April 7, 1943

NAT
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

We did not want to do that for the reason I cited in the budget speech. Anyone in giving reasons in favour of this plan for forgiving half the tax always puts it on the ground that if something were not done the person earning income would come to a point where he lost his job, or was retired, or died, in which event he would have nothing, or perhaps would have nothing. In a great many cases he would have nothing out of which to pay this large amount of unpaid income tax. That was the ground always put forth as the reason why something should be done to relieve his widow and children from paying perhaps thousands of dollars of income tax, or to relieve him if he had been earning, say $10,000 a year and then went on pension at $4,000 a year, and found himself obliged to pay the full income tax on the $10,000. The same considerations do not apply to the person who has an investment income, because normally the source of his income remains unimpaired whether he retires, whether he loses his job or whether he dies; the source of his income, the capital fund out of which his income is derived, is still there. That is why we made the distinction, and I think it is sound enough. It is not very popular in some quarters, perhaps; nevertheless I think it is sound.

The hon. gentleman has, I think, in mind another distinction, namely, a distinction on the basis of the amount of income. Perhaps this is not so, but from what he says I gather that he would perhaps argue in this way. If you are making a division at $3,000 or $4,000 or $5,000, go by the man's income; make no distinction between investment income and earned income; but forgive, let us say. the tax on incomes up to $3,000, or up to $4,000 or $5,000, and not above that. I gave a great deal of thought to that point, and there was some advocacy of that course of action in the press, though I must say not very much. However, I do not think it is possible to select in regard to earned incomes a line which will have any logic. The higher a man's income, the higher the proportion of the tax that he pays. If a man earning $10,000 were

Topic:   INCOME WAR TAX ACT
Permalink

TMW - 124


saddled with his entire income tax and then moved on to a current basis, he would have a terrific load to carry in the year 1943. He would be paying the 1943 tax, and he would be paying the whole of the unpaid1 part, which might be fifty per cent, sixty per cent or seventy per cent, of the 1942 tax. Because he is earning a $10,000 income he is paying at a high rate, and I think it would be simply class legislation to draw a line on the basis of income. However, I think it is sound legislation to draw a line between investment income and earned income on account of the fact I have mentioned, namely, that presumably the source of the investment income is constant. It is there; it is not dissipated; it does not disappear when death, retirement, illness or loss of position takes place.


CCF

Stanley Howard Knowles

Co-operative Commonwealth Federation (C.C.F.)

Mr. KNOWLES:

Apart from the fact that the minister has tried to set aside what I had in mind, I must say that he has stated very clearly the position I felt should be taken in this matter. I take it that he has given this question consideration and has turned it down; nevertheless I should like to press for consideration of this idea, that the forgiving of the tax on fifty per cent of investment income up to S3,000 should apply in cases where that is definitely the only income, but should not apply where the total income of the taxpayer is in the higher brackets, say at whatever figure the minister might arrive at.

Topic:   TMW - 124
Permalink
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Well, if I am correct in my position that we should make no difference between amounts of earned income, that all earned income is entitled to this concession, then I do not think we should make a difference between combinations. I think then we just have to consider what exemptions we should extend in connection with investment income. There are some persons whose only income is investment income, and who must have some investment income in order to live.

Topic:   TMW - 124
Permalink
CCF

Stanley Howard Knowles

Co-operative Commonwealth Federation (C.C.F.)

Mr. KNOWLES:

I am not objecting to

the forgiveness in those cases; I am objecting to a man with an earned income of $10,000 getting fifty per cent exemption on that and also getting a fifty per cent exemption on his investment income up to $3,000.

Topic:   TMW - 124
Permalink
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

The hon. gentleman would

suggest something else, that as the income went up the $3,000 should go down?

Topic:   TMW - 124
Permalink
CCF
LIB
CCF

Stanley Howard Knowles

Co-operative Commonwealth Federation (C.C.F.)

Mr. KNOWLES:

I should be glad if the

minister would consider it.

Topic:   TMW - 124
Permalink

WSVIBED EDITION


Income TTar Tux


LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I have a suggestion to offer to the ministers and perhaps to the commissioner with regard to the wording of the resolution, which in its present form has, I think, aroused very natural inquiries such as those put forward by the hon. member for Kootenay West. To make the point perfectly clear, if it were thought worth while I think, if you inserted the words "up to $3,000 in respect of investment income" immediately after the words "in respect of earned income and," you would remove any ambiguity that may exist in the present system. You almost never get to a court in regard to income tax, but you might clarify the resolution and bring it into full accord with the intention which has been made very clear by the minister.

There is another point I wish to mention, and if I am in order I should like to discuss it. I refer to the point raised by the hon. member for Lake Centre, in regard to what the minister called annuity income, which I understood the minister to say could be discussed under this resolution. The minister indicated that careful consideration would be given to perhaps one or both types of so-called annuity incomes. In connection with his giving that consideration may I just point out one case. Take an instance where a father makes a bequest of, say $40,000 as a trust to his executor for the support of his daughter, perhaps an unmarried girl who cannot earn her own living, but instead of having that amount paid to the daughter he creates a trust and leaves it in the hands of his executor to be paid to her at the rate of $2,000 a year. The true character of such a bequest is not income at all; it is a capital lump sum bequest from the father to the daughter. All he does is to defer payment of it to her; but I understand that a recent case was brought to the attention of the very able commissioner in connection with a particular estate, and the ruling has been that under those circumstances this trust of $40,000 in the hands of the executors and paid at the rate of $2,000 a year to the daughter is taxed as though it were income, which means that one-third or more of the $2,000 is taken away from the daughter. The testator never had any such intention. That is not income at all; it is capital, purely and simply. I suggest that the minister might give serious consideration to that problem, because under the rulings that have been made with regard to the present wording of the act I understand this $2,000 is taxed as the income of an unmarried person, as though it were pure income.

Mr. ILSLEY; I am told that in such a case, if there were a bequest to a daughter and her heirs of $2,000 a year until the fund was exhausted, that would not be regarded as an annuity or as annual payments. If $40,000 were the amount, it would be a $40,000 bequest payable to the daughter at $2,000 a year irrespective of her death, and would not be taxable as an annuity under the English cases. However, if it went on to her death, then it would be an annuity.

Topic:   WSVIBED EDITION
Permalink
LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I appreciate that definition. My information was that in a given case the ruling had been that it was still treated as income. If I am wrong in that, then the matter does not need curing.

Progress reported.

Topic:   WSVIBED EDITION
Permalink

At six o'clock the house adjourned, without question put, pursuant to standing order. Thursday, April 8, 1943


April 7, 1943