[Stage Direction]
On the order for motions:
Hon. J. L. ILSLEY (Minister of Finance):: Mr. Speaker, it has been brought to my attention that the statement which I made on April 5 announcing the terms of the fourth victory loan has been misinterpreted. At that tinm I stated that the long term bonds bearing interest at three per cent per annum will mature at par on May 1, 1957, but will be redeemable at the option of the government at par and accrued interest on or after May 1, 1954, at sixty days' notice. This redemption date is provided in the terms of the offering merely as a time after which the government has the option of redeeming or calling the bonds before maturity and paying the holders one hundred cents on each dollar they have invested. Similar callable provisions are to be found in practically all long term government bonds.
This has been misinterpreted to give prevalence to the story that the bonds of the fourth victory loan will not be marketable until after May 1, 1954, which is absolutely incorrect. The bonds of the fourth victory loan will be just as saleable as the bonds of earlier victory loans, which have

had a ready market since their date of issue. Before every victory loan we are deluged with rumours all of which seem to attempt to impair the sale of bonds. The fourth victory loan is no exception. Such rumours are false, vicious and subversive. They could not be worse if they were enemy inspired, which they may be. I urge that Canadians everywhere do everything in their power to stamp out such rumours. I suggest that they inquire into the facts, before repeating stories which are designed to impair the effectiveness of national efforts, such as the fourth victory loan.



PRIVILEGE-MR. GRAYDON   CANADIAN BROADCASTING CORPORATION-ADDRESS OF DOCTOR THOMSON ON THURSDAY,

[Stage Direction]
On the orders of the day:
Mr. GORDON GRAYDON (Leader of the Opposition):: Mr. Speaker, I rise to a question of privilege arising out of a report in t tl.3 Ottawa Citizen of an address made yesterday by Doctor James S. Thomson, general manager of the Canadian Broadcasting Corporation, to the Ottawa Canadian club. Among other things, the general manager is reported as having said:
The other day in the course of parliamentary debate, the status of the Canadian broadcasting corporation was discussed and fortunately the Prime Minister and the leaders of two of the opposition parties all took part.
From these answers it will be observed that there is agreement among all parties in the house that we are not a department of government.
On February 8, at pages 210 and 211 of Hansard, the status of the corporation was the subject of remarks by the Prime Minister (Mr. Mackenzie King), the hon. member for Rosetown-Biggar (Mr. Coldwell) and myself, and at page 211 of Hansard I said:
Those of us who have made some study of the Canadian Broadcasting Corporation's structure realize that it is half and half, so to speak, partly a department of government and partly a public corporation. As I understand, it is m some respects like the Canadian National Railways while in other respects it is not. One of the recommendations of the radio broadcasting committee last year was that this anomalous position of the Canadian Broadcasting Corporation should be clarified, and I hope the government will do something about it.
During the proceedings of the radio broadcasting committee last session, I had occasion to refer in effect to the status of the corporation as an emanation from the crown which has only half emanated. The report of that committee recognized certain anomalies in the status of the corporation and indicated

Private Bills
that the corporation may be sued, but still may not be taxed, and unlike the Canadian National Railways, with which it is sometimes erroneously compared, it has never achieved the status where its employees have been granted the right to organize and collectively bargain.
We have read of the centaur of mythical days-half man and half horse-and until this corporation has its centauric legal status clarified, it is quite improper and incorrect for the general manager to say that "there is agreement among all parties in the house" that the Canadian Broadcasting Corporation is not a department of government, and I want to object to having my position so interpreted.
Hon. L. R. LaFLECHE (Minister of National War Services): Mr. Speaker, may I say a word in reply to the hon. gentleman? I have seen the article in- question


Some hon. MEMBERS:: Order.


Mr. SPEAKER:: The leader of the opposition referred to this matter on a question of privilege, and I think it might well now be dropped.

On the orders of the day:
Hon. L. R. LaFLECHE (Minister of National War Services): Mr. Speaker, may I say that an article which purports to report a speech made yesterday by Doctor J. S. Thomson, the general manager of the Canadian Broadcasting Corporation, was brought to my attention very late this morning. I did not have time to speak to Reverend Doctor Thomson, but I have asked that he come over to discuss this matter with me along with some other questions. This matter was alluded to this afternoon by the leader of the opposition (Mr. Graydon). May I suggest that it is not well that a false impression be created in regard to the affairs of the Canadian Broadcasting Corporation. Perhaps it is not known or realized or remembered that recently a very experienced gentleman in the labour field was appointed governor of the corporation. It is certainly not known to the leader of the opposition that I have written to Doctor Thomson about such matters or discussed them with him, but I have asked him to see the new governor about the staff. The corporation will have the benefit of the knowledge and long experience in the labour field of the gentleman who has recently been appointed governor.
I should also like to point out that it is difficult to get to the bottom of anything concerning radio until we reach the motion
on the order paper for the appointment of a select committee on radio broadcasting. That motion has been standing on the order paper in my name for nearly two months now. I fully realize that that is not anyone's fault, but I am very anxious to get to it.



PRIVATE BILLS


[Stage Direction]
On the order:
Bill No. 67 (letter U-2 of the senate), intituled: "an act respecting the Canada NorthWest Land Company Limited."-Mr. Mellraith.
Thomas Vien: This bill is not strictly in order. The petition to the house was not presented within the first six weeks of the session, as required by standing order 92. The six weeks' period expired on March 10. The petition in question was presented on March 26. On March 29 the clerk of petitions reported to the house that the petition should not be received. On March 31 the petition was referred to the standing orders committee and is now before that committee and therefore cannot be dealt with to-day.



UKRAINIAN FRATERNAL SOCIETY OF CANADA

[Stage Direction]
Mr. ANTHONY HLYNKA (Vegreville) moved the first reading of Bill No. 68, to incorporate the Ukrainian Fraternal Society of Canada.
He said! This bill is brought in for the purpose of incorporating a fraternal society which was first incorporated in 1925 by letters patent issued under the Companies Act. The Letters Patent Association has ceased to do business and therefore this society must now be brought under the Canadian and British Insurance Companies Act of 1932. This bill, when it was before the senate committee, was approved by Mr. Finlayson, superintendent of insurance.
Motion agreed to and bill read the first time.


[Stage Direction]
On the orders of the day:
Mr. D. G. ROSS (St. Paul's):: I should like to direct a question to the ministers of national defence. It was announced over the radio that the members of the armed forces would not be granted leave for the Easter week-end because of transportation difficulties. I suggest that at this season of the year particularly, a great many men would like to be with their families. May I ask whether



Hyde Park Agreement
the announcement made over the radio is correct, and if so, whether something cannot be done about giving the men leave?


Hon. J. L. RALSTON (Minister of National Defence):: Speaking for the army, the matter has not been brought to my attention, but I shall be glad to make inquiries.


Hon. C. G. POWER (Minister of National Defence for Air):: So far as the air force is concerned, I have never heard of Easter leave. Is there any such thing? .


Douglas Gooderham Ross: I heard it over the radio.



HYDE PARK AGREEMENT


[Stage Direction]
On the orders of the day:
Gordon Graydon: I should like to direct a question to the Minister of Finance. A dispatch appearing in the Globe and Mail of to-day, with a Washington date-line of April 15, contains the following:
Canada has been shipping so much war material to the United States and so severely curtailing her purchases of all but essential civilian products here that she will soon probably have to water down the Hyde Park agreement or take other means to prevent the accumulation of too much American exchange.
Is the minister in a position to enlighten the house and make some comment on this dispatch?


James Lorimer Ilsley: I am not in a position to make any comment with regard to that dispatch at the moment, but I may be able to do so later in the day.


Mr. G. T. FULFORD (Leeds):: Mr. Speaker, if the dispatch from Washington to which the leader of the opposition has referred is correct, and there is a surplus of American exchange in Canada, will the Canadian foreign exchange control board consider relaxing somewhat the restrictions now in force which prevent Canadians from visiting the United States for anything but business reasons?


James Lorimer Ilsley: As I intimated, I may be in a position to make a statement later to-day with regard to the Washington dispatch to which the hon. member referred. The other question had better wait until I make that statement.
[At eight o'clock, in committee:]


James Lorimer Ilsley: With the unanimous consent of the committee I should like to make a brief statement. I have been asked to comment on the news dispatch from Washington that Canada may have to take steps to prevent the accumulation of too much United States exchange. It will be recalled that in my budget speech on March 2, I referred to the improvement in our exchange position and stated that shortage of United States dollars had ceased to be a major problem. This improvement was the subject of discussion with the United States treasury shortly after the beginning of the year and again more recently, and an agreement has been reached on the policy to be followed.
It is the case that Canada is in balance with the United States on civilian or nonwar account. In other words, our ordinary exports and other current receipts of United States dollars are sufficient to cover our nonwar requirements. This is the position which Canada has been struggling to reach ever since the start of the war, by economizing in non-essential expenditures of United States dollars. At the moment there is a surplus on non-war account, but the amount involved is extremely small, and I am not in a position to predict whether there will continue to be a surplus throughout the year.
United States dollars required to pay for continuing heavy purchases of war materials and supplies have to be obtained in large measure through sales of other war goods to the United States-the arrangement w'hich was embodied in the Hyde Park agreement. It was not the intention that this arrangement should provide Canada with an amount of United States dollars in excess of our requirements, and I anticipate no technical difficulty in carrying out the principles of the Hyde Park agreement in such a way that, apart from temporary fluctuations, we may avoid building up a large surplus or running into a deficit again.


Mr. COLD WELL:: Would the minister on a suitable occasion tell us why it is not possible to bring the Canadian dollar to parity level with the United States dollar?


James Lorimer Ilsley: I presume that question will be asked-


Mr. COLDWELL:: I was not necessarily expecting an answer to-night.


James Lorimer Ilsley: As a matter of fact the hon. member for New Westminster asked me to make a statement on that in the budget debate, but I forgot about it.

Easter Adjournment


Mr. CASTLEDEN:: In view of the statement that the minister has just made, can he not give us some assurance that the government will discontinue the War Exchange Conservation Act? The need for United States dollars was given as one of the main reasons for that act.


James Lorimer Ilsley: I am not prepared at the moment to make any statement on the continuance or discontinuance of the import restrictions or on the relaxation of the pleasure travel regulations.



BUSINESS OF THE HOUSE


[Stage Direction]
On the orders of the day:
Major James William Coldwell: Mr. Speaker, I wonder if we might have a statement from the leader of the house as to the arrangements for the Easter recess and for the sittings of the house between now and the time we adjourn for the holiday. There seems to be some confusion regarding it.


Mr. CRERAR:: Mr. Speaker, I have not yet picked up all the threads of my responsibility and perhaps my colleague the Minister of National Defence, who knows the. arrangements, would make an announcement to the house.


James Layton Ralston: Mr. Speaker, the government has gone over the business to be dealt with before we adjourn for Easter. The budget resolutions, as hon. members know, contain quite a number of contentious features, and the income war tax bill is not yet ready. The provisions are complicated and somewhat long, and the government has abandoned any hope of being able to get through to-day. What the government proposes is that the house shall take recess on Wednesday for two *weeks. I cannot make any promise in this respect, but it is hoped to adjourn for the Easter recess at six o'clock on Wednesday; it may be necessary to sit in the evening as well.


Gordon Graydon: May I ask a supplementary question? Even though the resolutions are passed readily and quickly this afternoon, do I understand that in any event the bill in connection with income war tax will not be ready for us to deal with?


James Lorimer Ilsley: We shall try to get the
bill ready for Monday. If it is not possible to do so, it may be practicable to have a bill covering part of the resolutions ready at that time, although I have not made inquiries
72537-143J
whether that is possible. That is the best I can say about it. My officers and those of the Department of National Revenue are now in a state of what I would describe as fatigue, which impairs their ability to work as rapidly as usual. But we shall do the best we can to get a bill down here.


Gordon Graydon: It is an unfortunate position in which many hon. members find themselves. A number of them have made important commitments, particularly with respect to the victory loan.


James Layton Ralston: That includes some members of the government.


Gordon Graydon: No doubt, including
members of the government. I fancy it applies to all hon. members. As I understand it, then, there is no possibility, in view of the fact that bills cannot be brought before the house until Monday of the house adjourning for the Easter recess this week?


James Layton Ralston: I am sorry to say that there is not. We canvassed that situation very thoroughly.


Gordon Graydon: I am anxious about this, because it is important to hon. members. In the event of the resolutions being passed say this afternoon and the house having to wait for the bills to come through to be dealt with, what will be the order of business or what is the disposition of the government with respect to the further business of the house?


James Layton Ralston: What we proposed was that we should like the house to be ready to take up anything that is on the order paper except, of course, the war appropriation and mutual aid bills. If by any chance the resolutions should pass this afternoon or this evening, the idea would be to take up the bill standing in the name of my colleague the Minister of Munitions and Supply.


Gordon Graydon: I must protest with
respect to this proposal, and I think my hon. friend will recognize that my protest is on reasonable grounds. It is a serious thing to ask hon. members to deal on short notice with a bill of such importance. We did not have any notice yesterday that it would be proceeded with. I ask the government at least to take us into their confidence with respect to the business which they intend to take up on the ensuing day. This has not been done, and it leaves us in an unfortunate position.


James Layton Ralston: The government has
endeavoured to take the house fully into its
Easter, Adjournment

confidence with regard to business to be done. The difficulty, of course, has been to estimate the amount of time which would be taken on these various measures. It was thought that probably we could go right through with resolutions, and it was expected that the resolutions would take all day, including the evening. My hon. friend's question is based on the hypothesis that all the resolutions go through. I can only say that there is plenty of business on the order paper. The bill I have mentioned is one which is not new to hon. members; it has already been under discussion for some time, and it seemed to us that it was a measure regarding which hon. members would not require very much notice in view of the fact that some consideration had already been had. I hope the house will not feel that the government is attempting in any way to hide from them the business which is to be taken up. My hon. friend's question was based on the hypothesis that there will be time for other business; I am indicating what that other business will be should that desirable situation arise.
Mr. [DOT] BLACKMORE: Suppose the house should finish with the budget resolutions and the bill based thereon by next Tuesday afternoon, would the government propose to close the house on Tuesday afternoon or would it go on until Wednesday at six o'clock, dealing with any other measure that appears on the order paper?


James Layton Ralston: The question of the hon. gentleman assumes that the budget resolutions go through, and it requires us to forecast our action some days ahead. Intimation will be given just as quickly as possible whether, if there is any chance to finish with the budget resolutions and the bill founded thereon, any other business will be taken up. I can say now to the house it is the government's view that the house should be ready to take up any matters on the order paper. Further announcement will be made as progress is made with the business of the house.



WAR REFUGEES


[Stage Direction]
On the orders of the day:
Mr. JEAN-FRANQOIS POULIOT (Temis-couata): I have a question to ask which, in the absence of the Prime Minister, I assume another minister will be able to answer. Referring to the European refugee conference which is starting in Bermuda on Tuesday

next, my question is twofold: is Canada interested in the matter; and if so, who represents our country over there?
Thomas Alexander Crerar: The question of the hon. member for Temiscouata is peculiarly one which should be dealt with by the Prime Minister. It will be brought to his attention.


Mr. POULIOT:: But the question of immigration interests my hon. friend, whom I am so glad to see back in the house; and if he does not know, who knows? He is the minister in charge of immigrants, refugees and guests.


Some hon. MEMBERS:: Order.



GALLUP POLL


[Stage Direction]
On the orders of the day:
Mr. JEAN-FRANQOIS POULIOT (Temiscouata) : I wish to address a question to the Minister of National War Services. Is it a fact that the directors of the Gallup poll had an inquiry about the sentiments of Canadians regarding annexation, and that in the province of Quebec the feeling was against annexation and in the other provinces the feeling was for it, and that orders were given to the censor not to publish the results?
Hon. L. R. LaFLECHE (Minister of National War Services):	The Department of
National War Services has nothing to do with the Gallup poll. The question, however, is, what if anything has censorship done about it. I must tell the hon. member for Temiscouata that I have no knowledge of the matter having been referred to censorship. I shall inquire, and if it is permissible and in the national interest, I will let him know immediately.


[Stage Direction]
On the orders of the day:
Hon. HUMPHREY MITCHELL (Minister of Labour):: On March 16, the hon. member for Yukon (Mr. Black) as reported in Hansard, page 1300, stated that a group of young men trained as welders in a Winnipeg trade school were sent by the selective service office at Winnipeg to Toronto, although they were needed at Transcona just outside of Winnipeg. I have had inquiries made both in Winnipeg and Toronto, and the information which comes from the responsible officials is that no such incident as that mentioned by the hon. member ever occurred.

Income War Tax



REPLACEMENT OF CANADIANS EMPLOYED IN CANADA ON UNITED STATES PROJECTS

[Stage Direction]
On the orders of the day:
Humphrey Mitchell: In my absence from the house on April 8 a question was asked by the hon. member for Yale (Mr. Stirling) in the following words, as reported in Hansard, page 1962:
Is it true that 1,000 Canadians now employed by United States firms on northern war projects will gradually be replaced by United States citizens?
In reply I should like to say that no plans have as yet been made in the direction indicated by the question, nor are any such plans in contemplation.
On April 1, as recorded on page 1754 of Hansard, I made a statement to the house with respect to United States projects in western Canada.



DISPUTE AT THE MARCONI PLANT, MONTREAL

[Stage Direction]
On the orders of the day:
Mr. GASPARD FAUTEUX (St. Mary):: I should like to ask a question of the Minister of Labour (Mr. Mitchell) on an urgent matter. I am informed that there are serious labour difficulties at the Marconi plant in Montreal. Has the minister been informed, and what steps have been taken to deal with the matter?


Humphrey Mitchell: Mr. Speaker, this condition arises out of the question of a vote. The department has advised the management that if and when a vote is taken it should be under the jurisdiction of the Department of Labour, and that both organizations of employees should be on the ballot.



WAYS AND MEANS

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

[Stage Direction]
30. That any amount received by an officer or man of the merchant marine as bona fide war risk bonus in accordance with the usage of the merchant marine, and any value of board or lodging on shipboard received by such a person while performing services in respect of which war risk bonus is payable shall not be considered as income subject to tax under the Income War Tax Act.
James Lorimer Ilsley: 
Gordon Graydon: The minister speaks of S44.50 per month as a war risk bonus. What relationship does that bear to the entire pay received?


James Lorimer Ilsley: Ordinarily the total wages of an ordinary seaman amount to $104.62, of which war risk bonus is $44.50. In the case of the able seaman the total is $119.12, of which war risk bonus is $44.50. In the case of chief officers it will be noted that the total is $212.92, of which war risk bonus is $44.50. I am taking a representative case, and I think that is fairly representative of the rates generally paid.
The war risk bonus paid by Canadian employers is subject to the control of the national war labour board, who must approve the rates paid and any changes in them. The rates I have quoted have been approved by the board. It is proposed in the law to restrict the rates of war risk bonus for which exemption will be given to those approved by the national war labour board, in the case of men employed on Canadian ships subject to the jurisdiction of that board. It may be necessary to make an exception in the case of senior officers, who are not subject to the jurisdiction of the national war labour board, as they are considered above the rank of foreman or comparable ranks.


Mr. STIRLING:: Is it supported by a regulation of the board, or by an order in council? What is the force which induces the employer to pay the bonus? It must apply to all employers, surely.


James Lorimer Ilsley: They pay it. I do not know just why they pay it, but I presume it is done to get the men. In respect of Canadian employers it is approved by the national war labour board, which body has power to give such approval.


[Stage Direction]
Resolution agreed to.
29. That the information return required to be filed by employers showing the amount of salaries or other remuneration paid to persons in their employ in the preceding calendar year and the amount of tax deducted at the source under the provisions of the act from the salary or wages of such employees shall in respect of the 1942 taxation period be filed on or before the 31st day of May, 1943, and in respect of all
Income War Tax
[Stage Direction]
taxation periods subsequent to 1942 shall be filed on or before the last day of February in each year.
James Lorimer Ilsley: I was unable to make an explanation last night; I shall do so now. Under this resolution employers are required to file an information return on May 31 of thi3 year showing the remuneration paid to persons in their employ in 1942 and also the amount of tax deducted at the source from salary or wages. Prior to the change-over to the pay-as-you-earn basis these returns were not due until October 15, 1943, a date which came after the last deductions in respect of the 1942 tax had been made. Under our present system the last deductions in respect of the 1942 tax will have been made in December, 1942. Accordingly, the date of the filing of the return can be advanced and will be received prior to the date on which individuals are required to file their definitive returns for 1942 which, as the house knows, is June 30.


Mr. FRASER (Peterborough West):: I
understand the employer must also give the employee a statement of deductions, is that correct?


Hon. C. W. G. GIBSON (Minister of National Revenue):: That is correct.


Gordon Knapman Fraser: If the employee has left a certain plant, will the employer send a statement to him?


Colin William George Gibson: No; the employer would not know where to find the employee. The employee when he leaves employment should apply to his employer to secure at that time a statement of the amounts deducted.


Mr. MacNICOL:: Why could it not be mailed to his home?


Colin William George Gibson: He may be working in any place in the country. It would be unwise to take that chance, because the employee might never get the statement. When he leaves employment he can demand that a statement be given to him.


Major James William Coldwell: I believe I understood the minister to say that some form of certificate would be issued with respect to the savings part of deductions. Has that been attended to, and if so when may the employees expect to receive some of these certificates? I have inquiries regarding this from employees who are anxious to have something to show for deductions made.


Colin William George Gibson: I have answered that question once or twice before. The employee will have a receipt. When his income tax return has been filed and the amount of the, tax 
determined it is then possible to ascertain what the refundable portion is, and when he receives his tax receipt it will show the amount standing to his credit. There is a question whether we should go any further and give some form of certificate, showing him each year what is standing to his credit. That is under consideration. But I would point out that that cannot be issued until the tax return has been filed and assessed. It may readily be seen that since there are about two million .taxpayers it will take some tifne to assess the returns, and there will be some delay before the final stage is reached.


Major James William Coldwell: In addition to the
receipt, a certificate of some kind might be given to the employee, something like a bond or savings certificate. This is a point that interests the working people who have approached me about it.


Colin William George Gibson: There is no definite decision as to what form that should take other than the receipt for his income tax.


Gordon Graydon: This may be an elementary and simple question, but there is much confusion in view of the change in the dates for filing income tax returns. Even among those who ought to know, with the many changes that have come in the last two or three years it has become not so simple for the average person to understand whether he is to file in April, June or September. Could the minister give us very simply the dates this year, for example,, indicating the periods within which different classes of personal income tax payers must file their returns?


Colin William George Gibson: Those filing returns for last year will file by June 30. Those paying by instalments this year pay their instalments every three months beginning with March 30. Persons whose income consists of not more than seventy-five per cent earned income pay quarterly, starting March 30. But the individual return for last year is to be filed by June 30.


John Ritchie MacNicol: When will the forms be ready?


Colin William George Gibson: When we get these amendments through.


Mr. JACKMAN:: What steps has the
minister taken, to notify employers of only one employee that they will be under obligation to make a return under the provisions of this section? Is there any penalty if one is not made and no bad faith is intended?

Income War Tax
May I suggest to the minister regarding these certificates for compulsory saving that while there is perhaps good reason for their not being issued until the returns for last year are finalized, nevertheless if the department would consider putting out some form of notice, distributing it with perhaps a facsimile certificate, to indicate to the people that they are going to get something, it would be helpful. Many employees feel even yet that the likelihood of realizing anything from these withheld savings is very dubious, despite the numerous statements by both ministers. If they could see it visually it would help industry considerably and make the workers realize that more of their wages are really theirs than appears to be the case at the end of the week when they get their pay envelope.


Colin William George Gibson: I think that is a good suggestion. Several suggestions have been made, and they are being given consideration, with regard to having some form of notice which can be given to the employee in his pay-envelope so that he will have some assurance that part of the sums that are being deducted is to be returned, and some information given as to the form in which it will come back.	_
With regard to the changed date of filing returns, the return itself has printed on it the date when it is to be filed. I do not think there is any doubt that those concerned will know the date the return is due.


John Ritchie MacNicol: Suppose a dozen home owners bn a street employ a man to cut grass and look after the garden, and in the winter fire the boiler, what procedure have those home owners to follow? Are they obliged to make a deduction from what they pay the janitor and remit it to the government, or does the janitor himself have to put in a return indicating what he receives from each?


Colin William George Gibson: It depends first on the man's rate of pay. If he is being paid at a taxable rate, that is, $660 for a single man or $1,200 if married, whoever is paying him is supposed to deduct the money at the source and make the return to the government.


John Ritchie MacNicol: How would the home
owner know that? The man may be looking after the homes of ten different owners one month and only four or five another month.


Colin William George Gibson: The home owner is not inquiring how much the janitor is making. All he needs to determine is how much he is paying him. If he is paying the janitor a sum that is not taxable then the home owner does
not deduct, although the janitor might be going to several homes and collecting similar amounts from different employers.


John Ritchie MacNicol: Supposing he looks after ten homes and receives from each $5 a month, or $50 from the ten; the home owner would not bother?


Colin William George Gibson: That does not follow, because the janitor might be employed only two hours a day.. He might therefore be paid at a rate which if continued throughout the year would make him taxable. It depends on the man's rate of pay whether the deduction must be made.


John Ritchie MacNicol: Suppose I pay a janitor $10 a month for' looking after my home and garden. That would be only $120 a year. That rate would not be taxable. On the other hand he might be working for half a dozen others; I do not know that.


Colin William George Gibson: It depends what your arrangement is with him. If he comes to you only two hours a day that might make him taxable.


Mr. BOUCHER:: In order to make it clear for those who hire part-time employees, do I understand that one must decide according to the rate he pays whether the employee would be taxable if employed full time at that rate?


Colin William George Gibson: That is right.


George Russell Boucher: And if the employer is paying at a rate which would make the man taxable if employed full time, he must make a deduction and return?


Colin William George Gibson: That is right.


George Russell Boucher: Even though the employer knows that the man is not employed full time?


Colin William George Gibson: Yes, that is correct.


George Russell Boucher: It puts a responsibility upon a home owner that is confusing both to him and to the employee. A home owner may employ a man one day a week at $6 a day. A single man employed the year round at $6 a day would be taxable. But the home owner, knowing that the man is doing this work only one day a week, in deducting the tax and making a return to the government causes much confusion over a very small matter.


Colin William George Gibson: Well, that is what the act says-that if a man is paid at a rate which would make a taxable amount, the home owner must deduct. While he may assume the
Income War Tax

man is not working some place else, other people might be wrong in their assumption, and the man might be getting an income from various sources which would require him to pay income tax. That is why the provision is in the act.


John Ritchie MacNicol: Next week I will be letting a number of contracts for papering, painting and carpentering. In each case I get a tender from a painter or paperhanger or carpenter. When the work is finished the bill is presented and I write out a cheque. Do I have to deduct anything from those cheques?


Colin William George Gibson: No. In those cases the contractor is not an employee; he is a contractor.


Mr. GLADSTONE:: I think the point raised a few moments ago by the leader of the opposition has considerable merit; that is, in regard to the instalments and the dates when they must be paid by taxpayers all across the country. I wonder if hon. members who are present to-day could take a pencil and put down the dates on which payments should be made for 1942 and 1943 and the instalments payable on those dates. It seems to me that right across the country there must be a great deal of confusion in regard to these matters. Would it not be worth while for the department to issue a concise statement in the form of an advertisement setting out clearly the situation with respect to dates and amounts and all other desirable information pertaining to the two years 1942 and 1943? It is true that people may get this information when they get the forms, but in the meantime they are in doubt. It would be exceedingly helpful to the people, and perhaps would aid the victory loan campaign if a definite statement were made by way of advertisement.


Gordon Knapman Fraser: The wartime prices and trade board issues little bulletins which go to every house in the country. If the department would place an advertisement in those bulletins it would help a great deal.


Mr. NOSEWORTHY:: I have received
inquiries on two or three occasions with regard to the status of Canadians employed in the construction of airfields in Newfoundland. I understand that for a time deductions were made from their pay in respect of Canadian income tax, and these deductions were later discontinued. Some of these men tell me that they do not know whether they are going to have to pay income tax on all their earnings. Has the minister any information on that point?
IMr. Gibson.]


James Lorimer Ilsley: Withholdings were stopped, but the question of taxability is under consideration. It is a very difficult matter for various reasons, and what arrangement will be made in view of all the circumstances has not been finally decided.


Joseph William Noseworthy: It would be quite a hardship on some of these men if at some later time they had to go back and catch up on all these deductions.


James Lorimer Ilsley: I realize that.


Harry Rutherford Jackman: I asked the minister a question, but I think both he and I lost sight of it. I asked whether or not steps are being taken to acquaint employers of one employee with the necessity of making deductions and filing returns, and whether any penalty is attached if they did not file a return and still there was no bad faith shown.


Colin William George Gibson: The income tax department gives publicity to all the changes made in the act, and of course there is a penalty for failure to file a return.


Harry Rutherford Jackman: What is the penalty?


James Lorimer Ilsley: It will be provided in the bill. The penalties are pretty light at the present time, but this is such an important matter that we propose to increase the penalties, and I think provision will be made for some power of remission by the minister. However, that will be dealt with in the bill.


Harry Rutherford Jackman: I believe there are still many employers of one person who are not aware that a deduction should be made from the wages of that persor. The department has not done as thorough a job in this connection as it might have done, in view of the bona fide ignorance that exists.


Mr. SENN:: I should like to emphasize what the hon. gentleman has just said, particularly in respect to farmers. I doubt very much whether a great many farmers who employ part-time labour, as farmers do in the summer months for haying and harvesting, know that they should make a deduction and file a return w-ith the government. It seems to me something should be done to acquaint farmers with this provision; otherwise I believe they will be liable to a fine or penalty of some sort.
I bring this to the attention of the minister because I think it is important.


[Stage Direction]
Resolution agreed to.
27. That section 32A of the said act be amended to prevent reduction or avoidance of liability to tax.

Income War Tax
James Lorimer Ilsley: This is a very contentious matter that was raised last night and I respectfully submit to the committee that this resolution should be passed. It does not commit the committee to the section I read last night; this is a matter to be dealt with on the bill. All this resolution says is that section 32A of the act 'should be amended to prevent the reduction or avoidance of liability to tax. Resolutions may be pretty general; in fact in years gone by they were very much more general in their terms than they are to-day. If the committee is in favour of the principle of making the provisions of the law stronger for the purpose of preventing the reduction or avoidance of liability to tax; if it is in favour of the principle of doing that by an amendment to section 32A, that is all the committee will be committing itself to by passing this resolution, and then the debate can take place on the section. I read the section last night for the purpose of telling the committee what my intentions were in regard to the amendment of that section. I invited the comments of the committee and I invite them now. If members have any other views as to how we should do this, I should be glad to have them now. They will all be taken into consideration in drafting the section which I shall put before the house.


Gordon Graydon: As I understand it, the actual wording of the resolution was as given a few moments ago by the minister.


James Lorimer Ilsley: Yes.


Gordon Graydon: Section 32A (1) which
appears on page 2226 of Hansard is evidently the section at present in the act, and the following phraseology is that which is to be added as a means of strengthening the provisions.


James Lorimer Ilsley: That is not quite correct.
What appears in the middle of the second column of page 2226 of Hansard is the section which I proposed last night as being the appropriate section to put in the act. Section 32A (1) is different from the present 32A (1).


Gordon Graydon: This is not 32A (1) of
the act?


James Lorimer Ilsley: That is correct. Further consideration will be given to the wording of these provisions in the light of the observations of the committee. What finally is brought before the house can be debated then. I think we should be safe enough in passing the general resolution if the committee is in favour of the principle of amending 32A in some way to prevent the reduction or avoidance of liability to taxation.


Mr. GRAHAM:: I take it that we are
discussing 32A (1) now?


James Lorimer Ilsley: We are discussing resolution 27, which provides that section 32A of the act be amended to prevent the reduction or avoidance of liability to tax.


Roy Theodore Graham: Since last evening we
have had an opportunity of studying the proposed amendment. There would appear to be a typographical error in section 32A (1) as it appears on page 2226 of Hansard. I take it that the word "as" in line four should be "has."


James Lorimer Ilsley: That is right.


Roy Theodore Graham: I propose to confine my
remarks principally to the first subsection. This subsection gives to the treasury board the task of determining the extent to which taxation under the act has been or, but for the application of this section, would be avoided, reduced or prejudiced thereby and in accordance with such determination there shall be assessed and levied upon such taxpayer such tax as the treasury board may direct and such tax shall be payable by him as in this act provided. It seems to me that that is a very considerable power to give to the treasury board.


John Ritchie MacNicol: Too much.


Roy Theodore Graham: I have not changed my
opinion that this will not offend the great charters of mankind, but we must realize that income tax has been extended considerably, not only as regards the amount of the tax imposed but as to the numbers of individuals to which it applies. This tax now takes in a much greater number of the citizens of substance and it goes down into the fairly low income brackets. I think this committee and the minister should be extremely careful in enacting any amendment that would permit any injustice or inequity in the application of this particular act.
Just for a moment I should like to refer to the act itself and recall to the committee the general provision having to do with appeals by the taxpayer. At the present time if a taxpayer is dissatisfied with his assessment he may appeal to the minister. As defined in the act that would be the Minister of National Revenue. Under the act the minister is charged with the duty of reviewing the assessment and he must then notify the taxpayer whether he sustains the judgment of the commissioner of income tax or whether he amends it. If the taxpayer is still dissatisfied, he has the right of appeal to the exchequer court.
Income War Tax

In theory that would appear to be a fairly safe and fair provision for the taxpayer, but I submit that in the light of my own experience, and I am sure in the light of the experience of many lawyers who have had occasion to represent clients who have taken advantage of this provision, the minister has not discharged and cannot in the very nature of the circumstances discharge this duty himself. The minister cannot possibly take the time and trouble to review the application of the taxpayer, he must delegate that task to some departmental officer.
The trouble with this type of tribunal is that there is a partnership in interest between the commissioner of income tax, whose duty it is to give a decision on the assessment and the amount of taxation payable thereon, and the person to whom the appeal is made. The minister could discharge this task I presume with a large degree of fairness, but because of the similarity of interests, because of this partnership of employment as it were, the result of the usual procedure is likely to be to make the taxpayer feel that he has not been fairly dealt with. My own experience has been that only on a very few occasions has a minister ever attempted to change a decision of the commissioner of income tax. The commissioner is a very able man familiar with the provisions and the decisions of the courts thereon, and the minister would be loath to take upon himself the duty of changing a decision of this responsible officer of the crown.
As I have pointed out, there is now the right of appeal from the minister to the court, but under this section 32A it will be noted that there is no appeal to the minister; the appeal is direct to the exchequer court. Here of course you will get an independence of judgment by the tribunal charged with trying the case, as it were. It may be suggested that that should satisfy all the requirements, but I would call the attention of the minister to the fact that very few citizens, apart from the wealthy corporations or the wealthy individuals who employ lawyers as a matter of course and who enter upon litigation with a certain degree of familiarity, will be inclined to take advantage of the right of appeal granted under this particular section. The vast majority of taxpayers will hesitate before appealing a decision of an officer of the government to the exchequer court.


John Ritchie MacNicol: He would not be able to finance an appeal.


Roy Theodore Graham: The cost is great and the trouble is considerable. As a matter of fact, he just will not do it. The average sensible

lawyer now does not try to persuade his client to enter upon this course. If we are to delegate to some agency of government the power to administer acts of this house, then the tribunal or body which passes judgment upon the fairness or unfairness of decisions of an officer of the crown should be independent. Incidentally this is an example of the necessity of always keeping in mind the need to keep our judiciary separate and apart and independent of all conflicting interests and controversies. The judiciary are subject to income tax, and being human they form opinions and prejudices about the fairness or unfairness of the income tax act. In the interests, not of the judges, but of the people of this country whom the judiciary serve, we should be wise to keep in mind the British principle which puts the judiciary in a position of complete independence of interest in all matters that agitate the minds of the citizens whose cases they have to try. I realize that this is a difficult problem to solve but I am thoroughly in agreement with the minister that we must find some remedy for the evil of companies and perhaps individuals seeking to evade the tax laws of this country.


Mr. MARTIN:: It is not evasion but avoidance.


Roy Theodore Graham: It is really a method of evasion. Taking advantage of all the loopholes that appear in the act, corporations and individuals, serving their own interests, will resort' to all sorts of subterfuges to escape the impositions of the act. However, in setting up a remedy this house does not want to alienate the sympathy which we should invite from the taxpayers for the act itself.
I would make two suggestions. I appreciate that one of them may not be workable. One suggestion would be that if the treasury board is to assume this duty, some person with long judicial or legal experience who is peculiarly well fitted to deal with taxation matters be invited to sit in with the treasury board, and. unless he approves the decision reached, let the matter be referred to, let us say, the exchequer court. I think we must try to avoid litigation on the part of the taxpayer. I do not think we shall find a solution that will satisfy the taxpayer if we provide only a path that leads to costly legal disputes. An appeal 'to the exchequer court should be considered only as a last resort for those who feel strongly about the decision reached. I should like to see some independent body, free from interest either as a taxing authority or as an interested taxpayer, empowered to

Income War Tax
consider all the facts and reach a decision which both the government and the taxpayer could feel was an equitable and fair decision.
My other suggestion is one that I submit for consideration with a little more confidence. It might be wise to take this duty away from the treasury board altogether and to free the minister of the duty of reviewing the taxpayer's complaint. Let that matter be given to a body of three persons, independent of government and independent, so far as that is possible, of the taxpayer. Perhaps that body should have upon it a chartered accountant, because in many ways chartered accountants are more capable-


Gordon Graydon: That would be another board.


Roy Theodore Graham: I know it, and it might mean added expense. I do not like that, but we have a difficult task here, and to accomplish our purpose we must see that it is done in a way that will intelligently invite the support of the taxpayer.


Paul Joseph James Martin: How can you succeed unless you are prepared to acknowledge that the body to deal with it is the exchequer court?


Roy Theodore Graham: I was going to suggest this, and it is only a suggestion because I have not had time to think it through. I suggest that the treasury board discharge that first duty because they have officers who are in possession of all the facts and are able to form a shrewd practical judgment on taxing matters. It is only natural that they become a little cynical of mankind and suspect, a little more than the judiciary would, the taxpayer who is seeking to get redress or relief from taxation. It is only natural that these officers of the crown should become hardened in their attitude towards complaints that are not well justified. Let the treasury board discharge this first duty, but before their decision becomes operative, let it be reviewed by a body of three, including a judge, a chartered accountant and an ordinary business man-representing the citizen's point of view.
Such a board would give the taxpayer a sense of his case having been reviewed independently and without bias. If after the decision of that body had been given the taxpayer still feels a sense of wrong, let him have the right of appeal to the exchequer court. As it now stands, too much power and too much responsibility is given to the treasury board, and it will make them a very unpopular body in this country.
Turning to the phraseology of the first section I notice it provides that the treasury
board shall not only assess but levy upon a taxpayer such tax as the board may direct. There is nothing there imposing a limit on the tax which the board may impose. The wording is:
There shall be assessed and levied upon any taxpayer such tax as the treasury board may direct.
That applies not only to the assessment but to the levying of the tax. That is unlimited power to give to any body.


James Lorimer Ilsley: I am inclined to agree.


Roy Theodore Graham: Some phraseology should be introduced to alter that. The amount of income having been determined, it should be subject to the rates of taxation prescribed by the act.
These are only suggestions. I am fully in favour of finding some remedy for this evil, and it is only a matter of giving it proper consideration and working out the most sensible and practical method.


Gordon Graydon: This problem must have been the subject of legislation in Great Britain. Has the minister given any consideration to their legislation covering this point? Many of these cases are paralleled by similar cases in other countries. In view of the situation which developed in the debate yesterday and again to-day I think most members have the fear that the principle involved is a bad one. I realize that those who listen to a debate such as this may think that small things are being magnified.
The difficulty as I see it-I do not speak as an expert on this kind of legislation, but simply from the common sense point of view- is that legislation such as this might form a dangerous and perilous precedent in the future. That was pretty well covered in the debate yesterday, and I have no desire to reiterate the arguments made then, except to say that this legislation would provide an opportunity for the thin end of the wedge to be worked in so far as taxation is concerned. This parliament of 245 men and women gathered from all over Canada have one weapon by which the rights of the citizens can be safeguarded, and that is the granting of supply and the raising of taxation. It seems to me that if this principle is endorsed by parliament there is a real danger of its being the first block or cornerstone in the building up of something that we in Canada do not want to see built. That is putting it very simply; I am not attempting to argue from the point of view of legal definitions or from any especially complicated constitutional point, of view, even were I capable of doing it. When you place the matter of levying taxation in the hands oi

Income War Tax
some body other than parliament, you adopt a principle which may quite properly be regarded in a democracy as a retrograde constitutional step.
I do not want to be put in the light of raising an unnecessary difficulty for the minister. I know what his desire is; I think I know the objective to which he is moving. But in attempting to gain it we had better stop, look and listen. This parliament should be sure that in moving toward one objective we are not abandoning some safeguard which means far more to parliament than any amount of taxation that might be collected. [DOT]
I believe the minister will recognize, from what was said yesterday and what may yet be said, the dangers which lurk in a course which does not appear to have full constitutional and legal justification.
I would like some information from the minister as to how the United Kingdom handles matters of this kind. British experience would provide, I should suppose, precedents which would be useful to us in this house. Before this is incorporated in the bill or before the bill is passed, I suggest that he carefully canvass and skilfully explore such avenues as are open to us in the example and experience of other parts of the world, so that, before we launch on what may be a dangerous course, we shall draw upon the wisdom and the parallel experience of others.


James Lorimer Ilsley: In Great Britain the problem is not nearly so acute, for this reason: properly speaking, there is no corporation income tax in the United Kingdom. The corporation income is taxed in the hands of the corporation but is credited to the individual shareholder. If the income upon receipt by the corporation is taxed at 50 per cent, then, when it goes out to the shareholder, he may find that his tax on it is already fully paid.


Harry Rutherford Jackman: Or more.


James Lorimer Ilsley: Or more than paid, or perhaps only slightly less than paid. Therefore the incentive is very much less than it is in this country.


Harry Rutherford Jackman: It is a fairer system.


James Lorimer Ilsley: With regard to the British statutes, several of the phrases which are used in these amendments, such as "artificially reduced", "artificially reduce", and "main purpose", are taken from those statutes. With regard to the procedure and the tribunals I am unable to give my hon. friend any definite information. I am under the impression that they have commissioners, functioning somewhat in the nature of tax courts, who pass on these matters.


Harry Rutherford Jackman: Do they have laymen as members of these committees?


James Lorimer Ilsley: I cannot give the committee any definite information.


Harry Rutherford Jackman: I think they do.


James Lorimer Ilsley: In the United States, of course, they have the same system of taxation as we have. That is, they have the corporation tax, and then upon distribution of the profits of the corporation to the shareholders, the shareholders are themselves taxed. I assume it was because of this problem that a few years ago they placed a tax upon undistributed surplus, wThich caused a tremendous storm in the United States and was, I think, finally repealed, because it had detrimental effects which were considered sufficient to outweigh the beneficial effects. What they do at the present time I do not know
I am inclined to agree that the provision in the act of 1940, which we carried into this act, but which we did not originate in this act, about taxation being imposed in such sum as the treasury board may direct, is objectionable. The new subsections do not contain that.-that is, subsection 2 and subsection 3- and I certainly will give serious consideration to changing that provision of subsection 1. When the hon. gentleman speaks about the dangers of creating a precedent which may be used to oppress the individual, there is something to be said for that.


Gordon Graydon: We have to be jealous of those rights.


James Lorimer Ilsley: Yes; there is something to be said for that. But there is another danger which concerns me very much. I think that the present economic system, all things considered, is a better one than some others which have been suggested.


Gordon Graydon: The minister would not have any in mind, I suppose?


James Lorimer Ilsley: Well, I do not want to get
into a controversy here. But, whatever jealousy< parliament may have of the rights of the individual, parliament has to make sure that this economic system functions cleanly and justly and fairly, to the extent of its ability. I have perhaps given an impression that the practices I mentioned last night are widespread. I do not think they are. But a few instances, known by a few individuals and passed from mouth to mouth, of skilful and wealthy individuals who legally are able to escape the clear spirit and intent of taxation legislation, will do more to discredit the system we live under and more

Income War Tax
to discredit the parliament that did not have the foresight to prevent these things, than almost anything you can think of; and I have come to the conclusion that we ought to strain a point here. We are at war. It may be that this would not be as necessary in time of peace. But it would worry me a great deal if I heard of an instance here and an instance there of persons withdrawing large sums, and the sums we are thinking of here are large sums, running sometimes into the hundreds of thousands or possibly millions of dollars, and being able to get this money without payment of tax, contrary to the true spirit and intent of the act. I ask the hon. gentleman, who comes in contact with people who have experience in these things and who are in the business world, to inquire of them what they think can be done under the present act, and if they have ever heard of any cases of its being done. I think he will be surprised. The commissioner of income tax, of course, watches these surpluses; and if he sees them coming down he knows something is going on. Sometimes the business purpose is in evidence. It is a legitimate business purpose, and should not be interfered with. Sometimes there is no legitimate business purpose, and it is purely a scheme to avoid taxation, under circumstances where there is no real, moral justification for the avoidance of the tax.
In the Victorian period the avoidance of taxation was a polite, gentlemanly game. Taxation was low, and if a taxpayer could find a hole in the law and crawl through it, everyone laughed about it and tried to block up the hole. But it did not make very much difference.


Gordon Graydon: Or tried to get through
the hole.


James Lorimer Ilsley: If the crown could prevent his finding a hole, they would not get away with it. There was no moral interest involved. But when taxation becomes as heavy as it is to-day, when to a very great extent the people of this country are working for the state-and properly working for the state -then it is not an amusing matter, and is beyond the realm of a game. It becomes something-well, perhaps not exactly treason, but something considered most unpatriotic and unsocial.
Last night the hon. member asked why it should not be made a crime. I said I did not think a section could be drafted so as to accomplish anything. For instance if under this section we were to make evasion a crime, every hon. member in the committee
would say that the mere effort of trying to do that is a crime. The definition would be so loose that we should be bound to sweep in some transactions which are perfectly legitimate, and the result would be that we should not get convictions. The crown would have to prove its case beyond a reasonable doubt. The position taken last night was: Do not make them pay, but make them suffer. This is to make them pay that which it is their intention to avoid paying. That is what I am tiying to do in the present instance. I am trying to plug up loopholes for evasion, and I am doing it in the only way I know how to do it.
As I have said, if we make it as definite as we ought to make it for the guidance of a court we will be so definite that other ways will be found to get around it. Therefore it must be pretty wide, and there must be some discretionary powers in the tribunal making the decision. We have vested discretionary powers in a committee of a committee of parliament. That is really what the treasury board is. It is in fact a committee of the cabinet which, in turn, is a committee of parliament. It seems to me that that would be the appropriate tribunal.
If we were to take the suggestion of the hon. member for Swift Current and set up a board, such board would be a court. The court would have power to a very large extent to make its own law and create its own jurisdiction.


Paul Joseph James Martin: All courts have that power; jnitial .law-making goes on every day.


James Lorimer Ilsley: But within a much narrower limit than wrould 'be the case here.


Thomas Miller Bell: I see what the minister is trying to do. There seem to be .two things involved in this amendment. The first is an attempt to prevent-and I will use the word- evasion of taxation imposed by parliament. That is something we are all interested in seeing done. We want to prevent anything approaching an evasion of legitimate obligations under the law. The difficulty then appears to be that certain powers have to be given to some body to make some decision, and that those powers have to be blanket powers. When I heard this read last night-and like many other hon. members I was not- familiar with it before last night; I do not know just how it got on the statute book, because I had not looked it up-I was surprised at the implications involved. But there are so many items passing through parliament that we simply cannot keep in-
Income War Tax

formed with respect .to all of them. I confess that I cannot, because I have not sufficient staff to do it. To my mind the objectionable words were "levied upon any taxpayer such tax as the treasury board- may direct." That is the objectionable phraseology.
The intention may be entirely different from the meaning conveyed by those words, but it leaves the possibility of a wide interpretation which, as I said- last night, in my opinion is contrary to the fundamental basis of our .parliamentary government, that the representatives of the people in parliament assembled shall have the sole right to levy taxes. That is the age-old struggle parliament had with the crown, and we may actually find ourselves in a position of .parliament struggling with a government. I am not referring to this government, but use the term in the broad sense. We may find parliament struggling with a government to retain control in parliament, when a government attempts to usurp that power.
While I should be the last one in the house to endeavour to prevent the imposition of taxation on corporations, and particularly corporations which are trying to evade their just dues to the people of Canada, nevertheless I feel that even where a corporation is involved one would be less than fair if he did not see what I believe to be the implications behind this phraseology.
I like the suggestion of the hon. member for Swift Current, that some commission be set up. The minister suggested that he believed a commission having certain' powers has been established in Great Britain. I have a hazy idea that that is so, and that there is some commission to which they may appeal in Great Britain. But I like the suggestion of the hon. member for Swift Current that there be established a body with judicial powers to which appeal might be made both by the government or its officials, and by the person or the corporation.
What I dislike about the proposed legislation is that one of the litigants, if I may use the term, is also the judge. It seems to me that that is a bad principle in law, apart altogether from the other side of the matter which I have emphasized in my earlier remarks. In my view the body making the decision with respect to taxation ought to be independent, and ought not to be interested in the results of any appeal.
The wording of this amendment is so wide that it actually gives a committee not directly responsible to the house, but directly responsible to another committee which is responsible to the house-the cabinet-powers, in the 
phraseology of the amendment, to levy "upon any taxpayer such tax as the treasury board may direct, and such tax shall be payable by him as in this act provided." That is what I regard as objectionable. I should like to see some method of getting around it.


Mr. HAZEN:: There are two sections to be considered here, I think, sections 32A and 32A(1). As the hon. member Mr. Coldwell has said, this is a very objectionable way of raising a tax. I suggest that the wording of both these sections be reconsidered. I have not attempted to redraft them, but it seems to me that if we were to provide something to this effect, that where a person transfers property for the purpose of reducing or avoiding taxation he shall be liable to be taxed on such property in an amount equal to the amount of the tax that he attempted to evade, then the responsibility is not on the treasury board; it is on the minister, and he can impose the tax on the person or company which is endeavouring to avoid it. If the company or person thinks an injustice is being done he has the- right to appeal to the exchequer court as the act provides. I suggest that something of this kind be considered.


James Lorimer Ilsley: Yes-thank you.


Harry Rutherford Jackman: This is peculiarly a point for those in the legal profession, but from the point of view of one engaged in business may I try to indicate how it strikes me. First I was interested in what the minister said in regard to the economic system under which we operate; it must undoubtedly be kept clean and wholesome and the spirit of competition must be allowed play. Certainly no greater resentment can be felt than by those who are heavy taxpayers against those who leave Canada for the purpose of decreasing the amount of tax they have to pay, because it means that those of us who choose to stay in Canada- and most of us fortunately do-have a greater amount to pay. So that there can be no sympathy with the class who are seeking to evade taxes.
On the other hand if the minister wishes to keep this system of ours wholesome, I hope the government will do its part also. If it would allow the salaries of some of the government officials to be published, such as those ini the Bank of Canada and the Canadian National Railways which were refused in the committee the other day, I think it would be a salutary step. The salaries of corporation officials as a group are published under our company law, and in the United States individually. There is no reason for keeping these matters from the public whose money

Income War Tax
they receive. The Canadian National Railways intimate that they do not wish to publish the salaries because of competition; in the case of the Bank of Canada there is no such reason.


Major James William Coldwell: Would the hon. member go all the way and have the salaries of the officials of all corporations published?


Harry Rutherford Jackman: Yes, I think any corporation should publish the salaries of its officials. In that regard I may not find complete agreement on the part of some officials; nevertheless the money belongs to the shareholders and I see no reason why the salaries of officers of public companies should not be published.
I believe hon. members felt last night when original section 32A was read that this was an invasion of the rights of the citizen as against the crown, and many hon. members,
I think, were surprised that that section did exist. Now the minister wishes greatly to enlarge the force and scope of the section so that there shall be no loophole. I do not think so much objection would be taken if the minister would bring down legislation to stop up a particular loophole or set of loopholes. But no; this draft amendment is asking not only to block loopholes of which he may know, but to go into other cases which may come up in the future.
The minister has said that taxation has taken on quite a different aspect, partly because of the present crucial emergency, and partly because of the high rates of taxation that go with it. It is no longer a game where a good solicitor can drive a coach and four through any 'act of parliament. Nevertheless, as he inferentially pointed out, the situation in this country' is conducive to lawyers using legal methods to assist clients in evading taxation, and while I do not wish to open up the whole field of corporation, taxes, the minister himself has said that the need for such prying legislation as he is asking for, remedial legislation, does not exist in Great Britain because they do not have these corporation taxes. I do not wish to say they are iniquitous but they seem unfair inasmuch as corporations can neither eat nor drink nor otherwise use the income but are merely trustees for the people who put in their capital and thus create jobs for the people. There is no reason why the same money should be taxed twice and in some cases three times.
Perhaps another reason why the minister finds the difficulty more acute at the present time than under ordinary circumstances is that a surplus might have been accumulated for legitimate needs, but the company may
have changed its type of business or may now find itself pretty much a holding company with a large earned surplus. When that surplus was accumulated perhaps ten or twenty years ago the rate of tax on the individuals who really owned it might have been five or ten or fifteen per cent, but now the incidence of tax on the people who own the company and who would receive the money is perhaps sixty or seventy or eighty per cent. So that the minister must realize that while to some extent there is a moral issue at stake, the crown itself has brought about a set of conditions which lead to getting around the tax if it can be done legally. A business man must know where he stands. I am sure the minister will recall the old legal maxim that it is better that the law' should be certain than that it should be just. You cannot go on doing business unless you know where you stand. While a set of rules may be exercised fairly and judicially by one administration, there may be at some time a subsequent administration operating those rules in such a way that it will be absolutely impossible for business to carry on. This brings me back to the fact that if the minister would suggest legislation for particular cases I think the committee would receive it much more favourably than to ask for such blanket powers as he is seeking under this section.
I might refer briefly to the position of the subject as against the crown. People perhaps get the impression that this is all onesided, that there are iniquitous people lying awake nights trying with the help of able counsel to do the crown out of some of its just dues. But I tell the minister that the crown is just as unfair and iniquitous and sets a worse example than individuals.


James Layton Ralston: "The king can do no
wrong".


Harry Rutherford Jackman: That is a legal theory.


Gordon Graydon: Some of his advisers
can.


Harry Rutherford Jackman: Unfortunately there are too many "kings" in this country. That brings me to the point of succession duties. Just let me tell the committee, and perhaps particularly my hon. friends of the Cooperative Commonwealth Federation, that if a person in either the great province of Quebec or the great province of Ontario dies while holding as an asset a share in a company whose head office is in the other province, then his estate must pay a full tax on that share in Ontario, a full tax in Quebec and a full tax to the dominion. There is no equity as between the crown and the individual in many cases, and
Income War Tax

in view of the high taxes that exist at the present time the crown is getting many windfalls from income which was earned in previous years when the rates of taxation were only a fraction of what they are to-day, but which income is only now being paid out. For instance, I will mention executors' fees. An executor may work on an estate for five or ten years and receive little or nothing until a final settlement is made. If he asks for that settlement to-day, or if by reason of his. death the settlement is made to-day, the crown applies the tax on the money which he made back in 1935, or prior to that time, but at the rates of taxation which are applicable to-day.
I just want to point out to the minister that the matter is not entirely one-sided, that no law can be made to operate with exact fairness under all circumstances; and while we must do all we can to prevent evasions of taxation, nevertheless the crown does make up on some items what it loses on others. The essential point, is, I believe, that if you cannot draft specific- legislation to prevent evasions, then if the liberty of the individual is to be jeopardized by a blanket amendment such as is proposed, the crown must forfeit its right. Otherwise it means that the state is put ahead of the individual, which is in essence the whole theory of totalitarianism.
As I have mentioned, however, the whole question is one for corporation and constitutional lawyers who must look after the rights of the individual, and who have knowledge of the principles which apply. I am sorry the Minister of Justice is not in his seat at the moment, because I should like to ask an opinion from him as to whether or not he thinks the rights of the citizens of this great country are protected under the suggested amendment; for, after all, he is to a large extent the protector and custodian of the rights of the Canadian people.


Mr. POTTIER:: I have not the income tax act before me, but I seem to remember a provision somewhere in it that if a person does not keep books, for example, the minister may assess the amount of income tax payable. In that case is there any appeal by the person who is assessed from the decision of the minister to a tribunal?


James Lorimer Ilsley: Y es; there is, I feel certain, an appeal provided to the exchequer court. The usual procedure is an assessment by the commissioner and then an appeal to the minister, which almost invariably results in confirmation of the commissioner's assessment; then there is the appeal to the exchequer 
court. Is there something in regard to this about which I do not know? Is that the hon. gentleman's question?


Vincent-Joseph Pottier: I was going to follow that up by asking why the minister would not be in the same position with regard to this matter as he would be with regard to the person who does not keep books. Therefore why not leave the minister the discretion he has in the other case and permit the same procedure that now exists under the income tax act with regard to appeal? That more or less follows what the hon. member for St. John-Albert said, and I am tempted to support his remarks.


James Lorimer Ilsley: I do not see any section which provides that the minister has any extraordinary power by virtue of the fact that the taxpayer does not keep books. There is a provision that if a taxpayer fails or refuses to keep adequate books or accounts for income tax purposes, the minister may require the taxpayer to keep such records or accounts as he may prescribe.


Vincent-Joseph Pottier: What happens if he does not?


James Lorimer Ilsley: Well, I do not know; I suppose he would be subject to a penalty.' The fact is that assessments are made fairly arbitrarily at times, because the department simply cannot get any information and they have the power to make assessments. They have to be arbitrary; otherwise they cannot get anywhere; there is just nothing to be done. They have to do the best they can; and, as the bon. gentleman says, that is not very much different from the power of treasury board here. We did not think, perhaps, that these powers should be vested in the minister, because they are extraordinary powers, and it was some protection to say that they should be exercised by the treasury board, which is a committee composed of six ministers.
Though I am in a hurry I think I will place on record some excerpts from articles appearing on the subject of tax avoidance in war time which appeared in the English tax magazine Taxation. I wish these might be read outside this house as well as inside.


Mr. GRAA DON:: Does the minister think there are more offenders outside than in?


James Lorimer Ilsley: The excerpts are as follows:
Methods of escape from taxation have exercised the wits of man since the raising of revenue for the public welfare was first put into operation and have taken many forms, from the smuggling of excisable goods to the execution of annuity deeds in favour of children. . . .

Income War Tax
Lord Blackburn, in Coltness Iron Foundry v. Black, said, "No tax can be imposed on the subject without words in an act of parliament clearly showing an intention of laying a burden on him. But when that intention is sufficiently shown, it is, I think, vain to speculate on what would be the fairest and most equitable mode of levying that tax." . . .
In war time few things can be viewed in the same light as in peace time, and the question of legal avoidance of taxation obligations is, in our opinion, one of the foremost of these things. . . .
When, at last, this nightmare of war has passed, we may revert to our former opinion as to the rights of the taxpayer, but so long as our country is fighting for its very existence, we hold the view that the moral liability of the citizen comes before all else. . . .
Time and again, before the commencement of hostilities, eminent judges were at pains to make it crystal clear that it was open to all taxpayers so to arrange their affairs that the amount of tax which might be extracted from them by the revenue authorities was as small as possible. . . .
To-day, when the country is in the throes of the greatest war in its history, we believe that it is the duty of every citizen to pay the full measure of all taxation according to the circumstances in which it finds him when it is imposed. . . .
The legal liability of the taxpayer has given place to the moral liability; a moral liability which is without parallel in the history of taxation. . . .
... in this, the greatest test our country has been called upon to face, the old dicta of learned judges, to the effect that a man is entitled to arrange his affairs to avoid taxation, could not apply. We felt, and we still feel, that the taxpayer's undertakings should bear the burdens imposed by the legislature as those burdens find them. . . .
I place that on record merely because it is of interest, and in order to provoke thought in the minds of citizens generally. I must say I do not see very much in those excerpts with which to disagree.


Gordon Knapman Fraser: In line 8, subsection 2 of section 32A it states:
. . . any person subsequent to the year 1939 as a result of such transaction or transactions has been received directly or indirectly from a company having undistributed income on hand. . . .
That goes back four years; but if this is placed upon the statute books to-day, perhaps four or live years from now the income tax division will come along and will then be able to go back eight years. In that way they might be able to take money from a person who had spent what he had received in this way. I think the date is wrong; it should go back not more than four years. Four years should be the limit.


James Lorimer Ilsley: We went back to the beginning of the war.


Gordon Knapman Fraser: That is all right; but if this is on the statute books for another four years, it will mean it will go back eight years and that is rather far-reaching. Supposing the minister received from a company some income which he thought was a legitimate dividend and the commissioner of income tax said it was not, that he was taxable-


James Lorimer Ilsley: It would be taxable if it were dividends.


Gordon Knapman Fraser: Supposing it were something that the minister thought was legitimate. I think a clause should be inserted limiting it to four years.


James Lorimer Ilsley: I will give the matter
consideration.


Gordon Graydon: One question by the hon. member for Rosedale which the minister did not answer was in connection with the draftsmanship of this particular section. Was the Minister of Justice or the Department of Justice consulted? It seems to me that if there ever were a need for reference to the Department of Justice, this is it. I do not know how busy that department is, but I do not think it is too busy to give some consideration to a constitutional matter as important as this one.


James Lorimer Ilsley: I do not think the Department of Justice has been consulted, but the bill has not yet been prepared.


Gordon Graydon: I wish to make our position clear with respect to the whole matter. We have a resolution in the form of a notice.


James Lorimer Ilsley: It has been passed by council. I have the authority of the government to propose this.


Gordon Graydon: I have never had the
honour and privilege of being present at council, but I imagine that while the word of the minister may not be taken as absolutely final it has an influential effect upon the decision reached. Perhaps, if I may pay a compliment to the minister, I think his word would carry very considerable weight. This is one instance in which the Minister of Justice and the Department of Justice should have been consulted. This is a constitutional matter and they should have been consulted. I may be entirely wrong in my premise; but I contend that the Minister of Justice should have been asked to give an opinion on the constitutional and legal aspect, entirely apart from the problem of taxation or the avoidance of taxation. Now that the Minister of National Defence is looking my way, may I say that it
Income War Tax

would not have hurt matters if he had been consulted. Sitting together on the front benches opposite are two men who have the reputation of being highly skilled in legal matters. I think this is one instance where the committee, in attempting to find a solution for this problem in collaboration with the minister, should have had the benefit of the expert advice of the Minister of Justice and his department.


[Stage Direction]
Resolution agreed to.
24. That members of the Canadian naval, military and air forces in the Canadian active service forces and in receipt of service pay and allowances in excess of $1,600 shall be allowed a credit from the tax otherwise payable equal to the tax payable on $1,600 (increased by dependents' allowances in the case of married persons but not including any allowance for more than six children) provided that on incomes over $1,600 (or appropriately increased by dependents' allowances) the tax credit shall be reduced in the same proportion that such income exceeds $1,600 (or appropriately increased by dependents' allowances); provided that in the case of female members of the said forces the figure of $1,600 shall be replaced by such appropriate lesser amount as may be determined by the governor in council.
James Lorimer Ilsley: There is an amendment to this resolution. It will not change the principle, but it is intended to clarify the intention. The amendment is:
That resolution 24 be deleted and the following substituted therefor:
"That members of the Canadian naval, military and air forces in the Canadian active service forces and in receipt of service pay and allowances (exclusive of subsistence allowances up to $1.70 per day and marriage and dependents allowances) at a rate of $1,600 or more per annum shall be allowed a credit against the tax otherwise payable equal to the tax payable on $1,600 (or such amount appropriately increased by marriage and dependents allowances but not including any allowance for more than six children);
Provided that if such service pay and allowances is in excess of $1,600 per annum (or such amount appropriately increased by marriage and dependents allowances) the tax credit shall be reduced by the proportion which such excess bears to $1,600 (or such amount appropriately increased by marriage and dependents allowances);
Provided further that the service pay and allowances of members of the said forces shall not be taxable income if such members are in receipt of pay and allowances (excluding subsistence allowances up to $1.70 per day and marriage and dependents allowances) at a rate of less than $1,600 per annum;
Provided further that in the ease of members of the women's royal Canadian naval service, Canadian women's army corps and Royal Canadian Air Force women's division the figure of $1,600 shall be replaced by the figure of $1,200."
That is a complicated arrangement.


Colin William George Gibson: I so move.


Gordon Graydon: Are nurses on active service not included?


James Lorimer Ilsley: They would be included in members of the Canadian naval, military and air forces. I understand that their pay is commensurate with that received by the men. Let me explain the scheme. Before we introduced the changes last year it was found that a number of ranks in the armed forces, particularly warrant officers, were receiving a net income after taxation greater than that received by the lower commissioned officers.
Mr. JACKMAN; Up to the rank of major.


James Lorimer Ilsley: That- was detrimental to the military organization, because in some instances promotions which should have been made were resisted. The persons did not want to accept the promotions. In order to overcome this problem last year, we said that the tax shall not reduce the net income of any officer below $1,600. That amount was as near as we could come to the pay of a warrant officer. Some warrant officers get a little more than that without trades pay, particularly in the navy, but in the army and air force they get less than $1,600. The provision that the tax should not reduce the net income below $1,600 did away with the anomaly that existed at the time, that the commissioned officer had less money in his pocket after paying the tax than the noncommissioned officer without trades pay.
The trouble with what we did last year was that it left some commissioned officers in the lower ranks receiving the same as the high non-commissioned officers without trades pay. That was undesirable because it left a flat level there. While it did not take money out of the person's pocket to be promoted, it did not give him any more money. It was not a proper gradation of pay. This is designed to remove that anomaly, and so far as we can make a fair provision this is a completely fair provision. Instead of drawing the line between taxable and non-taxable members of the forces, between commissioned and non-commissioned officers, we draw it at $1,600. This means that certain warrant officers, those getting trades pay, who have not heretofore been taxable, will hereafter be taxable to some extent. But it substitutes a rational and logical line or division for a very illogical one. It draws the line on the basis , of pay instead of on the basis of rank.
It does another thing. It provides that, whether he be commissioned or non-commissioned, a single member of the forces who has no dependents and is receiving $1,600 gets

Income War Tax
a credit of the tax on $1,600 against his tax, which means that he pays nothing. As his pay rises there is a proportionate reduction in that tax credit. If his pay rises to $1,700 there is a one-sixteenth reduction of his tax credit; at $1,800 there is a reduction of two-sixteenths of the tax credit; at $1,900 there is a reduction of three-sixteenths, and so on until at $3,200 there is a sixteen-sixteenth reduction of the tax credit, or, in other words, no tax credit at all.
The application of the formula will mean that a person in receipt of army pay higher than that of another member of the forces will always have more left to him after paying his tax. There would be an even gradation of his net income between $1,600 and $3,200. At $3,200 the tax credit disappears altogether. Commissioned officers resident in Canada are fully taxable on their pay if it is in excess of $3,200 and if they are single.
These figures of $1,600 and $3,200 become altered very greatly in the case of those having wives and children. The figure for a married) person without children is $2,100. instead of $1,600; for a married person with one child it is $2,255, and for a married person with two children, $2,400. That alters the scale of tax credits.
This increase in exemptions, so to speak, of the married person, of the married person with one child, of the married person with two children or more, involves as its necessary corollary a tax on dependents' allowance. The dependents' allowance has been regarded since	the beginning	of the	war as taxableas against the member of the forces, and we intend to continue it as taxable, and in fact to confirm what we have been doing. It would completely upset our whole system if there were any question about that fact. Accordingly that will be done in another resolution. He gets	this	concession,	thishigher floor, this allowance of his tax by reason of having a wife, and a further allowance	by reason of having	one child,	twochildren, and so on. It follows, we think, that on that scheme of things the dependents' allowance should be taxable. They always have	been taxable.	The	Department	of
Justice gave an opinion at the beginning of the war that they were taxable.


Gordon Graydon: The question was referred to the justice department?


James Lorimer Ilsley: Yes, at the outset of the war. Of course., it is income; by virtue of the man's employment with the crown the allowance goes to his wife and to his children. What I am pointing out is that the taxing
of the dependents' allowance is necessarily involved in this plan of rising floors, and on that account the allowance is taxable.


Mark Cecil Senn: This does not apply to members of the forces whose duties are performed outside Canada, afloat or in aircraft, as in resolution 22.


James Lorimer Ilsley: No; that is not changed. There is no extension there, and no extension to those serving overseas.


Gordon Graydon: No tax?


James Lorimer Ilsley: No tax.


Gordon Graydon: Resolution 24 was
brought down with the other budget resolutions on March 2. Can the minister explain why the original resolutions did not contain these amendments? From what the minister has said1, these resolutions must have been the subject of a great deal of consideration by the government from time: to time, for they are designed to meet problems that arose with which last year's provisions did not deal adequately. I afn not complaining particularly, but with all the time there has been to consider the budget resolutions, it is odd that we should have the amendments brought down only at the last moment.


James Lorimer Ilsley: This resolution, which I am substituting for the resolution on the order paper carries out the exact intention of the resolution that was put on the order paper. It is merely drafted in a better form and more accurately. It does add a provision about the members of the women's services, and for the purposes of definiteness the figure of $1200 is put in there. In the original resolution that was left to the governor in council. Now it is proposed that they be taxed by parliament and that $1,200 is the proper figure. Apart from that, and apart from making it clear that there is an exemption of the pay of persons receiving up to $1,600, which was implied or, we thought, implied in the original resolution, there was no reason for changing its terms. This ia accurate and correct. The hon. gentleman asks why we did not draft it properly to begin with.


Gordon Graydon: I hardly made it as blunt as that.


James Lorimer Ilsley: That is what it comes to.


Gordon Graydon: That is what I meant, of course.


James Lorimer Ilsley: I do not blame the hon. member for asking the question. There was a lot to do. You cannot get your drafting
Income War Tax

done with strict accuracy in a hurry, and when you have to rise in the house and defend it line by line and word by word you read it fairly carefully. It was obvious upon consideration that the other resolution was not accurate, and this one is.


John Ritchie MacNicol: Can the situation arise where a member of the forces drawing $1,600 a year would find, after he paid his tax, that he would have a net amount left which was less than what a member of the forces drawing $1,550 received?


James Lorimer Ilsley: No.


Mr. ADAMSON:: Just a matter of explanation of this dependents' allowance business. It has been, as the minister knows, a great bone of contention to the armed services. I will point out one case in which, it may seem, I am interested. No member of the armed forces who is also a member of the house draws dependents' allowance; you cannot draw allowances from two sources at the same time. I wish to make that clear. As I understand it, at the present time an unmarried officer is given tax exemption up to $1,600 of his army pay. Am I correct in that?


James Lorimer Ilsley: Under this proposal?


Agar Rodney Adamson: Under this proposal, yes.


James Lorimer Ilsley: If he gets under $1,600 he is exempted on the entire amount; if he gets over $1,600 he is taxable and gets a tax credit of the tax on $1,600.


Agar Rodney Adamson: That is what I said.


James Lorimer Ilsley: Subject to a slight reduction the higher he goes.


Agar Rodney Adamson: If he gets $1,700 his reduction is fifteen-sixteenths, and on $1,800 it is fourteen-sixteenths?


James Lorimer Ilsley: Two-sixteenths.


Agar Rodney Adamson: Two-sixteenths, yes. His exemption is reduced one-sixteenth for every $100 over $1,600?


James Lorimer Ilsley: Right.


Agar Rodney Adamson: For your married officer the exemption starts at $2,250, or $2,150?


James Lorimer Ilsley: A married person without children, at $2,100.


Agar Rodney Adamson: That is tantamount to allowing the married officer a further exemption of $500.


James Lorimer Ilsley: No. What happens there is that the married officer runs from $2,100 to $4,200.


Agar Rodney Adamson: Yes, but he does not begin to pay taxes until his army pay and dependents' allowances come to $2,100?


James Lorimer Ilsley: That is right.


Agar Rodney Adamson: Therefore it comes to almost the same thing as allowing that officer $500 exemption on his dependents' allowance, because the unmarried officer gets no dependents' allowance.


James Lorimer Ilsley: Well, yes, I think that is substantially correct. These words are tricky. It may not be exactly the same. That is the principle of it, and I think that is right.


Agar Rodney Adamson: I think that is a good principle. I commend the minister for it, because the married officer has definitely suffered a hardship in being taxed on his dependents' allowance. Many cases have been made in support of the contention that the taxation on dependents' allowance is an unsound premise. I know the government have always taxed the dependents' allowance. I think it is unsound. Of course, an officer serving overseas is not taxed on his pay or on his dependents' allowance. When both husband and wife are living in Canada, both have the same expenses. I think it can be shown and reasonably argued that the dependent living in Canada, whether or not the member of the armed forces is serving overseas or in this country, still has to live and has to provide for the same amount of expenses irrespective of where her next of kin is serving.


James Lorimer Ilsley: The discrimination there
arises from our discrimination in favour of officers overseas.


Agar Rodney Adamson: Yes, to a certain extent it does. But if the dependents' allowance were tax-free, that discrimination against the dependent would not occur.


James Lorimer Ilsley: It would not be as great; that is all.


Agar Rodney Adamson: This, I think, is a step in the right direction. I should like to see it carried further, but it certainly will help in the case I have mentioned.


James Lorimer Ilsley: I should point out that if the dependents' allowance were not regarded as income of the officer, it probably would be regarded as income of the wife. In the case of the wife who is getting over $660 a year- $60 a month, for example-she might find herself taxable, which would be a very undesirable result.


Agar Rodney Adamson: I understand that, under the act as it is, the dependents' allowance, irrespective of what income the wife may have, is not considered as extra allowance?

Income War Tax


James Lorimer Ilsley: I am sorry I did not hear the hon. member.


Agar Rodney Adamson: I understand that the
dependents' allowance received by the wife is a tax-free allowance. I mean, the taxes on that are paid by the member of the armed forces.


James Lorimer Ilsley: Yes.


Agar Rodney Adamson: And, irrespective of what other income this woman may have, that dependents' allowance is tax-free?


James Lorimer Ilsley: Oh, yes.


Agar Rodney Adamson: There is no double
taxation?


James Lorimer Ilsley: She is not taxable on it.


Agar Rodney Adamson: One thing more. The
living allowance of $1.70 is tax-free?


James Lorimer Ilsley: That is correct.


Agar Rodney Adamson: That also is so concerning officers who may hold staff appointments, whose allowances are tax-free?


James Lorimer Ilsley: Up to $1.70 a day.


Grote Stirling: Supposing the service man has income from other sources, raising it considerably above $1,600, for instance, does that provision still apply to his service pay?


James Lorimer Ilsley: It applies to his service pay, yes.


Mr. FERRON:: Will the minister tell us if in the United States army the dependents' allowance or its equivalent is taxable?


James Lorimer Ilsley: I understand it is not.


J. Émile Ferron: And in the imperial army,
is it?


James Lorimer Ilsley: I do not know. I have heard that some allowances are taxable and some are not, but I do not know.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to-.
22. That the service pay and allowances of the Canadian naval, military and air forces while in the Canadian active service forces in the western hemisphere other than in Canada shall be subject to income tax at one-half the effective rate applicable to each individual taxpayer, such rate to be determined by calculating the total tax on each taxpayer's total income, determining the effective rate which the tax bears to such total income and allowing a credit against the tax payable of one-half of the effective rate on such service pay and allowances; provided, however, that no tax shall be payable in respect of the service pay and allowances of any such member of the Canadian naval, military and air forces whose total service pay does not
exceed the sum of $1,600 (or in the case of female members of the said services such lower appropriate amount as shall be determined by the governor in council) and provided further that no tax shall be payable on service pay and allowances by members of the said forces whose duties are of such a character as are required normally to be performed afloat or in aircraft.
James Lorimer Ilsley: I move the following amendment :
That the resolution be amended by substituting therefor the following:
"22. That the service pay and allowances of the Canadian naval, military and air forces while in the Canadian active service forces in the western hemisphere other than in Canada shall be subject to income tax at one-half the effective rate applicable to each individual taxpayer, such rate to be determined by calculating the total tax on each taxpayer's total income, determining the effective rate which the tax bears to such total income and allowing a credit against the tax payable of one-half of the effective rate on such service pay and allowances; provided, however, that the exemptions and tax credits for members of the armed forces as provided for in resolution 24 hereof shall apply pro tanto to members of the forces affected by this resolution; provided further that no tax shall be payable on service pay and allowances by members of the said forces whose duties are of such a character as are required normally to be performed afloat or in aircraft."
This is simply a matter of rewording, and correcting certain inaccuracies. The effect of the resolution, however, is exactly the same. It is to make those on this hemisphere outside Canada taxable at half the effective rate applicable to those within Canada, and to do away with certain marked instances of discrimination now existing. This does not apply to those who are afloat; I am speaking about the ones who do not get that class of exemption. For instance, an army officer at Sydney is taxed at the full Canadian rate, and he is not taxable at all at St. John's, Newfoundland. They are not taxable at all overseas. We thought it would be much fairer to make this gradation. There are reasons why it is less desirable perhaps to be outside Canada, on this continent, than in Canada. We thought this was the best procedure to take.


Gordon Graydon: An amendment to resolution 24 has just been passed. Most hon. members would have liked to see it before it was finally passed. We now have another amendment, namely, to resolution 22, which I see for the first time.
If the minister has an amendment to resolution 23, I suggest that he bring it in now so that hon. members may have an opportunity of looking at it. Perhaps we could return to this one later on. I make the suggestion for the convenience of the committee. Leaders of
Income War Tax

groups are perhaps in a preferred position, but after all this is still a committee of the whole house, and I must say I do not know how members can intelligently consider the amendments when they do not have an opportunity to see them. If the minister were to have the amendments typed so that copies could be distributed, it would be helpful.


John Ritchie MacNicol: There should be a copy for every member of the committee.


Gordon Graydon: It is most difficult in
respect of these complicated amendments to note the implications as they are presented to us. Hon. members may have greater ability than I have in that regard, but I must confess that I have difficulty -at times, and I feel sure they have the same difficulty in knowing what is going on in the committee. I am not criticizing the minister unduly, but this is one of the procedures which must be checked.
Resolution stands.
23. That the service pay and allowances of. any member of the Canadian naval, military and air forces who is in the Canadian active service forces and who has been overseas on the strength of an overseas unit outside of the western hemisphere and whose service pay is in excess of $1,600 shall be exempt from taxation on the first six months' service pay and allowances received by him after his return to Canada; provided, however, that the period of such exemption shall not exceed the length of the period which has been served on the strength of an overseas unit outside of the western hemisphere; provided that in the case of female members of the said forces the figure of $1,600 shall be replaced by such appropriate lesser amount as may be determined by the governor in council.
Mr. ILSLEY; I move tfie following amendment:
That the resolution be amended by substituting therefor the following:
"23. That the service pay and allowances of any member of the Canadian naval, military and air forces who is in the Canadian active service forces and who has been overseas on the strength of an	overseas unit	outside	of	the	westernhemisphere shall be exempt from taxation on the first six months' service pay and allowances received by him after his return to Canada; provided, however, that the period of such exemption shall not exceed the length of the period	which has been served	on	the	strengthof an	overseas unit	outside	of	the	western
hemisphere."
Mr.	MacNICOL:	Would	it	be	possible
during the dinner recess to have at least 245 copies mimeographed, so that each member would have a copy? I do not see how we can discuss the amendments intelligently until we have a look at them.


James Lorimer Ilsley: I shall see if that can be done. There is no change in effect in this resolution; it is just a change in wording.


John Ritchie MacNicol: It seems to be a most unbusinesslike procedure.


George Hugh Castleden: There is only a deletion of some unnecessary words.


James Lorimer Ilsley: Yes, and some changes in the wording.


Douglas King Hazen: The amendment makes no
reference to female members of the forces.


James Lorimer Ilsley: No; that reference is not
necessary, because they will be included. The whole tax is off for six months after they return from overseas.	[DOT]


Gordon Graydon: I think the suggestion
that hon. members have copies is a most reasonable one. If hon. members have not copies of the amendments, they must find themselves in an embarrassing position. If the minister wishes to proceed with either resolution 22 or resolution 23, I would have no objection to a general statement with respect to them. But I must protest against their being passed without our having the necessary notice. We are taking one step after another in matters of this kind and, although I do hot wish to be unduly critical, I suggest that we must proceed in an orderly fashion. I should like to facilitate the government in *this. I am sure the government will realize that that is my desire. On the other hand, some things are fundamental. Members of the committee have the right to know on what basis the resolution stands. They ean-not give intelligent consideration to amendments that the minister just reads hastily, as he does. As the hon. member for Davenport says, these resolutions are drafted entirely anew. It may be the minister can and does assure us that there is no substantial change, but that is not sufficient to warrant a body of representatives in committee of the whole in allowing a resolution to go simply on the say-so of the minister. I am sure the government and the minister will agree that as members of the committee we are entitled to know on what basis this discussion is to take place.
I believe these resolutions, particularly resolutions 22 and 23, are perhaps affecting more people and are of more concern to people generally in Canada than almost any other two resolutions we have had before the committee so far. I plead with and implore the minister to see that before we commence a detailed discussion of these resolutions we have before us mimeographed copies of them.

Income War Tax


James Lorimer Ilsley: I will try to see to it that
that is done. Resolution 22 already stands. We can let resolution 23 stand.


Gordon Graydon: When may we expect
the mimeographed copies?


James Lorimer Ilsley: I will try to get them by
eight o'clock.


Gordon Graydon: If we could have them by eight o'clock we could perhaps proceed with them at once.
Resolution stands.
26. That any payment to or for any person in connection with any duty, whether as per diem allowance, living allowance or expenses, marriage or dependent's allowance (other than supplementary grants paid by the dependents' board of trustees) or otherwise, if ascertained and capable of computation (except statutory travelling expenses and travelling expenses paid to members of the armed forces in Canada) shall be regarded as salary of such person for tax purposes, provided, however, that living allowance paid to an employee of the dominion government or a member of the armed forces of Canada who is serving outside Canada in the western hemisphere but maintaining a self-contained domestic establishment in Canada shall be deemed to be taxable income of such person only to the extent that it exceeds such an amount as may be determined by the minister in his discretion.
That this resolution shall be applicable to the income of the years 1940 and subsequent years, but shall not affect any assessments, appeals from which have been lodged prior to April 16, 1943.


John Ritchie MacNicol: Where do we find this?


James Lorimer Ilsley: Yesterday's Hansard, page 2218.


Agar Rodney Adamson: "Travelling expenses paid to members of the armed forces in Canada." Certain members of the armed forces in Canada have to travel on duty. Am I correct in assuming that the amount granted for that _ travelling on duty is still exempt, or does this alter it?


James Lorimer Ilsley: It is still exempt. The reason why it is mentioned is that it is a per diem travelling allowance, which is a living allowance while travelling. It does not include fare. That living allowance for travelling, which is called a travelling allowance, would be caught by the first part of the resolution if it were not specially exempted, because it is a per diem allowance.


Mr. CRUICKSHANK:: I understood the minister to say yesterday in effect that this legalizes what has been done for years past.


James Lorimer Ilsley: That is correct; generally speaking, that is the effect of the resolution, so far as living allowances, marriage and dependent allowances are concerned. Has the hon. gentleman any exception in mind?


George Alexander Cruickshank: I think that covers it. I also understood the minister to say yesterday that there has been a court decision which laid down a certain rule in connection with what are known as our dollar a year man's allowance. I also understood him to say yesterday that certain appeals have been made by a certain dollar a year man.


James Lorimer Ilsley: I know of only that one, the Samson one.


George Alexander Cruickshank: That is what I am leading up to. I also understood the minister to say that discretion will be left with someone,
I do not know whether officials or the treasury board, if there are any more. I wish to make my point clear; I have no objection to the minister's department or anyone else taxing dollar a year men. If they taxed it all back, it would be simply perfect. People may get the idea that some members of parliament are getting something. I have not the slightest fear in my riding. I understand the whole idea is that they want to tax the dollar a year men, and in order to tax them there must be special legislation or else this exemption applies to members or anyone. I am speaking only of what is said in the corridors, or the cafeteria or anywhere; I do not mind saying it here. But I cannot see why there should be any special exemption. I do not want anybody taxed unfairly. I see in to-day's Ottawa Citizen, "travel expenses paid cabinet men totalled $25,825". I want it clear in my mind and I am sure the public wish to know that there will be no unfair taxation as income of those expenses. I have not a legal mind; I do not know whether that $25,825 is to be taxed as these dollar a year men are. That would be unfair, just as it would be unfair to have a $2,000 motor car allowance if the motor car were tied up for the year.
It seems to me unfair that this should be done. I am sure the public, particularly the farmer who is getting no subsidy on his milk, would not like it, and I should be glad to have the assurance of the minister that this will not happen. We were told yesterday, as I understood it, that the treasury board would have the authority to say that any ol these dollar a year men may come in undei this provision. The records show that only one man has applied for this privilege, but can the minister give us any assurance that no one else will do so? Whether or not it is correct, the assumption is widely held that some of these dollar a year men get a living allowance of $50 a day.


James Lorimer Ilsley: No.


George Alexander Cruickshank: That is the assumption, and I am glad to know it is not correct.
Income War Tax

Certainly many of them get $20 or $25 a day. One has appealed. Will any of the others be allowed to appeal now, or will only that one get this exemption? I think we should have a definite assurance on that point before any such provision is allowed to pass.


James Lorimer Ilsley: The exemption covers only those who appealed up to April 16, 1943.


George Alexander Cruickshank: All right; then
were any other appeals entered except the one?


James Lorimer Ilsley: I have not heard of any.


George Alexander Cruickshank: If the minister and his officials do not know, certainly no member of this house knows, and we should be informed whether or not any other appeals were entered before that date. We should be told whether we are to make it legal for these men to continue to receive the salaries they were paid before they came here and an extra $20 a day living allowance, at the expense of the man in the factory getting 27, 35 or 40 cents an hour, or of the farmer, who must pay taxes in order to keep these men here. I want an assurance on that point from the minister.


James Lorimer Ilsley: That comes under the
Department of National Revenue, and the minister thinks he can find out before eight o'clock whether there have been any other appeals. I think the commissioner would have known about it if there had been. Personally I do not see what difference it makes. The principle of the legislation is this, that you should not affect pending legislation. That may be a good or a bad principle, but it is one that we have fairly generally followed. You should not legislate a man out of court or out of the fruits of a judgment that he has obtained in court. That is the principle of this exemption; that is the only reason why it is put in. Supposing there should turn out to be some other appeals; I would still think this exemption ought to be included. I do not know of any others, and the commissioner did not know of any when I asked him last night, except the one that went to judgment.


George Alexander Cruickshank: Then I can take it that so far as the ministers and their officials know, there is only the one?


James Lorimer Ilsley: That is right.


The CHAIRMAN:: Shall the resolution carry?


Mr. NEILL:: No, Mr. Chairman. Did the minister not say that he would give us that information at eight o'clock?


Colin William George Gibson: Yes; I shall be able to get that information by eight o'clock.


Alan Webster Neill: What is the use in passing the resolution without the information?


Colin William George Gibson: So far as the commissioner of income tax could tell me yesterday, he had no knowledge of any other appeal.


Mr. GILLIS:: I am interested in this now. According to the decision handed down by Mr. Justice Thorson I take it that all taxes collected from the dollar a year men up to the passing of this resolution were collected illegally. Will each and every man who has been taxed on that living allowance since 1940 have his taxes refunded to him?


James Lorimer Ilsley: Not if this passes.


Clarence Gillis: This is only effective and operative, as I understand it, from the 16th of this month.


James Lorimer Ilsley: No.


Clarence Gillis: You are making it retroactive.


James Lorimer Ilsley: Yes.


Clarence Gillis: That is fine. Then the hon. member for Fraser Valley raised the question of the automobile allowances of the ministers from year to year. Is that $2,000 taxable also?


James Lorimer Ilsley: No; it is not.


Clarence Gillis: This does not make it taxable?


James Lorimer Ilsley: No.


Clarence Gillis: You should draw another line there.


George Hugh Castleden: I should like to know whether we shall have any record of the cases that may be dealt with in the discretion of the minister in this connection.
Mr. ILSLEY; Oh, they will be dealt with by orders in council; that is all. Ordinarily they would not be made public; they would be remissions of taxation, which ordinarily we do not make public. I know a great many hon. members will flare up right there and say that the government is going to exercise all kinds of favouritism, and so on; but whatever they say, it is not so.


George Hugh Castleden: Have you any idea how many persons will be affected?


James Lorimer Ilsley: Yes; I think quite a number will be affected. For instance, I think a number of employees of the comptroller of the treasury and probably the auditor general, and employees of that class, particularly in the years 1940 and 1941, were getting per diem living allowances while away from their headquarters. Those allowances were small, $4 or

Income War Tax
So a day or something like that, and it was considered economy to pay them on that basis instead of having them put in expense accounts. This in terms would catch them; this in terms would make them taxable on those allowances. We have no intention at all of collecting from those men, because it was their clear understanding at the time that those allowances were not to be taxable; they were never regarded as taxable at all, and we would pass an order in council letting them out. They are not the class that we mean here at all. If the hon. gentleman will read the statement I made last night, he will see the principle on which we are proceeding here, and I do not know of any other way in which to do it. I considered very carefully trying to draft a section in another way, empowering the government to' tax those people instead of having all these remissions. Hon. members will realize, from the arguments of last night and this afternoon, what I would run into if I did that. It would be argued that it was unconstitutional, that it was arbitrary, that it w-as the executive, and all that sort of thing. The other alternative is to tell the committee we are going to take off some taxes. Then hon. members will say, "Tell us what taxes you take off," and I do not know that we ought to do that. The principle always has been that the private affairs of the taxpayer, in reference to taxation, are not to be made public, and we have always adhered to that. That involves a considerable trust in the executive, I realize, but it has always had to be done.


George Hugh Castleden: Under section 81 of the Income War Tax Act.


James Lorimer Ilsley: Yes. The situation, has always been that remissions of taxation, have gone through from time to time, and nobody knows

that is, the public does not know- whether those remissions are right or wrong. The succeeding administration would know, or something like that; but, as a matter of fact, I can assure hon,. members there is a very high standard of integrity and1 propriety in making remissions. It is not the desire to forgo money, and I can assure everyone there is no favouritism whatsoever.


Mr. WRIGHT:: Would it not be much more satisfactory to give these men increases in salary rather than a rebate of their taxes? Would you not accomplish the same thing in that way and be able to do it openly without fear of criticism?


James Lorimer Ilsley: We could not do that for the previous years; we could not do that for 1940, 1941 and 1942. The comptroller
of the treasury has put most of his men on actual expenses, and that is a policy we have been trying to lay down,, either pay a man a salary and tax him on his salary, or put him on, expenses if he wants to go on expenses. Arrangements of all kinds have been made, and we are now taxing these per diem allowances. I am warning the committee that there will have to be a lot of remissions in the cases I have mentioned.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


John Ritchie MacNicol: We were to receive typewritten copies of the amendment. It should not take over half an hour to have them made.


Joseph-Arthur Bradette: That does not apply to resolution 26, which was before us this afternoon.


John Ritchie MacNicol: Perhaps the minister will indicate what the changes mentioned at page 2218 of Hansard are. They may not be of any consequence.


James Lorimer Ilsley: There are no changes in the resolution before us.


John Ritchie MacNicol: The changes referred at page 2218 of Hansard.


James Lorimer Ilsley: There is no change in that. That is the one I gave notice of last night.


Gordon Knapman Fraser: Take the case of a man who is not receiving any salary or fixed allowance but who puts in an expense account covering his expenses while living at a hotel here in Ottawa, say, and never sees any of that money. It is paid by one of the departments, wre will suppose.


James Lorimer Ilsley: That is not taxable.


George Hugh Castleden: It seems to me that this type of complication is a result of appointments by order in council. As it now stands it leaves it to the minister's discretion to decide what amount shall be taxable income. Mistakes have been made in the past. Can we have any assurance that appointments of that kind will not be made in the future without a definite understanding between employer and employee so that they will know just where they stand?


James Lorimer Ilsley: Any such arrangements will have to be made in the light of this legislation if it passes.

Income War Tax


George Hugh Castleden: The second paragraph says that this resolution shall be applicable to income of 1940 and subsequent years. Some have paid their income tax for 1940. What will be done about them? Will you go back and reconsider their returns and determine what they shall be taxed?


James Lorimer Ilsley: If they have paid their tax there is nothing to reconsider. I do not know what situation the hon. gentleman has in mind.


Major James William Coldwell: He is asking if it is retroactive.


James Lorimer Ilsley: A lot of them have paid, and we do not want to have to make refunds.


Major James William Coldwell: You are collecting from those who did not make payments and legalizing what has been done?


James Lorimer Ilsley: Yes.


Major James William Coldwell: And are applying this to the others who did not pay?


James Lorimer Ilsley: Yes, except in the cases
where it was their clear understanding that they were not taxable.


Colin William George Gibson: The leader of the opposition asked me before the dinner recess if there had been any other appeals and I told him I would let him know. No other appeals have been entered.
Mr. O'NEILL: What would be the position of civil servants who, in addition to their salary, have a house allowance of $30, $35 or $40 a month? Once in a while there appear civil service advertisements of positions carrying a salary of $2,400 approximately and a house allowance of $30 or $35 a month. I understand that in the past that house allowance has not been subject to income tax. Will it be subject to taxation under this new provision?


James Lorimer Ilsley: It always has been, I think.
Mr. O'NEILL: It always has been?


James Lorimer Ilsley: I think so. I would be surprised if it had not. I did not know there were such arrangements as that.
Mr. O'NEILL: Oh, yes, there are civil servants who have a house allowance, and it was my understanding that it was not taxed. I was wondering how such an allowance would be affected by this provision,


James Lorimer Ilsley: My understanding is, and I would be surprised if I am wrong, that if a civil servant is paid $2,400 a year and given a house to live in, he is charged a fair rental
	:. j. j j
for that house as part of his income. We do that with other people, and I think we would do it with civil servants. It would follow, if he got a house allowance, as well as his salary of $2,400, that the house allowance would be part of his income. It is clearly part of his income.


John Ritchie MacNicol: Is it any more part of his income than the allowance of $2,000 a year to a minister of the crown for a motorcar? That $2,000 allowed to the ministers is not taxed, is it? They certainly do not use it for motorcars to a great extent.


Major James William Coldwell: Wherein lies the difference between the motorcar allowance for the ministers and the house allowance for the civil servants?


James Lorimer Ilsley: A house allowance is clearly part of the normal living expenses of the individual. The motorcar allowance for the minister is a method of providing him with a travelling allowance, a way of supplying him with a means of transportation. He is paid a flat amount instead of submitting his vouchers. I think the real distinction is that in the case of the minister it is connected with the performance of his duties, and in the case of the civil servant it is connected with his living.


Major James William Coldwell: Let me, then, put this to the minister. The officials of the department, and probably properly, have never allowed members of parliament to charge up the expenses of any automobile travelling in their own constituencies.


John Ritchie MacNicol: And they use their cars.


Major James William Coldwell: Some hon. members have constituencies which are one hundred and twenty miles in one direction by sixty or seventy miles in the other.


Grote Stirling: A good deal more than that.


Major James William Coldwell: Some, more than that. The member uses an automobile to do work in his constituency and visit his constituents. I know that the first year I was a member of parliament I thought it was a legitimate charge, and I put my expenses, of which I kept track, on my income tax return, but I was told that this was not allowable. Since then, of course, I have never charged them. But I took it at that time, in 1936, that I was entitled to do so. What I would ask the minister is, if a minister in the discharge of his duty is entitled to the lump sum of $2,000 in order that he may do his work, why is it that a member of parliament or an official of the government who has to travel is not allowed

Income War Tax
to charge up against his income tax return his automobile expenses for the work he is doing? I am not objecting to paying the income tax.


James Lorimer Ilsley: It may very well be that
a member of parliament ought to have a travelling allowance of that kind-which would be a different matter entirely-and if he got it he would, I assume, not be taxed on it. But a minister does not deduct anything from his minister's salary and his sessional indemnity; he pays on that full amount; and then the government provides this method for him to run around and attend to his duties; instead of putting in his bills he is given a flat allowance to cover it. It was done as a matter of economy. It was stated at the time, by the then Prime Minister, Mr. Bennett, that it was not to be subject to income taxation. Although that statement does not have any constitutional effect, the allowance was not and is not taxed. But it is in a different position from deductions. The hon. gentleman is seeking to carry the analogy to deductions.


Major James William Coldwell: I can see the distinction.


Mr. KNOWLES:: It was stated that where
/vouchers are put in for actual expenses, the amount received for the vouchers is not to be taxed, but that where a flat allowance is made, it is to be taxed. Is that not the case?


James Lorimer Ilsley: Yes, except statutory allowances. There are a number of statutory allowances; for example, what members of parliament get per diem on their way to the house and going home, which is $15 per diem if they live more than four hundred miles away. That is not to be taxed, because parliament itself has said, not in its capacity of employer but in its capacity of parliament, that th'at is the value it puts on hon. members' expenses. Therefore all that class of statutory expenses is not to be subject to this taxing provision. The same is to be true of judges. Judges get either $6 or $10 a day when they are away'from home; parliament has said that that is travelling expenses, so that class of cases is excepted from this legislation.


Stanley Howard Knowles: Was that excepted by
some other provision, or is it excepted because of the parenthesis which appears in this resolution?


James Lorimer Ilsley: It is excepted in the parenthesis.


Stanley Howard Knowles: Is that consistent with
the general principle laid down by the minister?
72537-144J


James Lorimer Ilsley: Well, we did not think we
could go into statutory expenses there. These have never been taxed at all. You could not put them on an actual basis.


Stanley Howard Knowles: But you could tax them in the same way as you propose to tax the per diem allowance which is made to the dollar a year man.


James Lorimer Ilsley: Yes; you could tax them.
But the idea of taxing is in the interests of fairness. The $20 or $25 a day has been ruled taxable and has been taxed and regarded as salary for the last two or three years. That is not true of either the ministers' motor car allowance, or the judges' travelling expenses, or the members' $15 a day coming to Ottawa and going home from Ottawa, or any of the other things which are found in the statutes. They would have a proper case for remission under the undertaking I gave if they were caught by the resolution.


John Ritchie MacNicol: But the $15 allowance to members of parliament is not at all in the same category as the $2,000 motor car allowance to ministers. A few days ago a return was brought down which indicated that some of the ministers had very heavy travelling expenses last year, besides receiving the $2,000 for their motor cars. I have been long of the opinion that the $2,000 allowance for ministers' motor cars is nothing more than an increase of $2,000 in their salaries-[DOT] to which I have no objection whatever, but I still think it ought to be taxed.


James Lorimer Ilsley: With regard to that $2,000, there are some ministers, certainly, and have been many, the upkeep of whose motor car and driver costs more than $2,000. There are ministers who simply have to have a motor car. It would be bad economy for them not to.


John Ritchie MacNicol: That is why the allowance was made in the first place.


James Lorimer Ilsley: There are other ministers who, of course, do not spend anything like the $2,000; and I am very well acquainted with one of them.


John Ritchie MacNicol: I remember well the reason why the allowance was made in the first place. The provision for $2,000 for ministers' motor cars was made by the Bennett government, and it was done because one minister in a previous administration had more expense in driving his car than had crowned heads in Europe in driving their cars.


Gordon Knapman Fraser: An hon. member mentioned a few minutes ago the
Income War Tax

matter of the allowance for homes of civil servants being taxed. On page 18 of the estimates there is an allowance of $3,000 to the Speaker of the senate in lieu of residence. Is that $3,000 taxed, or is it not?


James Lorimer Ilsley: I do not know.


Gordon Knapman Fraser: If it is not taxed, why is the house allowance for civil servants taxed?
Mr. ST. LAURENT: It is taxed, in fact.


James Lorimer Ilsley: I am informed it is taxed.


Gordon Knapman Fraser: But you are not sure of it.


Stanley Howard Knowles: Toward the end of this long paragraph I find these words:
. . . shall be deemed to be taxable income of such person only to the extent that it exceeds such an amount as may be determined by the minister in his discretion.
Is that not an admission that in these allowances there is a portion which may be justifiably claimed for expenses, but that there is a surplus which should be taxed?


James Lorimer Ilsley: No; that is a special arrangement made with respect to civil servants abroad. It is different from the arrangement proposed for civil servants in Canada. It is regarded as income, and they are allowed to deduct up to a certain amount for actual expenses. .


Stanley Howard Knowles: If a dollar a year man is receiving $20 a day expenses, would it not be possible under this provision for the minister in his discretion to specify that $15 of that should be free of taxation, and that only the remainder should be taxable?


James Lorimer Ilsley: It does not apply in Canada. What the hon. member is reading does not apply in Canada at all.


[Stage Direction]
Resolution agreed to.
On resolution 22.
Paul Joseph James Martin: Is there not a limitation here which was not intended? It goes on to say:
That the service pay and allowances of the Canadian naval, military and air forces while in the Canadian active service forces-
And these are the words to which I call the attention of the committee:
-in the western hemisphere other than in Canada.
Why refer to the western hemisphere? Members in the Canadian naval, military and air forces presumably are serving elsewhere than in the western hemisphere.


James Lorimer Ilsley: They are serving either in the western hemisphere or overseas. This

divides them into three taxable classes. In Canada they receive certain tax treatment, which is the least favourable. Then, if they are in this hemisphere, but outside Canada, they are taxed at half rates. If they are overseas, they are not taxed at all.


Roy Theodore Graham: What about Alaska?


James Lorimer Ilsley: Half rates.


Grote Stirling: In which hemisphere is Iceland?


James Lorimer Ilsley: It is treated as western hemisphere.


George Hugh Castleden: I understand the
merchant marine are taxed on income, even though they perform dangerous duties when crossing the Atlantic.


James Lorimer Ilsley: Well, a few will be. The exemptions are very heavy, as a result of these resolutions.


Gordon Graydon: 
John Ritchie MacNicol: I had a letter a few days ago from a young man serving in our Pacific naval forces. He was up on the west coast of Alaska apparently where his ship was patrolling. I cannot see any difference between that and serving on a naval ship in the Atlantic as being active.


James Lorimer Ilsley: They are both exempt.


Mr. MACDONALD (Kingston City):: He does not pay any tax.


John Ritchie MacNicol: Then I do not understand the amendment.


Angus Lewis Macdonald: Read the end of resolution 22.


John Ritchie MacNicol: That answers my question. I was thinking of the boys sailing or flying out of Halifax. They, too, would be
exempt?


James Lorimer Ilsley: That is right.


Harry Rutherford Jackman: Approximately how many men and officers would there be from the various services serving in the United States, either headquarters duty at Washington, or training duty elsewhere? I presume under
this resolution they are subject to only one-naif income tax. Would the number be substantial, and has any consideration been given to them?	'


James Lorimer Ilsley: I do not know the number.


James Layton Ralston: It might be a thousand. It is officers and warrant officers.


Gordon Knapman Fraser: Following what the leader of the opposition said, for a man in the services whose income amounted to, say S3,000, the approximate tax would be about SI,064, or roughly thirty-four per cent. He is allowed to split that thirty-four per cent in half; that would be seventeen per cent. That seventeen per cent applies on his pay and allowances. Am I right?


James Lorimer Ilsley: If I followed the hon. gentleman correctly, that is right.


Gordon Knapman Fraser: It
works down to seventeen per cent on his pay and allowances?


James Lorimer Ilsley: Yes.


Gordon Knapman Fraser: But on the other part he would have to pay the full amount? Between $3,060 and $4,000 he pays the full amount?


James Lorimer Ilsley: That is right.


Clarence Gillis: The remarks I have to make in connection with this clause would, I think, have to do with the Minister of National Defence for Naval Affairs. I should like his comments on this anyway. The minister's answer to the hon. member for Davenport was to the effect that men on a naval craft patrolling along our own coasts are entitled to exemption for income tax purposes. That is as it should be. I am going to raise that question of the merchant marine. If there is any section of the services that is getting a raw deal in the income tax, it is the men of the merchant navy, one of the most important services.


James Lorimer Ilsley: That is not true now.


Clarence Gillis: Yes, now. They are exempted now for the war risk bonus and for any living allowance while on shore-


James Lorimer Ilsley: Not while ashore; while at sea.


Clarence Gillis: That is worse. It is the
general opinion that they are highly paid. That is not so. The A.B. on any of these ships gets a wage of about $106 a month. The total income they receive by way of wages while performing their duties is taxable.
Income War Tax


Angus Lewis Macdonald: No, not all taxable.


Clarence Gillis: With the exception of the war risk bonus. That is not wages. I say the total wage they receive is taxable.


Angus Lewis Macdonald: Is my hon. friend counting the war risk bonus in the $106?


Clarence Gillis: No; I say the total wage is about $106 plus about $25 I think, war risk bonus. The latter is exempt. The point is this: The man in the merchant marine to-day cannot be classified as just an ordinary sailor, simply because he works under a minister of shipping. They have certain definite rules and regulations which they must follow; they report to the manning pools and are to some extent under military discipline as applied to the navy. Furthermore, most of these boats are just as heavily armed as a corvette. These men handle a gun and are taking the greatest risks of any section of our services. If I were asked to name the service I would not want to go into in this war, it would be the merchant marine.


Gordon Graydon: They are the worst target of any.


Clarence Gillis: Absolutely, and in the conditions they work under they have not much chance. There certainly is no glory attached to their service. While they are performing this service, their families are not receiving any allowances except what the men may assign out of their pay. The government were sufficiently fair in recognizing that the hazard is just as great as in the armed forces by putting them under the pension regulations. If they become a war casualty, they, or their dependents have the right to come under pensions and national health for pension. In my opinion they are performing one of the greatest services connected with this war, and their wages should not be taxed. Half the time they are on rafts. I have gone across this country with some of them who were being shipped from New York to Halifax or Montreal, and the manning pools, and the way in which they travel is an indication of the life they are obliged to lead. They are not dressed; they are not half fed. We should pay more attention to this service. Where would our forces overseas be but for the fact that these boys take the risks they do in getting war supplies over there? They have been taking materials of war to Russia, running that long coast and going through everything. While the minister has made a gesture in exempting the war risk bonus and living
[Mr. Gillis.l
allowance, I think these men should be getting total exemption for income tax purposes on any money they earn while actually on the water performing their very necessary service.


James Lorimer Ilsley: I realize that the merchant seamen are doing wonderful work, and that was why we tried to make substantial concessions here. But it must be understood that the moment we cross into the civilian field from the armed services, it becomes almost impossible to know where to stop.


Gordon Graydon: I am sorry to interrupt the minister; but according to the hon. member for Cape Breton South, who is very close to the scene of operations, many of these men are actually on armed ships. If that is so, that should operate to take them fairly well out of the realm of civilians, and it would give me courage to support a move of this kind. These men are actually on armed ships and, as the hon. member has said, are manning the guns and so on, so that they would be in a different category from that of the ordinary civilian. They are right in the fight in a big way in the battle of the Atlantic.


Angus Lewis Macdonald: I think I should say to my hon. friends the leader of the opposition and the hon. member for Cape Breton South that, so far as I know, no members of the merchant marine are manning guns. I speak subject to possible correction in regard to the odd case, but the general rule is that the guns of merchant ships are manned by members of the Royal Canadian Naval Service.


George Alexander Cruickshank: It is the same ship, is it not? They are firing the guns on the ships on which these civilians are working, are they not?


Angus Lewis Macdonald: Canadian naval ratings man and operate the guns.


George Alexander Cruickshank: Then what is the difference?	.


Gordon Graydon: Why make a distinction?


Angus Lewis Macdonald: There is no distinction between a naval rating serving on a merchant ship and a rating serving on any other kind of ship; they are both afloat. My hon. friend endeavoured to make the point that in effect these ships were ships of war, but I do not think they are. They are not armed for offensive action, as warships are. Their armament is not equal to that of a corvette and is purely for defensive purposes. Such manning of guns as there is on those ships is not carried on by the merchant seamen but by ratings of the Royal Canadian Navy.

Income War Tax


Clarence Gillis: I do not wish to try to correct the minister; but in many instances the guns are manned by the men of the merchant marine.


Mr. HOWE:: No.


Angus Lewis Macdonald: Can the hon. member mention a specific case?


Clarence Gillis: Yes; I have talked with some of them. They are given a special course, and I think they get twenty-five or thirty cents a day extra for manning these guns while on the trip. The minister is right, however, in the great majority of the cases; sometimes soldiers or naval ratings man the guns, but in many instances the men of the merchant marine man the guns after taking special instruction.
Mr. O'NEILL: It seems to me that we are arguing here a little at cross purposes. If I understand this resolution correctly, we are allowing these men a deduction at half rate on account of the hazardous service they are performing in the interest of the empire. I submit that if a man is working on an armed ship, it does not matter whether that ship is armed for offence or for defence; the work is just as dangerous, and the danger is just as great to a deck-hand on that ship as it is to the man handling the gun. I cannot see that there is a particle of difference.


James Lorimer Ilsley: I should like to raise a point of order. The resolution dealing with merchant seamen was passed early this afternoon, and we are now on another, entirely new section. I would suggest that we discuss the resolution now before the committee, instead of the resolution concerning merchant seamen.


Clarence Gillis: You still have things floating in this resolution.


James Lorimer Ilsley: Yes; I know, but there was another resolution under which this matter was properly discussable, and it was discussed to sdme extent. Of course, once we leave the principle of taxing all the residents of this country in accordance with their income, whether they are in or out of the service, we are in terrible trouble. We are submitted to pressure after pressure from border-line cases. I could tell the committee, only I hesitate to make the statement, what will be the next class to come after us, after the merchant seamen and the ferry command; a class who are performing services almost interchangeable with those of the merchant seamen, along the coasts, and who see merchant seamen now with a big concession in their pay, and who will be requesting or demanding the same concession. If it is extended to them, we move into the harbours,
then to shore, and then it becomes a question of assessing the risk in industry. If it is a risky industry, an income tax concession will be demanded. I do not want to get on the run completely; I do not want to be chased fropi position to position.


Gordon Graydon: You are quite a long way from that.


James Lorimer Ilsley: I have taken the position that the civilian population of this country is subject to taxation. Having said that, I agree that we have made a recognition of the tremendous services being rendered to this country by the merchant marine, and the sympathy we have for them has caused us to make these concessions, at least one of which is not made on any basis of principle at all. I refer to the exemption of the meals. I shall simply have to take the position that we are making the merchant seamen a special case among our civilian population. This will let most of them out of taxation; as a matter of fact the overwhelming majority of them will be exempt. I do not wish to go any further than that, because it is just one class after another when we move into the civilian population of the country, and we cannot assess our income tax in proportion to the risk. There are all sorts of discriminations and anomalies now.


George Alexander Cruickshank: A politician would not pay anything if assessed on the basis of risk.


James Lorimer Ilsley: There are all sorts of anomalies now. Hon. members need mot bring forward cases, asking, is it fair for this man to pay tax and that man not to pay tax? I could give them a hundred or a thousand instances of unfairness under our present system. I could take the case of certain men in the army in Ottawa, who are doing and intend to do and are understood to be doing jobs which are not combatant at all, who will be here more or less permanently, but who are getting heavy income tax concessions under this very budget, while civil servants are being fully taxed. I could point out cases of men who are in the navy, ashore, who are being taxed, and of men who are in the navy, at sea, who are not being taxed although there is very little difference in their work. There are all sorts of gradations of risk, and so on; but lines have to be drawn, and I do not wish further to exempt altogether any civilian class of the population here in: Canada from payment of income tax. We are recognizing the merchant seamen here and, as I say, we are giving consideration to the request of the ferry command, because those classes
Income War . Tax

are rendering marvellous service to this country and to this empire. They are running enormous risks and they appeal to our sympathy, but this is as far as I wish to go when we get into this field.


Major James William Coldwell: There is one thing that might be involved in the administration of this matter. Someone asked the minister if Iceland was in the western hemisphere and he. said it was. I slipped out and looked up one or two authorities-


John Ritchie MacNicol: I said it was in Europe.


Major James William Coldwell: The definition of the western hemisphere that I have is that it covers 20 degrees west of Greenwich to 160 degrees east. If that is so, then just the southwest tip of Iceland would be in the western hemisphere. The larger part, in fact almost the whole island, would be in the eastern hemisphere according to this authority. If the minister wishes to make it plain that it either includes or excludes Iceland, I think it should be stated.


James Lorimer Ilsley: I think so myself. I was informed of that at the time and' perhaps I answered too hastily.


Douglas Gooderham Ross: I do not see how we shall ever be able to impose our income tax equitably unless there is some principle upon which we can act. What principle does the government follow in levying an income tax on these various outfits? We have been criticized for holding things up, and the British House of Commons has been held up to us as an example, reference being made to the speed with -which they pass their budget. The fact is that they have not the intricacies that we have. One request is made to exempt somebody and another request. to exempt somebody else. As I pointed out last night, you can have one man living in Canada and right across the road another man living in Alaska, and two different income taxes apply.
What is the principle involved in connection with, the exemption from income tax? I do not understand it. As far as I am concerned our merchant seamen ought to be excluded. They should be in just the same position as the men in the navy or the men in the ferry command. We know what the casualties are. Is the incidence of casualties the criterion of exemption from income tax? What is the principle involved?


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

On resolution 23.
Gordon Graydon: This is the resolution which exempts those who come back from overseas for the first six months. The exemption is only for the first six months.


James Lorimer Ilsley: That is right.


Douglas Gooderham Ross: I have had cases drawn to my attention of men who come back with a leg off or other serious injury, and I should like to know if any provision is made for them.


James Lorimer Ilsley: His pay would be exempt for six months after he returns from overseas.


Douglas Gooderham Ross: Is there a tax on
his pension?


James Lorimer Ilsley: No; there is no tax on his pension.


Gordon Graydon: Previously, when a man came back from overseas, did he have to pay income tax immediately upon his return to Canada and then continue under the previous arrangement?


James Lorimer Ilsley: Yes.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
25. That any enactments founded on
(a)	Resolutions 4, 5, 9, 10, 11, 14, 18, 22, 23 and 24 shall be applicable to the income of the 1943 taxation period and fiscal periods ending therein and all subsequent periods;
(b)	Resolution 12 shall be applicable in respect of any sale made after March 2, 1943;
(c)	Resolutions 13, 15 and 20 shall be applicable to the income of the 1942 taxation period and fiscal periods ending therein and all subsequent periods;
(d)	Resolution 21 shall be brought into force on proclamation by the governor in council and be applicable to the fiscal period therein designated and to all subsequent periods.
James Lorimer Ilsley: There is an amendment to
this resolution necessitated by the addition of other resolutions. It is:
That resolution 25 of the resolutions to amend the Income War Tax Act be amended by adding thereto the following paragraphs:
"(e) That resolution 28 shall be applicable to the income of the 1942 taxation period and fiscal periods ending therein and all subsequent periods.
(f) That resolution 30 shall be applicable to the income of 1943 and subsequent years."


Colin William George Gibson: I so move.


Gordon Graydon: That is just to regularize things?


James Lorimer Ilsley: It is stating the periods in
which they will be applicable.

Income War Tax


Douglas Gooderham Ross: Resolution 25
deals with resolution 15 which states that principal payments on mortgage may be offset against the refundable portion of the income tax.


James Lorimer Ilsley: Mr. Chairman, surely this
is not in order. There is no returning to all the resolutions.


Douglas Gooderham Ross: My question will
take only a minute'.


James Lorimer Ilsley: I must raise a point of
order there, Mr. Chairman.


Mv.   CHAIRMAN@: On the point of order,
the committee has given a great deal of time to deliberating all the resolutions that were before it. But I understood the hon. gentleman simply wanted to ask a brief question.
Mr. ROSS (St. Paul's)':	I did not happen
to be in the chamber when the pertinent resolution Was passed. Houses are very difficult to rent to-day and many young couples are buying a house. Would the principal payments they make on a house now be allowed as contributory savings in computing their income tax?


James Lorimer Ilsley: The question is not in order, Mr. Chairman.


Joseph-Arthur Bradette: The question is out of
order. We' have passed the resolution pertaining to that matter. We must keep within the rules.


Douglas Gooderham Ross: ,1 bow to your ruling, Mr. Chairman.


Alan Webster Neill: This. particular resolution
deals with resolutions that have not been passed. In resolution 25 we are saying that resolutions 29 and 30 shall take effect at a certain time. It is usual to put such a clause at the end. I think the resolutions should be renumbered.


James Lorimer Ilsley: Of course it would be much
better to have it at the end, but actually we have passed all of them up to resolution 30. They are numbered in such a way that some of . them do follow resolution 25 but I do not think it makes any difference.


Alan Webster Neill: Will the people who read and interpret this law in the years to come know that we passed resolution 29 before resolution 25?


James Lorimer Ilsley: The only instrument that has any effect is the act. The resolutions have no legeal effect whatever. It is merely the constitutional procedure that we follow in passing these resolutions. Once the act is passed it is the law.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
Resolutions reported, read the second time and concurred in. [DOT]
James Lorimer Ilsley: I suppose we can give first reading to the bill now, although it is not printed.


Gordon Graydon: Mr. Speaker, I was going to raise this question before. I think we have strained our position as an official opposition just as far as we should be asked to do. I think I have always taken a reasonable stand in facilitating the business of the house, but here we have almost an overhaul of the budget resolutions. I would have objected before, had it not been that we feel under an obligation to give the government every possible help in getting its war measures through. But now that the resolutions have been passed, I wish to make this observation. We have been placed in a most unusual position as members of the official opposition in attempting to deal with these amended resolutions as they came up, and I do not feel at the moment that we should go any farther in consenting to what is very close to irregularities. Here we are asked to give first reading to a bill which has not yet been printed and is not yet before the house.


James Layton Ralston: It is done all the time.


James Lorimer Ilsley: It is done all the time, and it is for the convenience of members of the house. It is done so that the bill can be put on the table for second reading. If we do not have first reading to-night, we cannot have it until Monday afternoon, and then and only then can the bill be circulated.


Gordon Graydon: I am not raising this
objection for any other reason than the one I stated. The government must recognize that we have been asked yesterday and to-day to deal with resolutions that are almost an entirely new budget in many respects. That is a very difficult position in which to place the opposition. I think the government will recognize that readily. I do not wish to hold up the first reading of the bill and I will not do so, but I feel that I should protest against the procedure that we are now being asked to follow. When the first reading has been given the bill will not be before the members in any event, and from what the minister says may not be before us until Monday. So far as I can see, there is nothing to be gained by giving the bill its first reading now, and there is a great deal to be lost by asking parliament to pass what is just a blank piece of paper. But if it will be helpful to the war effort, we

Income War Tax

are prepared to go a long way. I leave it to the government's sense of responsibility whether we should be asked to follow this sort of procedure.


Alan Webster Neill: On the point of order, Mr. Speaker, there is no doubt that the minister is following the usual custom. It is done all the time. While I am on my feet might I ask the minister this question: Was he not going to give us a statement with respect to the ferry command employees on the resolutions, or was that to be on the bill?	.


James Lorimer Ilsley: On the bill. That is what I intended.
With regard to what the leader of the opposition (Mr. Graydon) has said, it may be that the bill will not be available until Monday afternoon, and it may be that we would be just as far ahead if we gave the bill its first reading on Monday. But there is nothing unusual in this. What I was suggesting is done all the time.


Grote Stirling: I cannot agree with the two ministers who say that this is done all the time. It is done when the bill is in print, and then the minister has it in his hand and passes it to Mr. Speaker, who holds it in his hand when he puts the motion for first reading. But this bill has not even been written yet, much less printed.


James Lorimer Ilsley: That is correct.


Mr. MacINNIS:: I was not aware that the leader of the opposition had raised a point of order. I do not think he has done so. He was merely making a protest against what he considered to be irregular procedure. I can see no harm in the bill being introduced tonight, because it will be merely introduced and given a first reading. We never have a bill before us when it is given first reading.


Gordon Graydon: But it is before the house.


Angus MacInnis: The Speaker has the bill or what we assume is the bill, but so far as we know it might be something else.
With regard to the procedure this afternoon and the difficulties we have been confronted with, I think that in view of the enormous amount of work involved in preparing the income tax resolutions and schedules we should make, as we have done, certain allowances for the Minister of Finance. I realize, and have realized all through this discussion, that there was a tremendous amount of work to be done and great changes to be made. But we are engaged in a war, and the people we are dealing with on the outside, many of whom are risking and may give their lives in the war, are not receiving so much consideration as we
"Mr. Graydon.]
here are asking for ourselves. The only consideration in our minds should be that in the ultimate result nothing irregular or out of order is done.


Thomas Vien: The question having been raised, I am afraid the Chair has been placed in this position, that the bill not being before the house, leave cannot be granted for its introduction unless there is unanimous consent of the house. If the leader of the opposition maintains his position, I shall have to say that there is no bill before the house and leave to introduce it cannot be given.


Gordon Graydon: Well, Mr. Speaker, I suppose that, having been placed in this position in connection with it, there is very little I can do in connection with the giving of consent. But I must repeat, while consenting to the introduction of this bill, the protest I have made. If I thought that this method would be followed on future occasions, I should be justified, even under the stress of the present situation, in refusing unanimous consent. I am not raising this question for the sake of a legal argument or parliamentary debate. I am very serious when I say that I think this is straining parliamentary procedure to a dangerous point. How a bill can be introduced when there is no bill is something I do not understand, something which in the limited time I have spent in this house I have never seen before, though I bow to the experience of other hon. members who take the contrary view. I am not, however, going to hold up the proceedings by refusing unanimous consent, if it is a matter of passing a war measure.


Harry Rutherford Jackman: Last summer we had what was in large measure a duplication of the same incident. The resolutions were scarcely before us when we had to act on them. In many instances there was no opportunity to go over the resolutions.
We sympathize with the Minister of Finance. He appears to hon. members and to the public to be extremely hard-working. But I think some explanation is owed to the members of this house as to why, on repeated occasions-this, to my own knowledge, being the second one-material we should have before us is not available. The budget this year was by no means the task it was last year. It was true that it has been brought down much earlier than the one last year, which came in June or July, but it does seem strange to those of us who are on the outside and have little knowledge of what is going on behind the portals of the Minister of Finance's office, that we should be continually held up in the matter of getting information

Excess Profits Tax
and having the specific resolutions placed before us so that we can give adequate consideration to them, and also why they are not ready so that those, among the public and the taxpayers of this country who are interested in these resolutions, may have some advance notice. I find myself in a position where it is impossible to have sufficient background of these various questions. For instance, section 32A, which we dealt with to-day-


Thomas Vien: Order. I do not wish to interrupt the hon. member, but what he is now saying might well be said on the second reading of the bill. He is dealing with something which is not before the house. The question before the house is whether this bill shall be introduced now.


Harry Rutherford Jackman: I do not know what privileges I have, inasmuch as unanimous consent is required. I have no desire to withhold consent; but if I have the privilege, under that right, I ask the Minister of Finance for an answer. Do I have the privilege?


Thomas Vien: I gather that the hon. member wants some information from the Minister of Finance with regard to the provisions of bills which may be introduced into the house. That is a matter which should be discussed on second reading, not at this stage, because at the moment there is nothing before the house. The resolutions have been reported and concurred in, and the question now is as to the introduction of a bill which has not yet been moved.


James Lorimer Ilsley: I think the best course to take is to go into committee on the Excess Profits Tax Act, which is now before the house, and ask that the house give consent on Monday to give the bill first reading and proceed immediately with the second reading. I think it would be better not to press to-night the matter of the first reading.


Gordon Graydon: We shall not lose time by taking that course, and we shall have regularized the procedure.


Thomas Vien: Well, by unanimous consent.


Mr. ABBOTT:: It would save time to-night.


Gordon Graydon: I have just heard the interruption of the undersecretary of the finance department-


John Ritchie MacNicol: No, no; no undersecretaries.


Gordon Graydon: -or at least, shall I say, the designated undersecretary of the finance department, who was kind enough to suggest
72S37-145*
across the floor of the house that this was in some way delaying the passing of this measure. I protest against that suggestion. Actually this is not delaying the measure; it is regularizing the procedure, as I am glad to see that his senior, the minister, at once recognized, and he has now agreed to carry on the proceedings as we suggested. There cannot be any delay with respect to that. The first reading can be given on Monday; the bill will be there-at least I hope it will-and when the bill is there and the first reading is given, we can proceed at once to the second reading. Then we shall not have created in this chamber a precedent which I think would be highly undesirable.


Grote Stirling: We cannot see the bill
if it is not printed.


Douglas Charles Abbott: If by any chance it was
printed on Monday morning, it could be distributed on Monday morning, and the members could read it before the afternoon. That is why I said I thought some time might be saved if it got first reading to-night.


Gordon Graydon: If the Minister of Finance will undertake that the bill will be printed and will be ready for distribution some time on Monday morning, we are prepared still to give unanimous consent to the first reading. But this is an entirely new proposal so far as we are concerned.
Mr. O'NEILL:	It does seem to me that
during the last couple of days we have been swallowing a flock of camels, and to-night we
are choking on a gnat.



EXCESS PROFITS TAX ACT, 1940

[Stage Direction]
1.	That the definition of "standard profits" be amended to provide that the "standard profits" of wholly-owned subsidiary companies incorporated in 1942 or thereafter shall not in the aggregate exceed $5,000 when the sum of the capital employed by the parent and such subsidiary companies taken together is not substantially greater than the capital employed by the parent company prior to the incorporation of such wholly-owned subsidiary companies.
Colin William George Gibson: I move, for the Minister of Finance, the following amendment:
That resolution No. 1 of the budget resolutions to amend the Excess Profits Tax Act be amended by striking out such resolution and substituting the following therefor:
"1. That the definition of 'standard profits' be amended to provide that the 'standard profits' of controlled subsidiary companies incorporated in the years 1940, 1941 or 1942, or thereafter shall not in the aggregate exceed $5,000 when the sum of the capital employed by the parent having the controlling interest and
Excess Projits Tax

such subsidiary companies taken together is not substantially greater than the capital employed by such parent company prior to the incorporation of such subsidiary companies:
Provided that this provision shall not apply in the case of subsidiary companies incorporated to carry out a contract negotiated by the Minister of Munitions and Supply and if such subsidiaries are in receipt of management fees or other similar compensation from the Department of Munitions and Supply."


James Lorimer Ilsley: The situation, is apparently th.is, that if a company is heavily subjected to excess profits tax, it may be profitable for the company to incorporate a controlled or wholly owned subsidiary or subsidiaries. That does not effect any reduction in the capital of the parent company, and therefore it does not have any effect on its standard profits. But it gives the subsidiary a standard .profit, even, though no more capital is employed by the parent and subsidiary than was employed by the parent company alone. The result is that the company can economize, if that is the word, on excess profits tax, and to a very considerable degree. This is designed to prevent such procedure.


Gordon Graydon: The minister does not like that kind of economy.


James Lorimer Ilsley: No; I am not in favour of that type of economy. The proviso is added because there are companies which undertake work at the instance of the Minister of Munitions and Supply, and such work on some occasions can be done properly only through subsidiary companies. Very often they use capital supplied by the government, or undertake work for a management fee. In that case it is not'desirable that the provision should apply.	.


Harry Rutherford Jackman: Do I understand the resolution correctly when I say that one subsidiaiy will be allowed to earn 85,000, and have that as a standard profits base of the parent company, or is it just the parent company that has the $5,000 base?


James Lorimer Ilsley: It is the subsidiary. If a parent company causes the incorporation of one subsidiary company, that subsidiary company can get the .benefit of the $5,000 base. But if it incorporates more than one, the total of all of them cannot be more than $5,000. But that is not the problem, really. That is not what is going on, or can go on. The companies doing this would not be interested in $5,000.


Harry Rutherford Jackman: What is the evil aimed at?


James Lorimer Ilsley: The evil aimed at is that it might be $500,000 that a parent company would take. That might he improbable, but let us say $50,000 or $100,000. It would take that sum out of its own resources and cause the incorporation of a subsidiary company, and take stock. There has been no increase in capital whatsoever, and there is no reduction in the capital of the parent company. If there were, it would lower the standard of the parent company, and it would suffer. But it does not suffer at all. On the com trary it gets the benefit of the base of $50,000 or $100,000. They can go to the board of referees, as a new company, and get as standard profits the normal rate of return, which perhaps might be that of the parent company; and then just pay on any excess earned over and above that amount. And the fact is that they have saved a lot of money. If they had not aplit their business, and had kept on as a parent company, all the money they earned would be subject to 100 per cent excess profits tax. By the incorporation, of the new company, only the part that is over the new base is subject to the excess profits tax, and it is a profitable thing to do. It is the desire to provide here that . if they do not employ any more capital, they shall not get any new standard profits, except the $5,000.


Harry Rutherford Jackman: The minister creates an exception for the companies which have contracts negotiated by the Minister of Munitions and Supply?


James Lorimer Ilsley: Yes.


Harry Rutherford Jackman: Why is that necessary?


James Lorimer Ilsley: There is no tax evasion there. If the Minister of Munitions and Supply desires that a company undertake new business; if it is for the purpose of getting production for the crown and at the instance of the Minister of Munitions and Supply, and if the company will do it on these terms- perhaps undertaking it for a management fee, or something of the kind-there is no avoidance of taxation. Perhaps that is the only term on which they will undertake to work.


Douglas King Hazen: I have not a copy of the Excess Profits Tax Act before me, and therefore I have not the definition of the term "standard profits". As a consequence, what I am about to say may not be quite correct. However, it seems to me that the words "substantially greater" in the amendment are indefinite. Is the decision as to what is sub-

Excess Profits Tax
stantially greater to be left to the minister? Is he to be the sole judge? Is it to be a purely arbitrary decision on his part? If not, what principles are to guide him when he makes the decision, as to whether or not it is substantially greater? Would it not be better if the expression "substantially greater" were defined or if, instead of using those words, we were to use an expression indicating that the capital employed is not greater by a certain percentage than the capital employed in the parent company? It seems to me there should be some standard set out in the bill to guide the minister and prevent injustice and make certain that all companies are treated alike. I should also like to ask the minister why this amendment is introduced now? It has been changed from the original amendment and apparently made retroactive.
iMr. ILSLEY: It covers the period during which the Excess Profits Tax Act has been in operation. It is clearly contrary to the spirit of the act to set up these companies; it is an obvious method of tax avoidance.
With regard to the point about "substantially," I do not see offhand why a percentage could not be selected and used instead. I think the word "substantially" occurs in the Excess Profits Tax Act, and I think some discretion is allowed the minister to say -when there is a substantial increase or decrease. But I will take into consideration the suggestion of the hon. member when the bill is being drafted.


Harry Rutherford Jackman: Under that definition
would "capital" include borrowed capital as well as proprietorship capital?
I point out also that it is the intention under this resolution to go back to the years 1940, 1941 and 1942. Once again that which may have been legal at the time will become illegal, which I think we must admit is, generally speaking, a bad principle. If there is substantial tax evasion, perhaps consideration should be given, but as a general principle I think we should protest against it.
Mr. ILSLEY; The only thing that really concerns me is whether there might not be bona fide reasons apart from tax avoidance for setting up a subsidiary in those years, I will look into that and see whether there should be any exception.
My attention has been called to the fact that the tax is not affected for the years 1940 and 1941; it is incorporation in those years to which reference is made. When we come to the enactment section, this ' amendment will apply to the profits of the year 1942 and fiscal years ending therein and all subsequent
periods. We are not going back of fiscal periods ending in 1942. There is a certain element of retroactivity, but I think that is when the activity takes place. I think it is an abuse that it is quite all right to correct.
As to borrowed capital, "capital employed" is defined in the Excess Profits Tax Act and does not include borrowed money. The term is used in the first schedule, and the method by which it is computed is set out in detail in that schedule. It "shall be subject to the following deductions", and among these is the deduction of any borrowed money.


Thomas Miller Bell: I did not know this wa,s coming up to-night. I have been following the reports of corporations and companies published from time to time in the Financial Post. I have had someone taking the companies I have discussed, in former years and comparing the profits reported with the profits made in former years. It strikes me that while individuals are to a large extent having their incomes reduced, the corporations in this country are able to maintain a good level of profits even under our Excess Profits Tax Act. Up to last week for example,' taking all the companies reporting in the Financial Post together, the profits are -3 per cent higher than for last year. I have not the detailed figures with me to-night, but I know that is the position. If individuals throughout the country paying income tax have their standards reduced, we should expect the excess profits tax would to some extent reduce the net profits of the corporations. It seems to me to emphasize the point that somehow, no matter how you tax organizations of this kind, they are able to pass that tax on to the consumer, who in this period is very largely the government.
Having said that, I wish to bring something entirely different to the attention of the minister. I received in this morning's mail a letter from a little company in Saskatchewan. The president of the company is an old-timer in the province. It is a little company of people who wrnrk cooperatively in the store. I am going to read the letter, because it strikes me that while one criticizes the excess profits tax as not being severe enough, there are occasions when perhaps it works an injustice on some persons, particularly those in a small way. The writer of this letter says:
Excess profit is supposed to be any amount now earned that exceeds the average profit for the years 1936 to 1939 inclusive. If no profit was earned in those years, the taxpayer is supposed to be allowed $5,000 as a standard profit and he has only to pay a straight income tax on any figure above the $5,000. I say that is the supposition, because in actual practice,
Excess Profits Tax

under certain circumstances, the taxpayer is mulcted for an excess profit tax even if he only makes $1,000, or say one per cent on his investment, and here is how it is done.
If the actual profits of a joint stock company do not exceed $5,000 they add on the salaries of all shareholders that are working for the company, which of course boosts the total above the $5,000 mark, and so makes the company liable to pay excess profit tax.
Of course these wages and salaries are legitimate expenses and by no stretch of the imagination could they be called profit, and there is neither rhyme nor reason in treating them as such. But that is one of the provisions of the act, which means that no matter how small our real profit may be we will always be mulcted for excess profit tax as four of our shareholders are working for the firm.
We would be pleased if you could take this matter up with those who are responsible with a view to having this obvious injustice removed.
I pass the letter over to the minister in order that he may see what there is in this complaint. If the complaint is a legitimate one, it seems that something should be done to remedy it, when three or four or five people are working together under the circumstances outlined in this letter. I pass it over to the minister because probably it is a matter of regulations.


Colin William George Gibson: Where a company is controlled by the employees and it is open to them to pay themselves such salaries as they wish, naturally the profits of that company may be only $2,000 or $1,000 a year. I had a case before me the other day in which a man told me his profits were $2,000, but the profits of the business before paying salaries were nearly $60,000, and two men had taken about $27,000 or $28,000 each in salary, so that there was not much profit left to the business.


Thomas Miller Bell: I happen to know the head of this little firm, which is in a small town in Saskatchewan. I am perfectly sure the profits there would not permit of the payment of salaries which would be considered more than just an ordinary living. I think this is a matter the minister should look into. I quite agree that in cases such as the minister has mentioned, persons should not be allowed to pay themselves exorbitant salaries.


Colin William George Gibson: No; we do not let them do so.


Major James William Coldwell: I quite agree, but I think this is a case which might be looked into.


James Lorimer Ilsley: I asked the hon. gentleman a question about the first matter he mentioned. The companies that have profits after taxation -3 per cent in excess of those of the previous year are the companies whose years end when?


Major James William Coldwell: At the end of December. Some of the companies have not reported yet, but we have been following them in the Financial Post.


James Lorimer Ilsley: The hon. gentleman will remember that the increased excess profits tax rates came into effect in July, 1942, so that those companies, if they were calendar year companies, were subject to the higher rates only for part of the year whose operations are shown. I do not know what will be the showing of the companies when their full year's operations are under the 100 per cent amendment to the Excess Profits Tax Act. The 100 per cent amendment is not the most onerous feature of that act. The most onerous feature is the provision or combination of provisions which cuts their profits after taxation down to seventy per cent of their pre-war profits, and I shall be surprised if they show any such good record as that during the full year. There was great resiliency in business, of course, in Canada in the last two or three years; the companies made a tremendous showing even after taxation, and of course the taxation was enormous. Yesterday the hon. member for Temiscouata rose to make a point about Imperial Oil, and undoubtedly the hon. gentleman heard the figures he mentioned, $18,000,000 tax and $14,000,000 profit. That is the record of some of these companies. I do not know whether those figures are correct, but that is my recollection of what the hon. member for Temiscouata said. Then, of course, the dividends are taxed over again when they go to the individuals. I think the taxation on companies plus individuals is heavy enough.


Stanley Howard Knowles: Coming back to the
second matter mentioned by the hon. member for Kosetown-Biggar, just before I left Winnipeg in January a very similar case was, brought to my attention by a small printing firm in Winnipeg, a limited company of which practically all, if not all the shareholders, are working in the establishment and drawing wages. These employees expressed the view which has been stated already, that they understood the reasons for these provisions, which were stated by the minister a moment ago, namely, to make sure that such firms could not pay large salaries and avoid taxation. The case of- this printing company, however, was parallel to that of the store in Saskatchewan. Some members of the staff had shares, and some did not. The wages of those who had shares were computed toward the $5,000 figure. Their actual profits were very low and their wages are at trade union rates, so that they felt that this provision, the purpose of which

Excess Profits Tax
was very commendable, was working a hardship on them. The cases are almost identical, and I wish the minister would look into this one also.


Colin William George Gibson: I find that the letter which the hon. member for Rosetown-Biggar sent over to me was sent to me previously, and that case is being looked into.


Stanley Howard Knowles: That case or the whole
principle?


Mr. NICHOLSON:: Some time ago I received through the mail from the House of Seagram a parcel in which I found a very beautiful volume entitled "Canada," by Stephen Leacock.


Paul Joseph James Martin: Is that all they sent you?


Alexander Malcolm Nicholson: That is all. The hon. member for Rosedale asks if I still have the book. I have kept it until I had an opportunity to produce it in the house, but I propose to return it to-morrow.


James Layton Ralston: Have you read it?


Alexander Malcolm Nicholson: No; I have not read
it. A card was enclosed, saying, "Please accept with our compliments this copy-"


Joseph-Arthur Bradette: I doubt very much if
this is in order. I have been extremely lenient, as I am sure the committee will appreciate, but we must discuss the specific item or we shall never get anywhere. I have been asked from several sections of the house to keep discussion to the resolution before the committee. I cannot see that what is being said by the hon. member has anything to do with the resolution before the committee at the present time.


Alexander Malcolm Nicholson: I submit that the case I am discussing is an illustration of how companies are able to print publications of this kind instead of paying the money into the treasury of Canada, and apparently we have not the machinery to check up on the expenditures of these companies, so that publications of this kind can be put out and paid for by the taxpayers. I submit that my remarks are in order in protesting against an expenditure of this sort by the House of Seagram or any other company, using Canadian materials and spending their money in this way.


Joseph-Arthur Bradette: I believe I should read again standing order 58, paragraph 2:
Speeches in committee of the whole house must be strictly relevant to the item or clause under consideration.


Thomas Miller Bell: On the point of order,
I take it that we are discussing excess profits tax and also matters relating to standard excess profits. The hon. member for Mackenzie is trying to show that the excess profits which we ought to collect are reduced as a result of the publication of books of this description which are distributed by the thousand across Canada.


James Lorimer Ilsley: I support your ruling, Mr. Chairman. I would say we are not discussing standard profits generally, or methods of evasion generally of standard profits. We are discussing a specific matter, which is the incorporation of subsidiary companies. That does not justify a discussion of the methods of evasion generally.


[Stage Direction]
Amendment agreed to.
Resolution as amended agreed to.
2.	That where an upward adjustment of the standard profits has been made by the minister because of an increase in capital employed during the "standard period" then an adjustment downward shall be made for subsequent decreases in capital employed which have not been accompanied by an equivalent reduction in capital stock, but not to an extent greater than the said upward adjustment.
Grote Stirling: What is the effect of this resolution?


Colin William George Gibson: Once standard profits have been set and an allowance has been made on the setting of standard profits for capital employed, there can be no further adjustment, either upward, or downward, of the standard profits, without increase or decrease in share capital. If the standard profits have been increased owing to increased capital employed during the standard period, it is considered that if any portion of such increased capital is later withdrawn, even though there should be no reduction in share capital, we should correspondingly reduce the standard profits by the proper amount.


[Stage Direction]
Resolution agreed to.
3.	That any amendment founded on the foregoing resolutions shall be deemed to have come into force at the commencement of the said act.
James Lorimer Ilsley: It will be necessary to amend this resolution. The amendment reads:
That resolution No. 3 of the budget resolutions to amend the Excess Profits Tax Act be struck out and the following substituted therefor:
"(3) That any amendment founded on resolution No. 1 shall apply to the profits of the year 1942 and all fiscal periods ending therein and of all subsequent periods, and that any amendment founded on resolution No. 2 shall be deemed to have come into force at the commencement of the said act."


Colin William George Gibson: I so move.


Gordon Graydon: What does the minister mean by "the commencement of the said act"? Does that mean from royal assent?
Excess Profits Tax


James Lorimer Ilsley: From the beginning of the Excess Profits Tax Act, 1940.


Gordon Graydon: Resolution 1 is retroactive to 1942 and this resolution goes back to 1940?


James Lorimer Ilsley: That is right.


Harry Rutherford Jackman: This retroactive legislation is a bad thing. Surely the minister could use some foresight in drafting his resolution so that business men will not have to be going back all the time and opening closed books where there has been no deception, when what they did was legal at the time. It seems that in order to aid his collection department the minister changes any section of any act he desires, and as a result the business man does not know just where he stands.


Vincent-Joseph Pottier: He planned to avoid it.


Harry Rutherford Jackman: I take extreme exception to what the hon. member has just said. I should like to point out to him how grossly he is in error. The business man acted according to the law at the time. Now the administration finds that there were some loopholes in it and they are going to change the act in order to make that which was legal before, illegal. If the hon. member has a different opinion, I should like to hear it.


Colin William George Gibson: This is done to confirm a procedure that we have been carrying out. There was some question as to whether we should have been doing so. This is to confirm our authority to continue what we have been doing.


John Ritchie MacNicol: You were doing it without authority?


Colin William George Gibson: Yes.


[Stage Direction]
Amendment agreed to.
Resolution as. amended agreed to.
James Lorimer Ilsley: I should like to move to add another resolution. This will be the same section as that which was designed to prevent evasions .under the income tax act. The amendment reads:
That the following resolution be added to the resolutions to amend the Excess Profits Tax Act:
"4. That section 15 of the said act be amended to prevent reduction or avoidance of liability to tax."
The sections in the income tax act and in the Excess Profits Tax Act are the same, and if we have this addition in the one we should have it in the other.


Gordon Graydon: May I ask the minister again if it should not have been possible to have let us see these amendments before they

were finally moved. I do not wish to exaggerate the position, but I tried to emphasize it before. It is most difficult to attempt to deal with a brand new set of resolutions such as we have had here. I take it that in this particular case there is nothing serious involved, but perhaps the minister will explain just what are the underlying reasons for the new resolutions.


James Lorimer Ilsley: I have a lot of sj'mpathy with the hon. member's position.


Paul Joseph James Martin: Many of us have been here for three days and we have not seen them at all.


James Lorimer Ilsley: There is no doubt that a number of amendments have been run in at the last, but that was not done in order to keep them dark. As amendments were agreed upon, I have tried to give notice of them from time to time. The hon. member for Rosedale says that some explanation is due of the Course that has been adopted this year. It is hard to give any other explanation than that people have had too much to do. Considerable *work had to be put on this budget before it was brought down and since it has been brought down, and considerable time has been spent in reading letters, listening to representations and receiving delegations. At the same time other business had to be attended to, and it was impossible to get everything in perfect shape at an early stage. Apart from one or two which were brought before the house last night and which necessitated an enormous amount of work in their preparation, these resolutions have not been very serious. Most of the changes have been changes in wording and correction of errors which were brought to the attention of the government. The normal course after a budget is brought down is to put the resolutions. Then representations are made by various classes of people and individuals who are interested in them. Then it is discovered that some amendment has to be made. That was the case this year. I suppose we would have reached this a little earlier if the budget debate had ended earlier. We would have reached this stage of tremendous concentration, asking people to work late hours and so forth, the discovery and remedying of defects in the resolutions earlier had the budget debate ended sooner. But it was impossible to do so. '
With regard to the bill, the preparation of a bill is more or less difficult. What took place last year was not desirable. The bill went through in a: great rush at the end, without very much examination by the house.

Excess Profits Tax
The finishing touches were put on the bill only the night before or two nights before it went through the house. Some of these sessions are nearly all-night sessions preparing these measures, and, as I say, my officials and those of the national revenue department are in a state of extreme fatigue. They can do just so much.
That is about the only explanation I can give of the fact that there have been numerous amendments. Everyone is oppressed by a sense of his responsibility to place on the statute books legislation that will not effect injustices. In fact,, one of the reasons why our Income War Tax Act is so complicated is that we have taken so much pains to try to iron out anomalies and prevent injustices from arising. If we were rougher and took less note of inequities, we would have a 'much simpler statute and much simpler schedules, but so much pain is taken to try to avoid these things that we have a complicated tax structure and a complicated act and a very difficult one to amend.


Gordon Graydon: I shall be very brief in view of what the minister has said. First of all, I think it was the Prime Minister who made the statement that there had been a good deal of time consumed in the budget debate. But what position would the government have been in, had that debate wound up earlier? The situation that we have had to face to-day would then have had to be faced perhaps a couple of weeks ago. and the difficulties, from the point of view of the minister, would have been just that much greater. When the minister speaks about amendments to the resolutions being brought into the house, as a matter of fact most of them or at least a number of them were brought in prior to the time wljen the resolutions were discussed. That indicates that the resolutions had to be changed after having received further consideration by the department and the minister. I checked up on the time consumed in the budget debate, and I find that thirty-two government speakers, nineteen opposition, nine Cooperative Commonwealth Federation, ten Social Credit and six others took part in it. Perhaps there is no reason for either the minister or myself becoming greatly exercised over the matter; but since there has been some discussion as to holding up the budget resolutions from being considered in committee, I think it is just as w,ell that we have had this clarification of the situation that really existed in the preparation of the resolutions.


Douglas Gooderham Ross: I should like to make a few observations apropos of the speech that has just been made by the Minister of Finance. He has mentioned the complicated tax structure and the amount of work that these measures impose upon the officials. I have suggested on various occasions, and I do so again to-night, that a great many of these difficulties could be ironed out if they were discussed by the banking and commerce committee. They would not need to be discussed by that committee just before the budget comes down, but I think the people of this country should have an opportunity of making their representations and airing their grievances, not before the experts of the government, but before the banking and commerce committee, where witnesses could be called and all these matters, the principles of the Income War Tax Act, the Excess Profits Tax Act and all that sort of thing, thoroughly discussed. The banking and commerce committee consists of men who were selected by the people of Canada and who are responsible to the people of Canada. Whether they are experts or not, I think that committee might very well be used to discuss principles of taxation and the taxation laws as we have them now. Then, when the next year comes round with a new budget, we would have something to go on, and the members would have some reasonable knowledge of the whole business.


Harry Rutherford Jackman: I should like to endorse what the hon. member for St. Paul's has just said. After what the Minister of Finance has just said about the intricacies and the difficulties of framing a budget and the practice of last-minute considerations and reconsiderations, surely the people of Canada will get some idea of the difficulties which an opposition that is sent here for a purpose must undergo. It is utterly impossible for any member of this house, particularly a private member, to do justice to the financial considerations which are brought down by the minister, unless a committee system of some sort is adopted. It'is true that a committee system may result or appear to result in a certain delay, but we have seen what happens when the minister relies upon his professional advisers to draft certain sections. The public hears that certain taxation laws are to be changed and delegations come to Ottawa, as the minister has said, and endeavour to get the taxation arranged so that it will be practicable and fair to the people of this country. It is a travesty upon parliament that the opposition and private members of this house should be asked to pass upon the legislation which the minister brings before the house. Every self-respecting member of this house must protest
Excess Profits Tax

against being made a rubber-stamp in connection with the budget. The only possible solution is to have a committee, and that committee must also have its own independent professional advisers who will be able to give it advice from time to time, rather than have the committee rely exclusively upon advice from the government side.
Let me mention a specific case, because we are under section 15, which corresponds to section 32A. The hon. member for Rosetown-Biggar mentioned the case of a small corporation out in western Canada which had three or four principal proprietors, all of whom worked in the store, and who had a standard profits base of $5,000. If, in order to get what I think the hon. member who raised the question would consider a square deal, enough for those men to live on, they dissolved their corporation and formed a partnership, or if one of the members bought out the others and then hired them at reasonable salaries according to what the business would stand, that might be considered under section 32A as I read it, an evasion, or a transaction or series of transactions to reduce artificially the amount of tax. Under the resolution which we passed a little while ago and that which we are about to pass now, the treasury board could decide how much tax was being avoided; under the terms of the section they could assess and levy upon the taxpayer such tax as the treasury board might decide, and such tax shall be payable by him as in this act provided. It seems that the section which we are now considering has very far-reaching effects, and only in the hands of the department which will treat it with the utmost fairness can it be considered reasonable legislation. But we have seen in some of the provinces that the administrators do not always remain sane and sound, so that legislation should not be passed which depends upon the character of those who are to operate it.


Douglas Gooderham Ross: I have just one
more observation to make in this connection. The effect of this resolution, as of the one which we passed a little while ago, seems to be this:	We pass a law, and then we pass
another law to give power to the treasury board to say that something which has been done legally is illegal. I am not a lawyer, but that is the way in which it appeals to me, and I think it -is ridiculous.


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


[Stage Direction]
The house resumed, from Friday, April 9, consideration of the motion of Mr. Howe for the second reading of Bill No. 7, to amend the Department of Munitions and Supply Act.
Mr. JEAN-FRANCOIS POULIOT (Temis-couata):	Mr. Speaker, I will not speak at
great length about this bill, but it is fitting for hon. members at times to express the opinions of their electors instead of being silent, especially when a member has proved already once or twice in his political career that he can rise to heights of eloquence and defend his own folk. Of course that is a matter of opinion, and since opinions are free, I will proceed in all freedom to say what I have to say about this measure.
The other day the debate ended1 abruptly, and I am delighted that it is resumed again. When it was adjourned I was talking of the actions of the present Minister of National Defence (Mr. Ralston) when he was Minister of Finance, and even before that, and I said nothing offensive on that subject. The last words that were said by the member for Temiscouata at the time of the abrupt adjournment were that Colonel Magee was a good Canadian. But there was a state paper which was signed by the three defence ministers to the effect that there would be no patronage in the defence departments, and since the Minister of National Defence was not here the other day I must summarize in a few words the first observations I made on that dark night.
The joint declarations made by the defence ministers were to the effect that there would be no patronage in their departments, but they did not go so far as to say that there would be no patronage exercised by them in other departments. On that fateful day of February 21,	1941, I mentioned that Colonel Magee,
president of Barclays bank, a former codirector of the Minister of National Defence, and also Mr. Henry Borden, a nephew of Sir Robert Borden, the former chief of the Conservative party, had been fairly well looked after. I said nothing offensive against them; they must be very good men to have such important key positions. But what I do not understand-I may be very dull-is that, since the Department of National Defence is no more a finance department; since it was decided in the time of Mr. Dunning that the Minister of National Defence would have nothing to do with finance, would not even
[Stage Direction]
Munitions and Supply Act
have the right to approve the payment of a Sam Browne, or a cap, or even a button, there has been a great transformation in that field. All financial powers were taken away from the then Minister of National Defence, who is now Minister of Pensions and National Health (Mr. Mackenzie). But now, sir, it is an altogether different matter. The Minister of National Defence is also a financial wizard, and he is the perpetual acting minister of finance. Why, I do not know, because he has not the right to approve the payment of anything. But 'he has a financial adviser who is no less a man than the president of Barclay's Bank, his former co-director. All that is linked together, but it is a very long story, and I shall try to make it short.
What goes far beyond my understanding is that Mr. Henry Borden, the noted nephew and publisher of the memoirs of the former Tory leader, a very distinguished old gentleman who is now dead, has been promoted by leaps and bounds to the high position of what has been well described as lord high executioner, the character Koko in the Mikado. Now he is chief of all priorities-a big man; and he comes from Barclay's Bank, a fine institution of which the Minister of National Defence was at the time a director. He was a good chum. And, mind you, I say nothing offensive about Mr. Borden or Mr. Magee; I am rather praising them highly. But I do not know that there has not been a little patronage, and I am wondering whether it is not because the Minister of National Defence has known those gentlemen so well, and has learned to appreciate them so much. It may be that when he was sitting with them on the board of Barclay's Bank that he thought fit to recommend them in a special manner to his colleague the Minister of Munitions and Supply (Mr. Howe), and tell him that he could not find in the whole country such a good and able man as Mr. Borden to be chief of priorities. It shows that there is no patronage, but it is the same thing that is done in the civil service commission. It is the merit system, which has been the guiding star of the Minister of Munitions and Supply in his choice of Mr. Henry Borden as head of the priorities branch.
And, besides that, the Department of Munitions and Supply can develop indefinitely, because it is the department of the magic carpet. It has been described in a committee of the house-but I will not insist upon that. It would be a good thing to have a comprehensive view of the coordination in that department. There are, of course, many coordinators. Do they, or do they not, coordinate? That is a very important point.
And many hon. members are under the impression that the coordination is infinitesimal. Of course there are controllers, and I know they control a lot. They are' jealous of each other. The trouble with those controllers is that they try to control each other, and naturally that leads to a certain degree of disorder, which is deplorable in such an institution. There are controllers, coordinators and what else?
We had supplied to us at the request of the former leader of the opposition a very interesting chart of the Department of Munitions and Supply. It was printed in large type so that hon. members should not ruin their eyesight in looking at it. But I know that Mr. Sheils, the deputy minister, was very proud of his chart. He had founded one of the marvels of the world, and he was exhibiting the chart to everybody. I had occasion in the house to tell the minister what I thought of the organization of his department, and I shall not repeat it. This was said a year or two ago, and I am sure it is as fresh in his mind as it is in the minds of hon. members.
Now I would have to take each name, in turn, and check it. This reminds me of children's play, and the cross-word puzzles worked by older persons. That is the best way to describe the chart of the department. And, mark you, sir, I admire the spirit and the activity of the Minister of Munitions and Supply. I am sure if he were never interfered1 with by the Minister of National Defence, in connection with financial matters in his department,' and in fact its whole organization, the department would run much more ismoothly. But the Minister of National Defence, who is also hard-working, and who finds that being the head of a department is not enough, may like to put his nose into the business of his distinguished colleague the Minister of Munitions and Supply, and give him some advice-which must always be doubtful, if not always wrong. I would ask the Minister of Munitions and Supply to be very careful about the advice given to him by the Minister of National Defence, for the very reason that that hon. gentleman has not enough time, while supervising the numerous branches of his department, to look deeply into the features of legislation and the administration of the Department of Munitions and Supply.
If the minister of that department would be good enough to give us a general idea of its organization, I would ask him kindly to tell us what is the main job done by each group of men in the little square in the big frame on that chart. He need not tell us with respect to each individual, because that would
[Stage Direction]
Munitions and Supply Act
take too long. But if there is an hon. member who has that chart before him at the moment, he will understand very well what I .want to know.
We find long sentences in this bill. Apparently it is drafted according to present standards of legislation. As we know, legislation has either risen or fallen to such a degree that it is very hard for a layman to understand it. As I did not practise law for some years, I am among the group who do not understand much of the phraseology in legislation. This would be a fine occasion to poke a little fun at my humble self, and to say that I do not know what I am speaking about. But I do not pretend to have a profound mind, or to be endowed wTith the knowledge of those far-seeing statesmen who are now preparing for the post-war period.
We are in war time, and we have to do our best to help the departments as much as can be done. Hon. members may think this little, very mild criticism is uncalled for, but yesterday afternoon. I was not in the house. I went to visit an ordnance depot somewhere in. Canada-I will not say any more than that. I saw many things, an enormous number of boxes and cases, but it was in the most indescribable disorder. It may be because I am a layman, "the man on the street", that I could not realize how everything was in order. But I saw amazing things. I saw, for instance, guns that are not supposed to be moved after they are installed, but each one had four tires and four exchange tires also, and piles of tires. What surprised me also- was that four-fifths of that reserve was for other countries and only one-fifth for this country. I tell the house what I have seen. I was very well received; I express my appreciation of the officers there, but I was amazed at the way in which things were piled up. I shall surely say more about that privately to the minister. It was my duty to gO' there and inform myself. There is a great deal of good there, but there are other things that cannot be so easily approved.
I praise the minister for resuming the debate. He does it well. But with regard to his department I will ask him to take hon. members into. his confidence. I will ask him to inform the members. For a time he published extensive reports of the purchases of his department, but there was one elemedt that was lacking all the time-the element of quantum.. He was informing us that the purchases of the department have been so much food from the packers, so much this, so much that, in money, but not in quantity,

I insist on order. The war is no excuse for disorder. We need order in. this country now if'we are to have it after the war.
In the department there are many officials, very nice people. I am not complaining about them, but it takes a long time to find them and after they are found it takes a long time to get an answer.
Another thing I regret in the department is the standardization of certain precepts that should be a little more elastic. Just to-day I received a letter from one of the officials concerning the price of hair-cuts in the country. He would not change for the last two years because it was decided at the beginning. I wonder whether the Department of Munitions and Supply uses hair-cuts. I do. not know.
There is another thing I should like to bring to the attention of the minister, namely, the number of middlemen with whom any one has to deal to sell, for instance, some lumber to the department. There are some exotic people who come from nowhere, who are here getting well on the fat of the land; they are neither English, Irish, Scotch, French nor Ukrainian. The name of one was Seidel; that is not English-Canada South-wood Limited. There is another who is neither British nor French Canadian, Mr. Lustwig. There is also the International Lumber Corporation of America, which is composed of two gentlemen who come from a European country. It reminds me of a joke a friend of mind told me. He was once at Atlantic City, and he saw a store with the name "Cohen and Gentleman". He saw two men standing by and he asked one, "Are you Mr. Cohen?" He said, "No; I am Gentleman." So my friend said to the other, "You must be. Mr. Cohen," "No; I am Gentleman." Both were gentlemen, although the name was "Cohen and Gentleman". Mr. Kohen, not spelled with a "C" but with a "K", is one of the middlemen through whom the lumber producers have to deal to sell their lumber to the department. There is another, he is not British or French, Mr. Hass. Those who want to sell lumber to the department have to pass through those gates.
Thomas Vien: I have to inform the hon. member that his time has expired1.
Motion (Mr. Howe) agreed to, bill read the second time and the house went into committee thereon, Mr. McCann in the chair.
Section 1 agreed to.

Munitions and Supply Act
On section 2-Ministerial powers.


Alexander Malcolm Nicholson: I think we might read these sections.
Some hon. MEMBERS'. No.


[Stage Direction]
Section agreed to.
Section 3 agreed to.
On section 4-Persons authorized to sign requisitions.
Grote Stirling: Will the minister give a little further explanation of this? It involves considerable sums of money.


Clarence Decatur Howe: The original act provided that requisitions involving expenditure not exceeding $5,000 shall be signed by the minister or the deputy minister or an acting deputy minister of the department concerned, or by such other officer or officers of the department as the minister of the department may authorize. Signing officers are required for requisitions; but my hon. friend, having been a member of government, will understand that these requisitions are required to carry out a total expenditure authorized by order in council, and it is found in actual practice that the buying is broken down into so many branches that it is not practical to have a single signing officer for all expenditures over $5,000. This simply allows the minister or deputy minister to deputize others to sign requisitons up to $50,000. The minister himself must sign those for more than $50,000, as in the original act.


Grote Stirling: It is a very large jump, to ten times what it was before; that was why I asked.


Clarence Decatur Howe: In practice there are a tremendous number below $50,000, and not many over that amount. This brings the act into conformity with actual practice.


Jean-François Pouliot: The other day I was asked by a reporter to give an interview about different matters, and I said that I did not attach much importance to the long-distance telephone bills of the department.


Clarence Decatur Howe: On a point of order, Mr. Chairman, this section has to do with signing authorities, and I do not think it has anything to do with expenditures.


Jean-François Pouliot: My point has to do with
the signing of requisitions. I know very well that in this section there is no mention of telephone bills, but it gives authority to the minister and certain officials to approve accounts, so that what I have to say is strictly in relation to that. The suggestion I am going to offer is intended to save the minister trouble.
I think I am perfectly in order in discussing telephone bills under this section, for the reason that no telephone bill may'be paid by the Department of Finance until it is certified as correct by the minister or one of the officials of the department. My suggestion is that there is nothing easier than to check longdistance telephone calls. Supposing an official in Ottawa calls his home, whether it is in Vancouver or Halifax. The telephone company has the name of the official here and the exchange number of the telephone at his home. I am not complaining about long-distance calls on official business. If a member of parliament is away from Ottawa and has to deal with a branch of the department, it is only natural for him to call the minister or one of his executives and explain his trouble. That is perfectly legitimate, and no one can complain about it, not even the leader of the opposition. If a member calls the minister or one of his executives by long-distance, in order to obtain an answer in an urgent case concerning priority, or in connection with some accident, that is perfectly legitimate; it is to save time. Therefore I suggest to the minister that he give definite instructions to the personnel of his department never to charge long-distance calls which are not made on public business, but at the same time he should give them a certain latitude in regard to real business calls. The best check is to use the co-relation that exists between the name of the caller and the exchange number of his home.


Gordon Graydon: I presume that the re quisitions mentioned in the various clauses of this section have to do with all matter of supplies, office furniture, office equipment and so on?


Clarence Decatur Howe: No, no.


Gordon Graydon: Nothing like that at all?


Clarence Decatur Howe: No.


Gordon Graydon: It does not cover anything like that at all?


Clarence Decatur Howe: No.


Jean-François Pouliot: Would the minister be kind enough to tell the committee whether he has already given orders with regard to long-distance calls, or if he is willing to do so?


Clarence Decatur Howe: Well, Mr. Chairman, I am quite willing to discuss any matter coming under this section, which deals with signing authorities in the department. This is not a signing authority for telephone calls; it is a
Munitions and Supply Act

signing authority for requisitions, and I think we might very well discuss matters relating to that.


Gordon Graydon: I just asked my question because I thought perhaps the purchases of equipment being made by the department would come in here, since they would be made under a requisition.


Clarence Decatur Howe: I think that would be going pretty far afield, but still it might cover some item, though it would be very small.


Gordon Graydon: Did the economy controller have any jurisdiction in the Department of Munitions and Supply?


Clarence Decatur Howe: Certainly; the same jurisdiction he had in any government department.


Gordon Graydon: Under the order in
council?


Clarence Decatur Howe: Yes.


Jean-François Pouliot: He has resigned.


[Stage Direction]
Section agreed to.
On section 5-Minister may authorize other person to carry on where failure.
Grote Stirling: Before this section gave the minister such power, did he have to take action of this description, and, if so, did he do so by order in council?


Clarence Decatur Howe: Yes.


Grote Stirling: On many occasions?


Clarence Decatur Howe: Ten or twelve, or perhaps twenty.


Alexander Malcolm Nicholson: What sort of appeal is there in case of any dispute in connection with one of these cases?


Clarence Decatur Howe: There is no appeal. Ordinarily it is a case where the contractor bogs down and requires financial assistance, which the department is not prepared to give him under his management. If the contractor can carry out his contract and finance himself; if there is no undue or inflated cost, ordinarily the situation does not arise. Where, for some reason or another, the contractor is not able to carry out his contract in an efficient manner, and an advance is needed, we usually put in a controller, so that we can be sure there will be good management to work out the advance required.


Gordon Graydon: Is there any general overall policy adopted by the Department of Munitions and Supply as far as the character of these contracts is concerned? That is, is it done by tender in most cases, or is it on a 
cost-plus basis, or what is the general policy of the department with respect to ordinary contracts?


Clarence Decatur Howe: Tenders are called wherever they can be called with any expectation of getting a proper price. If it is an article with which Canadian contractors are not familiar, it is not likely that we shall get a close price by tender. In that case various procedures are adopted for placing a contract. Sometimes there is a trial run and the cost fixed. In other cases it may be a cost plus a unit profit. It is almost never a cost plus a percentage. Our contracts are always arranged so that nothing can be gained by a contractor not using the highest efficiency and every endeavour to get production. If there is no fixed price, there is usually some incentive to the contractor to reduce costs and speed up his production.


Gordon Graydon: There are many stories, and I assume the minister must have heard some of them, about cost-plus contracts. It is thought that there is sometimes a disposition to increase certain costs in order to increase the contractor's percentage. What are the restrictions and limitations placed by the department upon such contracts so that this situation may not arise?	[DOT]


Clarence Decatur Howe: I just stated that we never issue contracts on a cost plus a percentage. Many contracts are issued on a cost plus a fixed amount. For instance, in the case of rifles or anything of that sort, it is always a profit of so much per unit, so many dollars per unit. The more guns that are turned out and the lower cost there is, the more profit the contractor makes; the fewer guns and the higher the cost, the smaller the profit. All of our contracts have an incentive clause of that kind, so that it works against the contractor if he does not use the highest degree of efficiency.


Gordon Graydon: Have there never been
cost plus percentage contracts?


Clarence Decatur Howe: I know of none.


Clarence Gillis: Does that apply also to shipbuilding contracts?


Clarence Decatur Howe: Yes.


Clarence Gillis: And airport construction?


Clarence Decatur Howe: Yes.


Grote Stirling: How about these camps
which have been erected around the country?


Clarence Decatur Howe: The work is done on a fixed-fee basis. We estimate the cost of the job and arrange with the contractor so that he will get so many dollars for doing it. If during the

Business of the House
contract the job doubles in- size, a new amount is worked out. We never have a contract where it is so much plus a percentage. Perhaps I should not say "never," because we have 6,000 contracts, but I am sure the number would be infinitesimal.


[Stage Direction]
Section agreed to.
On section 6-Power to require storage.
Grote Stirling: This is a curious section. Are there many occasions when it is necessary for the minister to use this power.


Clarence Decatur Howe: It has been used a great
deal. This provision was in the original act, and it is in the British act. We requisition storage quite often where a building is available, and we make an agreement that the owner will protect the property unless that provision is specifically excluded from the agreement. If we pay a fee for the use of the property, he is required to protect the property housed in the building. The original act contained a section covering storage. Subsection 2 reads:
Any persons storing munitions of war or supplies under subsection one of this section shall be liable for loss thereof or damage thereto as if he had agreed to store them for reward.


Grote Stirling: That is not a change;
it is in the present act.


Clarence Decatur Howe: Yes.


Grote Stirling: What is the implication
of the words, "as if he had agreed to store them for reward"? Presumably he gets some recompense for storing them?


Clarence Decatur Howe: This is simply to permit the minister to use space that is available. When we need the space and a building is available, we requisition it for storage. If the price cannot be agreed upon, it is determined by the exchequer court.


Jean-François Pouliot: I agree with the principle contained in the first subsection because it is carrying out the decentralization which I have always advocated. I do not take any responsibility for drafting this subsection. The dumping of large quantities of war materials in one point constitutes a danger to the community. There is greater risk than when the material is stored in different places. The wording of subsection 2 should be more generous to the person storing the munitions of war or supplies. There should be a different liability in the case of munitions of war, especially explosives. If, after inspection, the department is satisfied that a certain building is suitable, and if it agrees to certain compensation as rental of that building, how can the
department come afterward and complain because damage has been done to the goods? It is only fair that the individual or the company owning a building should receive compensation for the space rented. We cannot ask an individual or a company to take charge of certain war materials and supplies unless there is a particular emergency. The effect of this subsection is that if nothing is charged, the owner of the building will not be held responsible for any damage done, but if a charge is made, he will be held responsible.
A distinction should be made between war munitions and ordinary supplies. Explosives, for instance, are war munitions, and a man runs a great risk in renting his building for that purpose. I am not sure that insurance companies will insure such a building. Therefore the owner needs compensation in respect of insurance on his building.
Section stands.
Progress reported.



BUSINESS OF THE HOUSE

[Stage Direction]
Mr. RALSTON moved the adjournment of the house.
Gordon Graydon: May I inquire from the Prime Minister, who has just come in, what the business will be for Monday and whether he is in a position to give us some idea of what we may expect in the future?


Mr. MACKENZIE KING:: I shall ask my colleague the Minister of National Defence who has been discussing with other members of 'the government the remaining business to make the announcement. I might add a word if necessary.


James Layton Ralston: What I am giving to the house is something fairly comprehensive. I wish to say first that we plan for Monday any business which is on the order paper and, to use the words of the British North America Act, without in any way limiting the generality of the foregoing we shall probably take up the bill respecting the Department of Munitions and Supply, the city of Ottawa resolution, the federal district commission resolution, the excess profits tax bill, which I understand will certainly be ready, and I expect also the income tax bill. We may call some departments in supply. I mention Trade and Commerce, Public Works, and possibly Legislation, although not necessarily in that order.


Gordon Graydon: If I may say so, there is no scarcity of work ahead. May I ask the acting leader if it is the intention of the
Business oj the House

government to proceed first with the excess profits tax bill and the income tax bill-if that is the order of procedure?	.


James Layton Ralston: My hon. friend mentioned first the income tax bill and the excess profits tax bill. The excess profits tax bill will certainly be ready. I am not sure about the income tax bill, but I rather expect it will be ready. The best I can say to my hon. friend is that I will call his desire to the attention of the Minister of Finance and endeavour to see if that can be arranged.


Gordon Graydon: I am not particular myself, but I understood that the government regarded those two as urgent bills.


James Layton Ralston: That is right. It is simply a question whether they will be ready and whether my colleague will be ready to go on. He is anxious to proceed on Monday, because he will have to be away for a while at least on Tuesday.	.


William Lyon Mackenzie King: 
Gordon Graydon: I would say just a word subsequent to the Prime Minister's remarks.
I agree with him that we ought to get on with our war measures as soon as can conveniently be done. I think he will be in agreement with me when I say that during this session, following the government's own plan, a rather unusual procedure was adopted. Immediately after the address had been voted the budget was brought on, for reasons which are well known and with which I find no fault. But when the Prime Minister speaks about the debate taking a considerable length of time in connection with a social security committee and reconstruction, I hope he is not directing his entire remarks against those on this side of the house-


William Lyon Mackenzie King: Oh, no.


Gordon Graydon: -because I think the whole house must bear its responsibility in that connection, and I do not exclude the government, because it will be well remembered that the major emphasis in the speech from the throne was laid upon social security and the committee which was to be brought into being.
In connection with any delays which have occurred in the work of the house, I suppose that under a democratic system such occasions are more or less inevitable, and I know the Prime Minister would not want to criticize those tkings too much. I put on record this evening a list of the speakers who had taken part in the budget debate, and it show's that a rather considerable majority were supporters of the government. I am not raising any question about that.


William Lyon Mackenzie King: Was it a percentage?


Gordon Graydon: No; I did not get into percentages; I just kept to straight numbers. If the Prime Minister wishes to figure that out I have no objection; he has the week-end in which to do it. But on the address, for instance, there were forty-two government speakers and twenty-one opposition speakers.


James Layton Ralston: That is 50 per cent for the opposition.


Gordon Graydon: That is true. But if it is a question of quality the opposition has very much the advantage.
There have been very good reasons why the situation has arisen which the Prime
Questions

Minister has described. But personally I am anxious to have the war appropriation bill brought on as quickly as possible. Having in mind, however, the fact, with reference to the radio committee which will have to be set up, that concurrence in its report was not moved last year, there may reasonably be an hour or so occupied in debate on that matter. But we are prepared to facilitate progress as much as is humanly possible. There are limitations when legislation is being dealt with, and we have a certain duty to perform. But there has been no attempt designedly to do any more than legitimately criticize the measures before us according to the best light we have.


Alexander Malcolm Nicholson: This evening the Minister of National Defence stated that there would be a two weeks' recess. Does that mean that we shall meet again on the Thursday?


William Lyon Mackenzie King: We shall adjourn on Wednesday of next week for a fortnight, and resume on Thursday the 6th of May.
On motion of Mr. Mackenzie King the house adjourned at 11.20 p.m.
Monday, April 19, 1943