July 26, 1955

PC

Jay Waldo Monteith

Progressive Conservative

Mr. Monteith:

Does the minister mean to say that approximately two-thirds of this $2,458 million has to be collected? Surely that cannot be right. Surely more than one-third of the total tax revenue comes in when the tax returns are filed. You do not have to collect it.

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LIB

James Joseph McCann (Minister of National Revenue)

Liberal

Mr. McCann:

It all depends on what the hon. member means by collecting. We do not in all instances have to go out and take it out of them. I am trying to point out that $875 million was deducted by the employer at the source and sent in to the Department of National Revenue. The other was collected by means of notices or what was sent in as final payment or payments in quarterly instalments. For instance, members of parliament have deductions made from their allowances and those are sent in. But a member may have investment income or be paying quarterly instalments. Many people are lax and have to be reminded that their payments are due. Receipts have to be sent out, and all of this is included in the process of collection.

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PC

Jay Waldo Monteith

Progressive Conservative

Mr. Monteith:

I appreciate that. I was just wondering about the two-thirds.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zaplitny:

Mr. Chairman, while we are on this item-

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LIB

James Joseph McCann (Minister of National Revenue)

Liberal

Mr. McCann:

Mr. Chairman, perhaps I can anticipate the question which the hon. member for Dauphin wants to bring up. When he spoke on this matter I promised that I would make a statement, and I think perhaps it would facilitate matters if I made it before he asks any questions.

I undertook on April 20 to reply to a question raised by the hon. member for Dauphin regarding certain remissions of income tax granted by orders in council to the Aluminum Company of Canada Limited, the Bell Telephone Company of Canada, the Saguenay Power Company Limited and the Gatineau Power Company. As I have previously advised, the Income War Tax Act and the Income Tax Act contained provisions which prohibited a taxpayer from deducting, as an expense of doing business when computing his income, any corporation tax as defined by regulation.

"Corporation tax" was defined at considerable length in three orders in council; P.C. 332,

dated January 30, 1948, P.C. 953, dated March 6, 1948, and P.C. 5948, dated December 23, 1948. The tax imposed by the province of Quebec, commonly referred to as the "Quebec education tax" was deemed by the officials of my department to fall within the definition contained in the above-mentioned orders in council, and accordingly the amount of such tax was disallowed as a deduction when computing the income of the four companies in question. That is the first point to note. The result was that appeals were taken by these companies, in which appeals they disputed the disallowance of this tax.

These appeals were first argued before the income tax appeal board by Saguenay Power Company Limited and Gatineau Power Company. By agreement the hearing of the appeals of the Bell Telephone Company of Canada and Aluminum Company of Canada Limited was held in abeyance to await the outcome of the Saguenay Power Company Limited and Gatineau Power Company appeals.

There were two issues before the income tax appeal board. First, were the orders in council defining "corporation tax" within the authority of the governor in council and therefore valid? Second, if this question was answered in the affirmative, did the Quebec education tax fall within the terms of the orders in council? The income tax appeal board with all members present, and after hearing argument which lasted five days, had no hesitation in unanimously allowing the taxpayers' appeals and in holding that the governor in council had, in passing the orders in council defining corporation tax, exceeded its power and that accordingly such orders in council were ultra vires.

After giving the matter due consideration it was decided that it was advisable to have the decision of the income tax appeal board reviewed by a higher court, and accordingly an appeal was taken to the exchequer court, where the decision of the board was reversed in a judgment handed down by Mr. Justice Cameron on January 24, 1953. Very shortly after the decision of the exchequer court had been issued, parliament repealed the section of the Income Tax Act about which the controversy had arisen. The repeal was to take effect for the 1953 and subsequent taxation years.

Under ordinary circumstances, all school taxes imposed on property used in a business are treated as a proper deduction when determining the profits of that business, and in view of the fact that the Quebec education tax was imposed for the purpose of improving the financial position of the schools in the province of Quebec, it was felt that there was an element of discrimination in disallowing this particular tax imposed by one province,

Supply-National Revenue due to the fact that it was deemed to fall within the meaning of "corporation tax" as defined by order in council.

Immediately prior to the repeal of the controversial section of the Income Tax Act, the Gatineau Power Company and Saguenay Power Company Limited served upon the department a notice to the effect that it was their intention to appeal the decision of the exchequer court to the Supreme Court of Canada. The matter in issue in the appeals, being solely that of the interpretation of this particular section in the statute, and that section having been repealed, the outcome of the litigation before the Supreme Court of Canada would have no effect in the assessment of taxes for subsequent years.

Accordingly when the companies submitted an offer that a settlement be made of the matters in question on the basis that in computing income for the years under appeal, 1946 to 1952 inclusive, one-half of the amounts of the Quebec education tax be allowed as a deduction, it was thought to be a matter which should be given very serious consideration.

Consultations took place between the Department of Finance, the Department of Justice and my department with the following factors in particular being considered. First: the uncertainty regarding the outcome of the further litigation in view of the fact that the income tax appeal board and the exchequer court had expressed diametrically opposite views on the matters in issue. Second: income taxes in the total amount of $3,989,456.22 were involved in the dispute between the Department of National Revenue and the four companies referred to by the member for Dauphin.

It was appreciated that there was a chance that a decision unfavourable to the department might be given by the Supreme Court of Canada which would result in the loss to the revenue of the total amount of the tax involved. Accordingly when an offer of a compromise settlement was made by the taxpayers, the government considered it advisable to ensure the collection of $1,994,728.11 in taxes, being 50 per cent of the total, rather than risk the loss of the total amount.

That is the reasoning on which it was based. It appeared to the government at the time it agreed to a settlement that it was quite justified in doing so, and we have had no reason subsequently to change that opinion, in view of the uncertainty of the outcome of the litigation, the nature of the school tax involved, the repeal by this house of the statutory provision concerning which the controversy had arisen, and the large amount of tax which might have been lost to the revenue.

Supply-National Revenue

Once the decision had been made to settle on this basis with the two companies who had appealed to the Supreme Court of Canada, the same basis of settlement on this item of expense was made available to all other taxpayers with respect to assessments then under appeal or which were open to the appeal procedure.

I think that clearly outlines the whole situation, and I should be very glad to listen to the comments of the hon. member for Dauphin or to any questions he may have. I hope his understanding of the matter is clearer now than it was when he brought up the question in the house.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zaplilny:

Mr. Chairman, I want to

thank the minister for his statement, and to assure him that in anything I have to say on this question I have no desire to carry on any kind of vendetta against the minister himself, but I still question the wisdom of the decision that was made. I think that on the basis of the very facts as recited by the minister himself.

What the minister did not include in his statement was the basis on which the exchequer court handed down its decision. He did say that the views of the exchequer court and of the income tax appeal board were diametrically opposed, that is to say that the decisions were opposed. That, of course, is the natural outcome of the fact that the decision of the income tax appeal board was reversed by the higher court. It was the only conclusion you could reach.

It is interesting to note that on the arguments that were presented to the income tax appeal board, which the minister has already mentioned, Mr. Justice Cameron of the exchequer court had some very definite views to express in handing down his judgment. I think it is a matter of public interest that we should have that on record, and that the members of this house should be in a position to judge whether the final decision arrived at by the government was a wise one.

The minister has already pointed out that there were two particular matters that the income tax appeal board took into consideration. One was whether the tax imposed by the Quebec legislature, in passing what is referred to as the education act, was actually a corporation tax. The other was whether the governor in council, in passing the order in council which defined what a corporation tax is within the meaning of paragraph (o) of subsection 1 of section 6 of the Income War Tax Act exceeded its powers by defining that as a corporation tax. We know the decision reached by the income tax appeal board. But when we come to the exchequer

court, I would judge offhand that the opinions expressed by the judges of the higher court should carry considerable weight not only in the minds of the members of this house but of the government itself.

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PC
CCF

Frederick Samuel Zaplitny

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

Mr. Zaplilny:

Apparently in this case it was not considered as good. But it is rather strange that on a matter which was submitted to a higher court for decision and when that decision was rendered in favour of the government, the government should be the first body to question the wisdom of that decision. Apparently they were more inclined to agree with the income tax appeal board which ruled against the government, and whose decision became the subject of an appeal to a higher court, than they are to agree with the same higher court to which they appealed for a reversal of the decision.

It seems a strange position to take, particularly when the issue raised was so thoroughly considered and so explicitly stated in the judgment of the exchequer court. For example, on going through the judgment I find that Mr. Justice Cameron referred to the argument raised by the counsel for the companies concerned. Incidentally, the subject matter of this particular judgment had to do with the Shawinigan Water and Power Company, which was used as a test case, the facts being the same in relation to the companies we have been discussing.

To begin with, he pointed out that in one respect at least-and there were others-even the counsel for the various companies concerned did not agree among themselves. He pointed out that while some of the counsel argued that the Income War Tax Act-that is the section of the act we are discussing now, being section 6, subsection 1, paragraph (o)- was ultra vires of the Canadian parliament, counsel for two of the companies did not agree and did not question the validity of that legislation, a circumstance which makes it quite plain that even the counsel for the companies concerned were not in agreement as to the argument they were using in challenging the validity of the legislation.

He pointed out that counsel for the Ottawa Valley Power Company, for example, and for the MacLaren-Quebec Power Company did not join with the counsel for the other companies in arguing that this particular paragraph and section were ultra vires of the Canadian parliament. Further, he pointed out that at no point did counsel for any company successfully challenge, or even make any attempt to challenge, the contention that the governor in council did in fact have the

power and authority as granted to it in the Income War Tax Act to define the term "corporation tax". That term was an extremely important matter in this argument, because the whole argument was based on the question of what is a corporation tax and what is not. While counsel for these companies argued that the education act in the province of Quebec was not in fact a corporation tax, the Minister of National Revenue, through his counsel and his representatives, argued the very opposite, namely that it was a corporation tax because it was so designed by order in council-I believe it is No. 5948 of December 23, 1948-and in previous orders in council which the minister quoted in his statement.

Mr. Justice Cameron pointed out quite clearly that in no respect was the power challenged-that is the power of parliament to delegate authority to the governor in council-to define the term "corporation tax" as used in paragraph (o) of that section. Then he went further and pointed out that under section 91, subsection 3 of the British North America Act, it is explicitly stated that the parliament of Canada has power for-

3. The raising of money by any mode or system of taxation.

From that it certainly follows that if the parliament of Canada has that power to raise money by any mode of taxation, then this parliament has power to pass legislation which shall define what is deductible and what is not deductible under that form of taxation.

He also gave this as his opinion-and I should like to put it on record-that in spite of the constitutional argument that was raised as to the validity of, first of all, the legislation itself and then the order in council passed by virtue of that legislation:

I can find nothing to support the respondent's-

Being the Shawinigan Water and Power Company.

-submission that the purpose and object of enacting paragraph (o) in its final form was to prevent a province from exercising its constitutional powers of direct taxation by levying a corporation tax; or that it encroaches or trespasses upon the exclusive powers of the government of a province or a municipality to raise revenue by direct taxation for maintaining its schools. The constitutional powers of a non-agreeing province and of its municipalities were not affected in the slightest degree by the passage of paragraph (o).

The term "non-agreeing" of course refers to those provinces which had not yet entered into dominion-provincial agreements with the federal government. Then in summing up his decision and stating the decision of the court, he did so in these words:

In my opinion it was competent for parliament to enact paragraph (o) of section 6 (1) of the

Supply-National Revenue Income War Tax Act. and I must therefore reject the submission of counsel for the respondent that it is ultra vires.

Then further, on the specific argument as to whether the tax in question was in fact a corporation tax within the meaning of the legislation as defined by the governor in council, he states:

My opinion, therefore, is that the payments in question made by the respondent fall within the definition of "specific corporation tax" as found in the regulation and do not fall within any of the exceptions contained therein.

That establishes the fact that it was a corporation tax. Then going on further Mr. Justice Cameron gives the final decision in these words:

For the reasons given the appeal herein will be allowed, the decision of the income tax appeal board set aside, and the assessment made upon the respondent by the minister will be affirmed. The appellant is entitled to be paid its costs after taxation.

It will be interesting to learn whether the minister was successful in collecting his costs in that particular case in the exchequer court. But having stated the other half of the information as given by the minister, 1 should now like to refer to the reasons given by the minister for the action they took.

Let us get the picture clearly. Here was a situation in which certain legislation was passed by this parliament, and its constitutionality was challenged in the arguments before the exchequer court and before the income tax appeal board. A higher court, that is the exchequer court, ruled very clearly that there was no possibility of the legislation being invalid. It was quite within the power of this parliament to pass that legislation, and it was quite within the power of this parliament to grant authority to the governor in council to define the terms of the corporation tax. Therefore there seemed to be no reason at all for the Minister of National Revenue, who incidentally was the one who ordered the appeal to the exchequer court in the first place, to disregard the decision of the exchequer court.

In giving some of the reasons why the government reversed itself on this question, the minister stated that parliament repealed the particular paragraph to which I have referred in 1953. Let us go to the statutes, and see what actually was done when the government introduced this legislation in 1953 to repeal the paragraph in question. I do not want to confuse things by naming the old section because it began with the Income War Tax Act and then went over to the Income Tax Act and the sections are a little different, but the paragraph had to do with disallowance of the deductions of these companies.

Supply-National Revenue

That was deleted in 1953, and it stated very clearly in the amendment itself that it was to apply to 1953 and subsequent years. In other words the deletion of that particular section of the act had absolutely no influence and no bearing whatever on what took place in 1946 and in 1952. I am sure the minister would be the first to acknowledge that. From any point of view it would be impossible to argue that the deletion of that paragraph in 1953 could have any legal, or for that matter even any moral, effect on the case in dispute. The tax in dispute had to do with moneys paid over to the government of Quebec from 1946 to 1952, and the decisions made by the Department of National Revenue in this case in that same period; it had nothing to do with anything that took place after January 1, 1953. On the other hand, the minister gave that as one of the reasons the government decided to reverse itself and agree to the remission to these corporations of these sums of money.

While I am on that question, I think it might be interesting to note the total amount of these remissions. The minister gave some figures, but the total amount actually remitted covered a group of 14 companies, and was done by two orders in council. The first one is dated February 18, 1954, being order in council P.C. 1954-27/218, and that one covered 12 companies. The total amounted to $2,662,562.07. The second order in council was passed on March 10, 1954, and covered two companies, the total remission being $378,792.71. The grand total for these remissions amounts to $3,041,354.78.

The question that arises is this. Why should the government, after having taken the trouble to consolidate all the expenditures of the company, come to a decision to appeal the decision of the income tax appeal board to a higher court, and after having made that appeal successfully and received a judgment in its favour then turn around and remit over $3 million to these corporations? Now the minister tells us it was only half that amount.

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LIB

James Joseph McCann (Minister of National Revenue)

Liberal

Mr. McCann:

The remission was 50 per cent of the amount.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zaplitny:

According to the information contained in the orders in council the remission itself amounts to over $3 million. Just so we will be sure about this, perhaps I should put on the record the names of the companies and the amounts actually remitted.

Here is order in council P.C. 1954-27/218, and I shall read it in full:

Certified to be a true copy of a minute of a meeting of the treasury board, approved by his excellency the governor general in council, on the 18th February 1954.

The board recommend that authority be granted, under the provisions of section 22 of the Financial

[Mr. Zaplitny.l

Administration Act, for remission of taxes in the amounts detailed hereunder, paid by the following companies under the provisions of the Income War Tax Act and the Income Tax Act:

Company Amount

Canadian Light & Power Company

Gatineau Power Company 496,772.60

MacLaren-Quebec Power Company 204,972.69

Northern Quebec Power Company

Limited 43,172.02

Ottawa Valley Power Company 83,694.85

Saguenay Power Company Limited .... 576,598.15

St. Maurice Power Corporation 164,151.50

Shawinigan Water & Power Company .. 528,169.40

Southern Canada Power Company

Limited 4,131.12

Aluminum Company of Canada Limited 549,697.68 Electric Reduction Company of Canada

Limited 387.10

Pembroke Electric Light Company

Limited 5,165.05

If my addition is correct that adds up to $2,662,562.07. Then in addition to that, on March 10, 1954, an order in council was passed covering the Bell Telephone Company of Canada, $371,659.68, and La Compagnie Telephone du Saguenay-Quebec, $7,133.03. This made a total of $378,792.71, and when added to the previous subtotal made a grand total of $3,041,354.78.

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LIB

James Joseph McCann (Minister of National Revenue)

Liberal

Mr. McCann:

I have not any doubt at all that my hon. friend's figures are correct. The sum I mentioned was with reference to the four companies who entered the appeal. I am quite satisfied that as a matter of record a copy of the orders in council go on Hansard. I have no doubt you have copies.

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LIB

William Alfred Robinson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The Chairman:

It being five o'clock, the

house will proceed to the consideration of private and public bills.

At five o'clock the Speaker resumed the chair.

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PRIVATE BILLS


On the order: House in committee on Bill No. 480 (Letter 1-16 of the Senate), intituled: "An act for the relief of Claude Ferron". (Without amendment) .-Mr. Hunter.


LIB

David Arnold Croll

Liberal

Mr. David A. Croll (Spadina):

Mr. Speaker, may I suggest that perhaps order No. 18 might be called before order No. 17, if there is no objection. There may be objection to order No. 17, but I think there is far less likelihood of objection to order No. 18. I suggest we deal with that first.

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LIB

William Alfred Robinson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

Order. The assistant clerk has called order No. 17. Would it be agreeable to the house to have order No. 17 stand until later this day-

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CCF
LIB

William Alfred Robinson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

Perhaps the hon. member would allow me to complete what I was saying before indicating his disapproval.

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CLAUDE FERRON


The house in committee on Bill No. 480, tor the relief of Claude Ferron-Mr. Hunter-Mr. Robinson (Simcoe East) in the chair. On clause 1-Marriage dissolved.


July 26, 1955