May 14, 1964

LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Hon. Walter L. Gordon (Minister of Finance) moved

the second reading of Bill No. C-91, to amend the Income Tax Act.

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PC

Gordon Minto Churchill (Official Opposition House Leader; Progressive Conservative Party House Leader)

Progressive Conservative

Mr. Churchill:

Is the minister going to make a statement?

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

Mr. Speaker, I made some general comments on the various paragraphs of the resolution which preceded this bill and I think it is unnecessary to repeat these at this stage. I shall, of course, be glad to give a detailed explanation of any clause on which members may have questions as the committee deals with the clauses of the bill in turn.

The bill is based very closely on the resolution approved by the committee of ways and means on April 28. As I indicated at that time, the bill contains a few amendments not specifically referred to in the resolution but these are generally of a technical nature.

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PC

Marcel Joseph Aimé Lambert

Progressive Conservative

Mr. Lambert:

On a point of order, Mr. Speaker, I wonder whether the minister's colleagues who have access to his microphone would please conduct their conferences outside. We cannot hear a thing he is saying.

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

I would be glad to support that suggestion. As I indicated at that time, the bill contains a few amendments not specifically referred to in the resolution but these are generally of a technical nature or designed to correct sections of the law which have been found over the years to have results not originally intended.

The bill contains 25 clauses but a number of these are consequential upon amendments

Income Tax Act

to other clauses. The explanatory notes in the bill itself will indicate the nature of each amendment and I shall be glad to add to these where requested. The interval since the bill was given first reading on April 28 has given those interested in its application a chance to examine all its provisions carefully.

Again this year the Canadian tax foundation arranged to have members of the legal and accounting professions come to Ottawa to examine the bill and as usual this careful scrutiny by expert practitioners in the tax field has proven to be helpful. All suggestions for changes in the bill have been carefully examined and some of these suggestions have been marked for further study before next year's legislation is presented. When the committee reaches the relevant clauses I propose to move one or two amendments based on suggestions we have received which I believe will clarify the meaning of the proposed legislation.

As indicated in the resolution, the bill contains an amendment concerning the deduction to be allowed in 1964 to parents of children age 16 and 17 in respect of whom the new allowances will be paid. It also contains an amendment to modify the definition of a child qualified for family allowance, which is consequential upon payment of the new allowances. When these parts of the resolution were under consideration in committee a number of members asked questions about the administration of the new allowances and the comparison of the position of parents of children age 16 and 17 in Quebec and the rest of Canada.

It was apparent that some members were reluctant to deal with the income tax changes related to the new allowances until more information was available about the allowances themselves. Legislation will be required to provide for payment of the new allowances and also to authorize an additional income tax abatement or equivalent compensation from the federal government to the province of Quebec equal to the amount which the federal government will save because it will not be paying allowances to children age 16 and 17 in Quebec. Since this legislation will have to amend the Income Tax Act in any event to adjust provincial abatements I believe it would be much easier for hon. members to deal with all these changes at one time. In this way members will have before them the details of the administration of the new allowances, the arrangements for fiscal compensation for Quebec and the related income tax changes, and they may then be considered together.

For this reason I propose to ask the committee when we reach that stage to consider amendments to delete two portions of the bill which relate to the new allowances. I shall place these amendments before the committee when the relevant clauses are reached.

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PC

John George Diefenbaker (Leader of the Official Opposition)

Progressive Conservative

Mr. Diefenbaker:

Before the minister concludes, in order to assist the house would he set out in general terms the amendments he intends to move when we get into committee? I think that would shorten the debate on second reading greatly.

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

I will be glad to do that. The first change is a technical one to clause 5. I do not know whether hon. members have the bill before them. The amendment is to lines 37 to 39 on page 5 and it adds the following words: "at the time the outlay or expense was incurred and at the end of the second taxation year following the taxation year in which the outlay or expense was incurred". I think it might be easier if I gave the explanation of the proposed technical amendment when we come to that point. On page 6 of the bill an amendment is proposed to lines 12 and 13 of clause 5 which would add the following words: "on the first day of the third taxation year". Again it is a technical amendment suggested by the tax foundation.

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PC

Marcel Joseph Aimé Lambert

Progressive Conservative

Mr. Lambert:

These do not have any relationship to the family allowance question at all.

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

No. The next amendment is to clause 7 (3) and its purpose is to strike out subclause 3.

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PC

John George Diefenbaker (Leader of the Official Opposition)

Progressive Conservative

Mr. Diefenbaker:

Subclause 3?

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

Yes. That is the explanation I gave a moment ago, Mr. Speaker, that it will be dealt with more easily, I think, when we come to the legislation dealing with the whole subject. Similarly, in clause 24 there is a consequential change in subclauses 2 and 3. The proposed amendment will delete the redefinition of a child qualified for family allowances.

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PC
LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

Clause 24. Those are the only changes.

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PC

Marcel Joseph Aimé Lambert

Progressive Conservative

Hon. Marcel Lambert (Edmonton West):

Mr. Speaker, on the second reading of a bill the rules of relevancy demand that we discuss the principle, and immediately there comes to mind the question, what is the principle of this bill? One could say that we must discuss certain amendments to the Income Tax Act. However, there comes to mind some other principles. Are there not any

principles of revisionism or retreat from that so-called bold experiment of last year?

Let us look at what there is in this regard. We have today an amendment to the increased withholding tax which was imposed last year which returns us to the position prior to last year's budget. If we look at paragraph 12 of the resolution, we find some changes with regard to depreciation incentives. There are more revisions in the matter of designated areas, and all that is related to that question. Then, we have possibly one of the most complicated clauses that I have ever seen. I refer to paragraph 16 of the income tax resolution in which we are getting practically a book on the definition of Canadian ownership, in order to plug loopholes that have become apparent in only a few months of administration. Last year it was pointed out very clearly to the minister by speaker after speaker in this house, and by writers outside, that he was starting out on very tricky ground in connection with Canadian ownership. Events have proven that to be so, even from the legal point of view. Later on, I am going to come to the question of whether there has been any change in the equity holdings of Canadians in corporations as a result of this. Certainly, I would appreciate any information the minister can give us in this regard.

We have spoken about the revisions. Now, we come to the extensions. Of course, there shall always be extensions of certain principles in amendments to the Income Tax Act. We have the one dealing with part-time students. It is an extension of the exemptions that have been granted to full-time students a year or two earlier by the previous administration. We have an extension of the exemption granted to a taxpayer for a brother or sister over 21 who is also completing his or her education. Then, we have the particular items dealing with pension plan provisions, which are extensions either in amount or in ambit of the present provisions of the act.

Finally, we come to new departures. These are very limited indeed compared to last year. We have, first of all, contained right in the very first clause of the bill, provision for allowance for legal costs in respect of an appeal against an assessment. At a later stage in the deliberations I certainly want to go into the complexities of the drafting and what is apparent on the face of the bill before us, and what the minister has had to say during discussion at the resolution stage. I will go into the complexities of this because, somehow or other, it seems to me the cart has been put before the horse.

First of all, the act says that you shall add to income the legal costs awarded to you by a court. Then, somewhere else, and

Income Tax Act

you have to go looking for the section, the act allows legal expenses. At the moment I have the 1962 consolidation and the 1963 amendments, so I find it difficult to find this provision, but I will find it if it is there. Then, what confused me no end when I was reading the minister's remarks at the resolution stage, for which I was not present, was the fact he indicated there would be allowed solicitor and client costs including the expenses of a solicitor coming to Ottawa if he accompanied the taxpayer. If you read section 1 of the act it says, "Legal costs awarded to him by a court on appeal", and that shall be added into income. As I say, at first sight this is somewhat confusing and it only points out the difficulties I indicated to the minister at the time of the budget debate.

When you get into these legal costs, what is the yardstick that the department is going to apply? I realize that, in so far as the rule of relevancy is concerned, this has to do with the administration of the Department of National Revenue. I feel the minister might consult with those who administer the act because the administration of the act is just as important as the implementation of the act. What is the yardstick they are going to apply, for instance, to solicitor and client costs? It may be that one solicitor may charge a moderate fee. On the other hand, one may run into what you might call high priced counsel. What is going to be the criterion for determining the adequacy or otherwise of legal costs? There must be some limitation or some yardstick that can be applied to all taxpayers. We know that solicitors' costs vary from province to province as do accountants' fees vary from province to province. There are regional differences, so what is going to be the criterion? I should like to have an answer from the minister.

I was a little surprised when the minister did suddenly retreat, it seems to me, from a very dangerous position on the matter of family allowances. After all, there are pages and pages of discussion at the resolution stage primarily concerning the differences in the allowances to parents in the nine provinces other than Quebec, as compared with a person who is a taxpayer in Quebec, when the children are qualified for family allowances. We will come to that discussion, the minister says, at some date in the future when, I presume, the amendments to the Family Allowances Act will be introduced, along with corresponding amendments to the Income Tax Act. I must say that I would have thought the minister and his colleagues, after the experience of last year, would have learned a lesson to stay out of this type of situation whereby he is trying to make one

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group of taxpayers in one part of the country subject to one consideration, and the vast bulk of the taxpayers in the rest of the country subject to another consideration.

I for one cannot see why there should be any distinction with regard to education in respect to this proposal for family allowances. After all, so far as the older age groups are concerned, family allowance does provide that they must be attending a school. It would be so simple to propose an amendment to the Family Allowances Act and leave it at that.

If the province of Quebec does already pay an allowance to students in the age groups of 16 and 17 years, provided they are going to school, well, more power to the province of Quebec for doing so, so long as they find the money for it. If they find they have the money to do it, then all very well; but if we say federally we cannot do it because they are already doing it, therefore we are setting up two classes of taxpayers in this country, and to me this is unacceptable.

We are all taxpayers in Canada, all in the same category. Because I happen to live on one side of the Ottawa river as against the other, I can see no difference at all in regard to family allowances. The point is that the children in Quebec shall be treated the same as children in other parts of Canada. They will derive the same benefits from the same source. I can see no cause for complaint.

The act does say that they shall be attending school, and makes provision if they are infirm or otherwise. There are some modifications. Certainly we do not pay family allowance to a child aged 14 or 15 anywhere in Canada, if that child be working. He must be attending school, so why create this distinction after the age of 16 and 17 years?

As a matter of fact, I am very pleased to see the minister withdrawing this nonsense from his income tax bill. To me it is absolute nonsense that we have this distinction. I know some of my colleagues are going to have some more things to say about it and, though the minister has indicated he is withdrawing it, it is still part of the bill and therefore we can discuss the matter. I hope that what the government will hear during this debate will serve as guide lines to it for amendments in the future.

We have seen the three categories of amendments that are being brought forward. Be that as it may, the discussion is not going to be as extensive this year as a year ago. Last year we had difficulty keeping up with the changes and the various versions. There have been no changes this year except the one we have just heard of, and the one contained in paragraph 17 of the resolution concerning the

rate of abatement, which arose out of the Quebec conference between the federal government and the provinces.

Going back to the things about which I have spoken, and dealing first with the withholding tax, I would consider this amendment to the withholding tax a confession of abject failure on the part of the government. I am sure this has been forced on it by the criticisms which came from abroad, particularly from the United States, in the investment field, and I more than suspect from government level. The criticisms have come from domestic sources here in Canada in the investment field. They came in this house, and actually they followed the predictions made in this house last year by both the Leader of the Opposition (Mr. Diefenbaker) and my colleague, the hon. member for Digby-Annapolis-Kings (Mr. Nowlan).

This withholding tax and its combination with the provisions last year, which attempted to induce a greater degree of Canadian control of our corporate entities, has not worked out at all. I do not think you will ever use a stick to force Canadianization, certainly not to the degree the minister was hoping for.

Now, let us turn to the depreciation incentives which were set up under resolution No. 4 and are covered by certain of the clauses in this bill. I am concerned as to why there is presently introduced into the legislation a distinction of fair market value as against capital value of the goods, if 95 per cent of the goods to be used must be new. If they are new, why is there this disparity between fair market value and the capital value? This deserves a full explanation, because last year the minister clearly indicated that this, being by way of an incentive, could not cover used equipment and capital goods. They had to be new in order to induce production.

I can see the philosophy behind that reasoning, but there must be some specific reasons why this distinction of fair market value as against capital value is now introduced, and I hope the minister is able to furnish us with those reasons.

Dealing with clause 13 on page 10 we have here introduced the word "owned" as against "leased", while last year the amendment as introduced spoke only of "leased". Now we come to a further distinction, or the introduction of the word "owned", and again we would like to have a full explanation.

Then we go along to further changes in the depreciation incentives as to designated areas. Paragraph 5 of the income tax resolution, with its amendments in the act show that the minister is actually incorporating into the act a provision to deal with a problem I raised with him last year and about

which he, as I remember, rather casually told me, "Oh well, that would naturally follows".

This deals with what the Minister of Industry (Mr. Drury) has indicated regarding a certain area that is a designated area; but as a result of administrative changes or, shall we say, an improvement in economic conditions it no longer retains that status of designated area. But someone has started to build under this particular provision, and the question arises, does that company or individual lose the advantages of the depreciation incentives? The answer, of course, is no. They continue as though the area had continued to be a designated area. But now the minister is asking us to incorporate it in the act, and I am glad his advisers have seen the light of day in this regard and have not said, quite so casually: Oh, that would follow.

Then we come to the extension of these depreciation incentives to March 31, 1965. This is a two year extension. I recall that last year during the debate on this subject hon. members advised the minister that the period originally set was too short to enable companies to assess the situation, carry forward construction and get into business. I am glad to see these provisions are being extended for two years, but I would issue a word of warning: The minister had better make this the terminal point, otherwise this theory of depreciation would become permanent, and I do not think the hon. gentleman's taxation program could stand it.

I think the minister will agree that as a result of the fixing of the original time period some people have certainly been prejudiced. Many a businessman must have looked at the situation and said: I cannot possibly do anything in two years, so it is no use my going ahead and attempting anything in these designated areas, because we shall not be able to comply with the requirements of the act. If the act had originally included the date March 31, 1967, I feel there might have been more activity under this section. If the minister has any information with regard to the number of firms which have taken advantage of these provisions, or indicated that they are taking advantage of them, we would certainly like to have it. I believe there was some discussion of this on the resolution stage.

I should like to pass, now, to the matter of the degree of Canadian ownership as dealt with in paragraph 16 of the resolution-a subject which occupies a great many of the pages of the bill before us. This is almost a book, and I am wondering, frankly, just to what extent this whole experiment has meant any achievement. I have here an article written by the financial correspondent of

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one of the Toronto newspapers. The heading is: "No Need for Fanciest Footwork Outside of Dallas Courtroom-One Cent Shares, Other Tax Dodges Averted by Gordon Budget Shift". It is incredible, to me, that some of these things should not have been present in the mind of the minister and his advisers. After all, the minister himself comes from a milieu where corporate financing is an everyday affair, and his so-called advisers last year were supposed to be real experts in this field. They were the whiz kids. Yet these very obvious subterfuges have come to light left, right and centre, the net result of them being that the measures introduced last year did not change Canadian ownership one iota. The corporations concerned were qualified for certain privileges. They were qualifying for withholding tax benefits and they were qualifying for other incentives when, in fact, there had not been one iota of change in the so-called Canadian ownership content.

I come back to this point: I still do not think the minister's provision of last year meant one single thing when it comes to true Canadian control. Canadian residence is the easiest thing on earth to acquire. Being a resident of Canada does not mean one is a Canadian. It was easy to defeat the hon. gentleman's stipulations and it will continue to be easy to defeat them. I will say that the provisions contained in that act respecting the degree of Canadian control, coupled with the withholding tax, have done nothing except show a certain degree of ultranationalism which has created only ill will. It was a most inept way of proceeding.

Now I should like to turn briefly to the principle of paragraph 6 of the resolution, dealing with research. One of my colleagues intends to deal, later, with research in Canada and research elsewhere, and with the rationale behind the amendment to the Income Tax Act brought down by the previous administration in order to encourage research in Canada. This was the essence of the representations which have been made year after year by industry, by the universities, and by various other organizations. It was that we should encourage the carrying out of research in Canada and thereby retain many more highly skilled people in this country. Here we are dealing with research outside Canada. I know we have always had provision of some kind for allowances in respect of research undertaken outside this country, provided it could not be done here in Canada. I agree with that. But this goes beyond such a provision. What interests me most is this: Why was the year 1962 chosen? Why go back? Is there a particular class of

Income Tax Act

taxpayers who are affected? This is retroactive legislation recalling those expenses which were to be given to certain oil concerns last year in the budget. The minister saw the light of day and made them effective from the date of his budget but, again, I should like to have an explanation why the year 1962 has been chosen. If there is a particular group of taxpayers who are affected by this measure, we should know, because a provision of this kind appears to me to be a singular one.

A number of clauses in this bill deal with student expenditures and we shall have something to say about them when we reach those clauses in committee. I come now to my final point. There are certain consequential amendments which are of such a technical nature that I think we had better reserve our comment until we get into the bill itself and are able to deal with them one by one.

I hope the minister has noted the points made at this time both by myself and my colleagues, because we should like very full explanations of a lot of the matters dealt with in the bill. We have followed in the course of reasonable debate amendments to the Estate Tax Act, to the Customs Tariff, and now this particular Income Tax Act. As I said at the opening of my remarks, I think the debate this year is going to be somewhat shorter than last year, and I think the minister will be quite relieved that we will not be quite as tempestuous because, quite frankly, the budget contains nothing much compared with last year. It contains nothing of a radical nature with the exception, as I have said, of the way the government proposes to handle family allowances. Now that matter is being pulled back away from us, so we will have to defer our discussion on it until a later date.

As I said, he is correcting some of the errors of last year, and I think this shows that the minister is a much wiser man this year. However, whether the country has benefited at all from his excursions into income tax provisions, planning and administration is very much open to question.

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NDP

Stanley Howard Knowles (N.D.P. House Leader; Whip of the N.D.P.)

New Democratic Party

Mr. Stanley Knowles (Winnipeg North Centre):

Mr. Speaker, it was not my intention to take part in the debate on second reading of this bill, but there is one point which I would like to draw to the minister's attention and I am afraid that if I do not do it now I might be out of order at a later stage.

The point to which I wish to refer concerns an omission from the bill. The minister will recall that last session I drew to his attention the need for a new look at the provision in the Income Tax Act regarding the deductibility of trade union dues for income tax pur-

poses. I pointed out to the minister that although this provision is there-indeed, it has been there for a number of years, having been inserted when Mr. Abbott was minister of finance-in the view of many of us it does not go quite far enough. There are many aspects of trade union dues which are prohibited from being included by the provisions of the section in the act covering this point.

When I drew this question to the attention of the minister during the last session he said that he was putting it on the list of the matters he was studying with a view to dealing with them at a later date, and I had hoped that this time the budget would include this provision. After all, there is so little in the budget as it is; here is the chance for the minister to put something in which would at least be noted. Since he proposes to introduce some amendments to the clauses of the bill as we go along, I hope that even yet he might consider bringing in at this session an amendment to make it possible to deduct the full amount of legitimate trade union dues for income tax purposes. As the minister knows, that same heading includes dues to professional and other associations, and I think that same consideration applies to this whole range of dues. I hope that the matter will yet be considered favourably by the minister at this session.

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PC

Philip Bernard Rynard

Progressive Conservative

Mr. P. B. Rynard (Simcoe East):

Mr. Speaker, I should like to raise a point of clarification with the minister. Does a student attending a trade school get this allowance? Another point I should like to raise is this. Supposing we have a disabled child of 16 years of age who has been tutored in the home; does this child get the family allowance?

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

Mr. Speaker, on a point of order-

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LIB

Lucien Lamoureux (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

Is the minister rising to a point of order?

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LIB

Walter Lockhart Gordon (Minister of Finance and Receiver General)

Liberal

Mr. Gordon:

I was only going to suggest, Mr. Speaker, that when we go into committee it would be easier to deal with these specific questions as we deal with each clause.

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LIB

Lucien Lamoureux (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

Mr. Deputy Speaker:

This is the very point which the Chair wanted to bring to the attention of the hon. member, that if the minister answers these questions he would automatically be closing the debate. Therefore it might be preferable to have these matters brought up and discussed when we reach the committee stage.

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May 14, 1964