March 29, 1945


Supply-Revenue-Income Tax



only beginning to see the effects of your taxation. I gave some percentages on that last night, and before this time next year the situation will be greatly aggravated). The thing is overdone and the effect on production should be taken into consideration now.


LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I do not want to prolong

the discussion on the supplementary estimates. I had hoped they would be finished by six o'clock so that we could get a bill over to the senate and obtain royal assent. But matters have been opened up which are of great importance, and I am sorry that we have not sufficient time to enable the house to give them full discussion. If we did that with all these items we should never get our supple-mentaries through, because we are dealing with practically every department and the committee. is discussing each item as if it were an item in the main estimates and covering a very wide field.

I want to say just a word about some of the suggestions that have been made with regard to the taxation of farmers. The farmers are taxed like everybody else in business. At the present time I do not think there is any difference. I do not think that the farmers receive any favours, nor do I think they are discriminated against' in any respect. There was in the Income War Tax Act last year or the year before the privilege of carrying backward or carrying forward losses, which was more favourable to farmers than to other businesses, but now I think that situation is equalized.

With regard to the allowance to a wife who helps her husband in the store, she is not allowed for that income taxwise, nor is the wife of anybody else who helps her husband in a profession or business. In the early part of the war we made a change in that principle, which we could not very well justify on a basis of principle, in the case of the wife who goes out and gets a job and earns money. But you know how much she gets. You know she is working every day straight along, and we found that if we were to get married women to go into the factories and work-and we needed war production in the worst way

we would have to allow them to be taxed as if they were single persons without asking the husband to sacrifice his married status for income tax purposes. At that time the married women were beginning to flock out of the factories and go home, and1 so we made that change.

In the case of the farmer's wife it would be impossible-though I am willing to consider it again-to extend that rule to a case where no money is paid to the wife who works part of the time on the farm and part of the time in the house, and where no check is

possible as between individuals. So it would have to be universal, I think, and if that- were done, it would have to be extended to women doing housework in towns and cities for their husbands. The result would simply be that the exemptions would be increased by that additional amount. If members can work out some way of administration that does not lead to that result, I should like to hear it.

In the case of the children, the children may be paid for working without losing their status as dependents, if they are not paid more than S400 a year. As I understand the law, and I think I am correct, if they are paid more than S400 a year, or paid beyond a certain amount, they lose their status as dependents, but it can be deducted from the income of the farmer and shown as a deduction.

With regard to averaging income over four or five years, a great deal of thought has been given to that. I do not know of any country where incomes are averaged now. I am not sure about other countries but my recollection is that in the United States losses may be carried back or carried forward two years. In this country they can be carried backwards one year or forward three years.

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NAT
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I am very doubtful of that; I am not sure. There are certain disadvantages about averaging. It means that a farmer may be called upon to pay a heavy income tax in a year in which he has no income whatever because he had a large income perhaps three or four years before. A farmer who retires and has no income would have to continue to- pay income tax beyond the period when he was earning an income. I have not made a study of the situation to see what all the disadvantages of averaging are, but we do not do it for business and we do not do it for farmers because of those objections. It would be very hard to administer because there would be this bringing forward of the back years.

With regard to herds, on principle I do not see how the increase in the value of a herd can possibly be regarded as an increase in capital. If a person is in the business of buying and selling cattle or of buying cattle and fattening cattle and selling cattle or of milking cows and later selling the cows, what he makes includes the increase in the value of the herd as well as the current receipts in the case of a dairy business. I do not see how it can possibly be regarded as an increase in capital, with this exception, that if he pays income tax on the same basis as that on which a business man pays income tax-that is what

Supply-Revenue-Income Tax

is called the inventory basis-it is only an increase in the value of his herd which is regarded as income, just as the increase in the inventory of a merchant is what is regarded as income. So the income tax authorities have tried to give every facility to farmers to enable them to get from a cash basis back on to an inventory basis, and when they do that, they may regard some of the original investment there as capital, but of course any increase in the value is regarded as income, just as current receipts are regarded as income. When a farmer buys farm machinery he is not in the business of buying and selling farm machinery and the same when he buys a farm, and any increase in the value is an increase in the capital and is not taxable. But any increase in the value of his herd is not an increase in the value of a capital item but an increase in something which it is his business to buy and sell and make a profit out of. I think the income tax authorities have gone as far as they can to assist agriculture in getting from a cash basis on to an inventory basis. Had agriculture been on an inventory basis throughout the years, the question would never have arisen. It arises simply because agriculture has been on a cash basis.

Those are some of the difficulties that confront the authorities when they are dealing with this matter. There is not so much difficulty about the income tax or its application as there is about the weight of the tax. It bears very heavily on everybody, on the salaried individual, the wage-earner, the member of parliament, the farmer and everybody else.

There may be a certain discouragement of production, but I think of what the people have done during this war. I think of how they have paid their income tax without any question, perhaps in some cases it has been because they could not avoid doing so. Many have been perfectly willing to work overtime; they have been willing to put forth extra efforts to the stage of nervous collapse. These people have been willing to pay income tax on their overtime earnings. Of course, there have been some who would not do so. However, I think the record of the Canadian people under this heavy income tax in time of war has been pretty good.

I look forward to the time when the income tax may be lightened. I think that is the change that will be most welcome rather than to attempt to put the farmer in a preferred position in regard to these matters as compared with other businesses.

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LIB

Harry Leader

Liberal

Mr. LEADER:

Why not accept the recommendation that was made to the minister some years ago by the federation of agriculture and supported by farmers? This was 32283-234

that in the case of live stock twenty-five per cent would be counted as an increase for income tax purposes and the other seventy-five per cent would be considered as capital. Otherwise we are going to have this trouble continually because every assessor will make a different adjustment. That is what is creating all the trouble. I want to say definitely that the same condition exists in my part of the country as the hon. member for Souris depicted a moment ago.

Hog production is down at least thirty per cent, and I think the main reason for this is the fact that the department does not recognize that the" farmer's wife and family are entitled to some pay for the work they do while the farmer is doing perhaps two or three men's work. The difficulty could be overcome if that one condition was changed. I know the answer will be that we cannot have class discrimination, but when the department attempts to put agriculture on the same basis as that of a storekeeper it is wrong.

The ordinary business man does not have to face the same hazards as the farmer. If you gave a married man an exemption up to SI,860 that would help to take care of much of the discontent and dissatisfaction and misunderstanding there is at the present time. You would also increase food production because these people are willing to work if they are paid for it.

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PC

Joseph Henry Harris

Progressive Conservative

Mr. HARRIS (Danforth):

The minister mentioned that a great number of people were willing to work overtime although the major portion of their overtime earnings might go into consolidated revenue fund because of taxation. The minister has had two years to think up some formula to take care of those who will not work full time knowing that if they do they will get into a higher taxation bracket. Has the minister anything in mind that would take care of that?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

The elimination of the

compulsory savings made a great improvement.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

It is unfortunate that this discussion has come on at this time. I am as anxious as any one else to see the supplementary estimates passed. However, since the question has been raised I want to associate myself with what has been said by the hon. member for Portage la Prairie and the hon. member for Souris.

Regardless of any theoretical consideration as to the justice or injustice of the effect of the income tax structure on the farmer, at the present time we are confronted with one

Supply-Revenue-Income Tax

great problem, that of getting production. I have listened to pleas over the air by officials of the Department of Agriculture urging farmers not to go out of hog production because they will lose the British market. You would think that the people who were making those pleas had never lived on the land at all; you would think that they lived in a realm of nebulous vapour instead of realizing that the farmer is confronted with hard, cold business facts. He must try to make a profit out of his work. The farmer considers that there is a tendency on the part of the federal authorities to take the full value every time he makes anything, while they will not help the farmer or assume any responsibility when he takes a loss.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

That is clearly wrong. By the amendments made to the income tax act last summer losses are permitted to be carried ahead three years and carried back one year. There is no tax on capital gains in this country. It is entirely improper to say that we want to take the gain when the farmer makes one, and that we give him no advantage when he makes a loss. When he makes a loss he does get an advantage, and when he makes a capital gain it is not taxed.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

Let me present this concrete case. When my father died we had a herd of cows that were worth $135 each. That was in the autumn of 1919. We paid $45 a ton for the feed to feed them during the winter, but we had to sell them in the spring for $45 a head. What provision is there in the income tax structure to provide for such a terrible loss?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

There would be a loss in the year's operation. Will the hon. gentleman suggest a figure for the total loss?

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SC
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

If there had been a profit in the year prior to that or in any of the three following years the $15,000 could be subtracted. It could be extracted from the profits of the previous year to the extent of those profits, and then further subtractions could be made for the succeeding three years. In that way the loss would be spread over a five year period.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

But suppose the

farmer was driven into liquidation as a result of that experience. Would there be a return of the taxation he had already paid?

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LIB
SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

That is the point; the farmer is faced with that sort of thing. I should like to read a resolution which was passed by the united farmers of Canada, Saskatchewan section.

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LIB

Joseph-Arthur Bradette (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The CHAIRMAN:

Surely this discussion is going far afield. We are now on the supplementary estimates and I think we should try to keep within the item.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

Since other resolutions have been read I should like to read this one. It will take me only a minute.

For income tax purposes farmers' incomes must be paid on a five-year income average, and any incomes used to make payment in respect of principal on the home half-section of land and interest (other than debts incurred for normal current living expenses) to rank as production costs and shall be exempt from income tax. Payments made out of current farm income on all debts incurred prior to crop year 1939-40 to be exempt from income tax.

At the present time I will say no more than to associate myself with hon. members who have already spoken; but when the time comes for the regular discussion of this matter I shall probably have a great deal to say, because much must be said if the production of food in this country is not going to be lessened to a dangerous degree.

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NAT

Ernest Edward Perley

National Government

Mr. PERLEY:

On the third day we were here I directed a letter to the deputy minister and asked him to give special consideration to the case I set out. I am not going to state now what it was, but I wish he would please look that up and give me a reply.

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March 29, 1945