companies' money and the government was making use of it, it should be returned with interest. The minister took the view that excess profits were something it was perfectly proper for the government to take. Then, out of bounty it proposes to return 20 per cent of those profits under certain conditions and at a certain time.


James Lorimer Ilsley: I did not say anything about bounty.


Grote Stirling: Perhaps I am not repeating the minister's words, but he did say the government had decided to return 20 per cent of the tax it is taking, a tax which he says it is perfectly legitimate for the government of Canada to take and retain, but it has now been decided to return 20 per cent of it. It seems to me that it would be reasonable if the government were to take the view that the main purpose for which that returning was done was for the purpose of rehabilitation, to restore industry to that position in which it can make beneficial use of its opportunities by the provision of work for the people. If the government takes the view that it will exercise no guidance whatever with regard to the use to which this money is put by the companies concerned, I must support the amendment.


Arthur Wentworth Roebuck: Mr. Chairman, I spoke a few moments ago commending some of the general principles expressed by the leader of the Cooperative Commonwealth Federation party. That is one thing, but it is quite another thing to support this amendment. I am going to vote against it, and I am going to tell you why.
I hope that by the time this war is over wre shall be done with government interference with private business. An attempt on the part of the government, perhaps, years before this money will be repaid, to regulate its expenditures after it is repaid would be the very extreme of governmental interference. Surely, if this money is in the nature of a loan to the government or is not altogether taxes which are to be kept and never returned, the least that we can do is to allow people who receive the money to use it as their best judgment dictates. Their judgment exercised at the time must be better than ours, exercised long in advance and through a government department. I would hesitate to interfere w-ith private busi-
Excess Profits Tax Act

ness in the handling of its own funds after the war is over, perhaps years from now. We have too much government interference now.


Major James William Coldwell: I am surprised at the argument made by the hon. member for Trinity. I would be pleased indeed to see excess profits wiped out altogether, and I w'ould like to see my hon. friend introducing an amendment along the lines in which he suggested he was in agreement with me. But I realize that the government has adopted this principle, and therefore what we are trying to do to-night is to see to it that this amount which is to be returned shall not be used by the companies simply as deferred dividends, as post-war bonuses, as melons, if you like, to be cut in the future. In that respect we are trying to safeguard the Canadian people.
I do not agree with the hon. member, of course, when he says that what we should do is to refrain from telling business in the future what it should do. I want to tell him this, that in my opinion the day has gone for good when business can do what it likes. The world will never return to economic anarchy. I once heard an hon. gentleman who sits opposite say to me, "I am an anarchist philosophically and the nearest approach to anarchy that I can find at the present time is the Liberal party". That is fundamentally correct.
On the other hand, we are living in an ordered world, and in my opinion this house, in deciding at this time that we are going to return to industry after the war any portion of its excess profits-and that is the principle which the government has laid down-should also safeguard the nation by seeing that this money shall be used only for the rehabilitation of industry, for the provision of employment, for the good of the nation, and shall not be used simply to pay deferred dividends, bonuses, and so on. I think we should lay down that principle to-night and not wait until some future day when a vested interest will have been acquired in this particular fund.
I am surprised at the argument of the hon. member for Trinity. Someone has said that these industries were not doing any too well to-day. But on June 11 my hon. friend the member for Weyburn put on the record a list of war companies picked at random from the newspapers, and showed that their aggregate profit increase in 1941 over the 1936-39 average was no less than 62 per cent. Take Aluminum Limited, a very prosperous Canadian company in pre-war years. Its average 
profit in the base period, 1936-39, was $9 454,000, and that had increased in 1941 to $16J)15,-000; Consolidated Mining and Smelting increased from an average profit in the 193639 period of $9,294,000 to $12,199,000 in 1941; Ford of Canada increased from $949,000 in the 1936-39 period to $3,379,000 in 1941, and so on.


Douglas Charles Abbott: How much taxes did they
pay in those years?


Major James William Coldwell: These were the profits
after the taxes had been paid. It is not a matter of what taxes you pay; it is what you have left after you have paid your taxes that counts. I say that we have a perfect right to make to-night the stipulation the amendment suggests, and not leave it to some future date. I strongly urge the committee to support the amendment I have moved.
Amendment negatived: yeas, 16; nays, 60.
Resolutions 1 to 5 inclusive agreed to.
Resolution 6 agreed to.
7.	That the definition of "standard profits" be amended to exclude therefrom dividends deemed to hare been received under the provisions of section 19 of the Income War Tax Act.


Harry Rutherford Jackman: Would the minister
explain just what is meant by that? I have not the Income War Tax Act in front of me.


James Lorimer Ilsley: Section 19 of the Income
War Tax Act relates to the winding up of companies and deems undistributed income to have been distributed as a dividend and taxable in that year in the hands of the recipient. It will be obvious that if a receiving company had received such a dividend in the standard' period, it would constitute a very unusual and abnormal profit which should not be allowed to constitute part of the base from which excess profits are measured. The present resolution will exclude from standard profits those items of unusual, non-recurring income.


Harry Rutherford Jackman: If a company which has
established its standard base does receive an appreciable increase in any one fiscal year, will that have to go into the one year's operating account? For instance, take Canadian Car and Foundry.


James Lorimer Ilsley: They will be excluded in
the taxation year.


Harry Rutherford Jackman: It will not all be. taken away from them in one year?


James Lorimer Ilsley: There may be some qualification as to that. I will give some consideration to it. There was an amendment last

Excess Profits Tax Act
year, if I remember correctly, relating to the extent to which that type of profit could be taken into the taxation year. The two situations should be comparable.
Mr. O'BRIEN: Is there any way in which a taxpayer can find out what is considered a fair standard profit in a certain type of industry? For instance, assume that a certain company made $10,000 in the 1936-39 period, and that company considered it a fair profit, but a competitor made 12 per cent which he considered a fair profit. He might even ask to have his standard raised to say, 15 per cent, which the board might consider a fail-profit. I wonder how that is governed.


James Lorimer Ilsley: As the hon. gentleman knows, the board of referees cannot allow more than 10 per cent when capital is the determining factor. With new companies, my recollection is that the capital standard is not used, that the return is the return which is usual in the industry. It is not strictly accurate to say that the capital standard is not used; what I should have said is that the 10 per cent limit does not apply in the case of a new company. In the case of depressed companies they cannot get a standard from the board of referees which will be greater than 10 per cent on their capital; it may be considerably less. As a matter of fact, I do not know what their standard is. But the new companies are not limited to the 10 per cent, and there it is a matter for the board.
Mr. O'BRIEN: Are bank borrowings considered as capital?


James Lorimer Ilsley: It is the earned capital.


[Stage Direction]
Resolution agreed to.
Resolutions 8 and 9 agreed to.
10. That the income of any company derived from the production of base metals or strategic minerals shall be exempt from taxation hereunder if the company first came into production during the period of three years commencing the first day of January, 1943, and such exemption shall extend to the income of the first three fiscal periods of twelve months each of any such company following commencement of such production.
Howard Charles Green: Will the minister explain why the date set is January 1, 1943? It would seem that that would mean that if one of these base metal mines came into production during the present year, the company would not get the benefit of the amendment. Surely that is not the intention.


James Lorimer Ilsley: This is a continuation in a different form of the present provision. The legislation on this matter has been in existence since 1936.


Howard Charles Green: Not for base metal mines, has it?


James Lorimer Ilsley: Metalliferous mines.


Howard Charles Green: What section of the act?


James Lorimer Ilsley: Section 89 of the Income War Tax Act. The present exemption applies to metalliferous mines, and that applies to mines which come into production prior to January 1, 1943. This legislation applies to mines which come into production after January 1, 1943. It widens the number of mines which are eligible, and it changes the exemption from an exemption from income tax to an exemption from excess profits tax, which would be more favourable to the companies. There is perhaps a point in that marginal number; that is, there might be some strategic minerals which will not get any assistance until after January 1, 1943. What I have said would appear to be correct from the section, but it is not correct for this reason, that there is a tuning-up period. That is to say, if a mine were discovered now, it would not be deemed to come into production until six months from now, and therefore it would come within the benefits of the proposed section.


Howard Charles Green: But there are many zinc and lead mines in British Columbia which have been operated off and on for many years, going back as far as fifty years, but have been lying dormant for perhaps the last ten years. They may be brought into production this year, and it seems to me that they should get the benefit of this provision. The resolution reads in this way, that if the company first comes into production before January 1, 1943, then the company will not get the benefit of this amendment, and I suggest to* the minister that that is wrong. What we want to do is to encourage these mines to get into production as quickly as possible, and certainly from the way this resolution reads a company would be discouraged from coming into production until after the first of January, 1943. If it is intended to broaden the exemption, surely that should be dated back, say to the first of January, 1942.


James Lorimer Ilsley: The hon. gentleman is confused. There is no difference in principle between the two sections. That is, if the old mine cannot qualify now, it cannot qualify after the first of January, 1943, because it is still an old mine. What the hon. gentleman is really asking for is to extend this section from new mines to old mines which have been abandoned and are brought into production again.
Excess Profits Tax Act


Howard Charles Green: No, but the way this resolution reads is, "if the company first came into production during the period of three years"; it does not say, "if 'the mine' first came into production"; it is "the company". The chances are that a mine of this type would be taken over by a new company; it would not be a matter of the old company doing the development work. It is very important that every encouragement should be given to have these mines opened up this summer. If you wait until the late fall or the winter, they cannot start in until next spring, and a whole year will be lost.


James Lorimer Ilsley: It may be that the resolution is wrongly worded. It is intended that the wording shall be the same and the principle shall be the same as section 89 of the Income War Tax Act. The two differences are, first, that it will extend to a wider range of mines, and second, that it will be an exemption from excess profits tax, not income tax. I should add a third, that precious metals are out.


Howard Charles Green: Does the minister mean that it will apply only to the new mines?


James Lorimer Ilsley: Right.


Howard Charles Green: Well, I suggest that that is ridiculous, because the most likely place from which you will get the zinc and the lead will be from these old mines which have been partly developed. For one new mine where you would be able to get the metal there would be a hundred partly developed mines that could be developed further and from which you could get metal much faster than you could get it from a new mine. What we want here is not new mines developed so much as the ore; we want the zinc and the lead and the copper. It is not so much a matter of going out and finding new mines; it is a matter of getting the ore out where it can be found. Most of these old mines have at least some ore in them, and if encouragement is given to the owners we shall get the metal.
I suggest to the minister that this is on a wrong basis entirely, trying to open new mines. Not only does it take time to find new mines, but there are not the men to go prospecting.


Richard Burpee Hanson: And no machinery.


James Lorimer Ilsley: The commissioner tells me that mines which have been abandoned for more than ten years and started again are ordinarily regarded as new mines. It is a matter of interpretation. The commissioner of income tax, who is administering this section, has kept in touch with the Department of Mines and Resources, but I suppose that interpretation could be changed.
IMr. Ilsley.J


Richard Burpee Hanson: It is just
an arbitrary rule?


James Lorimer Ilsley: Yes. The ten-year rule is arbitrary. It would not do, however, to give tax exemption for three years to a mine that had just discontinued operations for a short time. Some line would have to be drawn.


Howard Charles Green: The whole purpose of this change is to get minerals for Canada.


James Lorimer Ilsley: Yes.


Howard Charles Green: And to get them as quickly as possible. Perhaps if a mine has been shut down only a few months or a year, it should not get the benefit of the exemption, but to insist that it must have been closed for ten years is going too far under present conditions. This section is intended to get out the minerals, and many mines will not be helped if the restrictions are as broad as the minister has mentioned.


James Lorimer Ilsley: We are giving assistance all the time to ail sorts of enterprises under one act and another and by order in council, and probably these cases could be met without laying down any general rule in an act. The metals controller is certainly doing everything he possibly can to stimulate production of the kind of metals and minerals needed in war production, and he is constantly in touch with the Department of Finance and with, the Department of National Revenue to solicit the type of assistance necessary to get the mines into operation. We have constant trouble trying to determine what degree of assistance we can defend and how far we can go. We lay down certain principles, and at times they are assailed by interested parties. One principle we laid down in the Department of Finance is that no arrangement would be made with any mining interests on the basis of which shares or bonds would be offered to the public, and we were certainly attacked for that by those interested. It was regarded as contrary to the best interests of the war effort, and so forth. The only point I am trying to make is that we are in touch with those who are closely connected with these matters, trying to get out of the earth the maximum of minerals and metals required for war production. This will be a general rule that can be applied by any statute applicable to new mines, and it carries on a principle which has been embodied in the statutes since 1936. There are just those modifications I have mentioned, such as leaving out precious metals, switching the exemption from income tax to excess profits tax, and the widening of the

class from metalliferous mines to strategic minerals not metalliferous. That is as far as we should go by legislation.


Howard Charles Green: Has the government been in touch with the departments of mines in the [DOT]different mining provinces? They have a far keener appreciation of mining requirements than the dominion Department of Mines and Resources. I suggest that the Department of Finance should get in touch with the departments of mines in the different provinces and find out from them what would help most to bring about the opening up of these mines.


James Lorimer Ilsley: There are many good mining people in Ottawa. The metals controller, if I may say so, is a first-class official, and there are a great many good men in the Department of Mines and Resources here. We must rely on our own Department of Mines and Resources and on the metals controller and those associated with him. Both they and the national research council are doing remarkable work.


Harry Rutherford Jackman: While 1 shall support the resolution, I am wondering whether the minister has gone far enough in granting assistance to new mines. I do not know the particular aspects of the problem, but I should like to say a few words to our friends *of the Cooperative Commonwealth Federation in this regard. Here is a resolution at this late stage in the war, when we are nearly three years at war, and we have to resort to the private enterprise system and the profit motive in order to get very necessary basic materials for the war.


Joseph William Noseworthy: Because the government would not do it.


Harry Rutherford Jackman: Because the government is not in a position to do it and has not the *organization; nor do I know of any government that- would be in a position to do it. They leave it to private enterprise to go ahead and get the metals out of the ground as quickly as possible and they afford some relief from taxation; but while these companies who may find the metals in the ground will be exempt from the excess profits tax, they will be subject to the 40 per cent ordinary corporation income tax and that is a very large tax in a hazardous industry. I am not giving any authoritative opinion on the matter because I have not had the facts before me, but it strikes me that 40 per cent on the profits in a hazardous industry is taking away from the industry, in the form of a tax, something that militates against the chances of that industry amounting to what it should. In the last war when there was
Excess Profits Tax Act
necessity for greater production of lead and zinc, the British government negotiated with Consolidated Smelters, which was nothing but a claim at that time. The Sullivan mine had not been successfully worked and was sold for $500,000 by the American Smelting and Refining company, to Canadian interests, because they could not produce the metal commercially. There was a metallurgical problem that to date had not been solved, and the Britilfh government said to the owners, "Get out this metal and we will take it off your hands and give you a return . That was finally done, and they got great production which was a material aid in the winning of the last war. Now we have_ a different situation, because we have price ceilings and limits to what lead and zinc can be sold for, so that there is no incentive. Moreover, we have high taxes so that private enterprise is stifled. I can say to the Cooperative Commonwealth Federation that if they would leave things to private enterprise, which would get things done, we would make a much greater contribution toward the war than we do by trying to change the whole economic fabric of the nation at a time when its very life is at stake.


Howard Charles Green: Will the minister explain what the tax will be, first of all, on a company which comes into production in 1942 and then on a company which comes into production in 1943? As I understand it, a company coming into production in 1942 will be exempt from income tax.


James Lorimer Ilsley: That is right.


Howard Charles Green: And one coming into production in 1943 will have to pay income tax but will be exempt from excess profits tax. Is that the position? Will the minister explain the difference?


James Lorimer Ilsley: The one that comes into production in 1942 will pay a minimum of 22 per cent, because a company is liable under the Excess Profits Tax Act to 22 per cent of the total profits, or 75 per cent of the excess, whichever is the greater. The minimum which that company will pay is 22 per cent.


Howard Charles Green: That is even with the
exemption?


James Lorimer Ilsley: That is right. That is only an exemption from the income tax, which is 18 per cent. The company is still liable to the excess profits tax, and the minimum is 22 per cent. The company which comes into production in 1943 will be exempt from excess profits tax, therefore will pay only the income tax, which is 18 per cent.

Excess Profits Tax Act


Richard Burpee Hanson: So there is not much difference.


Mr. ESLING:: If the government really wants base metals there will have to be more than an exemption from taxation of prospective operations. There are a dozen mines in the Kaslo-Slocan district that have yielded millions of dollars in lead, zinc and silver, but the majority of those properties have been abandoned so far as operations are concerned because it has been unprofitable to operate them, because prices have been so low. The one plant in British Columbia to-day which is treating lead and1 zinc ores is paying a price so low that the average miner could not possibly operate. Lead and zinc are being supplied to the British empire by the Consolidated Mining and Smelting company at a price lower than has been in force for an average of any ten years, in Canadian history. That lead and zinc is all going to the British government to-day. Before renewed operations can be undertaken, those mines must have the old timbers removed because they are rotten and1 it would not be safe to operate. There must be more than exemption from taxation. There must be a public mill or government mill which will take care of all the ores and concentrate them. The Reconstruction Finance Corporation in the United States wants Canadian lead and zinc ores, wants them so badly that I think it will be found that within the last month or so there has been a notice that the Metals Reserve Corporation proposes to erect a $100,000 mill to take care of some lead and' zinc ores which are so close to the border that there is not a railway there, but apparently they are going to carry them by truck to the United States.
The government should give serious thought to the construction of a public concentration plant. It would be the greatest incentive for the various local mines to resume operations. You cannot get capital-that is all there is to it to work lead and zinc ores to-day at the prices which now prevail in Canada. There is no capital to take hold of these industries. The incentive would be to secure the operation of a number of these smaller properties by miners who operate largely under lease and royalty, and the only way whereby they can be encouraged to do so is by the construction of a public mill and concentrator.


Harry Rutherford Jackman: May I revert to resolution 9, the wording of it, "That the revenue losses in any business of the immediately preceding year may be allowed as a deduction". The term "revenue losses" is not familiar to business practice, although it may be to the income tax department.
[Mr. Hsley.J


James Lorimer Ilsley: That observation will be considered when the legislation is drafted. It is merely a matter of wording as I understand; the hon. member does not take any exception to the principle?


Richard Burpee Hanson: No; he wants to know what is meant by "revenue losses".


Harry Rutherford Jackman: Operating losses?


James Lorimer Ilsley: Yes, it is designed to exclude capital losses; that is all.


Richard Burpee Hanson: As opposed to operating losses?


James Lorimer Ilsley: Yes.


Harry Rutherford Jackman: I am not certain which year it refers to, having regard to section 11, which states:
Resolution No. 9 shall apply to the profits of 1943 and fiscal periods ending therein.
Does it mean the first loss you can take into your calculation is the loss which will occur in 1943, or would it be a loss in 1942 which would be taken into the 1943 calculation, which is the first deficit year?


James Lorimer Ilsley: It was intended that 1942 losses would be the first loss to be carried forward.


[Stage Direction]
Resolution agreed to.
Resolution 11 agreed to.

[Stage Direction]
1; Resolved, that schedule A to the customs tariff, being chapter forty-four of the Revised Statutes of Canada, 1927, as amended, is further amended by striking thereout subdivisions fa), (b). (c) and (d) of tariff item 90, tariff items 152b. 152d, 210, 276, 282b, 316a. 347, 410c, 422a, 435. 438d. 438i. 451b, subdivisions (a) and (b) of 534, 574, 584, CIO, 610a, 657, 682a, the several enumerations of goods respectively and the several rates of duties of customs, if any, set opposite each of the said items, and by inserting the following items, enumerations and rates of duty in said schedule A:-
Customs tariff-90a. Vegetables, dried, desiccated or dehydrated, including vegetable flour, n.o.p.: British preferential tariff, 15 per cent; intermediate tariff, 27) per cent; general tariff, 30 per cent.
Customs tariff-90b. Vegetables, pickled or preserved in salt, brine, oil or in any other manner, n.o.p.: British preferential tariff, 15 per cent; intermediate tariff, 32) per cent; general tariff, 35 per cent.
Customs tariff-90c. Vegetable juices, liquid mustards, soy and vegetable sauces of all kinds: British preferential tariff, 15 per cent; intermediate tariff, 324 per ee?it; general tariff. 35 per cent.
Customs tariff-90d.	Vegetable pastes and
hash and all similar products composed of vegetables and meat or fish, or both, n.o.p.:

Customs Tariff
British preferential tariff, 15 per cent; intermediate tariff, 32i per cent; general tariff, 35 per cent.
Thomas Vien: Is it the pleasure of the committee to take No. 90a, b, c and d together?


Some hon. MEMBERS:: Agreed.


Grote Stirling: All these four items
appear to me to be identical in present rate and past rate. Why are they inserted?


James Lorimer Ilsley: The only change is in item 90c. The words "extracts or" are being dropped. The wording under item 90c was:
Vegetable extracts or juices, liquid mustards, soy and vegetable sauces of all kinds.
The words "extracts or" are deleted. It would appear from the former wording that vegetable extracts might be synonymous with juices, although the rulings of the Department of National Revenue have not been made on this basis, nor is there any information before that department which would indicate that this was the intention. According to dictionary definitions the words "vegetable extracts" could apply to aqueous or alcoholic products extracted from herbs, roots and seeds, such as are used in the manufacture of ginger or herbal beverages. Such extracts, however, have always been rated under tariff item 711 or 220. Ever since the item became effective on May 2, 1930, the wording of item 90c has been more or less contradictory in the fact that the general heading of the item is "vegetables, prepared or preserved", while item 90c covers commodities which, with the exception of vegetable juices and possibly soy, do not appear to come within the category of vegetables.


Richard Burpee Hanson: The
intention, then, is to clarify a position which heretofore has been rather ambiguous?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: But there is no change?


James Lorimer Ilsley: No.


[Stage Direction]
Items agreed to.
Customs tariff-152b. Orange juice, grapefruit juice, and blended orange and grapefruit juice, the product of the British West Indies, when imported direct from the countrv of production: British preferential tariff, free.
Richard Burpee Hanson: What is
this? Are you taking off the 15 per cent?


James Lorimer Ilsley: This is a new item, to
replace tariff items 152b and 152d by a single item, which is enlarged to cover blended orange and grapefruit juice. Blended orange
and grapefruit juice was formerly dutiable as "fruit juices, n.o.p.", at rates of 15 per cent, 25 per cent and 25 per cent. This item applies to imports under the British preferential tariff only.


Richard Burpee Hanson: And
direct importations?


James Lorimer Ilsley: Tariff item 152b provided
for duty-free entry under the British preferential tariff of orange juice, the product of the British West Indies, when imported direct from the country of production. Item 152d provided for duty-free entry under the British preferential tariff of grapefruit juice, the product of the British West Indies, when imported direct from the country of production. The intermediate and general tariff rates of 25 per cent in item 152, the item covering "fruit juices, n.o.p", applies to imports of orange juice and grapefruit juice from intermediate and general tariff countries. The United States trade agreement rate on fruit juices, n.o.p., not including lime, orange, lemon or passion fruit juice, of 15 per cent applied since January 1, 1939. Imports of orange juice are not separately recorded. Imports of grapefruit juice during the period from April 1 to December 1, 1939, amounted to 1,038,756 gallons, valued at $390,808. The United States supplied 931,000 gallons, valued at $350,005. Imports from Trinidad amounted to 106,725 gallons, valued at $40,452. In 1941, imports of grapefruit juice from all countries exceeded two and a half million gallons, valued at over $972,000. Over 80 per cent of these imports came from the United States, with about 418,000 gallons valued at $198,000 coming from Trinidad. In the past, imports of blended orange and grapefruit juice have been small, owing to the tariff situation. The object of the item is to provide that blended orange and grapefruit juice will get the same rate that orange juice got and that grapefruit juice got. By blending them they forfeited the privilege of the rate which would have applied to either one unblended.


Grote Stirling: Is the subsidy being
paid on any of them now?


James Lorimer Ilsley: No; the subsidy on grapefruit juice was discontinued, and, if I remember correctly, that is the only juice on which it was paid.


Mr. CRUICKSHANK:: What has this to
do with the commodities we produce in British Columbia, such as tomato juice?


James Lorimer Ilsley: So far as I know it has
nothing whatever to do with tomato juice.
Customs Tarifj


George Alexander Cruickshank: I am sincere about this; I do not intend to be scoffed at by anyone. This country, and particularly British Columbia, produces a great deal of tomato juice, and I want to know why grapefruit juice should be brought in here when we have tomato juice available.


James Lorimer Ilsley: The proposal is to give the same tariff treatment to blended orange and grapefruit juice as is given to orange juice and grapefruit juice coming in unblended. They were both free under the British preferential tariff. Blended orange and grapefruit juice is now to be free under the same tariff.


Richard Burpee Hanson: And
formerly the blend was not free?


James Lorimer Ilsley: That is correct.


Richard Burpee Hanson: Then what
will be the position with respect to all these items; that is, orange juice, grapefruit juice and blended orange and grapefruit juice, coming from the United States? This item is referable only to these commodities when they are the produce of the British West Indies, when imported direct from the country of origin. Of course now there is no such importation at all; there is no transportation from the countries of origin, because all the ships are gone, so this is meaningless at the moment. What is the position with respect to United States products?


James Lorimer Ilsley: There has been, I understand, considerable leniency in the enforcement of the rule that they must come by direct shipment-that is a national revenue matter, not a finance matter-so they may continue to come via the United States and still obtain the benefit of this free preferential rate.


Richard Burpee Hanson: Because of present conditions?


James Lorimer Ilsley: Yes. The rate against United States products of this kind is 25 per cent.


Grote Stirling: Under another item?


James Lorimer Ilsley: Yes, another item altogether.


Harry Rutherford Jackman: I suppose the government has to pay duty on the grapefruit juice and other products imported for use by the army, or is that not done?


Richard Burpee Hanson: Does the government itself import grapefruit juice which is supplied to the army, or does it buy it from contractors? I should not suppose the government would be in the business of

importing grapefruit juice for anybody. I think the government would buy in the open market, just as I would.


James Lorimer Ilsley: I do not know; I suppose they buy it in the open market. I do not know whether or not that grapefruit juice paid duty when it came in. If it came in under these British preferential items, it would not.


Harry Rutherford Jackman: Of course it might come from the United States.


James Lorimer Ilsley: Yes, in which event it must have paid the duty.


Harry Rutherford Jackman: I think the Minister of Munitions and Supply once told us that everything he imported from the United States paid the duty, where it was dutiable. I was wondering whether the Department of National Revenue or the Department of Finance had even an estimate of the total amount of duty paid by the crown for purchases of grapefruit juice and other fruit juices on behalf of the army, and perhaps for other services as well.


James Lorimer Ilsley: I do not think it is separately estimated at all.


George Alexander Cruickshank: I understand we brought in 30,000 gallons of grapefruit juice for the Canadian army either last year or last month. Did we pay duty on that?
' Mr. ILSLEY: If it was a product of the United States it must have paid duty when it came in; the duty must be included in the price. If it was a product of the British West Indies it probably did not.


[Stage Direction]
Item agreed to.
Customs tariff-210. Peroxide of soda; silicate of soda, dry or in water solution; bichromate of soda; sulphite of sodium; nitrite of soda; arseniate, biarseniate, chlorate, bisulphite and stannate of soda, prussiate of soda and sulphite of soda: British preferential tariff, free; intermediate tariff, 15 per cent; general tariff, 20 per cent.
Richard Burpee Hanson: What is the change here?


James Lorimer Ilsley: The only change made is that the words "silicate of soda in crystals or in solution" are amended to read, "silicate of soda, dry or in water solution".


Richard Burpee Hanson: Is there
any change in the rate?


Grote Stirling: The tariff is changed.


James Lorimer Ilsley: There were two rates shown in the column "present rates". The solid material was ruled to be dutiable under item

Customs Tariff
711, which is the basket item. The amended wording is for the purpose Of preventing this. The amended wording takes the old rates of free, 15 per cent and 20 per cent, and makes them apply to the solid material as well as to the material in solution. The Department of National Revenue ruled that the solid material was not covered by the section and therefore it went into the basket item and took the rates shown in the second line in the column, "present rates". There is really no change in rate, it is just a change in wording.


[Stage Direction]
Item agreed to.
Customs tariff-276. Cotton seed oil for canning fish:	British preferential, free; intermediate tariff, free; general tariff, free.
Richard Burpee Hanson: What are we to gather from the two different rates under the heading "present rates"? I presume that.most of this oil comes from the United States.


James Lorimer Ilsley: Yes, I think it does.


Richard Burpee Hanson: What is the effect of this change?
Mr. ILSLEY; The present tariff item 276 provides for duty-free entry from all countries of refined cotton seed oils, edible, for canning fish. The wording of this item is being widened to cover unrefined cotton seed oil for canning fish.


Richard Burpee Hanson: This covers both refined and unrefined?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Have we done any refining of cotton seed oil in Canada? Has it not always been refined abroad?
Mr. ILSLEY; Sometimes they bring it in unrefined and refine it for canning fish.


[Stage Direction]
Item agreed to.
Customs tariff-282b. Saggars, hillers, bats, and plate setters, when used in the manufacture of ceramic products: British preferential tariff, free; intermediate tariff, free: general tariff, free.
Gordon Knapman Fraser: Is this item intended to help the porcelain and china plants in Toronto?


James Lorimer Ilsley: I do not know. My recollection is that it allows some equipment to come in free of duty which otherwise would be dutiable. The products allowed to come in free under this item were previously dutiable under item 282a, 124, 20 and 224. It is really widening the item to provide for complete parts of saggars.


[Stage Direction]
Item agreed to.
Customs tariff-316a. Incandescent lamp bulbs for use in the manufacture of incandescent lamps; glass tubing for use in the manufacture of incandescent lamps, vials and ampoules; mantle stocking for gas light: British preferential tariff, free; intermediate tariff, 74 per cent; general tariff, 10 per cent.
Olof Hanson: What is the effect of this?
Mr. ILSLEY; The present item 316a covering "incandescent lamp bulbs and glass tubing for use in the manufacture of incandescent lamps, and mantle stocking for gas light", with rates of free, 74 per cent and 10 per cent, is being reworded to include glass tubing for use in the manufacture of vials and ampoules. Glass tubing for the manufacture of vials and ampoules is dutiable at present under tariff item 326a at rates of 10 per cent, 20 per cent and 224 per cent, with a United States Trade agreement rate of 174 per cent. The effect of this amendment is to reduce the rate on glass tubing imported from the United States for the manufacture of vials and ampoules from 174 per cent to 74 per cent. The manufacture of vials and ampoules is a new industry in Canada, and it is estimated that imports of glass tubing for this use will range from 80,000 to 100,000 pounds annually. The average value of this tubing is about 25 cents a pound.


[Stage Direction]
Item agreed to.
Customs tariff-349c.	Magnesium scrap:
British preferential tariff, free; intermediate tariff, free; general tariff, free.
Provided, that nothing shall be deemed to be magnesium scrap except waste or refuse magnesium fit only to be remelted.
John Ritchie MacNicol: What amount was
imported last year?


James Lorimer Ilsley: Very little, if any.


Richard Burpee Hanson: Is it anticipated that this will bring it in?


John Ritchie MacNicol: We are making an effort to manufacture magnesium metal in Canada, and previously there was a substantial duty against scrap coming in.


James Lorimer Ilsley: The rate shown under present rates are 15 per cent, 25 per cent and 25 per cent.


John Ritchie MacNicol: Those rates are reduced to free. I have no objection because this is needed for war purposes.


[Stage Direction]
Item agreed to.
Progress reported.
Resolutions (Excess Profits Tax Act) read the second time and concurred in.
Business oj the House
[Stage Direction]
Resolutions (Special War Revenue Act) read the second time and concurred in.
Resolutions (Dominion Succession Duty Act) read the second time and concurred in.

[Stage Direction]
Hon. J. L. ILSLEY (Minister of Finance) moved for leave to introduce Bill No. 110, to amend the Excise Act, 1934.
Motion agreed to and bill read the first time.
At eleven o'clock the house adjourned, without question put, pursuant to standing ordef.
Wednesday, July 15, 1942