May 4, 1950

PC

Donald Methuen Fleming

Progressive Conservative

Mr. Fleming:

On the face of it I think this resolution is likely to commend itself to hon. members. The parliamentary assistant, however, might expand the information given in some respects. In the first place, may I ask whether, under the terms of the proposed bill, this will remain the only definition of related corporations? In the second place, is the parliamentary assistant in a position to inform the house how many corporations have been affected by the provision introduced last year in the amendment to section 36 of the act? How many small companies were benefited by the reduction in rate?

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

So far as the latter part of the question is concerned, of course the tax returns are not in yet. Our only knowledge comes from the correspondence we have received. Gererally the concession was greatly welcomed, but the one complaint was from this group of companies. Perhaps I should also mention that it was not in the House of Commons but rather before a Senate committee that the question was raised by various senators. I know at times the Senate is harshly dealt with in this house, but my experience in the last few years in the position I occupy has been that the Senate committees on banking and commerce and finance are of tremendous aid to our parliamentary processes. It was there that various senators put their fingers on the point that our bare control measure would inflict hardship on the very class of small businessmen in small towns whom we were seeking to aid. The

actual definition of related companies will be spelled out most carefully in the bill which will be available once the resolution passes.

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PC

Donald Methuen Fleming

Progressive Conservative

Mr. Fleming:

That is not quite an answer to my question. I asked if this test, as proposed in the resolution, will now become the only and exclusive test to determine whether or not corporations are related.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Oh, no; this particular test has been applied only with relation to this special tax concession.

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PC

Donald Methuen Fleming

Progressive Conservative

Mr. Fleming:

Again may I say that I do not think the parliamentary assistant has understood my point. Is this going to be the only test under section 36 of the act whether corporations are or are not related?

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Yes; that is right.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Will the parliamentary assistant say what restrictions or safeguards there are to protect the department against companies subdividing into other companies, and bringing the subdivided companies within the position contemplated by the act last year and the change now being made? As I understand it, when the Minister of Finance introduced the budget he said these changes were made for the purpose of encouraging small business, and that is a most commendable purpose. The parliamentary assistant has mentioned that there are numbers of businessmen who control a number of small companies. What is there to prevent any company in Canada today from coming within the shareholder provision of this section by subdividing into units? What is there to prevent a businessman with half a dozen small companies from continuing to operate those companies, thereby escaping the heavier rate of taxation? What is there to prevent larger businesses with the same type and percentage of control from breaking up and thereby ensuring an evasion of income tax?

Let me carry it one step further. What is there to prevent a chain store, taking the example given by the parliamentary assistant, from coming into this country, opening a dozen units, and, within the control limits provided under this resolution, establishing each one of those chain stores as separate incorporations? Has anything like that been done in the last year? Are any safeguards contemplated in the bill to be introduced to implement the resolution which will prevent such a situation from arising?

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Perhaps I did not explain sufficiently why we picked on seventy per cent. If it had been ninety or ninety-five per cent, then it would have been comparatively easy to do the sort of thing the

Income Tax Act

hon. member for Lake Centre has suggested. With seventy per cent control, however, it is not merely seventy per cent control by one person but by one person or persons not dealing at arm's length. If in two or three of these companies one saw the same shareholder in the other thirty per cent of common stock, then the Department of National Revenue would say that these people are obviously not dealing at arm's length.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

That is not a very strong safeguard.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

I am assured that from the legal standpoint-and I know that is what my hon. friend is interested in-adequate safeguards have been worked out.

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PC
LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

That is why I said so clearly that while I think I am competent to explain the matter in layman's language to a layman,

I should not presume to try to explain a legal point to the hon. member for Lake Centre. I am quite sure the minister will do so when the bill is introduced. After all, resolutions are only expressions of general intent and not details of legislation.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

There will be safeguards?

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

There will be safeguards.

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PC

Winfield Chester Scott McLure

Progressive Conservative

Mr. McLure:

Before the resolution carries there is a matter I wish to bring to the attention of the Minister of Finance and his parliamentary assistant. In the resolution it is stated that it is expedient to amend the Income Tax Act to provide certain things. I should like to mention a particular case having to do with income tax. If a married woman has an income in excess of $250 and under $1,000, the income of $250 is automatically deducted from her husband's exemption as a married man. That is to say, if the wife's income is $750 the husband has $500 taken off his $2,000 exemption as a married man. On the other hand, a widower keeping house, with a daughter living at home, has an exemption of $2,000 as a householder. His daughter can have an income up to $500 and it is not deducted from the widower's exemption of $2,000. This appears to be discrimination in the widower's favour to the extent of $250 compared to the situation of a married man. A married woman's income should be exempt up to $500 before any deduction is made from her husband's exemption. I believe this matter was brought up last year. Then there is the case of the married woman over sixty-five.

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LIB

Joseph-Alfred Dion (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The Chairman:

Order. I think the hon. member is out of order. We are discussing

Income Tax Act

amendments to the Income Tax Act, not the principles of the act. We are discussing the principles of the amendments.

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PC

Winfield Chester Scott McLure

Progressive Conservative

Mr. McLure:

The resolution reads: "Resolved, that it is expedient to amend the Income Tax Act", I am suggesting amendments, and therefore I do not see how you can rule me out of order. I only have one more item. A married woman over sixty-five can have an income up to $1,500 before being taxable, but in this case any income over $250 has to be deducted from her husband's exemption as a married man. If her income is in excess of $1,000, in spite of the fact that she has an exemption of $1,500, her husband loses all his status as a married man and is therefore taxed as a single man. This certainly is an unfairness in the act that should be corrected. If an additional exemption of $500 is allowed on attaining the age of sixty-five, I believe that $500 should be reflected in an adjustment of the husband's income. The wife who is over sixty-five should have an exemption of $500 in connection with her income before the surplus income affects her husband's exemption, which would make $1,000 in all after the wife attained the age of sixty-five. This situation affects many people, and as a matter of equity it should be rectified. I hope the department will see it in that way; and any change should be made retroactive to 1949.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

As you pointed out, Mr. Chairman, this first resolution has to do with corporation tax. In the second place, my job here is to explain the general intent of the amendments. The points the hon. member has raised undoubtedly would be pertinent on section 9, which has to do with income tax. In fairness to myself, the hon. member read these details-as he had to, when dealing with such figures-from a manuscript, and obviously he would not expect me to remember all the facts and figures he mentioned. When the bill is before the house, however; when we are dealing with the sections concerning personal income tax, and after the minister has had the opportunity to read the remarks of my hon. friend in Hansard, I am quite sure an answer will be forthcoming.

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?

Sidney Earle Smith

Mr. Smiih (Calgary Wesl):

I want to ask the parliamentary assistant for some explanation with respect to the diminishing balance of straight-line depreciation concerning income tax, and perhaps he would tell me when such questions would be appropriate.

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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

I can certainly tell the hon. member that the best time to ask the questions will be after he has had the bill in his hands and has seen the actual legal provisions contained therein. I am quite sure

[The Chairman.]

the minister will be only too anxious to explain anything that may be asked, now that we have had some little experience with that matter.

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Subtopic:   INCOME TAX ACT
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May 4, 1950