May 4, 1950

LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

Order. When the last question was a^ked there was so much noise in the chamber the question could not be heard.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Lionel Chevrier (Minister of Transport)

Liberal

Mr. Chevrier:

It came from over there.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

At the present time there is just as much noise. I would ask hon. members not to converse with each other at this time, so that the questions asked may be heard.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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?

Mr. Johnsion@

On Thursday, May 4, the Montreal Gazette contained an article with a Canadian Press byline. This article is headed, "Privilege of franking said safe for M.P.'s," and it states, in the second paragraph-

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

Order. I cannot allow the hon. member to read a newspaper article at this time.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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Mr. Johnsion@

It is a question of personal privilege. I am not asking a question.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

A question of personal privilege should have been raised earlier in the proceedings.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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Mr. Johnsion@

I tried to, but you did not see me, sir.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

The time to raise a question of privilege is at the opening of the sitting.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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?

An hon. Member:

Any time.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

However, as the hon. member now wishes to bring up a question of privilege I think we should hear him.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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CCF

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

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

Mr. Knowles:

It is a good one, anyway

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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Mr. Johnsion@

And it is a very important question of privilege. The first sentence of the second paragraph in the article reads:

In the public accounts committee Mr. Sellar was questioned by C. E. Johnston (C.C.F.-Bow River) about a proposal to put the post office on a commercial basis.

I should like to draw attention to the fact that I am not a C.C.F.'er, I have never wanted to be, and I am quite content to be a Social Crediter.

Topic:   PRIVILEGE
Subtopic:   MR. JOHNSTON REFERENCE TO REPORT IN MONTREAL "GAZETTE"
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WAYS AND MEANS


The house in committee of ways and means, Mr. Dion in the chair.


INCOME TAX ACT


Hesolved, that it is expedient to amend the Income Tax Act and to provide, amongst other things: 1. That for the 1949 and subsequent taxation years, the provision under which the 10 per cent tax rate on the first $10,000 of income of a corporation applies only to one of several related companies be amended so that the test of relationship of companies shall be ownership of 70 per cent or more of all the issued common shares of capital stock of the corporation instead of mere control.


LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. James Sinclair (Parliamentary Assistant to the Minister of Finance):

Mr. Chairman, before I begin the discussion of the Income Tax Act resolutions, there are one or two matters connected with excise tax to which I should like to refer. I believe this would be the appropriate time to do so.

The hon. member for Melfort asked an interesting question as to the status of American contracting firms bidding on Canadian projects, having success in their bids and then bringing their equipment across the line to work on such projects. Obviously if they were able to bring equipment across without duty and sales tax they would be in a preferred position in comparison with Canadian contractors. I referred this matter to the deputy minister of national revenue in charge of customs and excise, and perhaps, for the information of all hon. members, I might be permitted to put his opinion on the record.

Under the customs tariff the contractors' equipment mentioned would be subject to payment of customs duty and sales tax in the ordinary course, but where materials are owned by a United States concern who have been given a contract by Canadian interests to perform certain operations in this country and who require the use of equipment which is of a special nature and not available here, it is the practice of the department to submit the facts to the governor general in council with a view to obtaining authority for collection of the duty and sales tax on a proportionate basis, conditional on exportation of the equipment within a specified length of time. It is only where inquiries made by .the department have established the fact that no Canadian interests would be prejudiced that such submissions are forwarded to council.

I should like to make a short statement with regard to the first income tax resolution to be found in the ways and means resolutions now before us. While I am piloting these resolutions through the committee, the Minister of Finance of course will actually put the bill through. I am not a lawyer, and income tax legislation is without doubt the most technical of all the legislation on our statute books. Nevertheless most hon. members are

Income Tax Act

not lawyers, so it may be an advantage so far as the resolution stage is concerned to have the general intent of these resolutions explained in layman's language, and that is what I intend to do.

The Minister of Finance has told me that between the first reading and the second reading of the bill at least one week will be allowed to elapse, during which time hon. members who are interested in this type of legislation can study the bill. He has asked me to repeat the invitation he has given to all members of the house to avail themselves of the services and help and advice of the many excellent and competent officials in the Department of Finance and of National Revenue who have worked on this legislation.

The first of the Income Tax Act resolutions relates to the ten per cent tax concession which was made last year to small business. You will remember that before last year we had a flat thirty per cent tax on the profits of corporations, and it was felt that that bore down too heavily on the small businessman. So for the first time in the history of our tax legislation we introduced a graduated scale of corporation taxation somewhat similar to' the graduated scale we have always had in: connection with personal income tax.

The rates were changed to ten per cent on the first $10,000, and then, to ensure that there was no revenue loss, the rate was raised to thirty-three per cent on the profits beyond that figure. That actually meant that a company with profits less than $77,000 a year would gain under this legislation, while a company with profits over that would have to pay heavier taxes.

The intent of the legislation was not necessarily to help small business; the intent was to help the small businessman. There are many wealthy men in this country who have a great number of small businesses and who derive from those businesses large incomes of perhaps $50,000 to $100,000 per year. If this ten per cent rate were applied to all small businesses which had profits of less than $10,000 a year, it would be possible for such a man to have an income of from $50,000 to-$100,000 a year and pay only this ten per cent corporation tax rate, whereas another man with the same income, but derived solely from one company, would be paying ten per cent on the first $10,000 and thirty-three per cent on the income above that.

If the ten per cent rate was to be applied1 to every company then it would be possible for certain types of businesses to break up into individual units. For example, chain

Income Tax Act

stores could be broken up so that every store was a separate corporation which would pay the ten per cent rate. The result would be that the aggregate corporation income would be subject only to the ten per cent rate. On the other hand, there are many industries which could not be broken up in that fashion. In my own riding there are mines and pulp and paper mills where the final sales are at the end of their production, the sale of ore or concentrates or paper.

Last year we tried to devise legislation which would help the people we wanted to help, the small businessmen who were struggling to expand their businesses, by relieving them of this heavy thirty per cent tax and substituting the ten per cent rate. However, to protect against abuses such as I have mentioned we limited that to one of a number of controlled companies. The majority shareholders of those controlled companies will be the ones who will designate which of the companies shall receive this concession of ten per cent tax on the first $10,000.

When the minister was piloting the bill through the house, hon. members on both government and opposition sides pointed out some of the factors which were involved, and suggested that it might prove to be a hardship on the minority shareholders in controlled companies. At that time the minister gave the house assurance that if during the year experience showed that this was inflicting hardship on the type of businessman we intended to help, changes would be made, and made retroactive to cover the 1949 tax year. When I appeared before the Senate I gave the same assurance.

During this past year it has been found that the present legislation, while of good intent, has hurt one class of businessman in Canada. It often happens that someone, perhaps a returned veteran, wants to start a small business in a small town, possibly a garage. He cannot raise the money in the ordinary way, so he turns to what you might call the local capitalist, the man who has made his money in the town. This man not only has money; he has credit standing and managerial experience. I am sure that every hon. member who has small towns in his riding knows that that situation exists. Such a man may help any number of little industries to get going. He will retain control of the company during a certain period and exercise managerial control. Because of that the business is able to obtain bank and other credit.

Under the present legislation only one of such a group of small companies which had been helped by one or two local men of

money would be able to obtain this concession. Whichever company was picked out would get the concession, but the others, the minority shareholders in the other groups, would not only be denied the ten per cent concession; they would be paying a corporation tax, not at the old thirty per cent rate but at the new level of thirty-three per cent. It is for that reason that we have introduced this new resolution to expand the idea of control, not to bare control, but, as is stated in the resolution, to ownership of not more than seventy per cent of the common shares.

It is hoped by this means to expand this concession to most of the genuine small businesses in the country. At the same time the seventy per cent stipulation does not make this concession available to some of the large corporations whose business is of such an order that they could break it up into units and so avoid the normal corporation tax.

Topic:   WAYS AND MEANS
Subtopic:   INCOME TAX ACT
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PC
LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

That is the assurance given by the minister, that it will cover the 1949 tax year. That was promised by the minister in the resolution speech he made last fall.

Topic:   WAYS AND MEANS
Subtopic:   INCOME TAX ACT
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May 4, 1950