May 21, 1951


That it is expedient to introduce a measure to amend the Income Tax Act and to provide, amongst other things: 1. That, in respect of income earned after the commencement of the 1951 calendar year, a corporation shall pay a defence surtax for the year equal to 20 per cent of that portion of its ordinary income tax for the year that is computed at the 38 per cent rate, or the 33 per cent rate if applicable (before allowance is made for tax credits) subject to a right to a refund of such tax to the extent that it would reduce the corporation's taxable income after payment of ordinary income tax to an amount less than 5 per cent of its capital employed. 2. That an individual shall pay a defence surtax equal to (a) for the 1951 taxation year, 10 per cent and (b) for each subsequent taxation year, 20 per cent of his ordinary income tax (including investment surtax) for the year before allowance is made for tax credits. 3. That, for the purpose of computing income from an office or employment for the 1951 or a subsequent taxation year, there may be deducted certain amounts paid in respect of (a) travelling expenses that an officer or employee was required by the contract of employment to incur. Income Tax Act (b) professional membership dues where the officer or employee was required by the contract of employment to maintain his professional status, (c) office rent or salary to an assistant or substitute required by the contract of employment to be paid by the officer or employee, (d) supplies consumed directly in the course of the employment for which the officer or employee was required by the contract of employment to pay, or (e) union dues. 4. That the governor in council be authorized to make regulations under which the income tax of members of the armed forces on their service income will be paid in full in respect of the pay and allowances of each pay period by a deduction therefrom in accordance with a special table subject to the right of any member to file a return on an annual basis. 5. That the right to elect to pay the 15 per cent tax on its undistributed income now enjoyed by a private company (a) be extended to all other corporations, and (b) be withdrawn, effective April 10, 1951, from a corporation that is controlled by another corporation except in respect of its undistributed income on hand at the end of the 1949 taxation year. 6. That for the 1951 and subsequent taxation years the provision under which the 15 per cent tax rate on the first $10,000 of income of a corporation applies to only one of several related corporations be amended so as not to include in the class of related corporations those controlled by persons not dealing at arms length unless such persons own shares in the capital stock of both corporations. 7. That for the 1951 and subsequent taxation years, payments made for insulin, cortisone, adrenocortico-trophin (ACTH), liver extract injectible for pernicious anaemia and vitamin B12 for pernicious anaemia purchased under a physician's prescription may be included in the medical expenses for which a deduction from income may be made for the purpose of computing taxable income. 8. That special deductions from income to taxpayers whose principal business is the production, refining or marketing of petroleum or petroleum products or the exploring or drilling for oil or natural gas or mining or exploring for minerals, be allowed for expenses incurred in the 1954 operations on the same basis as for expenses incurred in the operations in the years 1951 to 1953. 9. That special deductions from income and taxes to taxpayers whose principal business is production, refining or marketing of petroleum or drilling for petroleum be allowed for expenses incurred in respect of deep-test oil wells in 1952 operations on the same basis as for similar expenses in 1950 and 1951 operations. 10. That the exemption of the income from a metalliferous or industrial mineral mine for the first three years of production now applicable to mines that came into production during the years 1946 to 1952 be extended to mines coming into production in the years 1953 and 1954.


PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

During the discussion of this measure before the committee rose last evening, Mr. Chairman, a good deal was said about the income tax provisions in so far as they affect men and women in our active service forces overseas. A number of hon. members expressed the opinion that members of our active service forces overseas should be exempt from the provisions of the Income

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Tax Act. In response to these suggestions it was explained that there were certain administrative difficulties; and it will be recalled that when this subject was brought up on an earlier occasion the Minister of National Defence pointed out the difference in dollars and cents that this exemption would result in as between a private in the ranks and a major general. Other considerations also have been put forward.

I suggest there are reasons why the recommendation that members of our armed forces on active service overseas should be exempt from the provisions of the Income Tax Act deserves further and favourable consideration by the Minister of Finance., It is not necessary to repeat the arguments that have been so well presented in favour of this exemption. However, it does seem necessary to refer to the fact that this was done during the last war. It is true there were administrative difficulties, as there would be today; but I submit that it is the duty of the government to decide what should be done and then take such steps as may be necessary to overcome any administrative difficulties.

This is something which particularly requires every effort on the part of the government, at a time when all Canadians are being asked to encourage enlistment in the armed forces. I submit the evidence is very strong that public opinion across Canada is overwhelmingly in favour of the suggestion that those who are offering life itself in the service of their country should be exempt from these taxes during their period of active service.

I recognize that hon. members should not regard as conclusive arguments the editorial point of view which may be expressed in newspapers across this country, important though that may be. But when there is a uniform request for this exemption, in very strong terms, on the editorial pages of the most responsible newspapers of Canada, we should recognize that it interprets public opinion without regard to political or other affiliations. Merely to look at some of the editorials which have taken a very strong stand on this matter one finds such words as "repugnant", "heartless", and terms of that kind used to describe the imposition of income tax on those on active service. I would refer to a statement such as this: "Imagine the public uproar if the defence minister ordered our soldiers in Korea to buy their own bullets". That statement, appearing in the Vancouver Sun, which is ordinarily very friendly to the government, merely indicates the sentiment being expressed from the Atlantic to the Pacific in regard to this tax.

Many anomalies can be suggested which indicate why such a tax would be most unfair. Let us consider, for instance, the case of a man killed in action-and unhappily we must recognize that we are called on to consider such cases; we are reminded of it from day to day by the casualty lists which indicate what Canada is suffering in a war, which is a very real war, being waged by the collective forces of the United Nations. Is the government going to make a claim against the estate of that man for arrears of income tax? Is the government going to pursue the ordinary course in regard to a debt of this kind? I am not raising this question for any other purpose than to illustrate one of the numerous difficulties that would arise and would have to be faced. I should think there would be a great reluctance to follow such a course. I am sure the Minister of Finance, a veteran himself, would be most reluctant to take such action. Then if that course is not right, the initial step should not be taken which would call for such action as an ultimate result.

I notice that a good deal of attention was paid to the fact that exemption from income tax would result in a substantial saving to a major general and a relatively small saving to other ranks. It may well be that there are discrepancies of the kind which require special consideration. I suggest, however, that that is no argument in itself. If it is right that the soldiers, sailors or airmen of the lowest non-commissioned rank should be exempt from this tax, the fact that someone else might be exempt in respect of a larger sum can surely be no conclusive argument against granting what would otherwise be regarded as a just allowance. As I recall the figure, it was estimated that for the lowest non-commissioned ranks the saving would be $6.85 per month. That, after all, does amount to some $80 in a year, which is not an insignificant figure in these days of rising costs of the necessities of life.

May I point out, Mr. Chairman, that on earlier occasions the government did not feel that this principle was so repugnant. It will be recalled that until comparatively recent times diplomatic and other representatives overseas in similar posts were exempted from income tax. As I understand it, that was done in recognition of the fact that those who served Canada outside of the country do not receive many of the conveniences, services, and amenities which are provided from the tax money which is paid. Furthermore, it was also a recognition of the fact that men and women who served Canada overseas are often called upon to bear dual expenses because of the necessity of maintaining a family or home in Canada, and also

other facilities of a similar kind overseas. Evidently the government decided that this was not a satisfactory method. The exemption was discontinued but in its place came the provision of generous living allowances and expense accounts, intended to recognize that in addition to the ordinary cost of carrying out services of that nature outside of Canada, there were also unusual expenses involved. Although the method is different, the government still recognizes that those who serve Canada outside of our national borders are faced with special expenses, quite apart from their daily living, that at least call for recognition. I submit that if it is appropriate that we should recognize our obligation to those who serve us in civilian capacities overseas, we certainly should recognize that same obligation to those who serve us overseas in uniform in a much more dangerous capacity.

Apart from the great danger, apart from the hardship and the separation from their families experienced by those on active service, which they willingly accept in offering their own services to their country, there nevertheless is the fact that those who go on active service outside of Canada in our armed forces do, for a considerable time, remove themselves from the opportunity to make use of the public services, the many public facilities and conveniences, which are available to the rest of us from the money paid in taxes to the government of Canada.

For that reason, in addition to the other reasons which have been so clearly stated, I believe that while men and women are on active service in our armed forces they should not be called upon to pay the full taxes required for all the services that they would ordinarily receive if they were in Canada. I believe the least that can be done for those who are making it possible for us to enjoy these services is to exempt them from those income taxes which bear particularly heavily on those who are receiving armed forces pay.

There are times when the government must follow a course which is not necessarily related to general public opinion if they believe that course to be more convenient and more satisfactory from the administrative point of view. I contend that in this case there are special reasons why the government should be very sensitive to public opinion as it has been expressed by the editorials in our newspapers-which often clearly

interpret public thinking-and by veterans organizations, municipal councils and other bodies which have taken a definite stand on this subject. We want everyone to feel that the utmost is being done to encourage young

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men and women to accept the great responsibility they assume in becoming members of the armed forces of Canada. With the opinion that has been expressed so clearly by these various organizations, by veterans bodies and by the press as interpreters of public opinion, I urge that the Minister of Finance reconsider this particular request and indicate to the house that there will be an exemption from income tax for all members of our armed forces serving overseas.

East night there was some suggestion that this subject should be discussed in detail, and that hon. members of this house should say how this should be done or what alternative should be offered. I would point out, Mr. Chairman, that at this time we are considering a motion which says that it is expedient that certain things be done. As I understand it, the real purpose of the debate on this motion, and other similar motions, is that members of the house may indicate what they think is expedient or is not expedient. Then if their arguments have been sufficiently convincing, the minister responsible for the legislation which will be subsequently introduced has an opportunity to amend it accordingly before it comes into this chamber.

The point I am making, and the point I urge with the utmost earnestness upon the Minister of Finance, is that he should agree that it is not expedient to impose an income tax on those who are assuming the great responsibility of preserving freedom for Canada by taking their place in the armed forces of this country on active service overseas.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

Mr. Chairman, I want to thank the leader of the opposition for the objective way in which he has dealt with this important question. I completely agree with the statement he made, and with the one that was made yesterday evening by the hon. member for Vancouver-Quadra, to the effect that this is not a question which is to be determined on the basis of partisan politics or party interest. It is a question in which we are all interested, and our objective must be to do what is fair and just.

I again agree with my hon. friend that editorial comment does not necessarily indicate what public opinion is, although it is a fair indication of what a great many people feel. It was for that reason that I placed on Hansard yesterday evening a carefully-considered statement as to why I felt that an exemption from income tax for our armed forces was inequitable and unjust. I did not put it on the basis of administrative difficulties. At the end of my remarks, it is true, I referred to administrative difficulties, but

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I expressly pointed out that this was not the important point, and that I was resting my case on the inequities and injustices created by such a system. As clearly as I could, I dealt with the history and with the reasons why I felt that it was unfair and unjust. I expressed the hope that those veterans who had had personal experience in the last war would give us the benefit of their views. 1 know that some have already done so. But I feel sure that the hon. member for Broadview could do so. He was of course a gallant officer; he had the benefit of these exemptions, and, by reason of the fact that he was an officer and fairly fortunately situated, would have received from that exemption substantial benefit, much greater benefit than the men serving under him. I myself never was in that position, but, speaking personally, I think I would feel uncomfortable.

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Some hon. Members:

(5h, oh.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

I am being perfectly sincere. It is easy to get cheap applause for urging something of this kind; but I am trying to do what the leader of the opposition did, namely, deal with the matter objectively.

I stated that I thought that blanket exemption for those serving overseas would be unfair. To take the case of the private who is in Korea today, as my hon. friend pointed out, his income tax liability is $6.85 a month if he is single. In the case of officers, of course, it is much higher. As against that he receives a tax-free foreign allowance now of $9 a month, which is in excess of his income tax liability.

The purpose of the resolution which is now before us, or the legislation which will be based upon it, is to provide that, as to service pay and allowances, if a man has no other income his total tax liability will be discharged by a special total deduction and he will not be even obliged to file an income tax return. Therefore the case which my hon. friend mentioned, that of trying to collect income tax from a soldier who had been killed, could not arise under those circumstances. Any liability which might exist would have been discharged as he went along.

After the most careful consideration, I have come to the conclusion which I have indicated, namely that of a blanket exemption for those who are serving overseas creates the most manifest inequities and injustices. It is for that reason that I am strongly opposed to it. I think that recognition of the service offered by our soldiers should take some other form than that of a blanket income tax exemption.

I suppose that one should not always argue by analogy, but I think there must be some reason, which is probably similar to the one I am putting forward now, why a similar practice should have been followed in the British forces and in the American forces. I am aware of the fact that we did it in the last war. Last night I indicated the historic sequence of events, how from time to time we had to amend it, and the difficulties that we got into in doing it. Such a system might create incentive to keep people in the field rather than back at headquarters; but honestly, from the best consideration I have been able to give to it, that is the only justification I can see.

If we look at this thing objectively and dispassionately, and try to disabuse our minds of the admittedly strong emotional appeal of an exemption of this kind, I would hope that we would come to the conclusion that there should not be any over-all blanket exemption such as is suggested, but that such recognition as may be appropriate should take the form, as it does now in the case of other ranks in Korea, of a tax-free foreign allowance. I would hope that those who have had personal experience in the last war-and I did not have it, although I had a bit of experience by being in touch with it through my association with the Department of Finance during that period- would give me the benefit of their views as to how it worked out and whether they honestly, sincerely and conscientiously believe that it was a fair system.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Will the minister permit

a question before he sits down?

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

I should be happy to do so.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

The minister mentioned

a blanket exemption.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

Yes.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Is there any reason why there should not be an exemption of those who serve, not in the nature of a blanket exemption but one to cover pay and allowances in the same way that we as members of parliament are exempt to the extent of $2,000?

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

That is what existed. I am

sorry if I misled by hon. friend.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

The minister mentioned a blanket exemption.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

All service pay and allowances were exempt. I can give an example-I will not take anyone in the chamber. There is a friend of mine in Montreal who was in one of the high brackets. I think ninety-six per cent of his top dollar was taken in taxes. His rank

during the war was that of major. The exemption which he got through serving overseas meant that he got virtually his whole pay, whereas if he had not had that exemption, a substantial amount would have been taken in taxes. It is perfectly obvious that a man benefits who either has high service income or high outside income. There is administrative difficulty but I do not consider that the administrative difficulty is the only thing.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

That is the reason the minister gave.

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

I said that last night. I do not know whether my hon. friend read what I said.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Yes, I read it. [DOT]

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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abbott:

It was a statement that I tried to make as comprehensive as I could. I set out the history in detail. We had fellows flying into an income tax free position and floating into an income tax free position. I would hate to be thrown back into that sort of situation again. I am sure that the committee will appreciate the fact that the revenue implications of this suggestion are relatively negligible.

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PC
LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. Abboti:

The suggestion that I have been hinting at, that is, of some form of combat pay or foreign service pay, would probably be considerably more expensive from the point of view of the treasury. But I suggest that it would be infinitely fairer than this haphazard impact of a general exemption of service pay and allowances, either for overseas service or otherwise. It is for that reason that I urge that all members consider this matter carefully. I should like to suggest that we do not attempt to decide it on this resolution. In this resolution I am providing for the authorizing of a simplified form of income tax liability for all service personnel who are serving in Canada or abroad. But that does not preclude another provision to the effect that they shall be entirely exempt.

The consideration I have given to the matter up to the present time will not enable me to conclude that the fair and proper thing to do would be to revert to the practice which we followed in the last war. Now, perhaps views may be put forward which will persuade me that that is wrong. I am not under any illusions as to what the easy course to follow would be. The easy thing to do would be simply to follow the practice which prevailed in the last war. I am sure that hon. members will give me credit for believing that the view which I am putting forward

Income Tax Act

is not with the object of gaining any immediate popularity. While I may be mistaken, it is put forward because I believe it is in the best interests of the servicemen themselves and the taxpayers as a whole.

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PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Certainly anyone would be impressed by the dispassionate way in which the leader of the opposition and the Minister of Finance have discussed this matter. However, as an example of the unfairness of granting a general blanket exemption the minister mentioned an officer who had a private income. My suggestion to him was that so far as service pay and allowances are concerned, they should be exempt. Certainly there is not much at stake from a monetary standpoint. If the entire force in Korea today were taxed the total amount would not exceed $1 million.

Some time ago the Minister of National Defence gave as his reason why the system that was followed during the last war could not be followed at this time, that a brigadier overseas, with a large income, would be exempt from income tax. That argument is not a very powerful one. The brigadier would pay approximately $120 a month in income tax.

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May 21, 1951