May 30, 1947

PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

Just along the same line may I ask the minister to state the present position with regard to the pension, for example, paid by the C.P.R. to an employee who has retired? I have had a communication from one who has been on pension for nine or ten years, and who is being charged income tax on that pension. Is there no protection in a case of that kind?

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

I am advised that up to 1935 the C.P.R. pension fund was non-contributory, and of course in that case the total pension would be subject to tax when received by the pensioner. In 1935 it was converted to a contributory fund, and since that time employees of the C.P.R. have been making contributions. I am told the Department of National Revenue now apportions the pension payments received by C.P.R. pensioners as between the portion which was non-contributory and the portion which was contributory, and makes a- proper tax adjustment.

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PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

In other words if the man retired in 1934 his whole pension would be taxable?

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LIB
PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

Does not the minister think some adjustment should be made to meet that situation?

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

I don't know why. It is a non-contributory plan; it is a free gift, and following the ordinary rule it is subject to tax when received. There has been no double taxation in that case, of course. The purpose of the law as it now stands, following the recommendations of the Ives commission, is that it should be so arranged that there will not be double taxation on these pensions. The general rule is that if the pension contribution may be taken as a deduction from income for tax purposes when it is paid in, then the pension is taxable; and that is the provision as it now stands.

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PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

Is not the actual position this, that the man was receiving a certain rate of pay which, while it may not have been

Income War Tax Act

apportioned in such a way that part of it was shown to be a contribution to a pension fund, nevertheless probably was based on the fact that he was going to get a pension upon retirement? Surely some relief could be given these elderly men who are in that category.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

Of course the short answer to my hon. friend's question is that if he had received his pension contribution as part of his pay, he would have paid tax on it. In fact he did not. Reasoning it in logic, he received pay on which he paid tax at the proper rate. If for the purposes of argument we say that in addition the company was paying into a pension fund a certain amount of money to provide him with a pension later, then that was something he was getting free of income tax, something which was not included in his income for purposes of taxation. Therefore following the rule I have just mentioned, when his pension is received it should be subject to tax.

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PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

Yes, but even on that basis his increased income would have been very much smaller. It would not be right to tax him on his full pension, which is what is happening today.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

Generally speaking I think it is more favourable to the taxpayer, certainly under existing rates of tax, to deduct his pension contributions for purposes of income tax, than to have a tax-free pension at the end, because the pension, except in the executive groups, is relatively small and usually covered by the exemption, so the pensioner pays very little tax. Taxwise I think it is very much in the interests of the pensioner to claim the pension contributions as a deduction from income when he is earning at a fairly high rate and is subject to a fairly substantial tax, than to have a tax free pension. I am informed it works out that way.

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PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

I quite agree with the minister, but all these men now would be well over seventy-five. They retire at sixty-five, and having retired before 1935 they are getting on in years. I would ask that consideration be given to providing some relief for men in that position.

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SC

Robert Fair

Social Credit

Mr. FAIR:

Just before eleven o'clock on Wednesday evening I asked the minister a number of questions in connection with farmers' income tax. I wonder if he has the answers for me today.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

I assured my hon. friend that I would get the information and give it to him. It requires a bit of time; I may not

be able to do so while we are on the resolutions, but I repeat the assurance, which I think was the one I gave the other night, that at the latest I will give it when we are in committee on the appropriate section of the bill. It has not been overlooked.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

I wish to draw to the attention of the minister a matter somewhat similar to that which was brought forward by my colleague to my left a few moments ago. I want to recall the change made in the law last year under resolution 27 at that time, which is carried into the present consolidation of the act in clause 9, paragraph 7. Under that provision, in the case of payments pursuant to superannuation or pension fund or upon retirement, as the law stood immediately preceding last July such a payment was taxable spread over five years, one-fifth each year. This paragraph 7, as it stands, made the tax fall very much more heavily, although there is one alternative, because it is taxable in the year it is received. I want to suggest to the minister two things, first of all that that contravenes substantially what was suggested or recommended in the Ives report, and secondly that it creates a great hardship, particularly in the case of widows.

I want to read a brief statement here- I believe it is correct-which sets out a case of great hardship which I would bring to the minister's attention. It states:

At the last session of parliament the government had changes made in regard to the methods of taxation of "lump sum" payments from pension funds and employer's gratuities to those retiring from service. When the matter was discussed in the house by the ways and means committee as reported at pages 3871 to 3876 of Hansard, Mr. Abbott, who was piloting the matter through, stated that the method then in vogue, i.e., taxation of only one-third of the lump sum, was "introduced during the war to moderate the effect of very high tax rates," and throughout his defence of the proposed change to revert to the system of taxing the whole of those payments, implied that taxation was now lower. This debate took place in July, 1946 . . . As Hansard will show, Mr. Abbott spoke only of men receiving lump sum payments during their lifetime; he did not make clear that this also affected widows, or other beneficiaries of a person who had made payments into pension funds and that as a rule the lump sum consisted entirely of the man's own payment into the fund.

And then this further:

Prior to 4942, or thereabout, the taxation on lump sum repayments from pension funds was on the full amount. As the result of representations made by various organizations, among which was the international firefighters' union, the tax was reduced to one-third. When the Ives commission was set up the organization referred to appeared before them in regard to "lump sum" taxation.

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The organization referred to was the international fire fighters' union, I might say.

The commission, in its report-

That is the Ives commission-

-commented on the difficulties surrounding the question and recommend the continuation of the one-third as being equitable. On page 3871 of Hansard, during the discussion on resolution No. 26, Mr. Abbott said: "The whole question was considered by the Ives commission and legislation was introduced last year following the recommendations of that commission."

I would submit that this finding of the Ives commission was not followed throughout, and in this particular it was disregarded.

I should like to bring one case to the attention of the minister:, and then I shall have finished. This is a case respecting one of the members of the fire fighters' union in Toronto. It states:

One of their members, after nearly thirty years of service retired on pension; he died within a few months; his widow received as a lump sum repayment of his contributions to the pension fund about $3,200. Under the present regulations she has two choices in regard to the tax. One would mean, in round figures, a tax of $500 out of the $3,200; the other a tax of $780. But here's "the rub,"-this man during the first half of his service on account of income, was not taxable. It was only when his wages got higher and his family grew up, and more particularly when the government dipped much lower than formerly into low and medium incomes, that he became taxable and was exempted from such tax on the amounts he was then paying into his pension fund. As a result of these exemptions he saved $209. Now, owing to the taxation being on the whole $3,200, his widow received, and which amount represented all his payments into the fund, even those in the years when he was not taxable, his widow has to nay either $500 or $780.

I just wish to recapitulate at this point. It seems to me that the change which was made last year and which, I submit, made taxation on such payments so much mote onerous, was a most unfortunate one. I hope the minister will be able to take this situation into consideration, and particularly as it affects widows.

And I just add this: I was informed-and this may be subject to correction-that actually a regulation has been made easing these cases where widows are affected. I should like to know if that is so. If it is so I would ask two questions: first, under what authority does that come, and, second, if it is proper to do it there, why should not the principle be extended?

I repeat that it seems to me the amount of the tax involved is, at any rate in the smaller cases, negligible so far as the crown is concerned, and a very great hardship can be and is being worked in many cases similar to the one I have just brought to the attention of the committee.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

This question, as my hon. friend knows, is complicated. It is one which has been given a good deal of consideration by myself and by the officers of my department for the last three or four months. I have had a number of delegations to see me about it.

It is true that the law as it stands did depart in certain respects from the recommendations of the Ives report. That was done, I believe, for good and sufficient reasons. These lump sum payments can be made the subject of considerable abuse. And when I state that I am dealing with the general aspect of the problem, rather than with the specific case to which the hon. member referred. But I repeat that they can be made the subject of abuse. A man can accumulate a certain amount, and then leave the company he is with, get his payments, go to another company and get another lump sum payment.

Broadly speaking-and I think this is a view which is shared by many people-I believe that a pension plan which provides for single lump sum payments to widows is not a particularly good plan. As I say, I am only expressing my own personal view. I think it is a much-better plan if the directors of the fund are given the option of paying the amount to the widow in yearly instalments. I advised some of these delegations, which came to see me and which discussed certain funds, that the department would have no objection to a fund amending its by-laws or regulations, or whatever they may be, to make the provision I have indicated; and, in addition, to provide that it could be or should be paid in instalments. I went further and said that the department would be prepared to look at hardship cases where a lump sum payment should be made-for instance in order to pay off a pressing mortgage obligation. I said the department would be prepared to look at those cases involving a particular remission under the Consolidated Revenue and Audit Act.

I feel that that is really as far as we should go in that field. However it is a question on which I have a perfectly open mind; and if it can be shown that another scheme might be fairer and better, we would be prepared to consider it. But this is a matter which has been given a great deal of careful consideration by myself-and I am not an expert in it-and also by departmental officials who are informed in these matters. It has been considered sympathetically, too, I may add.

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?

Mr MACDONNELL (Muskoka-Ontario):

I agree it is unfortunate that this condition exists with respect to lump sum payments, and I agree with the minister's view that it would be wise to adopt a different course.

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There are one or two respects in which I differ from the minister. I have no doubt there may be cases where people go from one place to another and may accumulate pensions -although I would think, and I suggest with deference to the minister, that the type of men who roll about are not the ones who are likely to accumulate much by way of pension. I should not consider that a very serious point. It is one which it seems to me could be taken care of by a suitable safeguard. Further, I deprecate the idea that we have to meet a situation of this kind, which I assume is a situation which will arise often, practically by charitable considerations. Perhaps I should withdraw the word "charitable" and say it is unfortunate that we must meet it by making special cases. It is most undesirable, first of all because people do not want to be a subject of charity; secondly because they do not know what their rights are, and thirdly because to some extent it depends on whether the minister had a good night's sleep. The minister being human, it depends upon that.

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An hon. MEMBER:

Is he human?

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

I am giving the minister the benefit of the doubt. But I do come back to this, that I do not have to remind the minister that a year ago we departed radically from what the situation has been before. And looking back upon the debates which took place at that time, I must reproach those of us on this side of the house for not' fighting it with more strength.

We departed radically because, as was pointed out in the Ives report, broadly speaking there was a practice-which as the report says was not logical, but which seemed to have common sense in it-of spreading payment out over five years. The report says that under the circumstances there seems to be no particular reason for changing the existing law. I must say that on general principle it does seem to me to be sensible. We have done jt in various cases. When you get a lump sum payment of this kind I think it should be spread over some years. I think that carries with it the judgment of everybody as being just a matter of common sense. If there are difficulties in the way, that is a matter for the minister and his advisers. It may be, although I am not suggesting this particularly, that the minister and his advisers feel that this has to be limited to sums of modest amounts. I am not offering an opinion on that, but I do suggest most earnestly that what we did last year w'as a reactionary move. The case that I have given shows the 83166-231

hardship that may be involved. As I see it. we departed from this considered report of Mr. Justice Ives. For all these reasons I do hope that the minister, with that open mind which I am sure we all feel he has, will be able to take another serious look at this for early action.

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CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

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

Mr. KNOWLES:

I should like,to say a word in support of the representations made by the hon. member for Muskoka-Ontario. I do not get many cases of this kind, but one has been drawn to my attention which seems to underline the point. This particular gentleman in Winnipeg, after serving a firm for a good many years, was forced to retire because of arthritis. The firm gave him a lump retiring allowance of $15,000 or $16,000. He felt that it would have been better to be provided with monthly payments, and so he arranged to buy a government annuity, spending about $14,000, or almost all the lump sum he had received. He is now in the position where the lump sum is being divided into five parts for taxation purposes and for the next five years he will pay income tax on one-fifth of the lump sum as well as on the $1,200 annuity which he purchased with the major portion of the lump sum. All told it will mean that in the next five years he will have to pay income tax of between $5,000 and $6,000 out of his $15,000. It would seem that in a case like that where a person takes a lump sum and turns it into an annuity for his life time, or for his life time with a guaranteed period of years, some consideration should be given. To give consideration to cases of the kind would encourage people who receive lump sums to invest them in life annuities.

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PC

Wilfrid Garfield Case

Progressive Conservative

Mr. CASE:

We are now dealing with section 3. There was a time when the budget meant something to the Canadian people; it does even yet, but at one time it was a highly secret document. As you know, last year we departed from the accepted rule-possibly even before that-and in the main the terms of the budget did not apply until January 1, 1947. By this clause the taxation rates applicable to income of individuals will be the average of the present rates and of the rates set out in paragraph 1. I know that a great deal of thought and consideration has been given to this, and I believe the minister will be able to answer my question.

I am wondering why the income tax provided by the budget was not made applicable immediately. The budget was brought down on April 29, at which time about one-third of the year had passed. When you are setting up tax rates based on an average table you would know that one-third of the year had

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May 30, 1947