[Stage Direction]
On the orders of the day:
Mr. GORDON GRAYDON (Leader of the Opposition):: I -should like to ask the Minister of Munitions and Supply if he will give the house a statement in respect to the threatened strike in the Arvida plant, so that the house may be fully informed thereon.


Hon. C. D. HOWE (Minister of Munitions and Supply):: My information about
the situation at Ajrvida is that I was advised by the company yesterday that the company had received a telegram from the secretary of the American Federation of Labour affiliate at Arvida to say that unless the company opened negotiations with that union within seventy-two hours the members of the union would be withdrawn from the plant. The company has a sole bargaining agreement with the Catholic Syndicate, a rival union, due to expire at the end of December, 1943. No steps have been taken other than that the government has considered ways and means of maintaining law and order in the event of a walkout.
I saw an unfortunate reference in a Montreal newspaper this morning to the effect that sabotage had occurred in the last strike at Arvida and that the government have taken steps to prevent a similar occurrence this time. It was clearly proved by a commission following the last stoppage of work at Arvida that no sabotage occurred,

and any steps the government are considering now have nothing to do with the situation that occurred before. We are simply considering ways and means of maintaining law and order in case anything does occur.
I iuay say that the aluminum plant is the most important single operation in Canada's munitions programme. There are some eleven thousand employees engaged in manufacturing aluminum. The demand for aluminum for the manufacture of aeroplanes exceeds the supply and will continue to do so for some time. The government therefore feel that they must take unusual precautions to see that no interruption occurs at the aluminum company's plant.
Mr. MacINNlS: Does the minister know whether the Department of Labour has sent an investigator into the area?


Clarence Decatur Howe: I understand that the Minister of Labour is ill. and I have not been able to consult with him on the matter, but I believe the Department of Labour has had a conciliator in the district for some considerable time.



CANADIAN FORCES


[Stage Direction]
On the orders of the day:
Hon. R. B. HANSON (York-Sunbury):: I should like to direct a question to the Minister of National Defence. I regret that owing to pressure I was not able to get any notice to him. It arises out of a report in the newspapers to-day of a decision in the Exchequer Court by Mr. Justice Thorson to the effect that a soldier is not an officer or servant of the crown within the meaning of section 19(c) of the Exchequer Court Act, and that the crown is not liable for damages caused to persons by negligence on the part of a soldier in the performance of his duties. I am not rising to question in any way the legal decision, but if that is the law I think it is an unfortunate state of affairs. We all know that accidents occui, sometimes through no negligence, sometimes through negligence on the part of one party and sometimes through negligence on the part of another party, and in a clear case of negligence on the part of a member of the armed forces, we will say in the driving of a motor vehicle, as a result of which a citizen loses his life or sustains damage to his property, apparently there is no redress. I suggest to the minister that he ought to reconsider that position and would

Farm Debt
ask him if he would be good enough to look into it, because I can see that _ great injustice may be done to the civilian population of this country. In making that statement I do not wish to be considered as casting any reflection upon any member of the armed forces.


Hon. J. L. RALSTON (Minister of National Defence):: I can assure my hon. friend and the house that the matter is already under consideration with a view to taking the steps which may seem to be necessary in order to regularize the position with regard to certain claims which already have been paid, and also with regard to the future.



GASOLINE


[Stage Direction]
On the orders of the day:
Mr. J. A. ROSS (Souris):: May I ask the Minister of Munitions and Supply if it would not be possible to have the ordinary AA category gasoline ration books issued by the local licence offices, where automobile licence plates are secured, as was done in 1942? The present system is very inconvenient and causes a great deal of delay throughout the rural areas, particularly at this time of year. It takes from ten days to two weeks to obtain the ration books, and since many farmers do not apply for their licences until after April 1, they are caused a great deal of inconvenience.


Clarence Decatur Howe: I do not know the practice
followed in the province from which the hon. member comes. In Ontario the ration book is issued by the same office that issues the licence for the car. However, I shall be glad to look into the matter and see whether or not the situation of which the hon. member speaks can be remedied.


James Arthur Ross: We have to send
ro your office in Winnipeg, and sometimes it takes weeks.



TRANSCONA CORDITE PLANT

[Stage Direction]
to further questions dealing with another matter in connection with the same plant, the minister mentioned other figures which would give the total humber of employees during the month of March, which was the month covered by the previous figures, as 2,588. The difference of 500 in these figures would render incorrect the statement I made, based on the earlier return, which appears at page 1921 of Hansard If the latter figure is correct it means that in the ten months between May, 1942, and March 1943. the decrease in employment was not. 1,400 but 1,900. Will the minister look into these conflicting figures and place on Hansard at an early day either a corrected statement or an explanation of the apparent discrepancy?
Clarence Decatur Howe: I will indeed.



FARM DEBT


[Stage Direction]
On the orders of the day.
Mr. J. G. DIEFENBAKER (Lake Centre):: According to a press dispatch an order in council under the War Measures Act has been prepared, or is in course of preparation, or has been already passed, in connection with the matter of debt legislation for the western provinces. I should like to ask the Minister of Justice whether that is so, and what are the terms of the order in council.


Richard Burpee Hanson: And
whether it will be laid on the table of the house.
Hon. L. S. ST. LAURENT (Minister of Justice):	I have not seen the press dispatch to which my hon. friend refers. No order in council has been passed as yet. The department has been preparing a draft which will be submitted to council-that is all I can say at the moment. The draft being prepared will follow the lines of the statement I made the other day.



REFERENCE TO FIGURES GIVEN AS TO NUMBERS EMPLOYED

[Stage Direction]
On the orders of the day.
Mr. S. H. KNOWLES (Winnipeg North Centre):: On March 29. at page 1617 of Hansard, the Minister of Munitions and Supply answered certain questions in regard to the number of employees at the Trans-cona cordite plant, and at that time he said the number then employed was 3,089. On April 12, at page 2047 of Hansard, in reply


Richard Burpee Hanson: Why
should it not be in the form of a bill while parliament is in session?
Mr. ST. LAURENT: I understood there was some urgency about this, and my experience during the very short time I have been in this house is that when matters are urgent it is sometimes inconvenient, for those who require them, to have them delayed until they can be dealt with in the form of a bill.
Ways and Means-North Africa

Command


Richard Burpee Hanson: Urgent
matters always pass the House of Commons.


Mr. DOUGLAS (Weyburn):: Will there
be a bill or other legislation subsequent to the order in council?
Mr. ST. LAURENT: I have nothing to change in the statement I made the other day. An order in council is being prepared for one purpose, and a bill is being prepared for submission to parliament to make the Farmers' Creditors Arrangement Act a more effective instrument. That bill will be introduced as soon as possible after the Easter recess.



WAYS AND MEANS

[Stage Direction]
REQUEST FOI! STATEMENT ON SHIPPING SITUATION -NORTH AFRICA COMMAND
Hon. J. L. ILSLEY (Minister of Finance) moved that the house go into committee of ways and means.
Mr. T. L. CHURCH (Broadview):: In my absence from the house yesterday, Mr. Speaker, the Prime Minister (Mr. Mackenzie King) answered a question I had put about the grave Atlantic peril, and I should like to take a few minutes to mention a matter which affects the safety of every soldier, sailor and air force man who crosses the Atlantic, as well as our shipping, our munitions and our food. These are all in very great danger. According to yesterday's newspapers the last convoy from Canada to England was in very grave danger from submarines, because of the fact that we have not the naval bases that we had during the last war and must use the north and not the south passage to England. Several times last session, when I raised this question, the Prime Minister , promised that he would make a statement in this connection, but he has not done so. I have been raising this question ever since the beginning of the war but nothing has been done. I have in my hand copies of the British Hansard; many members of the British house have been asking similar questions, and there has been debate on many occasions, and recently they were told by Mr. Eden to wait and see. Well, we have waited for over four years but as yet we have not seen. I believe the public should be told the actual facts about this situation. As Mr. Lloyd George said in the British house, if we had not had those bases in the last war we would have lost it. I have had letters from some of my constituents whose sons have been on those ships and who have seen the danger. Some of them have lost their lives, and I have a duty to perform in their behalf.

I referred to this question during the very first days of the present war, after the sinking of the Athenia and the Belvedere off Eire, and I have repeated it at various times. We in this house follow the practice in the British house; our rules are based upon theirs, but we do not get the same results. In this British Hansard there are almost twenty-five pages of questions in regard to the war, but we do not have anything like that here.
That is the first point I want to make. The second question is in connection with the invitation we were given to attend the film, "Desert Victory". I think the Prime Minister should have given this house and the people of Canada a statement in regard to what I call, and what has been called in the British House of Commons, the pro-Vichy policy of Washington. That matter has been debated on several occasions in the British house, and I think some statement on it should have been made here. There was a great deal of criticism in England, and in spite of the popularity of the brilliant Prime Minister and Mr. Eaen, there were objections on the part of many hon. members of the British house to the political policy followed in. North Africa, where our brilliant generals have been supplanted, and all that sort of thing. Darlan was taken out of prison on the arrival of the Americans in North Africa and placed at the head of affairs there, although Vichy was done with. The result was that 700,000 Frenchmen left France, took their belongings and went to North Africa, and wanted Vichy destroyed, and all its treachery. America picked Darlan up and put him in command; and we have had nothing but American politics-not military strategy-in command in Africa. Wait and see.
A statement should be made in this house. One was asked for many times in the British House of Commons. WTe should be told why those brilliant generals of ours w'ere supplanted by someone who never had any experience in battle. Our eighth army, which did all the fighting-Montgomery, Alexander, Wavell, Auchinlech-brilliant military men of all time, were discarded for American politics.
The Prime Minister is not here to-day, and I was not here yesterday. But I say a statement should be given to the house immediately. We have become too Vichy-Washing-ton-minded in our administration of the war.
I believe our United States allies and our other allies will think more of us if criticism were answered here in the House of Commons. Let the people have the facts, rather than take somebody's say-so for it.

Income War Tax


[Stage Direction]
Motion agreed to, and the house went into committee of ways and means, Mr. Bradette in the chair.

[Stage Direction]
10. That in the case of a married person or any person granted an equivalent status under the act whose income is less than $1,570, the tax payable shall not exceed two-thirds of the amount by which such taxpayer's taxable income exceeds $1,200.
Gordon Graydon: I am not sure whether my observations will be pertinent to resolution 10, but I cannot find any other section upon which to make them. I wish only to make an inquiry of the minister. Information comes to me that the Montreal board of trade and the Montreal chamber of commerce spent considerable time working out some constructive suggestions with respect to the income tax situation in Canada. I am informed that those suggestions were submitted to the minister. Has he replied to those organizations, offering an}^ comments respecting their suggestions, or has the matter been attended to in a general way ?


Hon. J. L. ILSLEY (Minister of Finance):: Yes; their communications related to the 1942 income tax, and had particular reference to the part we should forgive. I have replied to one or two communications; I do not know whether a reply has been made to the last one.


Gordon Graydon: I was not familiar with the recommendations made. I have not seen them, and I make inquiry only so that the matter may not be overlooked.


Richard Burpee Hanson: What attitude did the minister take in connection with the recommendations of the Montreal board of ti*ade? I read them carefully, and it is my understanding that they offered an alternative suggestion, something which was neither the Ruml plan nor the minister's plan, but might be classified as an intermediate plan. I thought it had a good deal of merit. I did not raise the question because I assumed it had been rejected. I think the public should know what the proposals were, and the minister's reasons for turning them down.


James Lorimer Ilsley: I do not think the matter can properly be discussed under this resolution. We have passed the resolution dealing with that subject matter. They asked for variations of our plan.


Stanley Howard Knowles: I believe resolution No. 10, and No. 9 which we passed last night in a hurry, are the resolutions in the present group under which we may discuss the matter of exemption levels, involving the sums $660 and
$1,200. Has the minister given any consideration to raising those levels this year? It seems to me that the idea that the securing of a large volume of taxation must necessarily involve dipping into such low brackets has been overworked. It is difficult to give up-to-date figures on the collecting of income tax within various income brackets. The latest figures I have been able to get are for the assessments made in the year 1941-42. I believe I understand the significance of the figures I have. They are given over the signature of Mr. C. F. Elliott and, I say again, they are not the amounts collected in 1941-42, but rather the amounts assessed in that year. Comparing the figures for the amount assessed in that year with the amount assessed in the previous year I find there was a net increase of $4,000,000 in the total amount of income tax assessed. But on breaking that figure down one discovers there was an increase of $11,000,000 collected from those making $10,000 or less, and an actual decrease of $7,000,000 from those above $10,000.
I am well aware that these assessments made in 1941-42 were for the year previous, or possibly for the second year previous, and that changes have been made in the income tax legislation since. But even back in those days it was argued that in order to gather in a large volume of money from income taxation it was necessary to dip into the lower brackets. When the returns are finally tabulated, in whatever years these assessments were for, we discover there was an actual increase of $11,000,000 in respect of those making $10,000 or less, and an actual decrease of $7,000,000 in respect of those making $10,000 or more. When we break down the first figure we find that-


James Lorimer Ilsley: Mr. Chairman, I do not
understand this at all. Is this for the whole of Canada, for one province, or what is it for?


Stanley Howard Knowles: For the whole of Canada. These are figures given in response to a request to Mr. Elliott for a break-down of the collection of income taxes in certain years. Mr. Elliott replied it was not possible to give an up-to-date break-down of the amounts received in 1941^12, but that it was possible to give a break-down so far as the assessments made in that year were concerned. As I understand it, the income tax branch makes those assessments a year, and sometimes two years after the time when the amounts are actually received.
Mr. ILSLEYr: These figures sound small, if they are for the whole of Canada. I understand they are assessments on persons earning certain incomes; is that correct?
Income War Tax


Stanley Howard Knowles: Personal income taxes
assessed on income classes ranging from $750 a year to the top. The highest bracket is for those with incomes of over $50,000.


James Lorimer Ilsley: Is it for the tax?


Stanley Howard Knowles: The personal income tax assessed.


James Lorimer Ilsley: I understand now.


Stanley Howard Knowles: And, if I may repeat, the total assessed in 1940-41 was approximately $51,000,000. The total assessed in 1941-42 was about $55,000,000, making a net increase of about $4,000,000. I am pointing out that this net increase of $4,000,000 divides itself into two groups. There is a net increase of S11,000,000 in the brackets up to $10,000 and a net decrease of $7,000,000 in the brackets over $10,000.
Mr. ILSLEYr:	That means that a great
many more persons in the lower brackets were employed, does it not?


Stanley Howard Knowles: I should be glad if the
minister would give further information to explain that situation. I might explain in fairness to the figures that they might be for the year 1939-40 or for the year 1940-41. The increase of $11,000,000 in the brackets up to $10,000 would seem to bear heavily on the lower brackets in that section. In connection with those in the brackets up to $2,000 there is a net increase of $3,500,000. In other words, $3,500,000 out of the $11,000,000 increase I referred to as applying to those up to $10,000 was taken from those earning $2,000 or less. What I am anxious to point out by giving these figures is the fact that back in those days it was being argued that in order to collect a sufficiently large volume of money the treasury had to dip into the lower brackets as low as it did. But the figures which have been compiled a year or two later are ominous in that they indicate that there was an increase in what was taken from those in the lower brackets while there was a decrease in what was taken from those in the higher brackets.


James Lorimer Ilsley: What is ominous about
them? What do they show except that there has been an increase in the national income in the lower brackets rather than in the higher brackets? What do they show except that a greater number of persons in the brackets up to $2,000 were working or were earning a higher wage or more wages? Perhaps they were not earning a higher hourly wage, but they were earning more wages. It might also

indicate that the rates of wages were increased. In fact, they were increased in 1940 and again in 1941.
I do not understand the deduction the hon. gentleman draws. Is he suggesting that more could have been obtained from those in the higher income brackets? There was an actual reduction in the tax assessed but there certainly was no reduction in the rates. Those rates were increased much more than the rates in the lower brackets. Even at that they produced a lower return. This simply proves what I have been stating, that the great increase in the national income has gone to the persons in the lower income brackets.


Stanley Howard Knowles: I am not objecting to
the increases in taxation taken from those in the lower brackets, but I am perplexed by the fact that while there was this increase, there was a decrease in the tax assessed against those in the upper brackets. The minister suggests that a larger total volume of income was being received by those in the lower brackets. Was there not also a larger total volume being received by those in the higher brackets?


James Lorimer Ilsley: I do not think there was.
I must say I should have thought that the higher rates imposed against those in the upper brackets would have more than offset any decrease in income received.


Stanley Howard Knowles: I shall be glad to send a copy of these figures over to the minister. They came from the income tax division. I should appreciate it if he would look into them and make some explanation as to why they worked out in this way. My feeling is that the dipping has gone too low. I should have hoped that these resolutions 9 and 10 would go farther than they do with regard to consideration for those in the lower brackets. Instead of giving this slight incentive to people to earn more than $660 or $1,200 as the case may be, there could have been a raising of that minimum figure. One hesitates to suggest a compromise when he is making his principal request, but I suggest that if the exemption level cannot be raised the minister give consideration to making a larger portion of the tax paid by those in the lower brackets compulsory savings. Perhaps all of it might be considered as compulsory savings. That would not interfere with the minister's endeavour to cut down purchasing power and prevent inflation. Money would be brought into the treasury but in the long run there would not be such a heavy burden placed upon those in the lower brackets. My suggestion is that instead of resolutions 9 and 10

making the provisions that they do up to a certain figure there should be a raising of the lower exemption level, or a provision that the entire amount of income tax paid by those in certain brackets should be considered as compulsory savings.


Richard Burpee Hanson: Is the hon. member reading from a factual statement by the commissioner of income tax, or is he giving his own interpretation of figures which have been placed before him?


Stanley Howard Knowles: I suppose I am doing both. I am reading the actual figures supplied by the income tax division. I have the table here and if it is desired it could be placed on Hansard. This was enclosed with a letter over the signature of Mr. C. F. Elliott, commissioner of income tax.


Mr. GRAY DON:: Put it on Hansard.


Stanley Howard Knowles: If the committee consents, I shall be glad to place it on Hansard. The accompanying letter is dated March 15, 1943. I should like to be fair about this matter. Mr. Elliott points out in his letter that the amounts given are the amounts assessed in the particular years, not the amounts received in those years.
Income War Tax


Richard Burpee Hanson: On personal incomes?


Stanley Howard Knowles: The tax assessed on personal incomes for the three fiscal years given.


The CHAIRMAN:: The document will be placed on Hansard if there is unanimous consent.


James Lorimer Ilsley: I do not know whether we should adopt this practice. The letter is from the income tax division and I do not think it is of sufficient general interest. It merely says that in 1941-42 there was a smaller amount assessed on incomes above $10,000 than there was in 1940-41. That is the only point the hon. gentleman is making.


Gordon Graydon: The hon. member has been reading from a table which he has in his possession and has been making certain deductions. Those deductions are of considerable interest and I think we must ask him either to read the figures into Hansard or have them placed on Hansard. His discussion with the minister cannot be very clear unless the table is on Hansard. The hon member is quite willing to put it on Hansard and I think it should be there.


James Lorimer Ilsley: I have no objection.


Stanley Howard Knowles: The table follows:
Income
Class
$	750-$ 1,000 ..
1,000- 2,000 . .
2.000-	3,000 ..
3.000-	4,000 ..
4.000-	5,000 . .
5.000-	6,000 ..
6.000-	7,000 ..
7.000-	8,000 ..
8.000-	9,000 ..
9.000-	10,000 ..
10.000-	15,000 . .
15.000-	20,000 . .
20.000-	25,000 ..
25.000-	50,000 . .
Over $50,000 _______
Debit adjustments
Total	
Personal Income Tax Assessed
1939-40 Fiscal Year

1940-41 [DOT] Fiscal Year

1941-42 Fiscal Year $	431,000
4.551.000
4.187.000
3.367.000
2.721.000
2.386.000
2.052.000
1.786.000
1.663.000
1.503.000
5.720.000
4.052.000
3.013.000
6.752.000
12,076,000
504,000


Mr. GILLIS:: I should like to direct a question to the Minister of National Revenue arising out of a telegram received from the secretary-treasurer of the United Mine Workers of Nova Scotia. I assume the minister has a copy of this telegram.


Mr. GIBSON:: What date?


Clarence Gillis: It is dated April 11. It refers to a retroactive payment which has been made to certain mine workers because of a decision of a board which sat in March, 1941. Certain classifications of the mine workers' organization were given increases in their basic rate. This money is being paid some two years after
Income War Tax

the award was made. There has been an increase in income tax rates and if this money is to be taxable now there will be a considerable portion of it that they will not get. If it is taxable they suggest that it should be on the rates that prevailed at the time the award was made. I wonder whether the minister would comment on that.


Colin William George Gibson: I have not seen a copy of the telegram, but I would say that ordinarily income is taxed in the year in which it is received. I would not want to give a ruling on a case such as my hon. friend mentions without going into it in detail and finding out all the particulars.


Clarence Gillis: I shall be glad to give them to the minister. The point is that certain conditions prevailed at that time which warranted an increase in their basic rates, and the board so decided. But through delay on the part of the paying authorities the money was not paid then, and now that it is being paid, if the tax is taken out at the rates now prevailing, the award which was made on the conditions prevailing at that time is interfered with to some extent.


James Lorimer Ilsley: 
Thomas Clement (Tommy) Douglas: What is their exemption for married men?


James Lorimer Ilsley: The same as ours, $1,200. So that we are more generous rather than less generous than either Great Britain or the United States so far as these exemptions are concerned.


Richard Burpee Hanson: Did the Minister of National Revenue answer the query of the hon. member for Cape Breton South? I can see the point he is making. The money that accrued to them under the award should be regarded as income of 1941 but they did not actually receive it, we will say, until 1943, when the tax rate is very much higher. Is there not an element of justice in his contention?


Colin William George Gibson: I answered by saying that I had not received the telegram or any word

about the case and that I could not give a ruling without knowing all the particulars.


Richard Burpee Hanson: There is a principle involved. The minister could speak on that.


Colin William George Gibson: I do not know the principle involved in this cas.e. I do not know anything about the circumstances.


Richard Burpee Hanson: The principle is this. The mine workers claimed an increase of pay, which was awarded to them by a competent local board in 1941, and probably was made retroactive, though I do not know about that,. The company, or whoever was the paymaster, did not provide the cash to pay that award until a later date, until perhaps 1943. In the meantime the rates of income tax have been raised once or twice. If the money is considered as 1943 income the whole benefit of the award will not accrue to the men. On an accrual basis are the men not entitled to an assessment of that increased pay as of 1941? The money that would come to them in 1943 as earnings would of course have to be taxed at the 1943 rate. I think the hon. member has a point there. I think there should be an assessment of the increase on the basis of 1941. That is what the hon. member is contending for.


John George Diefenbaker: I should like to ask the minister a question in regard to income tax on the so-called dollar-a-year men. Suppose a married man with an income of $1,400 received in addition an allowance of $15 a day or other per diem allowance by way of honorarium; would he be obliged under the law as it now stands and as recently interpreted by the court to pay income tax on the $15 a day? If I understand it correctly, a decision has been made that there is no liability under those circumstances. If I am correct in that I should ask the minister to let me know at the same time whether it is the intention of the government to bring in legislation at this session to correct this anomalous condition of affairs?


James Lorimer Ilsley: Since 1940 or 1941 persons popularly known as dollar-a-year men receiving a living allowance have been taxed on their living allowance as if it were salary. There may have been some very slight deduction for expenses incurred on behalf of the government but not including their living expenses here. A recent case in the exchequer court decided in the case of one of these employees, not now an employee of the govern-

Income War Tax
ment but- formerly a temporary employee of the government, that if a salary is paid to him and living allowance, the living allowance is not taxable, that it is not profit, gain, or remuneration, but merely a reimbursement for expenses incurred by him when away from home on government business.


John George Diefenbaker: May I ask how
much he was receiving a day?


Mr.   LESLEY@: Twenty dollars a day. It is proposed to introduce legislation to cover that class of cases. The problem is a very difficult one because there are all kinds of per diem allowances and the period from 1941 up to the present as well as the future will have to be covered. A little later on, perhaps to-day, I will give the committee notice of the legislation that I intend to introduce covering living allowances.


Mr. NOSEWORTHY:: According to the table that has just been presented by the hon. member for Winnipeg North Centre the total income tax assessed on persons receiving less than $1,000 amounts to less than half a million dollars.


James Lorimer Ilsley: For what year? He gave two years, I think.


Joseph William Noseworthy: That is for the year 1941-42. That sum must have been collected from a great many thousands of individuals.
I imagine that a very small amount in the aggregate is collected from married men receiving from $1,200 to $1,400. Has the department taken into consideration just what the net gain to the department is on the collection of income tax from those in the lower income brackets? It would look as though the cost of collecting these small amounts from large numbers of people would just about offset the gain to the treasury. Has that point been considered?


James Lorimer Ilsley: Perhaps my colleagues should answer this. It is utterly impossible for us to discuss the matter without having the table before us. In the first place I do not know the date of the table. Would the hon. gentleman give us that?


Stanley Howard Knowles: I stated the date as
March 15 of this year.


James Lorimer Ilsley: If it is March 15, it cannot
cover the total fiscal year 194-1-42. It must be for some other period.


Stanley Howard Knowles: I thought I made it clear, so that I could not be accused of twisting the figures at all, that the figures given under the heading of the year 1941-42
are the amounts assessed by the department during that fiscal year.


James Lorimer Ilsley: If the table was dated
March 15 the fiscal year had not ended; that is what I am saying.


Richard Burpee Hanson: I think
the communication to him was dated March 15.


Stanley Howard Knowles: The communication with
the table was under date March 15.


James Lorimer Ilsley: The fiscal year 1942 had not
ended.


Stanley Howard Knowles: ' This is 1943, and the table we are referring to is for the year 1941-42. 1942 was twelve months ago.


James Lorimer Ilsley: Oh, yes.


Mr. ROWE:: I would ask the minister to
give consideration to the position of the piece worker and the reduced effort which is caused by the present income tax on increased earnings of piece workers. The minister and his department might give some consideration to the desirability of restoring the incentive which has always prompted the piece worker, who, perhaps by exceptional skill, more often because of exceptional strength, can work long hours and contribute in a very important degree to a greater war effort, but who to-day, finding himself taxed so heavily on his increased earnings, because of the higher scale applicable to his additional earnings obtained over more than the normal hours, finds no incentive to continue this increased effort.
I realize the minister's problem, and 1 recognize the necessity of taxation, but it seems to me that some incentive should be left.
W7hen we have a situation in which a man possessed of exceptional skill or strength can make $5 in a normal day, but by greater effort and longer hours can make from seven to nine dollars a day, but has practically no more net earnings when his pay is $7.50 than when it is $5 or $5.50, the incentive disappears. Some provision should be made to restore the incentive to the piece worker who is giving war service, whether in a munitions plant, in the bush, or elsewhere. The lack of it is felt in the industrial plants, and also definitely in bush work, all across the dominion. We have had appeals for greater effort to compensate for the shortage of men engaged in lumbering. Yet many men to-day are quitting at mid-day, or not later than the middle of the afternoon, although capable of continuing and producing almost double their present output; they say, "Well, we have worked this long for ourselves; we are not going to work the rest of the day for the government." Surely amendments
Income War Tax

could be made which would so distribute the tax rates as to leave these men some incentive to exert themselves more fully. I realize that the problem is a difficult one, but with careful, indeed scientific consideration, the tax schedules could be so adjusted as to leave the man with greater earning power an incentive, not only to earn $10 by hard toil, but to give us $10 worth of real war effort. I think the minister realizes the need as well as the possibilities of such an amendment. He knows that the present system is seriously affecting production in many districts, and promises to affect it similarly in the coming year. I do not suggest it should be remedied by penalizing the man who normally earns around $2 or $2.50. But in most cases these men have their choice to work either by the month or by the piece, and if they feel they are capable enough and strong enough to put in long hours and give us the production in different lines of industry, the incentive should not be lacking, particularly since we are so short of men and the employment situation promises to be critical.


Mr. MacNICOL:: I wish to cite an example of what seems to me an unfair situation in connection with the income tax regulations.
I mentioned something of the same kind a year ago.
An elderly widow who was living in a house of substantial size, and whose family had grown up and established themselves in their own homes, found it necessary, owing to the impossibility of carrying on, to sell her home. She had, I believe, an income of about $2,500. The house was clear of encumbrance, excepting a mortgage of $2,000. Her total expenses, including interest on mortgage, municipal tax, telephone, water, light, janitor, maid, fuel, repairs to the house and other incidentals, but not including food, came to about $1,798. She would have to pay $500 income tax on an income of $2,500, which would reduce her net income to approximately $2,000; and deducting $1,798, made up of the items I have mentioned, would leave her $202. Adding the $660 she is allowed as a single woman gave her $862 upon which to live, provide food, and maintain an elderly widowed sister. It meant that she would have $2.36 a day, with the strain of carrying on; therefore she sold her house. That is one example, I have not the slightest doubt, of the position of scores and scores of widowed people. I mentioned it to the minister last year, but he did not see his way clear to make provision for such cases. This woman ranks as a single person, and perhaps in the eyes of the income tax department is properly so classified, but, faced with the necessity of carrying on a large house with a maid, a janitor, and all these other expenses, it does 
not seem to be fair that she should be forced to sell her home and go to live with somebody else, perhaps, or in a room; for obviously she could not live in a large house and maintain herself on $860 a year.


James Lorimer Ilsley: The hon. member for
Dufferin-Simcoe raised the question of piece workers. It is a very difficult problem, as he understands. I cannot give any solution. The matter is being studied by the Department of National Revenue to see if anything can be done so that these workmen will not feel that there is no incentive to work. I am afraid I cannot add much to that. It relates to the problem of absenteeism raised by the hon. member for Danforth. It is absenteeism caused by the progressive element in the taxation. I do not know just how much there is of that, but there is undoubtedly some.


Gordon Graydon: There is quite a progressive element in the taxation.


James Lorimer Ilsley: To change the tax so that
the person who earns more is taxed no more would be a retrograde step.' As the hon. member said himself, it is pretty hard to argue that a person earning $2 a day should be taxed at the same rate as one earning $10.


Thomas Clement (Tommy) Douglas: Is absenteeism widespread ?


James Lorimer Ilsley: Opinions differ about that.
I think there is undoubtedly some as the result of income taxation. I think there is more due to other causes. Income taxation is not the sole cause, I should say not the main cause. That is shown by the absenteeism that we read about in the United States where they do not have this progressive taxation on workmen-that is by way of deduction.


Thomas Clement (Tommy) Douglas: Many people
speak loosely about it, but has the minister any actual figures as to absenteeism in Canada ?


James Lorimer Ilsley: I do not know what the
figures are.


Mr. JOHNSTON (Bow River):: I think
the minister will agree that there is a good deal of absenteeism, especially in the munitions plants. This year as we went about, one of the things brought to our attention was the extent to which there was absenteeism.
If resolution 10 was intended or partly intended to do away with absenteeism to a certain extent, it will not meet the requirement. Could there be some sort of system of production exemption? If a man reaches his maximum, of say $1,250 and if the production of the plant had increased, might not

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a portion of the increase be allowed him tax free, thereby encouraging him to work say another day or half day to increase the production, and so that all of that increase would not be taken away from him?
The problem is a serious one. Industrialists pointed out to us on a number of occasions that a large number of men are staying home after reaching the limit of their tax free amount. They would not work any more, because if they did they were only working for the government. If some adjustment could be made in that regard it would help our war effort.


Mr. NOSE  WORTHY@: I gather from conversations I have had with workers and managers that there is a good deal of ground for believing that the comment of the hon. member for Danforth the other night that probably ten per cent of the workers take advantage of the situation as regards income tax is correct. The difficulty seems to be that the workman sees his income tax deduction in relation to his weekly earnings. He feels that because he has earned a certain amount this week and has paid a part of that in taxes he was working for the government. The point the workman does not see is that his income tax is levied on the entire year's earnings, and that if he does not multiply this week's earnings by fifty-two there will probably be something coming to him on the income tax. This suggestion has been made by employers that the department prepare a leaflet or pamphlet for distribution to workers pointing out that their income tax is levied over the entire year and that if for a part of that year they are paying more than their year's income would warrant they will probably have a rebate of the overpayment coming to them at the end of the year. They could then see that income tax in relation to their year's earnings, and not in relation to a particular week's earnings. Employers agree that that would help the situation.


Mr. HARRIS (Danforth):: Yesterday at
11.30 a group of workmen came to see me on this very matter. This particular group found that one individual *who worked five and a half days in the week was taxed 91 cents a day, whereas others w'ho laid off work on Monday and worked only four and a half days in the week paid a per diem tax of only 30 cents. The full force of taxation on the average workmen's wages comes out of the sixth day's work. If one lays off that day he finds his taxation so much less. It is true he gets so much less in his pay envelope for the week, but many employees
have chores to do around the house, or they have gardens, or they just want a little leisure.
The answer given as to what obtains in the United States does not cover the whole case. In the United States they have an overall tax, a victory tax of five per cent.
With regard to the answer given by the Minister of National Revenue that they have a right to file a claim for refund if they have paid too much on their total year's earnings, that does not help much, because I venture to say as high as fifty per cent of the industrial workers will not make application for any return. They are not properly advised by employers, to begin with; they are not properly advised by the department itself. I am in accord with the hon. member for York South when he says they ought to be properly advised. Another point is that they often change employers during the year, causing difficulty so far as the yearly' return is concerned.
I urge that consideration be given to ways and means of reducing the taxation on the employee who works six or five and a half days a week and so earns an amount just over that which makes him taxable. If that condition could be dealt with by departmental regulations I am satisfied that the honest workman would feel a good deal better about it alongside of the man who absents himself and does not do a full week's work.


Richard Burpee Hanson: This is a big problem, not only in Canada but also in the United States, and in Britain, where I discussed it with Sir Kingsley Wood in September, 1941. For the first time in history a large group of people, mechanics and workmen of all kinds, were being called upon to pay income tax, and the government authorities over there were shocked and startled to learn that a goodly number of people stopped work when they reached what they considered to be the limit at which they would begin to pay taxes. It is a problem. I think there will have to be some morale building; an appeal must be made to them to continue production. In the companies where pulpwood is cut under contract I am told that these men stop work -some of them stop work; not all, I am glad to think-when they have produced a certain amount, and they have two or three hours of leisure. Of course that is very hard work; I would not like to be dogmatic and say that they stop because they do not want to earn any more, but in any case many of them do stop after having worked about seven or eight hours. What the country needs, I think, is
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some sort of appeal to the morale of these people, that they should go on producing and contributing, because every man has a stake in this country; every man has his part to play, and they, as producers of raw materials, have their place in the picture. It is their war, too. I often wonder if an appeal could not be made direct to these men by their employers- I do not know who else could do it-to keep on working even if they have to pay some taxation. My own view is that this problem will have to be dealt with sooner or later, especially if the government should ever contemplate increasing the taxes.	.
I find, too, that there is considerable resentment at the theory of deduction at the source. The men see this and that taken off their pay, and they look only at the residue. I saw the stub of a company cheque that went out, showing I think six deductions from the man's cheque, though of course some of those were deductions he had asked to have made. Just what the minister is going to do about it I do not know, but since we were told yesterday by the minister that seventy-five per cent of the increase in the national income goes to the lower wage earning groups, I do not think anyone should advocate that they be relieved altogether from the payment of income tax. That is where I think we will have to get a large share of the money. Make them have a sense of national obligation, if you can, by a morale building crusade; that they are part of this great national effort. That is the only suggestion I can offer to the minister.


Colin William George Gibson: I should like to say something about the suggestion offered by the hon. member for Danforth, because I think there is a great deal of merit in it. The problem has been that where two men are engaged at the same rate, one man may work, six days a week and the other man only four days. If the pay period is either one week or two weeks, when the employer is working out the tax to be deducted from the wages of these men he takes as his basis the amount the man is paid during that period. If one man has been away for two or three days in the period his wage is less and his deductions are made at a very much lower rate. I take it that what the hon. member for Danforth suggests is that in these cases a man on a daily rate of pay should have the deductions made on that daily rate, whether he works only one day in a week or two days in two weeks; that the deductions be made at the daily rate the man is paid, as though he had been working every day in the week.


Joseph Henry Harris: I am very anxious that the minister shall not put into my mouth words which I never used. The impression that may be left by the observations the minister is now making is that in many industries they find it impossible to provide sufficient work to keep their employees going for a full six days, with the result that they work only perhaps four days, in which case the employee on a daily basis finds himself without enough pay in his envelope to look after his family. That is not what was in my mind at all. We must not in any circumstances allow taxation to reach into any pay envelope which does not contain sufficient to support a man's family at a fairly decent level. That is basic. But those who have regular and steady employment but who absent themselves from that employment, thus disrupting the production of that organization, should have their tax equalized. At the same time those in the same organization who patriotically work full time, and overtime when they can, in order to increase production, should have some incentive which would encourage them to keep on doing so. In view of the fact that recent press reports have suggested that some of us in this chamber were anxious to tax those in the lower brackets, I am anxious to make the point clear as far as the people of Canada are concerned, and at the same time I should like to see some method found which would.encourage those who are anxious to produce


Mr. LOCKHART:: Before this matter is dismissed by the minister I suggest that he confer with those in industry who are familiar with this problem. There is a tremendous shortage of highly specialized, efficient men who can do a particular job in certain industries. Those men are being pressed to work long hours, for the very reason that there is'a shortage of highly trained men in these particular branches. These men work extra hours; there is no question about that, but they are penalized in regard to the payment of income tax, and week by week they are told by the other men, "Well, you did a patriotic job but you are not getting much consideration for it." I have spoken to men in that position, men who have worked until they were ready to drop just because they were needed on a special operation. I submit to the minister, following what has been said by the hon. member for Dufferin-Simeoe and the hon. member for Danforth, that most serious consideration should be given to men of this kind, because there are not enough of them. They do very important work, and their earnest desire to help is more or less

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ridiculed by the other workmen. As a result their determination is being undermined, until they reach the point where they say, "Well, why should I continue to be the victim of these circumstances, when I aim supposed to be needed so urgently?" I would ask the minister to confer with others on this point.


Colin William George Gibson: I should not like the impression to go abroad for a moment that we are dismissing the suggestions that have been offered; not at all. As I see it, the way it would work out is this. A man engaged at a daily rate would have deductions made at that daily rate, so that if he stayed away from work for two or three days he would still have deductions made from his daily pay equal to the amount that would have been deducted per day if he had worked all week. In the end that would mean a refund coming to that man, but in the meantime he would have' the same amount deducted per day as from the man who worked a full week. With regard to the other class mentioned by the hon. member for Danforth, namely people who have intermittent work, we have already had to deal with them. There are some classes- and I might mention longshoremen particularly-who have work for two or three days a week, and who may be then laid off two or three days. Consequently special arrangements have had to be made to average out their receipts, so that deductions may be made which are not at the daily rate for the few days worked, when it is known they are not going to be working for the remainder of the week. Those cases have been dealt with specially.


William Earl Rowe: I do not wish to press the question or take up too much of the time of the committee, but I feel that we have offered criticism without suggesting much in the way of a solution. I cannot help thinking that some consideration must be given to the question as to what constitutes an average day. If the over-all receipts of taxes from piece workers were reduced, even if it involved a smaller collection of taxes, and an addition made to taxes on incomes in the higher brackets, or even to corporation taxes, it does seem to me it would have a far-reaching effect. Some have said this afternoon that they doubt how effective this could be. I know from personal knowledge that in many instances there has been a decrease of from twenty-five per cent to thirty per cent in production. That means a tremendous volume. I know of one instance where men have actually reduced their output by almost half. It has been shown that by producing a certain amount men can have just as much as by having greater production. It does seem to me that in respect of piece
workers we shall have to impose a tax that is no higher on the fifth unit than on the third. There is certainly much merit in what was said by the hon. members for Lincoln and Danforth. I believe it is shown from what has been said by the hon. member for Danforth that those in the low brackets should not have to pay this tax, nor that those who had only four or five days work in a week should suffer. But when a man is taxed low on one unit of production, and then a little higher on the next, and reaches the point where on his fifth unit of production his rate of taxation is excessively high, he comes to the conclusion that he has just as much money by producing only three or four units. I have had personal experience in cases where production has dropped down by almost fifty per cent. I am certain the same situation will exist next year, and I do urge upon the minister and his department that they give further consideration to the matter so that during the coming months he may be able to maintain the production which is now so essential. I am sure something can be done, even at the risk of sacrificing some of the total taxation from piece workers; it can be added somewhere else. Our war effort demands that we do this; otherwise we are not going to get full benefit of the services of efficient piece workers.


Colin William George Gibson: These two sections are designed for the purpose of curing the situation about which the hon. member for Dufferin-Simcoe has spoken. If a married man had an income .of about $1,200 or less a year he would not be taxable. But if he increased his production and came into the taxable class the amount of his tax would reduce his income to the exempted amount. Consequently the additional amount he would be earning would be taken away in taxation. To avoid that, these sections have been introduced, so that any increased earning above the exemption level of $660 and $1,200 may be distributed, one-third to the man himself, one-third in refundable savings and the other one-third as tax. That is the situation covered by these two sections.


William Earl Rowe: That is up to $820 is it not?


Colin William George Gibson: That condition would not arise with incomes above $820 or $1,570.


Mr. ADAMSON:: The problem we have in Canada was met in England. Over there at the end of the quarter they established an annual earning rate for the individual based on his total earnings for the previous quarter. During the next quarter they would say: You earned at such-and-such an annual rate during the last quarter, and we are taxing you

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during the present quarter at such a rate, in equal amounts each week, based on your previous earnings. The result was that the worker knew what his tax was going to be each week. There was every incentive for him to work the extra hours, because he knew he would get the benefit of those extra hours' work at the rate of time-and-a-half or time-and-a-quarter overtime. He knew his deduction for purposes of taxation would be a certain fixed number of shillings on his weekly payroll, and that anything over and above that amount would be his.
There are advantages ini this system. I happened to be in England, in the vicinity of some of the coal mines during one of the most critical periods of the war, when there was a desperate need for fuel production. Management, trade unions, government-all were urging the miners to work seven days a week. In several of the collieries I visited they were working at that rate. They were receiving time and a half for the Sunday work-and I say that subject to correction, because it may have been time and a third. Anyway they were drawing large weekly payrolls.
Under our system we would say to those miners: You are earning so much at this very much increased annual rate. We would then deduct that amount from the weekly wages. The deduction would be heavy. The English system has the effect of equalizing those extra hours of work over a quarterly period, and results in encouraging the men to work extra hours. It has greatly reduced absenteeism and the desire to chuck it on a Saturday afternoon and go to the races or to a football match. The man knows that if this week he works an extra number of hours his payroll will be increased by that extra amount of cash, and that is a great incentive. Although I do not speak with absolute accuracy, I believe the supply of coal increased during the extra drive by as much as eighteen or twenty per cent. I commend that statement to the Minister because I have seen this system work satisfactorily in England.


Clarence Gillis: I agree with the hon. member for Weyburn (Mr. Douglas) when he says that there has been much loose talk during the past two years about absenteeism. So far I have seen no proof that there is actually a great deal of absenteeism, and I doubt if there are many men staying away from work because of income tax. There are many factors that enter into this matter which must be understood. First, the people of this country have been taught over a long period of time to live on one or two days' work per 
week; we compelled them to live on that. You cannot take people who have never worked, who have been obliged to sleep most of their time, and put them at heavy work and expect them to work seven days a week. It is not possible physically.
Then again older men are being employed. How many men in this house could work 365 days in the year without taking a day off? Many people are obliged to stay home because of the physical impossibility of continuing at work six or seven days a week. Many industries in Canada had adopted a five-day week and the workers had become used to it. Much of the work being done by men and women in factories across the country is of a type which necessitates their taking a day off occasionally. A lot of men are losing time because of a shortage of machinery or because of breakages. I know that some employers are in the habit of classifying these lay-offs as absenteeism. That is not a fair classification.
One thing that would help to keep people on the job continuously is a system of vacations with pay. When a man is working 365 days a year without anything in the way of vacation to look forward to he is bound to take off a day occasionally. It may not be possible to put in effect a system of vacations with pay while we are fighting this war, but I think that will have to come.


Mr. MARTIN:: Some of the regional boards are requiring that now.


Clarence Gillis: I am glad to hear that. There has been a good deal of exaggeration in connection with absenteeism. I am informed that the Canadian Car and Foundry company, Montreal, recently had a survey made by medical authorities. Some practical work was done in connection with lost time in the different plants and it was finally cut down fifty per cent. The experiments carried on were one hundred per cent successful. I believe it was Doctor Finney who carried on these experiments. When he tried to interest other industries in this matter he was given the brush-off; they were not interested.
I have been corresponding with the minister of pensions with regard to this matter and I believe he is now making an investigation. I think the hon. member for Danforth was very fair in his statement that only a small percentage of the men employed are resentful at the deductions being made and are taking a day off in order to avoid placing themselves in the higher income classification. The percentage is actually very small, and many statements in this regard have been exaggerated.
While there has been no increase this year in the income tax rates, the average man in industry does not understand the set-up. It

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was expected that there would be no increase in the deductions, but actually the deductions have been stepped up quite substantially. This comes as a surprise to them, and the salaried workers and others across the country will be hit hard at the end of June, when they make their returns, and in December. The matter has been settled and nothing can be done about it, but there will be considerable resentment until these people get back on an even keel. I realize that we cannot fight a war without taxation, but an effort should be made to explain these things to the people. If we are in earnest about fighting the war, we must pay for it. There will be no pie in the sky while we are fighting the war. This lack of information and the creating of a wrong impression has been responsible for much of the criticism that has been offered.
I have received many telegrams on this matter and I have advised the people that there is no way we can get from under except to carry, on an agitation for more equal sacrifices during the process of fighting this war. To stand up in the house or outside the house and make the flatfooted statement that production is being curtailed because of absenteeism is creating a wrong impression. Very few men and women are staying home because of the income tax or because they do not want to do their proportionate share in promoting our war effort. The physical factor is the important one. Men and women find that they must take a day off from time to time, they just cannot stand up to it.


Stanley Howard Knowles: Would the minister reply to the suggestion I have made? I suggested first that the levels of $660 and $1,200 might be raised, but I take it that that is out this year so far as he is concerned. My alternative suggestion was that consideration should be given to persons earning between $660 and $820, in the one case, and between $1,200 and $1,570, in the other, and provide that a larger portion than fifty per cent, as now provided, be regarded as compulsory savings to be returned to the taxpayer after the war.


James Lorimer Ilsley: The matter of the proportion to be returnable was given exhaustive study before it was introduced into the budget last year. I do not think from what I hear that the returning of a larger part would be regarded by a wage-earner or taxpayers generally as a greater incentive to work. They are more concerned about the deduction than they are about the part that is to be returned to them. That is one of the difficulties. You hear a great many of them say: We do not know when we will get this back. Some even say: AVe do not know whether we will get
72537-134J
this back. We have to reiterate the truth, which is that they will get back that part which is being deducted as compulsory savings. In that respect employers could assist a great deal, and I think do assist a great deal, by explaining that part of the deduction is savings. The gradations of the portion of the tax which is savings have been very carefully and very justly worked out, and I would not care to alter that. It starts at 50 per cent for the lower incomes and works out to a very small percentage for the high incomes. It is not easy to alter these relationships. They would have to be altered all along the line and in such a way that the alterations would bear a just relationship to one another.


Richard Burpee Hanson: They are dependent upon mathematical calculations.


James Lorimer Ilsley: Yes. I do not think that the bon. member's suggestion would be effective as a means of providing a greater immediate incentive.
I .am very much impressed by the suggestion of the hon. member for York West about taking a quarterly period and making a flat deduction from the payroll of the next period on the basis of the earnings of the previous period. He says that the results in the English experience have been favourable. It might be possible to go a considerable distance towardls .doing that here. It could not be done in some industries, I assume, but it might be done in many, and it might be the best way of overcoming this difficulty. I am informed that it could be done by order in council, that it does not require legislation.


Mr. JACKMAN:: May I ask when the minister expects to have ready the certificates evidencing the returnable portion of the tax?


Colin William George Gibson: The portion of the. tax that is compulsory savings can be determined only when the income, tax return has finally been filed, because, the deductions that are now being made at the source are only approximations. Last year they were based on 90 per cent of the tax due, and this year 95 per cent, but the actual amount of compulsory savings will be known for each individual taxpayer only when the income tax return is filed. On the taxpayer's receipt will be shown the amount of compulsory savings standing to his credit. The question has been under consideration whether a special certificate should also be given showing the amount of compulsory savings standing to the credit of the taxpayer, but no decision has yet been reached on that point.
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Richard Burpee Hanson: That applies only to .personal income tax, but corporations have also paid in compulsory savings and carry it as an asset on their balance sheet.


Colin William George Gibson: The income tax receipt
shows the amount standing to their credit.


Harry Rutherford Jackman: Yesterday there seemed to be some confusion in the mind of the Minister of Finance in regard to the matter of which I spoke the day before yesterday and again yesterday, and the hon. member for Parry Sound made the same suggestion, namely, that in that class of taxpayer, mostly in the junior professional class and the undermanagerial class who receive over $2,500 up to let us say $6,000-1 am speaking only of that class, not of any others-the differentiation between the exemption given to a married man with no children and receiving, let us say, $4,000, and the exemption given to a married man with four children and receiving $4,000 was inadequate, in the sense that it did not recognize any responsibility- not the whole responsibility-of keeping the children or providing for the total expenses incidental to their upkeep.
I merely wish to point out to the minister that certainly I for my part was not advocating any change! affecting those getting $2,500 or less who benefit through the change in the method of granting exemptions. My argument, the minister will see if he reads it, was confined solely to the married man without children and getting $4,000 or upwards and the married man with two or three or four children and coming within the same brackets. I think the budget when it was brought down last year containing this change was regarded across the country as a budget which worked against the family, and this is one of the repercussions of the change which was made at that time. I have asked the minister to give some consideration to the information which I have brought before the house and which was contained in a brief sent to me from a lawyers' firm in Toronto. The minister took the attitude that attack was the best defence and suggested that on this point I was speaking for a certain class of people whom I did not care to be associated with exclusively. Let me say to him that I have no hesitation in standing up here for the enterprise system in which I believe. The class of people for whom I was speaking, particularly those in the junior professional class, are represented by the letterhead of the firm which sent me the brief. There are altogether nine partners in this firm. There is an asterisk against the

name of each partner serving overseas, and there are five such. Of the other four members of this firm, to my own personal knowledge three were veterans of the last war. I am proud to stand up for the rights of such people.


Mr. ROSS (St. Paul's):: Apropos of what the hon. member for Rosedale has just suggested, I would point out that for a man with an income of $3,000 the difference between the tax expense for a single man and a married man with no children is $240; the difference in tax expense between the married man with no children and the married man with one child is $138; the difference in tax expense between the married man with one child and the married man with two children is $112.20; and the difference in tax expense between the married man with two children and the married man with three children is $54. In other words, the taxpayer with one dependent child pays $138 less actual tax than the married man with no dependents; the man with two dependent children pays $112.20 less than the man with one child, and the man with three children pays $54 less than the man with two children. So that there is really no incentive in this to a man to have children.
There is one other point I wish to mention. I think some further allowance should be made to people with large families, because, after all, this country of Canada needs population. As I have just shown, the man with three children is allowed only $54 less than the man with two children, or $54 for the third child. It is pretty difficult to bring a child up on $54.	'
Last year the subject of guest children was raised in this house. Has the minister taken that matter into consideration? One of the arguments he put up last year was that it was very difficult to say who was a guest child and who was not. As a matter of fact I do not think it would be difficult to say who was a bona fide guest child.


James Lorimer Ilsley: On a point of order, I must take the objection that this discussion of exemption for guest children is not in order.


Joseph-Arthur Bradette: The objection is maintained.


Douglas Gooderham Ross: This is a question in connection with deductions and so on. To my mind it enters definitely into the subject-matter of resolution 10, and I do not know where else I will have an opportunity of discussing it. I have waited until the last moment. I should like to know if the minister has done anything about it


[Stage Direction]
Resolution agreed to.

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11. That where a sale of assets takes place between persons with common interests, the total depreciation which has been and may be allowed on such assets in the hands of the transferor and the transferee together shall not exceed 100 per cent of the original cost of the assets before such sale took place.
Mr. HAiNSON (York-Sunbury): What is the danger, threatened or anticipated or actually accrued, which makes it necessary to bring in this resolution?
James Lorimer Ilsley: I do not think that anything has happened yet, but there is a potentially dangerous situation from the standpoint, perhaps not of revenue, but of offence against what the public would regard as propriety. I do not mean I have any fear that business would act sharply or evasively or anything of that kind, but it seems to me that unless there is a provision such as this we may find that businesses have established themselves in time of war and have been paid for out of profits earned during the war, and then transferred in such a way that the depreciation rapidly written off during the war may be written off over again. I do not think that that would be regarded by the public or by this house as a proper thing to permit if there is a way of preventing it.
This is a very difficult and important question. It is quite open to persons to look at this judicially and fairly and think that we are going further than we should with this resolution. I think it is a proper occasion for me to unfold the matter a little and not try to rush it through-


Richard Burpee Hanson: That is what I would like the minister to do.


James Lorimer Ilsley: -because I should like the committee to know how important it is.
It is true that the larger amount of investment in war plants has been by the government direct. The figures that my colleague the Minister of Munitions and Supply gave to the house some weeks ago show that conclusively. I forget what the figures are, but my recollection is that about ten times as much money has been invested by the government directly in war plants as has been spent by companies in extending their plants on agreements for rapid write-offs. At any rate the proportion is overwhelmingly in favour of the direct government expenditures. Where the government puts up an extension of a plant or builds a plant or installs machinery in a plant, and retains ownership of the extension or plant machinery, this question does not arise at all.


Richard Burpee Hanson: Because
it is still government property.


James Lorimer Ilsley: Because it is still government property. If it is worthless at the end of the war, the government has worthless assets on its hands.


Richard Burpee Hanson: Just follow that a little further. If I buy that plant for a song and it has an intrinsic value very much above what I paid for it, I am to be allowed only depreciation at its cost to me?


James Lorimer Ilsley: That is correct Mr. HANSON (York-Sunbury): Well, that is a fire sale.


James Lorimer Ilsley: That is right.	-


Richard Burpee Hanson: There are two aspects to that. I am not controverting what the minister has said-


James Lorimer Ilsley: Let the hon. gentleman come back to that and we will discuss it later.


Richard Burpee Hanson: I apologize ' if I interrupted the minister.


James Lorimer Ilsley: I was at this point when I left off: if this property is worthless in the hands of the government at the end of the war, it is worthless; they cannot get anything out of it. If however they can sell it, they sell it and get what they can out of it. This is not the class of plants that is being dealt with in this resolution at all. My remarks are dealing with the resolutions 11 and 12 together.


Paul Joseph James Martin: The minister might tell us what 'is meant by "common interest."


James Lorimer Ilsley: Do not get off on that now because you will get me in a legal tangle, and
I	want to deal with that on a little different basis. I will come back to it. The class of plants we are talking about here, or in No. 12-


Richard Burpee Hanson: No; it is No. 11. I think you will have to sever them.


James Lorimer Ilsley: At any rate I will describe the situation which is dealt with by resolutions
II	and 12. I will put a certain situation before
the house. The plants which are erected by private industry on these depreciation agreements are not as numerous as the others, but there is very considerable investment. Now the procedure followed by the investors in these cases has been to go to the McTague board, the board which provides for rapid depreciation or amortization of the plants; that board takes the evidence and tries to assess the post-war value; and if they estimate that the post-war value be twenty per cent of the cost of the plant, they probably allow the other eighty per cent of the cost to be written off in two years or three years or some similar period.	.
Income War Tax

The war is dragging on; it is lasting some years, and the time will be coming, and coming soon, when these plants will be entirely written off. Some of them are entirely written off already. That means that the plant has been paid for out of the profits of the company earned in transactions with the government.


Richard Burpee Hanson: Paid for by the country, in other words.


James Lorimer Ilsley: Paid for by the country.
That is perfectly all right; so long as those companies keep these plants and produce the goods it is merely a rapid write-off of depreciation, and if they then cannot any longer write those off as depreciation, their prices can come down or their profits go up, in which event their excess profits tax becomes tremendous and we do not have any worry. It had to be done; it was a fair thing to do. They could not be expected to invest in property which might become worthless in two or three years, unless they were allowed a rapid write-off. Ordinary depreciation is simply based on that principle, that the property depreciates over a period of years and a write-off is allowed so that the capital will be there; it will be in the hands of the investor at the end of the write-off period. Therefore that, I think, would be a satisfactory enough condition. But there is a way; if these companies are able to sell these properties at the end of the time for a. substantial amount; if, say 100 per cent were written off and they sold it for fifty per cent to themselves or an affiliated or associated company and then began to write it off again, I think it would be said that the country had been generous to them. Accordingly the next resolution provides that in the case of immovable assets that cannot be done. It applies equally in the case of resolution 11, when a company has depreciated 100 per cent and wishes to sell to another company with which it is affiliated, with which it has a common interest.


John George Diefenbaker: The minister's explanation is most enlightening, and I think he is to be complimented upon the course he has taken. But why restrict it to the sale of assets between persons with a common interest?


James Lorimer Ilsley: This applies only to a case
where there is no real change of ownership. If a stranger buys the property he must be allowed depreciation on the price he paid.


Richard Burpee Hanson: How far
is the minister going on this? I can understand that he is trying to guard against the same interest getting depreciation twice on 
the one asset. That would be unfair to the state. But supposing at the end of the war under the accelerated depreciation allowed by the government a company finds itself having written off eighty per cent of an asset which was built in time of war at probably twice the cost in peace time. It is sold to a man who organizes another company, so that he has the whole ownership. Is he simply to be allowed to write off the remaining twenty per cent? I think that is all he could ask for. But I -can imagine other cases where that would be a very harsh rule. Is this intended only to take care of those cases where accelerated depreciation has been allowed on expenditure made to assist the war effort, or is it to cover the whole field where a company, having written off nearly 100 per cent of its assets, then transfers to another company and that company starts to depreciate the same asset afresh? There is likely to be abuse there, irrespective of the accelerated depreciation allowance. Once an asset has been depreciated in the ownership of one person, that should be once and for all. Is it intended to go that far irrespective of the accelerated depreciation position to which the minister has referred?


James Lorimer Ilsley: My thoughts are becoming
clarified on this resolution, and perhaps I can explain it more clearly. Resolution 11 relates not only to special depreciation but to all depreciation. It is designed to make clear that the practice the income tax division sought to follow consistently has legal sanction. We can forget now about war-time depreciation; that is dealt with by resolution 12. Resolution 11 applies to both war-time and ordinary depreciation, and is designed to assure that when a company has completely depreciated its property it shall not be allowed to sell that property to itself under another name and then depreciate it over again.


Richard Burpee Hanson: That is quite right. Has such a practice arisen, or is it threatened or anticipated?


James Lorimer Ilsley: There is the Pioneer
Laundry case, a privy council case, which deals with the right of a company to sell to a company associated with itself and of the new company to start depreciating the assets over again.


Richard Burpee Hanson: They did it and got away with it.


James Lorimer Ilsley: The commissioner says they did not get away with it. It was sent back for reassessment or retrial or something.


Richard Burpee Hanson: But the principle was established.


James Lorimer Ilsley: Well, I should like to have the case before me before making a definite statement. My recollection is that the court of final appeal said that' the Minister of National Revenue, who declined to let them depreciate the property because it had been depreciated 100 per cent in the hands of the same interests, had to exercise his discretion about depreciation judicially, and that there was no evidence that he had done so. He had simply said, "no depreciation," and thrown them out. It was I think, sent back for him to reconsider it and go at it with a different approach. I do not think the case has been settled.


An hon. MEMBER:: This resolution will settle it?


James Lorimer Ilsley: This will apply to that kind of case. This lays down the principle that in the hands of a common interest they cannot depreciate more than 100 per cent.


Richard Burpee Hanson: How far does the minister carry the expression "common interest"? Is it 100 per cent, or control? Supposing a man had 100 per cent ownership in one of these companies that had fully depreciated its assets, and sold to a company in which he had only 50 per cent. The buyer is entitled to some consideration. I do not know how far you should go. This is intended to take care of what on its face looks like a fraud on the public treasury, namely, the attempt to get depreciation twice. But in the case I have indicated where a man had 100 per cent ownership and I go in with him and buy 50 per cent from him, then I should not suffer. That position would have to be clarified.


James Lorimer Ilsley: It will be dealt with in the bill, but I think what the income tax division tries to do and what the bill will permit is this; if 50 per cent of the purchase price of the property is new money I think it will allow 50 per cent of the value to be depreciated over again.


Richard Burpee Hanson: I think that would be all right.


James Lorimer Ilsley: It is not quite equitable behalf the depreciation on his money; I can see that.


Richard Burpee Hanson: The man who supplies the new money will get only half the depreciation on his money; I can see that.


James Lorimer Ilsley: That is right.

Income War Tax


Richard Burpee Hanson: Well, you will have to take care of that position if you wish to be just.


James Lorimer Ilsley: I do not know how.


Richard Burpee Hanson: 
James Layton Ralston: You pay that much less for the property.


Richard Burpee Hanson: I know; perhaps it is a desirable thing. But the value of a property is not based upon how much it has been depreciated; the value; of the property is what it is worth to me as a party purchasing, even if it is only a fifty per cent interest, and it may be a great money-maker irrespective of the question of depreciation. There are other factors entering into the matter. I am approving the principle of the legislation; I will not controvert it at all, but I am wondering how you will work out the details.


Mr. GRAHAM:: I should like to point out to the minister a difficulty which I see and which no doubt his advisers have taken into consideration. I take it that this resolution would seek to prevent a company from selling a property to a wholly-owned subsidiary and then having the subsidiary take advantage of the new depreciation year after year.


James Lorimer Ilsley: Yes.


Roy Theodore Graham: And1 the suggestion is that when, the legislation goes into effect the ownership interest of the parent company or vendor must be less than fifty iper cent of the new company that purchased the property. I wish to point out that since men are human, companies will attempt to come within the legislation and evade its application to the extent of forty-nine per cent, or if you make it forty-five per cent they will try to get in to the extent of forty-four per cent, and it seems to me that if you wish to eradicate the evil altogether you will have to go further than merely fixing an arbitrary amount. These companies will devise ways and means of escaping the clear purpose the minister has in mind.

Income War Tax


James Lorimer Ilsley: I did) not intend to fix any arbitrary amount; I took the fifty per cent by way of example only.


Charles Edward Johnston: I think the minister has done very well in drawing up this resolution. Hon. members will recall a recommendation in. the report of the war expenditures committee having to d!o with this very matter. It was the cause of great concern to the committee that when depreciation was entirely written off it would be possible for these companies to reorganize, and then under the reorganization they would be able to sell the property and again write off the depreciation. Therefore I am pleased indeed that the minister has included this resolution, because it will offset to a very large extent that .danger whereby the public would have faced the possibility of being done out of a great deal of revenue. So far as I can see, the resolution is all right.


Harry Rutherford Jackman: May I ask if a similar section to this one, which undoubtedly is salutary, is found in the legislation of either the United States or Great Britain? It is certainly something in connection with which great care will have to be exercised in order not to create hardship, while at the same time protecting the crown as it should be protected. Could the minister say if similar sections are embodied in the legislation of other countries?


James Lorimer Ilsley: I cannot answer that question. Resolution agreed to.
. 12. That where immovable assets (not including equipment or machinery) in respect of which special or accelerated depreciation has been allowed, are subsequently sold at a price in excess of the residual undepreciated value, such excess shall be applied to reduce proportionately in each year the special or accelerated depreciation previously allowed to the transferor; provided, however, that such taxpayer shall not be deprived of ordinary depreciation which but for the special depreciation would have been allowed as a deduction from income.


Roy Theodore Graham: May I ask just why equipment or machinery is not included in the application of this resolution?
. Mr. ILSLEY: For one thing it is almost impossible to follow equipment and machinery. In the second place a three-year writeoff is not bad for equipment and machinery, especially if they are working on twenty-four hour shifts. The ordinary depreciation rate for machinery is ten per cent, I think, which assumes a ten-year life for a machine; but under present conditions maintenance is not so easy, and when twenty-four hour shifts are worked the life of a machine is probably reduced by more than two-thirds. So that in

the inquiries I was able to make it was not felt that a three-year write-off -was much out of line. The commissioner points out that it is not always three years; it is sometimes four years or five years, or there may be some cases of two years. But in regard to equipment and machinery there is more justification for a rapid write-off, from the point of view of the machinery wearing out during that time, than there is in regard to immovable assets. Altogether apart from that, however, which perhaps is not the main consideration, there would be cases where machinery would1 be worth something at the end of the period. In addition, as I said earlier, it would be very hard to follow machinery or equipment. If a machine is sold to someone it would be difficult to find out the value and allot it to the depreciation which had been allowed on that machinery over the period during which it would be depreciated. It would mean reopening a number of assessments and probably reopening them repeatedly. Accordingly, we thought we should not try to cover equipment and machinery.
I would point out that it might very well be that some persons who entered into agreements with the crown for rapid depreciation had the vague idea in the back of their minds that there might be this capital gain in sight, and for that reason they took the risk of a capital loss. We are not doing anything for them if they sustain a capital loss, but we are distributing the capital gain in the immovable assets back over the life of those immovable assets. There is ground for argument that this is not the proper way to treat them, but after giving the matter a great deal of consideration we thought it was just enough, because the period during which they have been enabled to enjoy war business has been substantial and there will have been few, if any, capital losses. We thought, therefore, it was all right to take the capital gains on these and use them for reduction of the depreciation.


Roy Theodore Graham: I can see the common sense which has animated the minister in dealing with equipment and machinery. This is somewhat of a new principle, and I suspect its working out will give the department considerable trouble. It may well be that experience will show that perhaps they are not wise principles to assert. Nevertheless, like the hon. member for Bow River, I feel that in war time people who are being asked to contribute to the war effort would feel a sense of frustration if some protection against undue profits, through depreciation, were not accorded by the government. The committee is wise to agree to these two resolutions. If later,

Income War Tax
in the light of the working out of these provisions, changes are required, they can be made in due course.


Harry Rutherford Jackman: Do I understand that if this property is depreciated to thirty per cent, and the asset is subsequently sold for sixty per cent the minister would add back ten per cent during each of the years, and charge the appropriate rate of corporation tax.


James Lorimer Ilsley: That is correct.


Harry Rutherford Jackman: That seems to be fair. I must suggest, however, that the wording of such a provision, from the point of view of legal draftsmen, will be very difficult; because when people buy factories and other immovable assets they are interested, not in bricks and mortar, but rather in earning power. We may have a shell plant which has machines that could be converted to the making of a peacetime product, through the energy and foresight of business managers and entrepreneurs. Other war-time factories may be lying idle, but this factory is subsequently sold. The purchaser does not buy bricks and mortar; he buys earning power. I am suggesting to the minister that in drafting this provision he will have to use a degree of wisdom beyond that of which the ordinary individual is possessed.


James Lorimer Ilsley: I realize that.


[Stage Direction]
Resolution agreed to.
13.	That all employees, whether single or married, of Canadian companies, sent outside of Canada temporarily to perform services on behalf of such companies, shall be liable to pay income tax while so engaged outside of Canada.
Mr. DORION:: I should like to make a few observations when we are discussing employees who are called upon by their employers to do work outside of Canada. I draw to the minister's attention a certain class of people who in my opinion should be exempted from income tax, namely, merchant marine officers and seamen. Some time ago I received a complaint from a merchant marine officer-


James Lorimer Ilsley: In Votes and Proceedings of April 6, I have given notice of a resolution with respect to merchant marine officers and men. We will come to that in due course. The matter is not in order on this resolution. This resolution affects employees of Canadian companies who are outside of Canada temporarily, but who are performing services on behalf of those companies.


Frédéric Dorion: I cannot see any other resolution under which this discussion might come.


James Lorimer Ilsley: I gave notice in Votes and Proceedings, and the matter will be reached in due course.


Paul Joseph James Martin: This might cover single persons who would pay taxes in two countries. For instance, I have in mind a Canadian company which sends employees to the United States. They would pay income tax in Canada, and if they were in the United States for eight months they would be liable to income tax in that country.


James Lorimer Ilsley: They do not pay both, on account of a reciprocal arrangement with the United States.


Paul Joseph James Martin: That applies to single persons only.


James Lorimer Ilsley: No; it applies to anybody. No taxpayer liable to both United States and Canadian income taxes pays them both. He pays the higher one, as a matter of fact.


Mr. McKINNON (Kenora-Rainy River):: I have in mind a Canadian engineer who has domicile in Canada, but who has been in Great Britain during the last eighteen months. He is employed over there by the British government. Where would he pay his income tax?


James Lorimer Ilsley: Is he doing war work?


Hugh Bathgate McKinnon: Yes.


James Lorimer Ilsley: He is not employed by a Canadian company?


Hugh Bathgate McKinnon: No.


James Lorimer Ilsley: And he is paid by the British government?


Hugh Bathgate McKinnon: Yes.


James Lorimer Ilsley: I should imagine it would be ruled that he is resident in England, not in Canada. He is a single man, without a home here, and is working for the British government.


Hugh Bathgate McKinnon: But he has a home here.


James Lorimer Ilsley: What does the hon. member mean by "a home"?


Hugh Bathgate McKinnon: Where he lives with his parents.


James Lorimer Ilsley: That is a border-line case, and should be taken up with the income tax branch.


Gordon Graydon: I suppose the word "temporarily" does not necessarily mean a short period of time. For instance, it might cover

Income War Tax

anyone engaged in one of the Canadian offices in Brazil. A person might be away for a year and a half, or even two or three years, but would still be away temporarily, or until such time as his job is completed.
The minister spoke about a reciprocal arrangement with the United States. This resolution, however, refers to the performance of a service "on behalf of such companies. . . while so engaged outside of Canada." That would include many other countries to which our engineers, and others, go to do special work. Is there a reciprocal arrangement with any country other than the United States? If not, in what position would a man be who might go to one of the South American countries on temporary business. They may have income tax regulations in that country, and it might develop that the man in question might be charged twice on his income.


James Lorimer Ilsley: There are arrangements with a number of countries, although I have not the list before me.


Mr. NICHOLSON:: What is the position in connection with a man working in Newfoundland?


James Lorimer Ilsley: Newfoundland is a typical case.


Alexander Malcolm Nicholson: Does the minister mean that a man would have to pay income tax in Newfoundland and in Canada?


James Lorimer Ilsley: No; he would not pay income tax in Newfoundland. If he is an employee of a Canadian company, temporarily at work in Newfoundland, under this resolution his income tax is payable in Canada. As a matter of fact, he will not be assessed in Newfoundland.


Paul Joseph James Martin: Is it not a fact that the reciprocal arrangement applies only to married persons, and does not include single persons?


James Lorimer Ilsley: The arrangement with the United States?


Paul Joseph James Martin: Yes.


James Lorimer Ilsley: The reciprocal arrangement applies to all taxpayers, generally.


Hugh Bathgate McKinnon: Many United States citizens were working on the Alaska highway, and were paid by the United States government. Would they be paying Canadian income tax?


James Lorimer Ilsley: No, they are not.


Gordon Graydon: I ask the minister to give some consideration to the point I raised with respect to reciprocal arrangements with other countries.


James Lorimer Ilsley: Yes, I will.


Gordon Graydon: There should be plenty of time to give consideration to this and to provide a list of those countries. The point I have raised may affect a considerable body of Canadian taxpayers, and I think the matter should be explored.


James Lorimer Ilsley: I shall look into it. There may be some difficulty in connection with South American countries in arriving at a decision as to when a person from Canada is temporarily a resident. Some of the oil companies have men from Canada in those countries for two or three years or perhaps shorter periods, and they may be regarded as having become residents of the country.


[Stage Direction]
Resolution agreed to.
14.	That the tax payable by a corporation shall be paid by twelve monthly instalments commencing in the sixth month prior to the close of its fiscal period
(a)	as to the first eleven months, one-twelfth of the estimated tax, having regard to the previous or anticipated current year's income, applying the current year's rates, and
(b)	as to the twelfth month, the balance of the tax payable, having regard to the income and applying the rates of the taxation year;
provided, however, that should any instalment paid in each month of the seventh to eleventh month, both inclusive, be less than one-twelfth of the tax actually found to have been due, such deficiency shall bear interest at the rate of 5 per cent per annum from the close of the company's fiscal period.
Mr. FRASER (Peterborough West):: An
interest charge of five per cent is made if payments made between the seventh and eleventh months are not sufficient. It is possible that that period may be the poorest period of the particular company.


Colin William George Gibson: That is after the fiscal
period is over. The corporation starts paying six months before the end of the fiscal period and then carries on for six months after. At the end of the fiscal period, having paid for six months, they should know approximately what the profits were during the fiscal period.	[DOT]


Gordon Knapman Fraser: Supposing the fiscal period ended on December 31 and they started to pay in July. The seventh month would come in January which might be a very poor month. It is not 1942 money then that they would pay; it is 1943 money. I do not see why interest should be charged.

Income War Tax


James Lorimer Ilsley: I would request that this resolution be allowed to stand until eight o'clock. I am not just sure that we have done the right thing with this or that it is consistent with what we intend to do with individuals.
Resolution stands.
15.	That principal payments made by a taxpayer in respect of a mortgage or agreement for sale on or with respect to one residential property, which mortgage or agreement for sale was registered or in effect prior to the 23rd day of June, 1942, but was an obligation of such taxpayer's spouse, shall nevertheless be eligible as an offset against the refundable portion of the income tax payable.


Gordon Graydon: I suppose this refers to the situation where the wife of a taxpayer is the owner of a residential property. For reasons which need not foe mentioned here, quite often a property is held in a wife's name. As I understand it, payments on such a mortgage were not allowed as deductions from the refundable portion of the tax. This resolution will cure that alleged inequity. What about a joint tenancy, where a husband and wife own property jointly? Has it been the practice of the department to allow the entire amount of principal paid on the mortgage on such a property?


James Lorimer Ilsley: Yes; the department has been allowing payments on principal of a mortgage on property in the joint names of both as an offset against the refundable portion of the taxes paid by the one who is paying the tax.


Gordon Graydon: I have no knowledge in a general way, but I rather imagine that a tremendous amount of money has been paid out in the form of legal fees and registrations that could readily have gone into-I shall not say better channels-other channels. Could the department not have foreseen this situation and made unnecessary the tremendous turnover of property that must have occurred? I can only use my imagination, but I am quite sure that many thousands of transfers must have been made in order to regularize the position of taxpayers with respect to this situation. Would it not have been possible, by order in council or otherwise, to have avoided this difficulty?
There is another point I should like to raise, and I may say that I do not do so for the purpose of getting a legal opinion, but because many people are interested. As I understand it, no one is permitted to have a deduction made from the refundable portion of his tax unles the principal payment is paid on a mortgage in effect-that does not necessarily mean it was dated or registered- on June 23, 1942. What about the person who
purchases a parcel of real estate now and assumes a mortgage dated prior to June 23, 1942? Is he allowed to offset the principal payments he may make under that mortgage against the refundable portion of his tax?


Colin William George Gibson: He is allowed to offset that.


Richard Burpee Hanson: Does the ruling with respect to joint ownership apply to tenants in common as well as to joint tenants? There is a little distinction fietween the two.


Colin William George Gibson: They both get it. It goes to the person who actually pays the money.


Mr. STIRLING:: This resolution will, I think, necessitate an amendment to section 7A. I should like to put this case to the minister. A man over sixty-five years of age, who has more than $5,000 income, has life policies which have all become due and are paid up; he has no payments to make on mortgages; but out of his savings from his income he has bought an interest-free bond. Would he be allowed to take any recognition of that in the form of a deduction in arriving at the refundable portion of his tax? It is money spent as savings, just as much as these other forms of saving are, and undoubtedly the purchase was made for patriotic purposes.


James Lorimer Ilsley: But it was not a savings
commitment. If I understand the case correctly, he has no rights under the act to set off his payments. To begin with, if his income is less than $5,000


Grote Stirling: Over $5,000.


James Lorimer Ilsley: His income is over S5,000, so that he has to pay the refundable portion of the tax as well as the non-refundable portion -the whole tax. He can offset against this, three types of expenses only-the payment of principal on a mortgage which was in effect or registered prior to June 23, 1942; payments into pension funds-this is not a pension fund -and life insurance premiums. This man does not qualify. It is not life insurance; it is not a payment into a pension fund; it is not a payment on a mortgage. He does not qualify any more than if he had bought a victory bond or any kind of bond. I see no ground on which he could qualify. He is simply making an investment. He is doing it for patriotic purposes, but it is not a savings commitment.


Grote Stirling: He is in a similar position to those who use their savings for the purpose of paying life insurance premiums. One is just as much a saving as the other.
Income War Tax


James Lorimer Ilsley: The test is not whether it is savings or not. The test is whether it is savings paid in pursuance of a savings commitment. We would never have made this concession except that in certain cases the failure to keep up certain payments would result in substantial loss or forfeiture. Otherwise we would be led into any worth while or worthy investment, and we would be in a very broad field. We do not allow payments for war savings certificates or victory bonds. Nor is there any ground for allowing expenditures on a non-interest bearing bond as an offset against the refundable portion of the tax.


Gordon Graydon: I am not sure that this item is the appropriate one on which to ask this question, but I can see no other to which it is more appropriate. My question has to do with the refundable portion of the income tax. In his budget speech the minister made reference to some type of certificate that would be issued to show the refundable portion of the tax standing to the taxpayer's credit. First, may I ask, when does the government expect to commence issuing these certificates, and in what denominations, or how will they be issued?


Harry Rutherford Jackman: The minister has answered that.


Gordon Graydon: I am sorry. Then may I ask this question? When the certificates are issued will they be transferable or negotiable in any way, or will it be stated on the face of the certificates that they are not transferable?


James Lorimer Ilsley: The form is not settled. They will be issued after the return for the year is made and the assessment completed, which will be some time after June 30 of this year. They will not be transferable.


Richard Burpee Hanson: The question of issuing bonds is out, I suppose? There was some suggestion at one time, I do not recall just when, that in certain instances bonds would be issued by the treasury to cover the refundable portion. I understand that is out and that to-day the position is that the taxpayer is to get some sort of acknowledgment in writing, what I would call evidence of indebtedness, in some form which has not yet been determined.


James Lorimer Ilsley: That is correct.


Gordon Knapman Fraser: I have here a copy of a letter that was sent to the Minister of Finance. Since it is very important, perhaps the minister would comment upon it. The writer of this letter refers to a

pamphlet "Your 1942 Income Tax", which was issued by the income tax division, and referring to one paragraph in the pamphlet he says:
This paragraph indicates that in respect of a policy on the life of a taxpayer, his wife or a dependent, the amount of the premium may be deducted from the "savings" portion of the 1942 income tax payable. Might this not be extended to cover premiums paid by the taxpayer on behalf of soldiers?
The following situation brought this thought to me: My son, Pte. G. L. Mason, aged 26, and now in England, earned as much as $2,000 per annum before enlisting and has policies amounting to $7,000. All but $2,000 is 20-payment life and of it $5,000 has been current for 10 years or more.
Even were it possible for him to meet the very moderate premiums, amounting to $148.71 per annum, it may well be that in the present circumstances he does not have the inclination to do so. In our case I am at present able and have undertaken to meet these premiums, but is it not reasonable to expect that in not a few similar cases insurance will lapse either through financial inability or through loss of interest by the insured in life insurance?
I rather feel that the maintenance of life insurance, in cases such as that outlined, may be as desirable as the accumulation of savings through the medium of income tax payments. Therefore, I take the liberty of placing these thoughts before you for what they may be worth.
The writer's son. is a private overseas and certainly would not have enough money left out of his $1.30 a day to pay these premiums. If the soldier's father pays the premiums, could he not be allowed to offset them against the compulsory savings portion of the tax?


James Lorimer Ilsley: It is not authorized by the act.


Gordon Knapman Fraser: But could it not be done? Would it not be fair to do it? There would not be many such cases, and I think in fairness to the soldier- this particular soldier has been making payments on his policies for ten years-that should be allowed as a deduction by the father if he makes the payments.


James Lorimer Ilsley: The hon. gentleman is wrong about soldiers not being able to pay their insurance premiums. The lapse record is lower for soldiers than for the civilian population.


Richard Burpee Hanson: Who is paying the premiums?


James Lorimer Ilsley: They are paying them.


Richard Burpee Hanson: Not out of their SI .30; somebody else must be paying it. We have no Sparkman act in Canada.


James Lorimer Ilsley: The rate is not $1.30 for most of them; it is $1.50.

Income War Tax


Richard Burpee Hanson: That is quite a debatable question. When we come to the war appropriation bill I should like to ask some questions about that, because I am getting a number of letters from men who are not being paid the higher rate. I think the base rate is $1.30, and you cannot pay insurance premiums out of that.


James Lorimer Ilsley: The base rate, yes.


Harry Rutherford Jackman: I should like to support the hon. member for Peterborough West in his suggestion, and, if it can be worked out as an amendment to the provision in the act,
I believe the two ministers should give their assent thereto. There was an article in the Globe and Mail entitled:
Why Young Husbands Lie Awake at Night.
It reads:
It is expected that in the next few months there will be called into the Canadian army young married men of the twenty-five to thirty-year class, and we are acquainted with case histories of a few of them which must be typical of many thousands throughout the country. Their lot is hard; and as some of them view it, they are near despair, not for themselves, but for their families.
I am not suggesting at this particular time anything about the pay in the army. In some cases some people may be able to scrape along on it; but, as the minister well knows, there are some who were married and who had insurance policies and perhaps were in receipt of incomes considerably higher than the total pay and allowances in the army, and they are experiencing a most difficult time. If some parent or relation will maintain the premiums on the soldiers' policy, and it can be made an amendment to the section in the act so that it is not too embracive of extraneous matters, I think the minister should give every consideration to it.
The leader of the opposition mentioned to the minister a change in the section which is under review, namely, allowing a husband to take credit for the payment of principal on a mortgage when the property is held in the wife's name. I do not recall whether, when this section was first put through, last year, the possibility was envisaged. Perhaps it was, but certainly very shortly afterwards I wrote to the Minister of Finance a letter pointing out the extreme hardship I was finding in my riding in connection with many men who had their houses in their wives' names and were now unable to offset the principal payment on the mortgage against their refundable or compulsory savings. The minister wrote me at some length stating that the crown could
not connive, or even lay itself open to a suspicion of conniving, at what might in some instances be a defrauding of creditors, namely, when a husband puts property in a wife's name in order to get away from creditors. Now, as we know, the percentage of husbands who put property in their wives' names for that purpose immediately before going into bankruptcy is infinitesimal, so small that one cannot give cognizance to it; and also, the bankruptcy act in most provinces, or possibly in the dominion, does not allow a transfer to be made within a certain time of bankruptcy taking place. So that the situation has arisen, and I think all hon. members will agree it is a most salutary one, of a husband and father wishing first of all to keep a roof over the head of his family, and to that end he keeps the house where the family live in the wife's name against the possibility of a lawsuit or a commercial disaster. We found there were a great many taxpayers who were in a position of not being able to take credit for the payment of mortgage principal as an offset against their refundable savings. Undoubtedly, as the leader of the opposition has said, this has caused a hardship in many cases where hardship was sought to be averted, namely, by the change in the legal ownership of the property from the wife to the husband, at great expense. I must confess I was much amused when the minister suggested in his letter to me this was the procedure which could be taken and would be recognized. It certainly smacked of a tax avoidance, if not tax evasion, when the Minister of Finance said that one could put a piece of property in his wife's name and thus avoid taxes. However, that only leads me to say that if the minister would accept the suggestions frequently put forward, I hope constructively, from this side of the house and elsewhere, the people of Canada would be better served. In my reading the other day I came across a quotation which, I think, is well worth putting on record for the consideration of the Minister of Finance. It is as follows:
"The value of the political heads of departments", wrote a nineteenth century chancellor of the exchequer, "is to tell the permanent officials what the public will not stand."


Gordon Graydon: When the refundable portion of the tax is paid back at the time called for, will it be paid back in such a way that it will constitute income under the ordinary regulations of the income tax act?


James Lorimer Ilsley: No.


Gordon Graydon: I have had an inquiry.


James Lorimer Ilsley: Taxable itself.

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Gordon Graydon: Taxable itself, being refunded at the end of the war.


Harry Rutherford Jackman: That was cleared up.


Gordon Graydon: I was not in the chamber when it was. In any event, I have had an inquiry from one or two sources with respect to the matter. I understand that business houses and others are not allowed to set up this refundable portion of the tax as an asset for certain purposes. More than that, there is some fear that when it is refunded it will also be taxable a second time. Could the minister give us some light on that?


James Lorimer Ilsley: I made a statement in regard to the companies. It is not taxable again. They have saved it out of their earnings; it comes back free of tax.
I am not clear on the two per cent interest on it. I think that is taxable; but the question is, in what year it is taxable? The two per cent is taxable.


Harry Rutherford Jackman: Is it not a return of principal?


James Lorimer Ilsley: Yes; the tax itself is a return of principal. But the two per cent interest on it is not.


Richard Burpee Hanson: The interest would be taxable?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: May I
ask the minister about the change he is making now under this resolution, as to a spouse and her husband. Did I not see somewhere that after he turned that down last session in the legislation which was passed, it was put into effect? An announcement was made to the press that it was done or that it would be done by some regulation. What was the authority for that? Perhaps it has not been done yet, and this is to give effect to it. Will it be made retroactive?


James Lorimer Ilsley: There was never an announcement that it would be done.


Richard Burpee Hanson: I saw in the papers that you were to do it. Maybe it was not authorized.


James Lorimer Ilsley: There was no announcement by the government or by anyone on behalf of the government that that would be done, until I announced it this year.


Gordon Knapman Fraser: Will the minister give consideration to the letter I read with regard to the soldiers?


James Lorimer Ilsley: Well, I will give it consideration, but I do not want to hold out too much

hope on that. A request of that kind is presented in this light, that if it is not done the soldier's insurance will lapse. There are two chances that it will not lapse. One is that the soldier will pay it himself; the other, that the parent will pay it for him. He has to pay a great many things which he cannot set off against these refundable taxes. But I will give the point some consideration.


Harry Rutherford Jackman: This section, from what the minister said in his budget 'address is retroactive?


James Lorimer Ilsley: Yes.


Harry Rutherford Jackman: I do not happen to see the one regarding annuities. That is included elsewhere?


James Lorimer Ilsley: Yes.


[Stage Direction]
Resolution agreed to.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.
Joseph-Arthur Bradette: The committee will
revert to resolution 14:
14. That the tax payable by a corporation shall be paid by twelve monthly instalments commencing in the sixth month prior to the close of its fiscal period
(a)	as to the first eleven months, one-twelfth of the estimated tax, having regard to the previous or anticipated current year's income, applying the current year's rates, and
(b)	as to the twelfth month, the balance of the tax payable, having regard to the income and applying the rates of the taxation year;
provided, however, that should any instalment paid in each month of the seventh to eleventh month, both inclusive, be less than one-twelfth of the tax actually found to have been due, such deficiency shall bear interest at the rate of 5 per cent per annum from the close of the company's fiscal period.
Shall resolution 14 carry?


Gordon Knapman Fraser: Not
until the minister makes a statement as to what he is to do.


Colin William George Gibson: This section will be
amended slightly, in that payments for the first six months may be estimated on the income for the previous year. If the tax is paid on the basis of one-twelfth of the tax calculated on the income for the previous year, that will be accepted without interest even though it is less than the tax actually payable on the income for the current year.

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Gordon Knapman Fraser: Take the year 1943; if a company were of opinion at the beginning of 1943 that the year's income would not be as large as it was for 1942, would they pay on what they thought the 1943 income would be?


Colin William George Gibson: It must be remembered
that companies are not on the pay-as-you-go method. In 1943 they will be paying on the 1942 income. A company whose year ends December 31, 1943, would start paying tax on the 1943 income in July, 1943. If they estimate their 1943 tax on the basis of the 1942 income and pay one-twelfth of that each month, no interest will be added, even though the payment may be under one-twelfth of the tax eventually found due.
Then we come to the period at the end of their fiscal year. At that time they know almost definitely what the year's income is, amd they will then be required to pay one-sixth per month of the balance that is owing on. the tax for 1943. They have already paid six months, and they have six months to pay in the following year. They will be required each month to pay one-sixth of the tax that remains due. There will be interest charged on any underpayment in that period, and that interest will be at the rate of five per cent from the end of the fiscal period. Even though the underpayment is made in January, February or March, the five per cent interest will be dated back to the end of the fiscal period.


Gordon Knapman Fraser: Why do you do that?


Colin William George Gibson: Otherwise the penalty
would be almost insignificant, if in the eleventh month they underpay there would be only one month's interest added to that payment.


Gordon Knapman Fraser: It
might be that even in January or February they would not be quite sure of the income. It is not fair to date the underpayment back. It might amount to something considerable for some big companies.


Colin William George Gibson: They would know fairly
accurately at the end of the year what their income for the year was, although their audited statements would not be prepared.


Gordon Knapman Fraser: I
still think it is unfair, because if a parent company depended upon subsidiary companies to get in their returns they might not know until after February in many cases. At the
present time, on account of the shortage of accountants, it is very hard for companies to get their books audited.


Colin William George Gibson: I quite agree they-would not have their statements audited. But they have had the use of the money that is short-paid, and they would be paying five per cent interest on it from the time they should have known what their tax liability is, namely, from the end of the fiscal period.


Richard Burpee Hanson: Is there any consultation with the taxpaying public with respect to this or similar provisions? In the United States there is a practice of holding hearings on taxation bills such as this. I often wonder whether business is ever consulted through the chamber of commerce or similar bodies before these provisions are brought down in parliament. Or is it only afterwards that there is consultation? I know representations are often made to the Minister of Finance prior to his bringing down the budget, but those are made only in anticipation. They are not really consulted at all, are they?


Colin William George Gibson: Oh, yes; there are a good many consultations held both before and after the bringing in of the budget. Representations are very often made prior to the budget being brought down.


Douglas Gooderham Ross: Was it ever considered that during the year and while parliament is in session people might come here and ask the banking and commerce committee to hear evidence in connection with their problems? You cannot treat every company on the same basis. I am not so concerned about the five per cent interest charge, except for the matter' of fairness. But there are some companies that do not know what their income is until some time after the close of the year.
I might give an illustration. I know a little about the casualty insurance business. Take it just in connection with automobile insurance; there are so many factors entering into the writing of that insurance that it takes the companies some time to determine their profits. At the present time there are fewer automobiles on the roads; there is less exposure to risk, but on the other hand rates have been lowered so much that the insurance companies do not know whether they will make a profit or not. In the insurance business you cannot tell before the end of the year what your profits will be for the year. The first part of the year is the premium paying time; the last part is the claims paying part.
Business wants to be consulted, not just by the minister; it wants to be consulted by such
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an organization as our banking and commerce committee. A great many of these problems could be ironed' out before that committee. So many different groups are interested in taxation. There is labour; they could come along and put their ideas before us, and the same with industry. A great deal of good would result if we did something along that line.


Richard Burpee Hanson: The minister says there is consultation with business, but is that not largely by way of asking for redress of grievances which arise out of the operation of laws, or proposed laws which have already been framed and brought down for introduction in parliament, and for rulings? That is bound' to happen, and it is all to the good that it should happen. I hope attention is paid, and I am sure it is, to the representations made by business; and I am confident that if in a given case relief can be granted, that will be done. What I was thinking about is this. Take this very resolution with which we are now dealing, concerning the payment of instalments of income tax by corporations. Was anybody ever consulted about that? After all, the taxpayer has some rights in the country, and his convenience should be considered in a degree. Or is this just an arbitrary * provision set up by the department?


Colin William George Gibson: While a great many representations are made as a result of legislation that has been passed, many representations are also made in regard to proposed legislation, in connection with matters that people think should be included in the taxing acts to assist industry or whatever taxpayers are being represented. Those representations are given very careful consideration before the budget is prepared.


Douglas Gooderham Ross: Just apropos of what the minister has said, in making his budget speech the Minister of Finance said in effect that this was not the government's budget, that the government were prepared to listen to representations, and all that sort of thing. I protest against that; I say it is the government's budget; and unless the members of the House of Commons have more to say about the budget, more to say about the ways and means of raising money and so on before the budget is brought down^ it will continue to be the government's budget.


Mr. COLDWELL:: Would it not mean the adoption of a rather wide principle to ask representatives of corporations and other interests to come here and discuss details of taxation before the budget is brought down?
If that were done, then you ought to bring 
representatives of the wage and salary earners from whom deductions are to be made, and receive their representations.


Douglas Gooderham Ross: That is what I suggested.	*


Richard Burpee Hanson: All interests should be consulted.


Major James William Coldwell: In that event, of course, you would do away with the time-honoured principle of the secrecy of the budget, or the foreshadowing of taxation before it is brought down.


Richard Burpee Hanson: That applies only to the tariff and matters like that.


Douglas Gooderham Ross: It is not what I said.


Major James William Coldwell: It strikes me that if you are to invite representatives of chambers of commerce and of corporation interests, as was suggested just now, you must also invite all other interests to discuss the budget proposals before they are brought down. If we are to accept that principle it is all right, but I am suggesting that you could not invite representatives of chambers of commerce and of corporations, unless you invited all others interested in the budget proposals.


Richard Burpee Hanson: Last year I made the suggestion that we should give consideration to the principle of having similar public hearings on taxation measures to those they have in congress, and that the committee dealing with this question should hear every interest, including the treasury, as they do in the United States. Of course I realize that our constitutional set-up is quite different from that of the United States, and this invariably has been the stock answer to this proposal. But I should like to see the experiment at least tried in this country, so that we would not have so much of what I call trial-and-error taxation, as we have had it in the past. Take the question of the income tax proposals, which after all are the proposals of the treasury, because the Department of National Revenue is merely the collecting agent. If these proposals were submitted to the banking and commerce committee or some such body at public hearings, at which all parties and interests could appear and be heard, perhaps we would have a more democratic form of government than we have to-day. At the present time we have an autocratic form of government, or a bureaucratic form. The proposal has merit, though I see the difficulties which arise as a result of the difference in our constitutional

Income War Tax
set-uip. In the United States the; administrative or executive branch is not part of the legislative branch, as it is here. The answer always given is that the government, being responsible for taxation proposals, must formulate them and stand or fall by them. But in any case where secreicy is not required, as it is required in connection with tariff changes-in which case people might take advantage of the situation and abuse their privileges-I do not see why at least consideration should not be given to a proposal of this kind'. Certainly it would not do any harm, and alternative methods of taxation might be suggested.


Douglas Gooderham Ross: As a matter of fact I did suggest that labour and other organizations should be .called in. It was not my idea that we should discuss the budget before it was brought down; but now we have the budget; it has been brought down, and I think it would be interesting to the people of the country if the banking and commerce committee could sit immediately and discuss these questions of taxation. Then we would be better prepared for next year; we might get rid of some of the bad things, and the government might be told how we could raise more money. I do not see any harm in taking such a step, and I think it might be given a trial.


Major James William Coldwell: The proposal advanced by the hon. member for St. Paul's differs from that made by the hon. member for York-Sunbury, as I understood it; the two were essentially different. The objection I raised to the suggestion of the hon. member for York-Sunbury does not apply to that of the hon. member for St. Paul's. After all, however, the House of Commons is here, and it seems to me that we are more and more abrogating our powers and handing them over to outside organizations. I think the danger is that more and more the actual decisions may be removed from parliament. We should keep as much parliamentary control as we can, though the suggestion that taxation be criticized after it has been introduced has not the same objectionable features that the other proposal had.


Richard Burpee Hanson: The trouble is that you never get anywhere by postexamination.


Douglas Gooderham Ross: When I offered my suggestion I had in mind the good that came out of the work of the banking and commerce committee in 1939, when it made a thorough examination into the question of money and finance. I think the minister recognizes the good work that was done by that committee
at that time, and that was exactly what I had in mind when I was speaking about the question of taxation. It was not a question of what the government should bring down, but a question of the various principles of taxation involved; for, after all, most of us do not understand the principles of taxation. We do not know; we have not the figures to show us. We do not know what the result might be if we put a big tax on cosmetics or some other unnecessary articles, as Great Britain has done. We do not know what would happen if a 100 per cent tax were placed on non-essential articles such as has been done in Great Britain. The results might be very satisfactory, and might bring in a great deal of money. I have the principle of taxation in mind, and it is my view that it might be a good idea to have the banking and commerce committee call witnesses to discuss this matter.


Gordon Graydon: I understood the Minister of National Revenue to say that he wished to move some amendments to the resolution. He has not done so, and I should like to know his intention.


Colin William George Gibson: It would not be an amendment to the resolution, but rather some slight changes in the wording of the bill, when it is brought down.


Gordon Graydon: Do I understand that the minister is prepared to allow the resolution to pass as it is now drafted?


James Lorimer Ilsley: If the resolution imposes further burdens it should stand and be amended. If it does not, then it is perfectly all right to give notice now, and include the change in the bill. I have not had an opportunity of looking into the proposed amendment. Perhaps the resolution might be permitted1 to stand for the present, and we might pass on to other resolutions. Consideration can be given to it within the next hour or two, and if it is thought necessary to amend the resolution it can be so amended. If not, we can put it through as it is and make the necessary changes in the bill. I would suggest that it stand now.


Gordon Graydon: My only anxiety was to have the proceedings regular.


James Lorimer Ilsley: That is mine, too.
Resolution stands.
16. That all drilling costs on wells spudded-in during the period January 1, 1943, and March 31, 1945, and abandoned within six months after completion of drilling and all exploration costs including all general geological and geophysical expenses incurred between the said dates may be allowed as a deduction against current income of companies whose principal business is the production and/or refining and/or marketing of
Income War Tax

petroleum and/or petroleum products; provided, however, that the tax saving hereunder shall be limited to 40 per cent of such expenditures.


James Lorimer Ilsley: I move, in amendment:
That resolution No. 16 of the resolutions to amend the Income War Tax Act be amended by deleting the word "current" after the words "as a deduction against" in the fifth line thereof.


Major James William Coldwell: What is the effect of
that amendment?


James Lorimer Ilsley: The word "current" comes
out; that is all. The purpose of the amendment to resolution 16 is to allow companies to carry forward their expenditures on off-property explorations and drilling in>
the event of a company's income in the year in which an expenditure was incurred not being sufficient to absorb fully the expenditures made. This is given effect to by deleting the word "current" in the phrase which says that these expenditures may be allowed as a deduction against current income. Provision will then be made in the law to enable a company to take it as current expense or take it as a deduction against a succeeding year's income, where the current year's income is not sufficient to absorb the full expenditure.
This is one of the oil sections which, I fear, are rather controversial, and the consideration of which will occupy a considerable time in the committee. I might point out, however, that they are designed to give encouragement to the search for oil, and the development of oil resources in Canada, so greatly needed at the present time.


Richard Burpee Hanson: Before
the discussion becomes general, and for the benefit of those of us who are not familiar with oil-drilling, will the minister be good enough to make a general statement with respect to the government's proposals. Then, if he is in a position to do so, will he summarize in general what the objections are? I have been deluged1 with a mass of material against these proposals, and I must confess that, not being familiar with the business, I do not understand them.


James Lorimer Ilsley: I have every sympathy with the hon. member, and an acute appreciation of his difficulties. This is one of the most perplexing and complex questions with which we have had to deal. I, like him, have been deluged with representations from all quarters and all interests.
The object of these oil resolutions is to give some encouragement by lessening the taxes of companies searching for oil and carrying out exploration.


Richard Burpee Hanson: What
amelioration is given by these resolutions?


James Lorimer Ilsley: Very considerable, indeed.
But it is not enough to satisfy many people who are making representations. We have given a great deal of thought as to how far we should go. I shall not anticipate the issue which no doubt will speedily become apparent as speeches are made; but the general situation is that we are permitting a speedier write-off than would ordinarily take place, from the incomes of certain taxpayers, and the write-off of certain expenditures they otherwise would not be able to have at all. We are also changing depletion allowances for incorporated bodies and, in certain instances, we are changing depletion allowances for individuals.
I believe it will be said, with respect to this proposal, that it is favourable to the large companies, as opposed to the royalty companies. It will be urged that by these provisions the small man is being discriminated against.


Richard Burpee Hanson: I gathered that.


James Lorimer Ilsley: I might as well bring out the point, because that is exactly what the issue is. It will have to be argued out. We do not think it is discriminatory, and we have tried our best to prevent any discrimination.


Richard Burpee Hanson: Surely the minister is not standing up for the big fellow, is he?


James Lorimer Ilsley: No.


Richard Burpee Hanson: He accused us of that the other day.


James Lorimer Ilsley: I am not admitting that for one minute. There will be amendments. The provisions are designed to get one result-oil.


Richard Burpee Hanson: The minister has cited in a general way a number of resolutions, but would he tell us the concrete position that at present obtains under the law with respect to these operations and then tell us what is proposed?


James Lorimer Ilsley: That would take threequarters of an hour.


Richard Burpee Hanson: It might be worth while.


James Lorimer Ilsley: The concessions provided by resolution 16 were not in existence before. This resolution reads:
16. That all drilling costs on wells spuddled-in during the period January 1, 1943, and March 31, 1945, and abandoned within six months after completion of drilling and all exploration costs including all general geological and geophysical expenses incurred between the said dates may be allowed as a deduction against current income

Income War Tax
of companies whose principal business is the production and/or refining and/or marketing of petroleum and/or petroleum products; provided, however, that the tax saving hereunder shall be limited to 40 per cent of such expenditures.


Richard Burpee Hanson: That covers the big companies.


James Lorimer Ilsley: It covers anybody.
Mr. JACKMAN; Would it cover searching companies?


James Lorimer Ilsley: This does not, but there are other resolutions. These drilling costs were not allowed as an expense before, but they are now being allowed.


Richard Burpee Hanson: Were they considered a capital expenditure before.


James Lorimer Ilsley: Yes, they were a capital expenditure before.


Mr. ROSS (Calgary East):: I wish to commend the Minister of Finance for the sympathy he has shown for the oil industry. The budget of a year ago proved disastrous to the industry; the present budget will remove many of the injustices. However, in my opinion there are still some injustices which should be removed. I think it would simplify matters if the minister would consent to resolutions 16 and 17 being discussed together because they both deal with oil.


James Lorimer Ilsley: I do not think we can avoid that.


George Henry Ross: The concessions granted by these resolutions can be taken advantage of only by the large companies. Under resolution 16 a company that drills a dry hole may offset those drilling costs against its income assessment. It costs $200,000 to drill a well, so that only the company with an assessable income of $200,000 would be able to offset the full cost of drilling a well against its income tax assessment. The small company cannot do this. A company with an income of $5,000 could offset only $2,000 on the cost of drilling a dry hole, and $2,000 would not go far in drilling.
I do not suggest that the government is too generous to the large companies, because it is not. It is only being fair to these companies. If a company drills for oil and meets with a loss, it should have the right to offset the losses sustained in one well against the profits of another. Banks are allowed to do this. If a bank lends money to two debtors and one fails to pay his debt, I believe the bank may offset the loss on the one against the profit on the other. This applies to most other lines of business; it is the only fair and proper thing to do so far as the oil industry is concerned.
As I say, the small companies cannot take advantage of this provision; for that reason they are not being fairly dealt with. I suggest to the minister that he allow a number of small companies or individuals to form a syndicate. Supposing twenty companies or individuals clubbed together and raised $10,000 each, they would then have $200,000 with which to drill a well. If the well proved to be a dry hole they should be permitted to charge their losses against their individual assessments, the same as the large companies are doing. That would prove very helpful to the industry because a number of small investors are ready to invest in oil.
You have to depend upon the little fellow to do the lion's share of wildcatting, as it is called. The big companies do not drill discovery wells; they do not wildcat; they do not pioneer. When the prospector or the small company brings in a well, the large company comes in and either acquires that well or acquires property on the structure. The large company gets into production with little or no risk. It does not go out and take chances the way the little fellow does. It is the little fellow who does the spade work in all mining operations. I believe the same is true in the United States. I should like to quote from an address delivered by Mr. Harold L. Ickes before the annual meeting of the independent petroleum association of America held at Wichita, Kansas. The statement was reported in Canadian Oil and Gas of October, 1942, and is as follows:
Especially do I want you to know that I realize the importance of the independent producer, both in peace and in war. The very term "independent" seems somehow symbolic of the American birthright of free opportunity. In saying that I find no criticism of the so-called major companies which, with only an occasional exception, have given devoted and patriotic service to our war programme, and have shown the finest kind of cooperation, and even when at times it has not been to their financial advantage. And yet I suspect that I shall always feel a warm affection for the little fellow and have a sympathetic interest in his problems. We must always have the independents, the little fellows, in all lines of endeavour in this country of ours. Without them, something would go out of the bone and fibre of America.
If we have needed you before, if we shall need you to-morrow we need you particularly to-day. Upon you we must depend for the lion's share of the wildcatting. To you we must look for the squeezing of the last possible drop of oil from our older wells through secondary recovery, now more essential than ever before. . . . For my part, I pledge you that your interests will always be protected scrupulously.
The reason, for the little fellow taking all the chances is obvious. The big company is managed by a board of directors who are financiers. They realize that the relation-
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ship between the directors on the one hand and the company on the other and between the directors and the shareholders is a fiduciary one. They realize that it is their duty to be most conservative and guarded in the investment of the company's capital. They cannot afford to take chances with the company's money the same as they would with their own. If they wish to take a flier with their own money, well and good. But they have to handle the company's money conservatively and put it in safe and sound investments. For that reason it is not the big fellow that does the speculating, .prospecting or wildcatting. It is the, little fellow who does it, and unless something is done for the little fellow he will be driven out of the industry. I have already suggested one course that might be followed, namely, to allow the little fellows to form a syndicate and offset the total of their development costs, should they strike a duster, against their personal assessments. In that way they would be encouraged to speculate, take a chance and develop the oil industry.
The prospector who goes out and spends his money in this way is entitled to a generous return on the money invested. A committee of the United States senate used these words in a report a few years ago:
The prospector for mines, or oil and gas, frequently expends many years and much money in fruitless search. When he does locate a productive property and comes to settle, it seems unwise and unfair that his profit he taxed at the maximum rate as if it were ordinary income attributable to the normal activities of a single year.
I implore the minister to give the wildcat operator and the courageous explorer a chance. They hazard all their capital every day and all day long, and neither their taxes nor their burdens should be made too onerous.
I wish to say a word with regard to royalty companies. Since the royalty company may not be known to some members of the house- it probably is to a few-perhaps I should say a word as to the nature of the royalty company. All hon. members understand the workings of the ordinary company to which we refer as the share company. When a company is about to drill for oil it secures a location, and then the share company sets out to sell shares in order to raise the capital to do the drilling. But the royalty company does not do that. The royalty company goes out and sells shares, not in the capital of the company, but in the production to be obtained from an oil well. The reason for their proceeding in that way is this. When oil was first drilled for in Turner valley a company would drill, strike a well and get big production. Then, thinking

they were pretty wise, the company would drill a second well which might prove to be a dry hole. Then they would drill a third well, and so on, until all the money they made in the first profitable well was used up, and the poor shareholder got no return for his money. Therefore they devised this scheme of raising money from the sale of royalties. They sell royalties in a single well; a man knows when he buys a royalty in that well that the profits from the well cannot be used in any other way than to. be paid back to him and the other royalty holders. The practical working out of it is on this basis. After a site is selected, a three-party agreement is drawn up. The drilling company is the party of the first part. It undertakes to drill the well, recover the oil from it, sell the oil, and turn the realizations from that well over to a trust company. The trust company is the party of the second part. In turn, the trust company distributes the net realizations from that well among the royalty holders who are the parties of the third part. In that way the royalty holders know they are getting their money back and that it will not be reinvested by a board of directors.
A great deal of the development in the Turner valley oil field in the last few years has been carried on by royalty companies. At the present time the royalty companies are being put out of business. They cannot carry on under this scheme because, if they drill a well and get a dry hole, they have no assessable income against which they can assess the cost of drilling that dry hole; they have not a dollar of assessable income. For that reason they cannot take advantage of this concession. I had an accountant figure out for me how this taxation works out on the average well in Turner valley. He has taken a well which produces 300,000 barrels. The average for the first year would be 325 barrels a day. It is financed by the sale of eighty net royalties of $3,000 each, and that well, after all taxes are paid, shows a loss of $40,000. I should say, though, that it is figured out on last year's depletion allowance of twenty per cent, which is increased this year to thirty-three and one-third per cent. But the company I speak of, under that investment, would mahe no return on its money; it would not get all its investment back; it would lose $40,000. I have the figures prepared by the accountant to show how this is worked out. It may be that hon. members would be interested, and with the permission of the committee I would place them on Hansard.


Some hon. MEMBERS:: Yes.


George Henry Ross: The tabulation is as follows:
-	First year	Second year	Third year	Fourth year	Fifth year	Five year Total	-Production-barrels	120,000	80,000	50,000	30,000	20,000	300,000	>
Income from well taxed as a corporation before distribu- hh tion made to royalty holders. s to CO O 3 <X>
a -i Royalty payments taxed in ^ hands of royalty holders as g if they were dividends. to 1	* toGross value of production	
Less gross royalty at 20%	$ cts. 199,200 00 39,840 00	$ cts. 132,800 00 26,560 00	$ cts. 83,000 00 16,600 00	$ cts. 49,800 00 9,960 00	$ cts. 33,200 00 6,640 00	$ cts. 498,000 00 99,600 00	Less operating expenses	159,360 00 20,360 00	106,240 00 9,240 00	66,400 00 9,400 00	39,840 00 8,840 00	26,560 00 7,560 00	398,400 00 55,400 00	Net proceeds of production	139,000 00	97,000 00	57,000 00	31,000 00	19,000 00	343,000 00	Depreciation allowance	
Recovery of cost allowance	5,000 00 134,000 00	5,000 00 46,000 00 15,333 33	5,000 00 17,333 33	5,000 00 8,666 67	6,333 33	20,000 00 180,000 00 47,666 66	Sura of allowances	139,000 00	66,333 33	22,333 33	13,666 67	6,333 33	247,666 66	Taxable income	Nil	30,666 67	34,666 67	17,333 33	12,666 67	95,333 34	Nil	12,266 67	13,866 67	6,933 33	5,066 67	38,133 34	Distributable to royalty holders	139,000 00	84,733 33	43,133 33	24,066 67	13,933 33	304,866 66	(Net proceeds less tax) Distribution per unit (1/80 of above)	
Depletion allowance-20%	1,737 50 347 50	1,059 17 211 83	539 17 107 83	300 83 60 17	174 17 34 83	3,810 84 762 16	Taxable income in hands of royalty holder	1,390 00	847 34	431 34	240 66	139 34	3,048 68	Tax (if in $2,000.00 bracket)	
Tax (if in $5,000.00 bracket)	
Tax (if in $10,000.00 bracket)	472 60 653 30 778 40	288 10 398 25 474 51	146 66 202 73 241 55	81 82 113 11 134 77	47 38 65 49 78 03	1,036 56 1,432 88 1,707 26	Met return to royalty holder- (If in $2,000.00 bracket)	
(If in $5,000.00 bracket)	
(If in $10,000.00 bracket)	1,264 90 1,084 20 959 10	771 07 660 92 584 66	392,51 336 44 297 62	219 01 187 72 166 06	126 79 108 68 96 14	2,774 28 2,377 96 2,103 58	
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Summary of Foregoing Table
Original investment	
A. Investor in $2,000 bracket receives	
Fails to recover investment by	
B.	Investor in $5,000 brackets receives . Fails to recover investment by ....
C.	Investor in $10,000 bracket receives
Fails to recover investment by	
$3,000.00	$3,000.00	$3,000.00
2,774.28

Summary of Returns to Investor under Preceding Conditions Over a Five-Year Period
'jrross proceeds or production	 Gross royalties paid			$498,000.00
Operating expenses 			398,400.00
Income taxes-at source 	
Income taxes-in hands of royalty holders (amount varies depending on income bracket of royalty holders)-estimated	$ 38,133.34 104,866.66	343.000.	00 143.000.	00Net returns to royalty holders 	
Original investment-lease, etc	
-well 	
-equipment 	40.000.	00 180,000.00 20.000.	00	200,000.00 240,000.00Capital loss 	$ 40,000.00
These figures deal with an average well in Turner valley. If the average well is to make a loss in that way; if it is to be taxed to such an extent that it cannot make a profit but on the other hand suffers a loss, I suggest that something is wrong. I think it would be well if the minister would have his departmental mining engineer, or some person qualified to look into the matter, see what would be fair and reasonable under the circumstances, and then exempt from* 1 taxation small wells, say wells in Turner valley starting in with an initial production of 400 barrels.


John Ritchie MacNicol: Four hundred barrels in what length of time?


George Henry Ross: Four hundred
barrels a day at the initial production. It may be that that would be a reasonable amount to be allowed in the Turner valley field. Of course, in some other fields where one does not have to drill so deep-in our district we have to drill to a depth of seven, eight or nine thousand feet in order to get production-the costs would be less and the amount could be lowered. The amount fixed should have some relation to the depth it is necessary to drill in order to get oil in a particular field.

I make this suggestion as one which would be helpful to the industry and not unfair to the government. Certainly it is most unfair to tax capital investments, which is what is being done under the present system. It is not so bad under the current budget as it was under the last, but it is bad enough yet.
I submit that, by driving the small investor and the royalty companies out of the field in this way the government will lessen the income to be derived from this source. Without the small investor it will not be possible to get the development which would otherwise be had; if you do not get the development you cannot get the production, and if you cannot get the production you will not receive the income taxes, so that revenue will suffer. The men in the field will suffer too.
On the eastern slope of the Rocky mountains extending from the United States boundary to Alaska the outlook for oil is excellent. At many points in that area oil has oozed from the ground and can be seen floating on the water. The possibilities of enormous production are tremendous. I submit that the government should do something to help that industry. To encourage small investors woulfi assist a great deal, because we have numbers of idle rigs; we have the men, for there is a

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good deal of unemployment in Calgary and the area generally; we have the crews; we have good drilling oil sites and the capital is available if it is given a chance.
I am very glad that the Minister of Munitions and Supply has come into the chamber, because I want him to get the benefit of what I am. saying. I see by the paper that a crown company has recently been organized. I hope that at a very early day the Minister of Munitions and Supply will let us know the plans of the company. It is important to the oil industry of Alberta that we know as soon as possible, so that plans may be made accordingly by the industry.


Gordon Knapman Fraser: He *
should tell us to-night.


George Henry Ross: He probably will. Give him time. I say that in view of the immense possibilities for oil in the area of which I am speaking, the government should do something to stimulate production. The excessive taxes of last year have made it impossible for some companies to carry on. One company expected to reach oil at 7,500 feet. It raised $196,000 to drill; it got down to a depth of 8,949 feet; and it was closed down last December on account of shortage of money. All the indications point, I am informed, to the likelihood of good production being obtained from this well if the company can only drill to the point of production; but as I say, they were short of money and had to close down last December. People who had money to invest were afraid of the taxation which was imposed after the well was started. This made it impossible for them to finance further. It may be that this is a well which should be drilled deeper to production. I do not say it is; it may be. The government should send its mining engineers or geologists and investigate. If they conclude that it should be drilled to production, then the government should assist in the drilling of that well to production in order to help the industry at this time.
In what way could they help? I suggest two ways. One would be to lend money to the company, to be repaid out of the first production. The other would be for the government to buy shares in the company and take its chance with the other share or royalty holders in the company.
Another well is drilled to a depth of 8,000 feet and drilling is still going on. From the structure I understand that the prospects are good. But the company has no money to complete the well. They can tell approximately how much further they will have to go and can estimate in a measure what it will cost.
Mr. MaeNICOL: Are the wells in close proximity?


George Henry Ross: No; they are in different structures.
Mr. MaeNICOL:	But both in Turner
valley?


George Henry Ross: No; one is in Turner valley; the other is outside the valley. This company has drilled to a depth of 8,000 feet. It started drilling before this excessive taxation was imposed. Owing to the excessive taxation it cannot raise further money to complete the drilling and1 will have to close down soon unless it gets assistance in some way.
A third1 well is down 7,350 feet. This well has noit been stopped by reason of excessive taxation. In this case the manager of the company met with an unfortunate accident as a result of which he was unable to superintend further drilling operations and was also unable to complete the financing. But the prospects there are good. In fact they have reached production but not on a commercial scale. I had occasion to visit that well not long ago, and I have a picture here of what I saw. The well must be capped in order to prevent the oil and1 gas from escaping. When the well is uncapped the pressure of the gas is so great that it blows the oil fifty or sixty feet into the air. From the pictures I have distributed hon. members will see how it works. This is another well that should be investigated. If as a result of investigation it is concluded that the prospects are good, the well might be drilled to a greater depth in order to ascertain whether it is capable of commercial production.
In each of the three cases I have mentioned drilling the well and getting production would open up a new structure; the opening of that new structure would pave the way for oil development on quite a large scale on each of those three structures. Therefore I submit that it is very important that the structure should be proved.
There are others in the same position. When these companies started to drill we did not have the excessive taxation which was imposed last session. These men invested their money and started drilling operations assuming that they would be given a run for their money. Then, when the excessive taxation came into effect investors closed down; they will no longer invest, and that is the position we are in.
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The concession granted under section 16 applies only to wells spudded- in since January 1, 1943. I urge the minister to delete that limitation and let the concession apply to those wells that have been commenced. That would do a great deal to stimulate production, because wells commenced before January 1, 1943, should have a chance. I have been told that in the case of some of the wells commenced before January 1, 1943, the companies would be better off from a financial point of view by abandoning the present hole and drilling alongside of it, in order to get the benefit of this resolution. I urge the minister to give that matter careful consideration.
The royalties taken by the government of Alberta amount to Wfe per cent. That is a gross royalty taken on total production. Being a gross royalty, it is an enormous tax. If the minister would treat the companies more fairly and grant them reasonable taxation and reasonable concessions, then the drillers might go to the Alberta government and say, Mr. Aberhart, see what the dominion government is doing; they are treating us generously now we want you to postpone your royalties until we get enough production, to repay preproduction costs. They could then make that request with a good deal of reason. If the dominion government were acting generously and fairly with the companies, they could then ask the provincial governments to act fairly and generously as well.
I wish now to say a word or two with regard to the price of oil. In the past the oil companies received SI.50 a barrel for their oil at the well head. A few days ago this was raised to $1.65 a barrel. That was helpful, and the industry feels grateful for it. But I wish to point out that the dominion government is importing a great deal of oil and- paying subsidies on that importation. I know the minister is anxious to preserve the price ceiling, and I hope he will be able to maintain it. It is important that it should be maintained, and I shall not urge that the price ceiling be removed. But the government at the present time is paying a good deal of money by way of subsidies and bonuses in order to bring in oil from the United States. I suggest that instead of paying bonuses to United States companies the minister pay part of the bonuses to the operators in Turner valley, and give them a chance to do the producing. If they are given this chance, there will be less oil imported and we shall get more oil from Turner valley and the eastern slopes of the Rockies, where there is so much of it. I should
'Mr. G. H. Rosa.1
like to read here what George C. Cross had to say on this matter in Western Business of April 2, 1943. He refers to the attitude of the government as "one of Canada's war-time mysteries," and goes on to say:
At this stage in the war the paramount consideration should -be how to get oil the quickest way, provided the _ source may be relied upon continuously. The inconsistency in the situation rests in the fact that Canada is importing oil from United States fields at much higher prices and paying transportation costs, while drilling equipment in Turner valley remains idle.
It would hardly be possible for the refined products from the imported oil to be sold within the Canadian price ceiling unless the Canadian government absorbs the increase in price. In fact Hon. J. L. Ilsley, Minister of Finance, told the House of Commons Thursday that import subsidies on petroleum were responsible for a substantial part of the $80,000,000 included in the estimates for import subsidies for the current year. Why not devote this money instead to developing Canada's own oil resources, thereby relieving the hard-pressed United States oil industry of one of the drains upon it and also releasing tank cars for more vital work? The subsidy principle has had to be applied to strategic minerals and lumber. Oil is just as essential.
Allowing nearly half the drilling rigs in Turner valley to remain idle when there are plenty of proven sites for them to drill has been one of the inexplicable phases of Canada's generally excellent war programme. The sad but necessary commentary upon the action taken this, year is that it was so long delayed that the stimulation it should give to drilling of wells in proven areas will be too late to help out the oil supply situation in Canada in this critical year of 1943. To reach the oil reservoir in the Madison limestone of Turner valley takes nine months or longer, depending on the difficulties encountered. But if idle rigs are put to work within the next few weeks the increased production should be a factor in whittling down the amount of the import subsidy Mr. Ilsley will have to provide for 1944.
Another matter to which I should like to refer is the tariff. On February 1, 1943, by order in council, import duties and the ten per cent war exchange tax were removed from drilling equipment. The industry very much appreciates this, as it appreciates the concessions that are made in this year's budget, and the concession now under discussion, but I say it should be extended. Under tariff item 446a oil storage tanks and cracking stills are dutiable at twenty-five per cent ad valorem under the United States trade agreement. Under items 427 and 427a machines used in oil refining, mainly pumps, are dutiable at twenty-five per cent or ten per cent ad valorem, depending upon whether or not such machines are of a class or kind made in Canada. Under item 397a pipes for connecting the various pumps and other apparatus used in refining are dutiable in a general way at twenty-five

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per cent ad valorem when not more than ten and a half inches in diameter, and under item 397b at fifteen per cent ad valorem when more than ten and a half inches in diameter. Then tariff item 386a reads:
Sheets, plates, hoop, band or strip, of iron or steel, as hereunder defined, under regulations prescribed by the minister:
(a) Plates, when imported by manufacturers for use exclusively in the manufacture or repair of the pressure parts of boilers, pulp digesters, steam accumulators and vessels for the refining of oil, in their own factories: British preferential tariff, free; intermediate tariff, $5 per ton; general tariff, $5 per ton.
I have something further to say, Mr. Chairman, but I will bring it in later on in the debate.


Mr. BENCE:: I do not come from an oil country as does the hon. member who immediately preceded me, but I do come from a part of western Canada which is very much interested in the development of industry and which certainly is hopeful that a field will be developed somewhat closer to the city of Saskatoon than Turner valley. I may add that many people in my city and in the surrounding country have in past years invested their savings not only in Turner valley but in some closer fields which they hope to see developed.
Unquestionably petroleum products are urgently required, as I think the minister has made quite clear. He made that statement in his budget speech and repeated it this evening when, as I understood him, he said that the purpose of these changes was to bring about more oil. What he wants, and what this country wants, is the development of our resources so that we may have substantial quantities of this great natural product which is so necessary, particularly in war time. May I quote what the minister said during his budget address, because I wish to make some reference to the language he used at that time. At page 859 of Hansard the minister is reported to have said:
Included in the income tax proposals are a number intended to encourage the search for new sources of oil in Canada during the next two years. The government recognizes the urgent necessity under present emergency conditions of expanding our oil production and, if possible, of discovering new oil producing areas in various parts of Canada. Success in the search for oil depends upon a combination of experience, skill and good judgment, as well as capital and good luck; it is essential therefore to bring into the search all we can of those with the necessary skill and experience. We desire to remove so far as possible any barriers which taxation may impose in the way of this search for oil.
Not only do we require oil for the purposes of war, but we require it also for peace-time purposes. We should take advantage of the
situation which has arisen through the war to do everything we can to encourage production of oil in Canada. Most of what I shall say this evening I must confess has been represented to me, because I have no technical knowledge of the problem. I am informed, however-and I believe the figures are correct -that we produce only about 15 per cent of the petroleum products we require. One of the drawbacks in the development of petroleum fields during the years immediately preceding the war was that crude oil could be brought so cheaply from the United States that there was not sufficient incentive to develop our own fields to the extent possible, or to the extent that some of us in Canada would have liked to see done.
That condition has now changed. It is much more difficult to obtain crude oil from the United States, and it becomes imperative to develop our own resources to the limit. I suggest that we should take advantage of every opportunity we now have of developing our industry to the point where, in peace time, we can produce oil at a cost comparable with that of the product brought in from the United States.
May I emphasize that the important factor, so far as our war effort is concerned, is that of getting the product. After'all, the financial arrangements made, the tax structure and all that sort of thing are not important if we do not get results. Even at the risk of upsetting some of our financial schemes we should work out some plan under which we would get physical results. We should not worry too much about the financial aspect of the problem, so far as the government's tax policy is concerned.
It seems to me that in the past the government's policy of taxation has discouraged the drilling of wells. I realize that the hon. member who preceded me said that these provisions are now inserted in an attempt to a certain extent to remedy what I might describe as discouragement, so far as drilling is concerned. But there are two things to remember. In the first place the provisions do not go far enough. They do not provide the necessary encouragement-and I mean real encouragement-for the development of what has been referred to as wildcatting. In the second place the provisions are much more helpful to the large companies and are of comparatively little assistance to the small operator, or the person who actually has pioneered in Canada's oil industry; because we must remember that it was the small person, the small investor, who put his money into these companies, who had the most to do with the development of oil
Income War Tax

in Canada. We may call it the gambling instinct, if we like. For years I have known people who have what I would describe as a yen for going into oil investments. They are continually getting their bits of money together and investing it in these cooperative ventures. Then they go out in an endeavour to locate a well and actively to develop it. I liken the situation somewhat to that of a person who gambles in mechanical devices. There were those who, when they could do so, and when such procedure was not against the provisions of the criminal code, were always putting their nickels into slot machines. Perhaps the results were not the same, but the instinct which prompted the action was the same. A person would persist in gambling his nickels in the machine in the hope that at some time he might hit the jack-pot. These small oil men are continually putting their money into these ventures in the hope that some day they, too, may hit the jack-pot.
The taxing policy of the administration has been such that, even if they did win, they lost; consequently they had no more incentive to gather up their money and invest it in this way. We all know what a small chance the person had who gambled against the slot machine, and he has a similar chance, so far as oil wells are concerned. Then, if we are to say to him /'Even if you do win, we will take your winnings away from you," we will certainly discourage him from collecting the money he formerly collected for purposes of investment. These investors have been discouraged through the financial and tax policy, and the price-ceiling policy of the government. In saying that I am not making any special criticism of government policy at the present time. I shall deal with government policy, bit by bit, as I go along. Nevertheless the result has been that these people have been discouraged.
The primary necessity is to get production. The handicaps in development of wells and getting production appear to be entirely financial. I am informed that there are those who have the experience and the oil-drilling equipment, and they have the knowledge necessary to carry on their work. But their handicap is that they believe the returns are not commensurate with the risks they must take.
As I see it, there are two ways of producing oil in Canada. First of all, it could be done by public ownership. The government could go into the oil business. It could send out drilling equipment and buy up the fields. It could endeavour to do its own exploration, taking the risks and the results as they might develop. The other way, of course, is through private enterprise. If we have neither public

ownership nor private enterprise which has received sufficient encouragement to carry on the work, we cannot possibly get results. We must have one or the other.
So far as I am concerned, I do not believe public ownership should be the way to do it, and I make that statement for several reasons. I shall not discuss at length the questions connected with the development of resources through public ownership. I must point out, however, that I do not think it could be worked out from the point of view of administration, nor dio I believe the great bulk of Canadian taxpayers would want to gamble their money on the development of anything so hazardous.
But there are all kinds of private investors who are prepared to put their money into this type of venture. It seems to me that if they are willing to do it and to take the risks they should be given encouragement. And when I refer to private enterprise I am referring to enterprise on the part of the small man, the man who will invest his money in an independent fashion and who will endeavour to get his capital back through the development of royalty companies and so on.
I believe there has been a small attempt made to develop these resources through public ownership. The hon. member who preceded me referred to a crown company which has been set up. Although I do not know the details of it, I have been informed that the purpose is to do certain exploratory work. The setting up of such a company certainly would be open to criticism in peace time. I do not suggest that is necessarily so now, but I do say the job cannot be done through public ownership, or a crown company, unless we are willing to gamble money from the treasury of Canada in the development of all of our vast resources. I understand, too, that recently the Canadian National Railways have been investing funds in the exploration of certain fields in western Canada. Again that is all very well in its way, but to all intents and purposes this is a public company. It is owned by the government and the money of the taxpayers is behind it. I suggest that rather than doing the thing piecemeal by having one crown company here and another company wholly owned by the government there, it would be better to go the whole hog and encourage these small people to whom I have referred to do it for us.
The fact is that as a result of the tax policy of the administration for the last number of years we have been retrogressing instead of progressing so far as the development of oil is concerned. I am informed, and I

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have every reason to believe that my information is correct, that fewer wells are now being drilled in Turner valley than have been drilled since 1937. In 1937 the crude development was just getting under way. The reasons are obvious. As I have mentioned before, there has not been the encouragement that there should have been.
There are several things the administration proposes to do to encourage such development. One was referred to in the budget speech. It is not part of the resolutions; I believe it comes in by way of a change ini the schedule. It is proposed that pre-production expenses of any oil well may be written off against the income from it. The change provides that forty per cent may be written off in the first year, thirty per cent in the second, twenty per cent in the third, and the remaining ten per cent in the fourth. That will be a great help. Under the old schedule it began with thirty per cent. It was possible that a company might find that the ultimate decline would prove that an oil well would not pay at all, so that the tax paid on the first year's income would turn out to be a tax on capital instead of a tax on income.
There are other suggestions which were contained in the budget speech. I quote from page 859 of Hansard as follows:
In the case of wells commenced-"spudded in" I believe is the correct term-between January 1 of this year and March 31 of 1945, preproduction expenses may be written off as rapidly as the operator desires.
I am informed1 that this was the United States method used in peace time and it should1 have been available here long before. There is no reason why it should be limited to wells started only in the next two years. It ought to apply to all wells. It is quite obvious that people in this country will not take the long chances they have to take in this very precarious industry if this is to be limited to a period of two years.
The next change in regulation mentioned in the budget speech is the increase from fifteen per cent to twenty-five per cent in the depreciation rate to be applied to all depreciable assets used in oil production, including oil drilling equipment. As I understand it, the purpose of this change, is to endeavour to bring into line with actual experience the depreciation rate that is to be allowed. I am informed that this still falls far short of the actual experience so far as oil drilling equipment is concerned; that the actual rate of depreciation is in excess of twenty-five per cent.
The next provision to which I should like to refer is mentioned also in the budget
speech. This provides for an increase in the special war-time depletion allowance from twenty per cent to thirty-three and a third per cent in respect of royalty payments received by investors from wells spudded in during the period January 1, 1943, to March 31, 1945. I understand that this is done in order to alleviate some of the retroactive principles of the budget of last year. . I believe it was found that the investment of money in royalty companies had practically stopped.
It seems to me that if you restrict these concessions to such a short period you cannot expect small finance to develop these resources. Owing to the discouragement that they have suffered they have gone out of this industry. The encouragement provided by a provision like this is not sufficient to bring them back again.
The next provision is set forth in resolution 17, which reads:
17. That exploration expenses incurred during the period January 1, 1943, to March 31, 1945, by companies formed for the exploration and drilling for oil may be accumulated and allowed as an expense against the income from any well found hereafter by such company.
It has been represented to me, and I believe correctly, that this provision will help only the large companies, the ones that have plenty of money and can continue to develop their oil fields and prospect over a number of years. The situation might easily arise with a small company with limited capital that it might drill a number of wells and find that its capital had run out. It would not be able to take advantage of this resolution. But another company with unlimited capital could go on exploring and drilling, and after five, six, even eight or ten years might bring in a well against which all the expenses of the previous drilling could be charged. The resolution reads, "as an expense against the income from any well found hereafter by such company". I am not objecting to that provision; I am simply saying that it does not help the small man. Someone suggested! to me, I cannot remember whether it was inside or outside the house, that whereas resolution 16 would help the large company, resolution 17 should help the small one. So far as I can see it will not help them very much for the reasons I have given.
The next provision to which I wish to refer is resolution 16 which the chairman has read. I shall not read it all again but only the last few words, starting in the middle of line 5:
. . . whose principal business is the production and/or refining and/or marketing of petroleum and/or petroleum products.
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If there ever was a provision that gave the advantage to the big companies, certainly that one does because, generally speaking, it is the big companies whose principal business is the production and refining of petroleum and/or petroleum products. Why the opportunity to search for oil in Canada should be restricted to those who are already engaged in the business, . not of searching, but of producing, refining or marketing is difficult for me to understand. To my mind the references I have made are indicative of the fact that the conception behind these tax concessions is the conception of the big company and the big interest. The idea does not seem to have occurred to the minds of those who conceived such concessions that they should encourage the small people. I know the minister has received representations by the dozen through the mail, but I suggest to him that he ought seriously to reconsider the position so far as the small people are concerned. I think he should give a full statement to the committee as to the reason why the whole trend seems to be only along the line of giving concessions to the big companies.
One point has arisen which may be a partial explanation why the department feels that it should not go any further in this respect, namely, that if they go further with respect to the oil industry, other industries, those which are engaged in mining for minerals, for example, will feel that greater concessions should be made to them for the purpose of developing minerals. I recognize, of course, that minerals are very necessary to our war effort, but I also realize that there is an abundance of minerals in this country, and so far as the actual production is concerned there is not nearly the same degree of risk in the production of minerals as there is in the production of oil. It can be determined before a great deal of mining work has been done whether or not there are minerals under the ground, and certainly we have well established mineral deposits which are available in this country, some with difficulty perhaps; but, generally speaking, they are available, and it is more or less certain that they can be produced if the companies and the individuals concerned are prepared to go ahead. The development of oil, however, is one of the greatest gambles there is. You have to spend a great deal of money before you even know whether there is a possibility of oil, and time after time wells have been sunk only to find that there is no product there at all. The cost of exploration and of sinking these wells is tremendous in proportion to the chance of gaining any return. The fact that fewer wells 
have been developed and are being developed in the Turner valley in recent years seems to me conclusive proof that the policy which has been followed up to the present time by the department has been a faulty one. These amendments will correct it to a certain extent, but whether they go far enough to encourage oil development to the extent the administration wants to have it encouraged I do not know. I am afraid not, for some of the reasons I have given. It does seem to me that the administration might well consider taking further steps, not just doing as they did the other day, further increasing the price, because I do not believe the whole answer to the problem is to increase the price of oil. That would mean just another breach of the price ceiling, and as the hon. member who preceded me has pointed out, a great deal of money has been spent on subsidies to prevent breaches in the price ceiling.


Clarence Decatur Howe: There was no breach in the price ceiling through the last increase in crude, for there was no increase in the price of the refined products. It was a squeeze between the producer and the refiner.


Alfred Henry Bence: How the thing comes out in the long run I do not know, but I do know of many squeezes that have been executed between the producer and the manufacturer. How this one worked out so far as the price ceiling is concerned I do not know. Perhaps the minister might enlighten us a little further on that point. I presume there must be some kind of adjustment so far as these other companies are concerned.
I was about to suggest that we should adopt to a certain extent some of the methods which have been accepted in the United States. It has been suggested to me that we can easily get around any possibility of a breach in the price ceiling and' the possibility of the disruption of some of the other financial factors if we allow a greater depreciation allowance, with wildcatting costs being offset against the income of the searching companies. The position as I see it is this. A breach in the price ceiling not only will be open to a great deal of criticism but would have a disturbing effect on agriculture. I do not think we ought to do anything to disturb the agricultural position more than we can help, because, after all, the agriculturist is one of the most important producers in the country and he has enough troubles as it is without our doing anything which might possibly affect his costs of production. If a subsidy were paid it would not be of much help in encouraging the small people unless some arrangements were made for making it to a large extent tax-free.

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That is why I raise this suggestion which I know has been presented to the minister before, and I hope he will give it very careful consideration. My suggestion is that some arrangements should be made for a greater depletion allowance for these production companies on new production. If the minister would adopt the suggestion of some kind of depletion allowance on each barrel of oil which was produced, the encouragement would remain, and there would not be the possibility of an investor feeling that when he took a chance and spent another dollar, no matter what happened, it would be taken away from him by way of taxes.
I would ask that the minister seriously consider some of the suggestions I have made, particularly the matter of a depletion allowance.
I have thought the matter over very carefully, and1 I do not see how any of the alternative propositions could be properly worked out. If he would do it in the way I have suggested, he would avoid the possibility of a breach in the price ceiling; he would avoid offering an incentive which in fact is not an incentive at all, and at the same time nothing would be taken from the federal treasury, because these companies would be encouraged to produce more, whether in western Canada or in any other place where oil may be obtained. This would not only greatly benefit and assist us in our war effort but establish a permanent industry which would produce income over the years, and indeed, from a long-haul point of view, contribute far more revenue to the dominion treasury than the other policy.


James Lorimer Ilsley: May I ask the hon. member a question before he sits down?


Alfred Henry Bence: Yes.


James Lorimer Ilsley: He is advocating an increased depletion allowance for operators-I suppose, a substantially increased one. Would that not give a large and unneeded benefit to present operators, whether large or small companies, and diminish to a marked degree the tax revenues of the country, without accomplishing anything so far as the present operators are concerned?


Alfred Henry Bence: It quite possibly might, so
far as the big companies are concerned; I do not know about that. But it seems to me so very important that we increase production. As I mentioned before, at the present time the administration is so much worried about production that it has not only brought in these concessions but incorporated a crown company for the purpose of doing exploitation. The Canadian National Railways is spending the taxpayers' money in an endeavour to exploit this field. I am trying to work out some kind
of solution which will encourage the people who are ready to gamble their money-if you like to use the word "gamble"-to exploit these fields so that we shall not have to come into this matter from* a public ownership point of view.


James Lorimer Ilsley: But does not the hon.
gentleman think that he ought to work out something which would lead to a greater production of oil without giving benefits, at the expense of the public exchequer, to existing companies large and small, which the proposed increased allowance would do?


Alfred Henry Bence: I quite agree with that, if
it can be done. But at the present time the main objective is production, and all of these concessions which have been made, with the exception of the one which was referred to in the budget speech and is related to the new schedule of twenty, thirty and forty per cent, are in favour of the big companies. So far as I can see, there is no concession which will help the small operator.


Mr. EDWARDS:: I trust the fact that I
come from that part of Canada which is the centre of the oil industry of the dominion will not cause it to be charged to my account that I am- parochial in my outlook or viewpoint so far as this problem is concerned. I reiterate what I said last year, when speaking to another bill affecting the oil industry, that I have no personal stake in it nor am I in any different position from that of any other Canadian citizen. I trust I shall be fair and dispassionate in my attitude toward this subject, as I believe our Minister of Finance is. We all are trying to seek a solution of what is a major problem confronting not only Canada but the allied nations in the conduct of this war. One needs only to think for a moment of what would happen to this country if our oil supply were cut off. Apart altogether from the inconvenience which we civilians now suffer in the ordinary activities of our lives, what would happen in so far as the fighting ability of our army, navy and air force is concerned if our oil supplies were cut off? The importance of oil is apparent to anyone who recalls the primary objective of the Germans in their invasion of Russia. The first object of attack was the Caucasus oil fields. Or turn to the other side of the globe: to what point did the Japanese drive? The oil sources in the East Indies. And to bring the matter closer home, need I remind hon. members how agitated and concerned we were on account of certain activities of our enemies along our east coast? These observations, relating to facts within the knowledge
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of all of us, show the importance of oil not only in time of peace but particularly in time of war. Where would the allied nations be to-day but for the oil resources and their availability to us south of the 49th parallel?


John Ritchie MacNicol: And in South America.


Manley Justin Edwards: And in South America,
but more particularly immediately to the south of us.
I am forced to ask myself this question, which I am sure has occurred to every thoughtful Canadian: why is it that there is, or perhaps I should say there was, an abundance of supply available in the United States, although it is rapidly diminishing, while we in Canada have no such available supply, although geologists will tell you that the same oil fields continue along the east slope of the Rocky mountains all. the way from Mexico, up through the western states, into southern Alberta, and as far as the oil sandls of the Mackenzie river? The explanation is to be found in the attitude of the United States government to the. oil industry as such. The oil industry in the United States was a full grown giant before it was hit with taxation at all. Every encouragement was given to men to go out and gamble their money-and I use that term deliberately and advisedly-in exploring the oil resources of that country. It was as a result of that policy of unrestricted1 encouragement that there occurred the tremendous development of the oil industry in the United States, without which I doubt very much if the outlook in our present struggle would be as bright as it is to-day.
I look at the taxing legislation, because oil is essentially a money proposition. It takes big money; it takes wild -money to discover oil. WThy ? There is no means yet discovered to tell a man on the surface whether or not there is oil below, how far below, or in what quantity. Unlike any other industry, not excluding metalliferous mining, if you are to produce oil you must be prepared to gamble your whole capital investment of plant that is to produce the oil. On the eastern slope of the Rockies in Alberta, which is at present at least the major oil field-I was about to say of the British empire-the gamble is more hazardous and more extreme than in practically any other field, certainly on the north American continent, fraught with more hazard than attends oil exploration or development on any other part of the north American continent, and I think the same comparison applies to South America.
When the great republic to the south decided to tax the oil or petroleum industry, 
how did they go about it? I took the trouble to obtain Regulations 103 of the United States treasury department on income tax. I find under section 114-(3)- this:
In the ease of oil and gas wells the allowance for depletion under section 23 (m) shall be 27J per centum of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance shall not exceed 50 per centxxm of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance under section 23 (m) be less than it xvould be if computed without reference to ' this paragraph.
That is the taxing section for oil companies in the United States in peace-time. It has been in effect for a great number of years, and the United States congress has never altered that, despite the apparent abundance of oil in that country.
I wish to make a comparison later of that taxing section with ours. I suggest that the. situation in, which this country finds itself with respect to oil and petroleum is because we have not granted equal concessions, and even now the minister's proposals in regard to depletion allowance are not anything like comparable with the allowance made to similar companies in- the United States. Is it to be wondered at that even at this date we import eighty-five per cent of our oil; that we produce only fifteen per cent? I suggest that the state of the law as it has been heretofore and as is now proposed is responsible for the situation in which the Minister of Munitions and Supply, who- is most greatly concerned about this matter, finds himself at the present time.
Here is an interesting sidelight on the oil industi-y in Canada. When I started to look into this problem a few weeks ago I found that from 1905 to 1923 Canada paid a bounty, if you please, not a bonus but a bounty, to anyone who xvould produce a gallon of oil out of mother earth. The bounty was one and a half cents a gallon, which is equivalent to 52 1/2 cents a barrel. In 1923 the then minister of finance in his budget resolutions proposed to discontinue that bounty at the expiration of one year and that for the next ensuing year the bounty be cut in half, or to three-quarters of a cent a gallon, and at the end of 1926 be discontinued altogether. Why? Because the minister was fearful lest, on account of the discoxreries of oil in the west- we had Royalite No. 4 and some of these gas wells blowing-that we were on the eve of a tremendous oil development, and that so many gallons of oil would be produced that the federal treasury would be undermined.

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There is an interesting comment. If you read those debates you find that the one man who opposed the minister's proposals and said it would wreck the small oil industry which then existed in Canada near Sarnia and in the shale fields of New Brunswick was a man by the name of LeSueur who is now, I understand, president of the greatest oil company in Canada, Imperial Oil. Mr. LeSueur in the house asked that at least this bounty should be continued with respect to the first five barrels of oil that should be daily produced in any well. But the minister was adamant and refused to budge from his position, the bounty was discontinued in 1926, and from that time on the oil industry in Canada has been treated no differently from any other industry. I submit that that accounts very largely for the position in which we find ourselves to-day.


Clarence Decatur Howe: Might I ask my hon. friend if the real development of oil in this country has not occurred since the bounty was dropped?


Manley Justin Edwards: Yes, I grant that. But the minister does not mean to suggest that it was the dropping of the bounty that gave the impetus to the development of oil?


Clarence Decatur Howe: What did?


Manley Justin Edwards: What did? The natural inclination of men to seek the pot of gold; the natural gambling instinct of certain men, of whom I do not claim to be one; the search for that elusive thing called petroleum which promises such rich rewards if you are lucky, and such tremendous losses if you are not.
When the budget resolutions were before the house last year an amendment to the income tax act was introduced in regard to the so-called royalty company, which is not a company at all but which the minister created in order to impose his tax, against which I protested at the time. I then prophesied that it would be a great deterrent to oil prospecting and developing in Alberta. The truth of that statement is best shown by the facts with regard to the condition of the Turner valley field at the present time. I take 1937 as my basis, because that was the beginning of the discovery of crude oil as such in Turner valley; the oil obtained from that field prior to that time was for the most part wet gas or pure gasoline. There are fewer wTells drilling in Turner valley to-day than there have been since 1937, when the crude development was just getting under way. Of the nineteen wells now drilling in Turner valley, eleven are being drilled by companies commonly referred to as independents, as differentiated from the integrated or major companies such as Imperial
Oil; seven are being drilled by major companies, and one is being drilled jointly. Within three months, unless the minister's proposals become as effective as he believes and hopes they will be and as I sincerely hope and would like to believe they will be, all but two of these wells will be finished. Only two new wells are in sight, and there is every prospect that Turner valley drilling will be virtually at a standstill within the next two or three months, since more than half of the wells now drilling will be finished within the next thirty days.


John Ritchie MacNicol: Do the wells now drilling give promise of producing oil?


Manley Justin Edwards: Yes, Certainly. Be it said, too, that there are many wells in Turner valley closed down and not drilling, and I do not know of any drilling rigs that have been put to work recently. At no time since 1937 have there been more idle drilling rigs in Turner valley than there were at the end of March, before the minister's proposals were announced, and afterwards; and I do not know of any that have been put to work as a result of his proposals. Yet I for one devoutly hoped that the proposals would have had results.


Agar Rodney Adamson: Did I understand the hon. member to say that wells are now capped that were producers?


Manley Justin Edwards: No; far from it. I
mean wells partly drilled and closed down, uncompleted.
Let me now go back to our legislation affecting oil wells. Heretofore oil fields have not been discovered, as one might suppose, by the large companies. I am informed and believe that four out of five of the major oil fields in the United States were discovered by the non-integrated companies as opposed to the major companies. The same story is true so far as Canada and Turner valley are concerned. If we had relied upon the large oil companies, Turner valley would probably never have been brought in. It was an old pioneer who gambled his all to bring in the first well in Turner valley; and after the Turner valley gas field as such was discovered, it remained for the independent companies to discover the crude oil potentialities of that field. In other words, had it been left to the integrated, major companies, Turner valley still would be half a mile wide by about a mile and a half long. It was the independent oil companies that extended the field by their wildoatting both south and north.
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I am concerned because the minister's proposals do not provide the incentives or the considerations or the concessions which they should to those people who in the past have been, are now, and I believe in future will be those to bring in new oil fields. Of the 204 wells in Turner valley at the present time, fifty-three are royalty-financed and eighty-one are independent company-financed. In other words, of the 204 wells in Turner valley, 134 have been drilled and are producing as a result of the investment, the enterprise and the gambling, if you will, of private individuals and small independent companies. Yet those 134 wells last year produced 65-8 per cent of the total crude oil production of Turner valley. As of the end of December 31, 1942, those wells had produced 70-7 per cent of the accumulated crude oil production from Turner valley, totalling 29,690,421 barrels.
Let us look at the other side of the question. Eight wells were jointly financed by independent organizations and the Imperial Oil Company. Sixty-two wells were drilled by the Imperial Oil group. In 1942 the joint Imperial-independent wells produced 343,303 barrels, or 3-6 per cent of the 1942 production. The sixty-two Imperial Oil company wells produced 2,963.475 barrels, or 30-6 per cent of the total 1942 production.
In other words, the royalty and independently-financed wells produced last year sixty-five per cent of production of Turner valley, and 70-7 per cent of the total aggregate production of crude oil from that field.
One would have thought that in the drafting of these resolutions more concessions would have been given to those companies, organizations and institutions which had given Canada such oil reserves as she now has, or had contributed thereto more largely than any other organizations, including the so-called major oil companies.
There is another interesting commentary I should like to make. Both ministers are interested in discovering oil-bearing strata. Production is not the problem. It is simple and easy to produce, once we know where the oil is located. Literally, oil is where you find it; and the question confronting both ministers is this: where do they want their money? Do they want it invested in government bonds, or in the search for oil? Which is their major problem to-day? Do they want money invested in Canada's war effort, or do they wish to have it spent in an endeavour to discover and produce what I submit we need much more than money?


John Ritchie MacNicol: Oil is war's greatest
munition.


Manley Justin Edwards: Yes; it is the very lifeblood of our war effort. I submit there are two ways of getting oil. We can continue to buy it, as we are now doing, up to eighty-five per cent of our requirements; or we can drill for it and produce it, as we now dio to the extent of fifteen per cent of our requirements. Our present concern clearly indicates that oil is becoming more and more difficult to buy. Therefore we have to drill and produce. At this point our problem resolves itself into one of two ways of financing drilling operations-(1) the government doing the job, putting up the money and taking the chances, or (2) private business organizations doing the job, putting up the money and taking the chances. Which way does our government propose to do it? If the government intends to do the job, then those Canadians who have been instrumental in finding and developing the areas we have today, and in producing seventy per cent of the oil in the Turner valley field and ninety per cent of the oil in areas outside Turner valley, are through. The solution is found, and we can stop there. And I am afraid that is the position in which we find ourselves to-day. Independent companies are not drilling. Royalty companies are not drilling. I do not know of one oil well which has been financed since the minister's proposals introduced a year ago, and the only reason for this condition is the taxation measures of the government.
If private organizations and Canadians generally are to do the job, then we must recognize the risks and hazards involved. We must see that capital is remunerated for taking those risks, and give every consideration to methods and amounts of taxation imposed. Every barrel of oil produced in Canada is one barrel less on which we have to pay a subsidy.
The government is to be commended in that last fall it removed, in large measure, the customs tariffs against oil-drilling machinery and equipment. Those tariffs should have been removed years ago. It is estimated that every oil well in Turner valley has paid SIS,000 in taxes and customs duties on imported well-drilling equipment. All of these duties on necessary equipment have not yet been removed, as the hon. member for Calgary East pointed out earlier this evening.
The present minister is to be commended, too, for the other measures which he intimated would be covered by regulations, and are not included1 in these resolutions. I refer to the increased depreciation allowances. This is nothing new. Oil companies in the

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United States have enjoyed this concession in regard to depreciation for years. What applies in connection with ordinary industrial equipment and machinery has no application to oil well machinery and equipment on account of the nature and condition of the gas and sulphur content and its effect upon the equipment. It would seem that our tax structure is based) on the theory of what applies in other industries without regard to the facts which appertain to the particular industry under review.
With all due deference and subject to correction by the minister, I submit that the concession proposed in this resolution is not new. The concession provided by resolution 16 was available two years ago to companies which were producing and would undertake to drill wells on structures which were first approved by the government geologists. The procedure has been simplified. I ask the minister why this concession is limited to wells spudded-in during the period January 1, 1943, to March 31, 1945. Peradventure I have spudded-in my well on December 31, 1942, and I get none of the benefits of this resolution. There are not a few oil wells in Alberta which are considering the advisability of moving their rigging over to a different site to start anew in order that they may obtain the benefits of this resolution.
I read further that this concession applies only to companies whose principal business is the production and/or refining and/or marketing of petroleum and/or petroleum products. If we assume that such a company brings in a duster, it can write off forty per cent of the money it loses against its profits on other operations. Why should that concession be limited to any particular class of people or to any particular industry? Why not grant it to any company which will spend money in drilling for oil or to assist in drilling a well? Why not grant it to any individual who will invest $100,000 or $150,000? Who can go into the oil marketing business to-day with the restrictions that exist? Who could start up an oil refinery to-day in order to get the benefits of this resolution? It does not need too much imagination to see who will be able to take advantage of the benefits of resolution 16.


James Lorimer Ilsley: There is one thing I think
I should add to-night in order to state the changes it is proposed to make in the regulations. In the budget speech I announced that a new schedule for the writing off of preproduction expenses on a forty per cent, thirty per cent, twenty per cent and ten per cent basis would be introduced. At the time of
the announcement our intention was that this new schedule would apply to the income of 1943 and thereafter. It has since been decided that this new schedule may be taken as applicable to 1942. The same provision will apply to the increase in the depreciation rate from fifteen per cent to twenty-five per cent.
A second concession related to the depletion allowance which would apply to those receiving royalty payments from wells spudded in during the period January 1, 1943, to March 31, 1945. The ordinary depletion rate in these cases was to be increased from twenty per cent to thirty-three and one-third per cent. Since the budget I have received further representations on this point, and I wish now to announce that the increase from twenty per cent to thirty-three and one-third per cent will be general in its application regardless of when the royalty well was brought into production. In respect of new royalty wells spudded in during the period January 1, 1943, to March 31, 1945, it is proposed to offer an additional concession. In these cases the trustee will be allowed to elect on behalf of the royalty holders to have the thirty-three and one-third per cent depletion rate apply indefinitely, as at present, or it may elect to receive a depletion rate of 100 per cent until disbursements by the trustee to the royalty holders equal the amount of subscribed capital, on the condition that after capital has been returned to the unit holders tax-free there shall subsequently be no depletion allowed.
Members who are interested in these concessions may want to read this in Hansard and give it a little thought. Apart from the amendment to resolution 17 which relates only to gas, these are the only changes which we propose to make in the oil resolutions. I shall deal with them later.


Clarence Decatur Howe: Questions have been asked as to how the government intends to improve the yield of oil in Canada at the present time. I may say that the oil controller, who was confronted with this problem by myself, appointed a committee of experienced producers with headquarters at Calgary. This committee was made up of small operators and representatives of the large oil companies. The committee met and formulated a number of recommendations which have been adopted by the government almost in toto. After he learned what the taxation proposals were, I heard a member of the committee state that in no part of the United States were more liberal tax concessions made to the oil industry than were being offered by this government. The purpose of our tax concessions was, of course,

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to encourage the production of oil, not oil for the future but oil that is required immediately.
The problem of obtaining oil to-day, particularly in Alberta, where the demands have been tremendously increased by activities on the Alaska highway, makes it imperative that Canada produce this year every barrel of oil that can be produced. We were advised that these tax changes would result in a very considerable increase in drilling by the owners of oil leases, and it is clearly evident at the moment that that is exactly what will take place. Two or three companies have bought new oil rigs, and the old and new rigs are being spudded-in. There will be a good deal of activity in such proven areas as we have. The intention is to drill out all remaining sites in Turner valley during the present summer. Those that will be drilled by the owners will, of course, be taken care of privately. The remainder in the field, and particularly properties on the flank of Turner valley, which is semi-proven territory will be drilled either by the owner; or if the owner is unable or unwilling to finance the development, the lease will be taken over by a crown company, which has recently been formed. The crown company will become the owner of the lease and will undertake the drilling of the well. After the well has been paid for, including the drilling costs and all other expenses incurred by the crown company, the well will be turned back to its former owner, for such further returns as the well may produce. That is the object of the crown company. I wish to emphasize that it is not the purpose of the crown company to wildcat for oil. The crown company is formed wholly to develop a certain proven or semi-proven area, and quickly obtain the maximum production from that area.


Mr. BLACKMORE:: Is the crown company prepared to advance money to private owners who wish to borrow money to enable them to develop properties?


Clarence Decatur Howe: No. The purpose of the company is exactly what I have said, and it has no other authority. It is to drill out a particular area under a particular plan. To set up a government company which would provide money for anyone who wished to drill in wildcat areas would, of course, call for unlimited funds, and the likelihood of obtaining returns would be exceedingly small.


John Horne Blackmore: Has the government any facilities through which such moneys might be advanced?


Clarence Decatur Howe: No. Prior to the recent activity the government did enter into the oil business in a small way. The Vermilion area

was a proven area. Quite a number of wells had been drilled there by private enterprise. Everything about that field was known. It was known that a well in the proven area would return just about the cost of drilling or perhaps a little more. It was not a situation that invited the larger oil companies, and the private interests there were operating in a very limited way. It was not a large pool of oil; but it was sufficient, if drilled out completely, to take care of the requirements of the Canadian National Railways in that area for a considerable period.


John Ritchie MacNicol: In the Vermilion area?


Clarence Decatur Howe: Yes. We tried to interest private capital. A number of companies looked the field over, and all decided that they would not go ahead. Nevertheless we felt that, even at some risk, the Canadian National Railways, having oil on its line, should itself undertake to provide itself with the oil required for its engines. The result was that the Canadian National Railways formed a subsidiary company, acquired leases in that area, and are drilling in that area for their own requirements. Whether the leases will pay out in full, so that the cost of the oil to the railway will not increase, is a matter that time will tell. In any event, the railway will obtain oil probably at about the normal price, and we shall be relieved of supplying at least that quantity of oil.


John Ritchie MacNicol: Wouldl the minister tell us what the government has been doing in the Commotion creek area in British Columbia and in the Pouce Coupe area in Alberta?


Clarence Decatur Howe: I should like to make a statement on that a little later, showing what we have done in all parts of Canada.


Charles Edward Johnston: Will the minister also include in his statement the tar sands?


Clarence Decatur Howe: I have a statement on the tar sands which I have been awaiting an opportunity to make. I shall be glad to put it on record, perhaps to-morrow or the next day.


Manley Justin Edwards: Is it the intention of the crown company actually to acquire the leases?


Clarence Decatur Howe: Yes.


Manley Justin Edwards: And itself actually to employ people to drill, or to let contracts for so doing?


Clarence Decatur Howe: We will call for tenders for the drilling of the well, and the government will own the lease, drill the well and own

Income War Tax
the oil, up to the point where the cost of the operation has been fully recovered. Then the well and the property will return to its former owner.
A good deal has been said about the royalty companies. The lack of interest in royalty companies has been attributed to the government's taxation. I suggest that the lack of interest in royalty companies is due to the record of the royalty companies. They are peculiar to Alberta, and peculiarly to Turner valley. The royalty companies were started, I think, in 1939. The record of the first royalty companies in 1941 was very good indeed. The drilling was all carried on in proven areas, and the yield of the royalty wells was above normal, so that a good market was created for royalty companies. But beginning with December, 1941, the record of royalty companies is really appalling. At the north end of Turner valley fifteen wells have been drilled, of which fourteen, or all but one, were royalty company wells. The record of those fifteen wells is that thirteen have * been abandoned) and two are still drilling. That is a tragedy, of course, for the investors in those royalty companies, but more than that it is a tragedy that fifteen wells had to be put down to prove a situation that could have been amply proved by two or three or, at the most, four wells. In other words, the fifteen wells proved that the drilling was in a barren area., and that is a very expensive way to prove that fact.
What is a royalty company? I wonder whether hon. members know just what the public is asked to participate in when they are asked to buy shares in a royalty company. The practice is that the owner of an oil lease, or a man who acquires an oil lease, puts in his lease and obtains for it twenty-five per cent of the gross ownership of the company. In other words, he is entitled to twenty-five per cent as gross royalties, and out of that he pays the royalty and provincial government dues.


George Henry Ross: It is not
essential at all that the lessor be reserved twenty-five per cent gross royalty.


Clarence Decatur Howe: That is the standard situation to-day. It has been standardized. In the early days there were a number of ways of setting up the royalty company, but to-day twenty-five per cent is reserved as gross royalties, fifty-two per cent for preferred royalties, and twenty-three per cent as deferred royalties. That was worked out at various meetings of operators, brokers and security commissioners, held about a year ago.
72537-136J
The twenty-five per cent royalty to the promoter is on gross production, before any deductions are made for productive operations. These twenty-five per cent gross royalties are allowed the promoter, out of which landowner's and provincial royalty is paid. The fifty-two per cent of preferred royalty is the money raised from the public to drill the well. Fifty-two per cent of the well is sold to the public. Out of that, on the usual basis, the return for one per cent ownership of the well is generally S3.500, but a commission of twenty-five per cent is allowed the broker who sells those shares, so that the $3,500 paid in to the company for actual drilling actually costs the public $4,375. That is the shrinkage before the money ever gets to the well. In other words, the public subscribes $227,500 for drilling, of which $182,000 only is net to the company. Then a drilling contract is let, usually for a certain number of feet of drilling. We will say that the company is successful in finding oil. If it is successful, the twenty-five per cent royalty to the promoter is from the gross; fifty-two per cent goes to pay off the preferred royalties-in other words, it is a return of the money to the investor-and the last twenty-three per cent is divided half to the investor and half to the promoter, after the preferred has been retired in full.
That may or may not be a fair basis in which to invite the public to participate. Personally I do not think the public get a very good run for their money, although I will say that in the early days the public did well from royalty companies. As each well came in-they were drilling in proven territory-the public did get the return of their money plus quite substantial dividends. However, to use that type of financing for wildcatting is, of course, hopeless. The hon. member who spoke last referred to it as "wild" money. I have heard it referred to as "mad" money. It is contended to-night that it is necessary to have that kind of money in order to bring in wells in wildcat territory. I doubt that very much. If anyone cares to defend that type of financing of oil wells in wildcat territory, I must take an opposite view.


Manley Justin Edwards: May I ask the minister how he would propose to wildcat to discover new areas-by what means? Would he put the government into it?


Clarence Decatur Howe: No. But I think the hon. member will find that there will be more wildcatting this year and in the succeeding years. In fact, more wildcatting is being done at this moment in Canada than there has been for
Questions

a number of years; and under the basis of taxation proposed there will be more wildcatting carried on. A well-financed syndicate can afford to wildcat, on the theory that eventually they will hit paying wells. They are able to accumulate the costs of their wildcat-ting until they do prove up an area, and can then recover the costs which have been previously incurred.
I hope, therefore, there will be no further suggestions that the taxation proposed is killing the royalty business. Nothing could be farther from the truth. It is the record of the royalty business itself which has killed that type of financing.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
Wednesday, April 14, 1943