April 5, 1973

LIB

John Mercer Reid (Parliamentary Secretary to the President of the Privy Council)

Liberal

Mr. Reid:

Mr. Speaker, I was closely involved in the negotiations that led to this particular matter being referred to the Standing Committee on Transport and Communications. I was not involved in the selection of a commissioner. From my conversation with the contractors, I know there was a great deal of difficulty and, in the end, there was no particular agreement on who should be commissioner. In point of fact, when the two parties were unable to agree, they went to the minister and said if he would appoint someone who was reputable, they would accept him. Because the two parties were not able to agree on a person, they agreed on a different procedure being used. The point about the confidentiality of the document has nothing to do with the former point. The point was that a report was to be made by a reputable investigator. The report was to be made confidential in order to protect the rights both of the contractors and the CNR.

The only point I want to make is that the government is obeying resolutions and motions which were accepted by the committee, whose report was later adopted by the House of Commons. Were the government to do otherwise, it would be derelict in its duty. Had the government done what the hon. member wants it to do, it certainly would not have followed the recommendations made by a committee of this House and adopted by the House.

Mr. joseph-Philippe Guay (Parliamentary Secretary to Minister of Transport): Mr. Speaker, I wish to participate in the debate of motion No. 47.1 believe it might be a good thing to place on the record some of the events that have taken place in this regard, since I believe it important to do so.

The construction of the Great Slave Lake Railway gave rise to a number of disputes between the contractors responsible for the clearing and preparation of certain segments of the land, and the CNR. The disputes led to litigation which was eventually settled with each claimant and a release obtained from each party by the CNR.

April 5, 1973

However, notwithstanding this disposition of the matter, the contractors continued to press for further payments.

The following is a summary of the statements which led to an order of the House to hear representations from the contractors. The problems related to Great Slave Lake Railway contractors were first raised in the transport committee in June, 1967, when Mr. Schreyer asked Mr. MacMillan for comments related to the difficulties faced by seven contractors. The chairman of the committee referred to an earlier reply by Mr. MacMillan to the effect that if there was not litigation regarding these contracts, there soon would be and he would just as soon not comment. Mr. Schreyer stated: "Yes, but that leads me to this: You would expect that there would be litigation, but if these firms have gone into receivership or bankruptcy, how in the world could they initiate a civil suit?" When told that there could be a civil suit in such a case, Mr. Schreyer noted that he would like to see what lawyer they would get to act for them on that basis.

On March 5, 1968, and again on March 18, 1968, Mr. Schreyer questioned the then minister of transport about what action he had taken to date on an investigation into the construction of Great Slave Lake Railway and the bankruptcy of some construction firms engaged on the line. On March 25, 1968, Mr. Schreyer referred to allegations by contractors that Canadian National Railways enforced terms of the contract unfairly and onerously, and he summarized the circumstances of the contractors as follows:

The majority of the 13 or 14 construction firms involved in the project lost heavily, half of them being forced into bankruptcy. If that had happened to only one or two, one might say, well, it was a case of poor management or poor bidding. But when half the firms-seven of those involved-go into bankruptcy, it is safe to assume that there is something rotten in Denmark and that the contract conditions must have been onerously enforced. Or perhaps the Canadian National Railways' specifications were sloppy in the extreme and grossly inaccurate. Many elements could enter into the matter.

Then Mr. Schreyer referred to a prior inquiry made into the pipeline contracts as precedent for the need for an inquiry, and noted the results of the pipeline inquiry. The inquiry found that Mannix Company Limited had submitted claims amounting to $16,000 which were settled for $6,600. Mattagami Construction had submitted claims amounting to $27,900 which were settled for $17,900. Mannix Construction Co., had submitted claims amounting to $972,000 which were settled for $420,000. Canadian Comstock had submitted claims for $96,696 which were settled for $65,243. Dutton Williams Brothers had submitted claims amounting to $2,776,731 which were settled for $692,490.

In October, 1968, Mr. Schreyer noted that the minister had continually been requested to look into the matter of improper tendering with respect to Great Slave Lake Railway. He noted that allegations had been made that serious errors in the enforcement of the terms of the contract were made by Canadian National Railways, as a result of which some contracting firms engaged in building the Great Slave Lake Railway went into bankruptcy. Mr. Schreyer stated:

Several months have elapsed since then-

Great Slave Lake Railway

The minister had received some briefs from contractors.

-and in the meantime some firms have been forced into receivership and bankruptcy. Some were forced into bankruptcy before the matter was brought to the minister's attention by members of this House. Since that time I understand one or two other firms engaged in the construction have also been forced into receivership.

Mr. Schreyer noted that the contractors had exhausted all legal avenues. He further stated:

-unless we obtain from the Minister of Transport some indication of action, the contractors to whom I have referred will all be forced into personal and corporate bankruptcy.

I am sure the hon. member is pleased to hear this; and may I tell him I am well aware of what I am quoting. The hon. member for Timiskaming (Mr. Peters), referring to another branch line, stated that local employees had been used in the construction of the line and noted that it would obviate some of the problems that plagued contractors in the Great Slave Lake area in regard to local employment problems. Then, according to the information I have, Mr. Schreyer later said:

Some construction firms, Hatch Construction, Pete Rohl Construction, Ginter Construction, Krywa Brothers Construction, Lucas Construction and others, have been put into bankruptcy because of clause 16 of the form of contract. The acting minister will want to look at this material-

That is, briefs sent to the minister.

-in detail to see what course of action can now be followed in order to redress the grievances of these people. There is no use talking about their right of access to the courts. In some cases justice, unfortunately, still is not obtainable without money with which to hire legal counsel, etc.

On February 5, 1969, Mr. Schreyer's question No. 206 was answered. The question asked:

1. Has the Minister of Transport made a decision relative to the claims submitted to him by those contractors that were engaged in the construction of the Great Slave Lake Railway for the CNR and, if so, what is the decision?

2. If such claims have been accepted as valid, is Treasury Board approval being sought for payment, either in whole or in part, of these claims?

The question was answered by the then minister of transport, the hon. member for Trinity (Mr. Hellyer), as follows:

1. A review has been made of the circumstances relating to the claims of various contractors against the CNR in respect to the construction of the Great Slave Lake Railway.

Notwithstanding that one may have considerable sympathy for the circumstances in which the contractors find themselves as a result of these contracts, it appears that the claims, to the extent that they remain outstanding, are matters which must be settled between the companies directly involved and the management of the CNR.

The CNR has informed the Minister of Transport that some of the claims have been dealt with and additional payments have been made in some cases.

Part 2 of that question the then minister of transport answered by saying, "Not applicable." During the hearings in May, 1969, on the Canadian National Railways' annual report, numerous statements were made, some of which I would like to quote as follows:

April 5, 1973

Great Slave Lake Railway

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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John Leroy Skoberg

Mr. Skoberg:

I move that the committee call as witnesses those contractors available that were engaged in the construction of Great Slave Lake Railway and were subject to the invoking of clause 16 of their contracts by Canadian National Railways.

Considerable discussion ensued related to the wording of the motion, the need to appear, etc. In this regard Mr. Allmand noted:

We should not entertain these grievances under this particular motion because these contractors, whoever they may be, whether individuals or corporations, might have made a claim through the courts, which is the usual way when one is not satisfied under a contract. The usual procedure is to make a claim in court. I do not know at this particular time whether any claims have been made in court; whether there are judgments on these particular claims or whether there have been settlements made out of court. Maybe they did not make claims before the court; maybe for some reasons they were prevented.

Mr. Horner spoke to Mr. Allmand's recommendation to turn down the recommendation, as follows:

Secondly, I would like to suggest that the whole difficulty arises out of something that was not the contractors' fault. It was not the railway's fault either. It was practically an act of God: the weather conditions were the biggest trouble. Surely, contractors or the Canadian National Railways should not be held responsible. We should hear the problems that the weather conditions brought about, without forcing these people who, as I understand their case, are nearly bankrupt anyway. I sincerely want each member of this committee to look at this problem. If they tendered low and lost their shirt, then you and I can justifiably say, well, the next time they will tender wisely. But in this case it was not a case of tendering low; it was an act of God-building a railroad in severe conditions through what we might call a hinterland, an area which is not settled, an area which nobody really knew the conditions, and then, on top of all that, adverse weather conditions during the construction of the railway.

He went on to state:

Mr. Chairman, it is only fair and just that we at least hear their case. If we decide that it was not because of weather, but through faulty construction or faulty management of their contracts, then I do not think we should be held responsible for bailing them out, nor should the government, no matter which government. If we find that it was because of adverse management direction under clause 16 of the contract, or because of adverse weather conditions, perhaps we could give them a sympathetic hearing at least, and maybe a sympathetic answer. With regard to Mr. Allmand's third point, Mr. Chairman, that this whole question may go before the courts, I urge this committee to give serious consideration to that problem. If these contractors are in as severe a position as they say, they are facing bankruptcy. They cannot afford to go to court.

Some hon. members of the committee went on to speak about this, and Mr. Nesbitt said:

-it is quite evident that the House leader, Mr. MacDonald, has been apprised of the matter and has made certain commitments in the House. There seems little doubt that this matter would be heard and witnesses called to hear both sides of the story. It is my understanding that the minister might have some reservations in setting an unfortunate precedent where every person who had a 25-cent claim against the railway or the government might want a hearing, or that it would open the flood-gate in the future, but I do not think that could happen and I think this committee could, perhaps, make that quite clear. This would not set a precedent as there are very unusual circumstances in this case. There are many millions of dollars involved. It has been apparent that the cause of the thing was not necessarily the fault of the railway at all, but was caused by unforeseen acts of God, as I believe the term is, although I do not know why the Almighty should be blamed for some of these unfortunate things. However, that is in fact what they are, and there certainly have been commitments made that the committee would hear the whole matter.

To sum up briefly-

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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An hon. Member:

That would be nice.

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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LIB

Joseph-Phillippe Guay (Parliamentary Secretary to the Minister of Transport)

Liberal

Mr. Guay (St. Boniface):

I could continue, because I think some hon. members would want to hear all these facts. I thought they were of interest. I should like to reiterate the authority given to the commission by the House of Commons on December 11, 1969, as follows:

That the Minister of Transport establish a one-man enquiry to consider the merits of the claims submitted to this committee by the Great Slave Lake Railway contractors. The person nominated to conduct the enquiry should be acceptable to both the contractors and the Canadian National Railways and should report to the minister in confidence so as not to prejudice any future court hearing.

I should like to conclude by quoting from a letter from the CNR, signed by Clare J. Irwin, to the Hon. G. E. Tritschler, Chief Justice, Court of Queen's Bench for Manitoba, Law Courts Building, Broadway Avenue and Kennedy Street, Winnipeg 1, Manitoba, dated October 22, 1971. It reads in part:

The evidence of both Ben Ginter Construction Co. Ltd. and CN supports CN's contention that the powers of the CN engineer under clauses 16 and 18 of the section 6 and 7 grading contracts were exercised reasonably and with discretion under difficult circumstances.

By Benjamin Ginter's own tesimony, the weather was not a problem with respect to this grading work and there is no evidence that the condition of the terrain gave rise to unusual difficulties in this regard.

In any event, the evidence is that a formal claim was made to CN on behalf of Ben Ginter Construction Co. Ltd. following completion of these contracts. This claim was settled after protracted negotiations between counsel for the contractor and for CN in the amount of $342,000, a sum greatly in excess of the $207,000 recommended by Dr. R. M. Hardy following his consideration of the claim. That amount must be considered as having fully compensated this contractor for claims of any nature which it brought against CN following completion of the work.

The evidence adduced at the hearing was that the CN engineer in exercising his powers under clause 16 of this contract acted reasonably. Despite this fact, when a formal claim was made by this contractor and Dr. R. M. Hardy was asked to advise with respect to that claim, a settlement was effected to the mutual satisfaction of both parties by CN paying to the contractor the sum of $64,000. This amount was equal to the full amount paid to hourly-rated contractors for work done under clause 16 on clearing sections 6 to 9 and initially charged to Krywa Bros. Const. Ltd.

It is important to note Dr. Hardy's evidence that, in addition, this contract was earlier paid approximately $40,000 for work done by the hourly-rated contractor at no cost to Krywa Bros. Const. Ltd. Even if it could be concluded that CN's engineer exercised his powers under clause 16 unreasonably, it is submitted that this total additional payment of approximately $100,000 adequately compensated Krywa Bros. Const. Ltd. for any costs resulting from such action.

The weather gave rise to no unusual difficulties in the clearing work done by this contractor and the condition of the terrain cannot be the proper basis for a claim by a contractor engaged soley in clearing land.

The letter goes on to explain, in respect of all other contractors, that they were all dealt with in the same manner. I could continue reading this letter; it might be of interest to some hon. members of the House. Possibly I could quote one more paragraph which indicates that Lucas Construction Ltd. had been treated in the same way. The letter reads:

April 5, 1973

Following completion of the hearing with respect to Lucas Construction Ltd. it became apparent that portions of the testimony of Dr. R. M. Hardy may have been unclear. Accordingly, I asked Dr. Hardy to advise me with respect to these points. I enclose for your further consideration Dr. Hardy's letter to me 21 October, 1971.

It is CN's submission that the evidence clearly indicates that the powers of CN's engineer under contract clauses 16 and 18 were exercised reasonably under the circumstances existing throughout the duration of this work.

The effect of weather upon a contractor engaged in this type of heavy construction must be foreseen by the contractor at the time he makes his bid.

The evidence of Dr. Hardy as clarified in the enclosed letter together with the evidence given by witnesses for both Lucas Construction Ltd. and CN at the hearing would indicate that an unusual soil condition was encountered on grading section 4. There can be no doubt, both from the evidence of Dr. Hardy as found in the Minutes of Proceedings of the Standing Committee on Transport and Communications of 19 June, 1969, at pages 2599 and 2600 and from Dr. Hardy's evidence at the recent hearing as clarified by his letter, that any additional costs incurred by Lucas Construction Ltd. attributable to this soil condition were considered-

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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LIB

Prosper Boulanger (Assistant Deputy Chair of Committees of the Whole)

Liberal

The Acting Speaker (Mr. Boulanger):

Order, please. I am sorry to interrupt the hon. member, but the time allotted to him is up.

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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SC

Jean-Marie Boisvert

Social Credit

Mr. Jean-Marie Boisvert (Drummond):

Mr. Speaker, since there are only seven minutes left, I shall try to leave enough time for the question to be put.

Mr. Justice Tritschler's report on the inquiry into the construction of the Great Slave Lake Railway is more evidence of the government's policy of silence when it suits them. The manner in which they have kept this report secret is further proof of the government's dictatorship in Canada. Under cover of a well-disguised democracy, the word "freedom" comes to mean-

Topic:   PROCEEDINGS ON ADJOURNMENT MOTION
Subtopic:   TRANSPORT
Sub-subtopic:   REQUEST FOR REPORT OF MR. JUSTICE TRITSCHLER ON CONSTRUCTION OF GREAT SLAVE LAKE RAILWAY
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THE ROYAL ASSENT


A message was delivered by the Gentleman Usher of the Black Rod as follows: Mr. Speaker, the Honourable the Deputy Governor General desires the immediate attendance of this honourable House in the chamber of the honourable the Senate. Accordingly, Mr. Speaker with the House went up to the Senate chamber. And being returned: Mr. Speaker informed the House that the Deputy Governor General had been pleased to give, in Her Majesty's name, the royal assent to the following bills: Bill C-147, an act to amend the Old Age Security Act-Chapter No. 8. Bill C-148, an act to amend the War Veterans Allowance Act-Chapter No. 9.



It being six o'clock, I do now leave the chair. At six o'clock the House took recess. Income Tax AFTER RECESS The House resumed at 8 p.m.


INCOME TAX ACT


The House resumed consideration of the motion of Mr. Turner (Ottawa-Carleton) that Bill C-170, to amend the statute law relating to income tax, be read the second time and referred to the committee of the whole.


SC

Henry P. Latulippe

Social Credit

Mr. Henry Latulippe (Compton):

Mr. Speaker, before recess, I was speaking about the state of mind of all Canadians concerned, the governments or the people.

I was suggesting that we produce too many of these official reports, royal inquiries and white papers submitted in large numbers to all Canadian members of Parliament. Why should we spend two more years on new studies, reviews, federal-provincial consultations, suggestions, further research, when all that is already included in the work carried out since 1960?

Mr. Speaker, the general impression we get from January llth's impressive speech by the Minister of National Health and Welfare (Mr. Lalonde), the member for Out-remont, especially coming from one who was once in the first rank of advisors to the right hon. Prime Minister of Canada (Mr. Trudeau) for almost five years, and who must know better than anyone what goes on, after so many royal inquiries on these matters, is an impression of dullness which suggests incompetence, impatience, incoherence and a waste of time, which suggests perplexity as to which way to turn in the maze of organizations that are immediately involved with the guaranteed personal income which guarantees the individual's right to a living.

We must, Mr. Speaker, work towards setting up a national organization that will guarantee all Canadians a share in the national revenue.

The regulations of exchange and commerce, the general levying of taxes by everyone under our present system, the exchange rate and minting, banks, the issuing of paper money and rates of interests, all these are the aims of our present economic system.

Inflation, unemployment and poverty are merely failures in the circulation of money. Let us stop complaining and sulking. The solution to our lack of money lies in the hands of the government of Canada, and particularly in those of the seven most important ministers and Members of Parliament elected by the Canadian people.

The seven members of the cabinet who can supply an immediate solution to the problems of circulation of money, in the interests of the nation and of the 23 million Canadians, are the right hon. Prime Minister, the Leader of the Official Opposition (Mr. Stanfield), the leader of the New Democratic Party (Mr. Lewis), the leader of Social Credit (Mr. Caouette), the President of the Treasury Board (Mr. Drury), the Minister of Finance (Mr. Turner) and the Minister of National Health and Welfare.

These Canadians are those mainly responsible for our economic organization. Only they can make the big decisions, and only from them can we expect decisions and major reforms that everybody hopes this parliament will introduce to correct the present economic situation.

April 5, 1973

Income Tax

Now, if national production amounts to $114 billion in 1973, which means $5,000 per capita or $25,000 per family of five members, on average there are nine million Canadian producers who get revenues from their wages and investments. We call upon this government to consider major economic factors and establish a national economic balance between people, families and companies, between earnings, spendings and profits, between taxes, duties, exemptions and personal income, and to provide for a guaranteed personal income.

Mr. Speaker, although the Canadian economy is still one of the most prosperous in the world and while generally, the capitalist economy of free enterprise is still superior to the socialist and communist systems, 1 assert with supporting evidence that our Canadian capitalist economy of free enterprise has some basic deficiencies, namely inflation, the rise in the cost of living and interest rates generally; unemployment and the numerous strikes are only some apparent and localized symptoms at certain times and places.

The basic deficiency, the basic weakness of our economy, the sole and basic source of all the troubles which we are endeavouring to control, including currently rising interest rates, that sole cause of our many economic difficulties is the essential aspect of our Canadian capitalist economy of free enterprise which is so difficult to correct. It is merely the unbalance among the various foregoing constituent factors.

Mr. Speaker, we are going to support this bill but in a rather negative way because we feel that it does not contain the solution we are seeking. We would have preferred to see the tax exemption for married couples raised to $5,000 and $3,000 for single people. In spite of that we accept the government proposals. We will not oppose the passing of the bill but we would like to make it known to this House that we are not very satisfied because we would have liked in this month of April 1973, in the twentieth century, in view of our fantastic production which increases from year to year and the decrease in the number of individuals contributing to production-nearly 30 per cent of our labour force is unemployed-to increase our gross national output to at least $125 billion or perhaps $150 billion in the coming years. We cannot do it because our workers are out of work and because we have not found the means to make the investments needed to get our economic production system going to produce more. When the young are not working, they are not producing. We would have liked to see people work and produce more because in that way we could have reduced prices and would have done so through the help of competent citizens putting their energies at the service of their fellow countrymen and working for the good of the community. We could have increased our assets and by doing so we could have reduced our costs and if our costs were reduced with methods such as those we advocate we could give compensated discounts to reduce the cost of living, to prevent it from increasing steadily.

Mr. Speaker, we could reach a peaceful settlement of the major problems affecting us and to which we cannot find a solution.

Topic:   THE ROYAL ASSENT
Subtopic:   INCOME TAX ACT
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PC

William Herbert Jarvis

Progressive Conservative

Mr. Bill Jarvis (Perth-Wilmot):

Mr. Speaker, may I preface my remarks with a brief quotation as follows:

The federal government is aware of the importance of the family farm. We realize the importance of keeping our family farms healthy and growing ... Despite all our talk about corporate farming and about agriculture being big business-and it is-the family farm is still a basic unit in our agricultural community.

The author, Mr. Speaker, was the Minister of Agriculture (Mr. Whelan) and these remarks were contained in an open letter to farmers of Perth county, published in the Perth-Stratford Beacon Herald on February 10 this year, on the occasion of that county's annual agricultural week celebrations. The date of publication, February 10, is significant because it was nine days before the budget speech of the Minister of Finance (Mr. Turner) on February 19. What did this minister have to say about the family farm? I quote from page 14 of his speech as follows:

I would now like to draw your attention to another matter which is of great importance, namely the preservation of the family farm. Under the present rules, when a farmer dies and leaves his farm to his children he is treated as if he has sold his farm at its fair market value. In the result, there may be a capital gains tax liability. For many of our farmers this poses a serious problem. First, the value of a farmer's land is often subject to fluctuations which have little bearing on the real value of that land as a farm. Second, most small farmers have little available cash and have already exhausted their credit. Therefore, a tax liability at a time when there has been no real sale may leave the family of the deceased farmer with no alternative but to sell out.

To remedy this problem, I propose that, effective January 1, 1972, when a farmer dies and leaves his farm to his children there will be no deemed sale of his farm land.

In the "Budget Highlights" at page 5, however, that passage was reduced to the following brief sentence:

Family farms permitted to pass from generation to generation free of capital gains tax.

This is what was picked up across the country and for several days or weeks there was joy in the rural areas, based on the general misunderstanding that capital gains tax had been eliminated for the transfer of a farm to a wife, son or daughter. At this point, the farmers of Canada were rejoicing because of four basic misunderstandings of this supposed tax relief as it applied to the family farm. Indeed, all Canadians felt that at long last this government had recognized and were prepared to cure the ills that the government's tax legislation had brought to them. These four items of misunderstanding were as follows: first, the farm could be sold or transferred to the children during the parents' lifetime without tax liability; second, capital gains tax had been eliminated with respect to such sale or transfer; third, the residence of the child or children at the time of the parent's death was of no consequence; fourth, the whole farm could be sold or transferred.

With respect to the first item of misunderstanding, it took a week or more before it was realized that the farmer had to die before any relief was possible. Regarding the second misunderstanding, it gradually became clear that capital gains tax was not eliminated at all; it was merely deferred. Therefore, if the farm had a value of $50,000 on valuation day, and a few years later had a value of $75,000 on the date of the father's death, or even a few years later

April 5, 1973

had a value of $95,000 when the son sold it, perhaps to a neighbour, we find that the capital gain to the son is $45,000. In other words, farmers are finding out that even though they leave their farms to their sons in their wills, their sons will still be stuck with retroactive valuation day value.

The third misunderstanding is the residence rule which must be met by the farmer's son or daughter. I wonder if the Canadian farmer realizes even today that if he leaves the family farm to his son in his will, and by sheer coincidence that son, at the time of the father's death, happens not to be at that precise moment a resident of Canada, no relief from capital gains tax can be enjoyed even though the son returns home post haste in order to continue the operation of the farm.

The fourth misunderstanding, Mr. Speaker, is crucial. It involves the question of what is a family farm. I suggest that most of us know it as a combination of land and buildings, probably a dwelling house, livestock, equipment, feed, fertilizer and other things. It is the totality of all of these in combination. When we speak of the family farm in relation to its purchase or sale, or in relation to capital gains tax, however, the interpretation is perhaps more narrow. It is considered by most to mean the land and buildings, the real estate: the non-movables, or immovables, if you prefer.

When a farm real estate agent lists a farm for sale he intends to sell, and the prospective purchaser intends to buy, not such things as stock, equipment and other things; he intends to buy the land and buildings. Therefore, Canadian farmers did not pay special heed to the reference in the budget speech to "farm lands," because "farm lands" mean land and buildings. It bothered a few of us though, Mr. Speaker, because it is no secret that the Minister of Finance would not know a cow from a cabbage and could not care less.

It bothered the hon. member for Grey-Simcoe (Mr. Mitges) who in this House, on February 28 last, asked the Minister of Agriculture if this capital gains tax exemption-I should point out that some of us at that time did not appreciate that it was simply a deferral-also included the buildings on the farm, or was it just the land? I remember the question very well, for two reasons. First, I was trying to be recognized by Your Honour on the same day to ask a similar question and, second, before the Minister of Agriculture answered he leaned over and consulted his colleague the Minister of Finance. Even this brief consultation, Mr. Speaker, was so unique and historic that it became branded in our memories. In any event, after this consultation the Minister of Agriculture replied, "It includes the complete farm".

Mr. Speaker, why would any farmer have difficulty understanding this answer? A few might believe that a complete farm includes such things as livestock, equipment and feed. In any event, we were all pretty well satisfied that the tax on land and buildings could at least be deferred except for this. A few of us began receiving strange reports that farm groups such as the Canadian Federation of Agriculture, the National Farmers' Union and the Ontario Federation of Agriculture were not getting firm answers to the questions they had been putting to the minister and officials of his department. Therefore,

Income Tax Act

the hon. member for Grey-Simcoe wrote to the minister and asked for a specific answer to this question: Does the deferral of capital gains tax apply to both land and buildings? The answer, dated March 9, 1973, included a lot of the usual gobbledygook about parts XI and parts XVII of the act, "deemed disposal," "recipient descendants," and so on. However, one part of the minister's letter is very clear. It reads as follows:

The deferment of capital gains tax does not apply to farm buildings or machinery There will be no change in the basis for valuing the buildings and machinery.

What are we to believe, Mr. Speaker? What are the farmers of Canada to believe? Are we to believe the minister's answer in this House on February 28 when he said, after consulting the Minister of Finance, that the deferral included the complete farm, or are we to believe what he said a few days later in his letter of March 9, that the deferment of capital gains tax does not apply to farm buildings?

If we believe the minister's letter which indicated that only raw land is considered, then this simply has to be a gigantic hoax perpetrated by the government on the farmers of this nation. Is this government serious in believing that farmers across this country shall secure valuation on land alone? Will the government ask these Canadians to consider a family farm as land alone? The whole proposition is so preposterous that it would be laughable if it were not for its tremendous tax implications.

I listed four points of misunderstanding and concern and I have spent most of my time on the fourth point in the hope that a minister will tell this House just what farm assets are subject to capital gains tax and what farm assets are not.

Topic:   THE ROYAL ASSENT
Subtopic:   INCOME TAX ACT
Permalink
NDP

Leslie Gordon Benjamin

New Democratic Party

Mr. Benjamin:

You can only exclude the wife and the hired man.

Topic:   THE ROYAL ASSENT
Subtopic:   INCOME TAX ACT
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PC

William Herbert Jarvis

Progressive Conservative

Mr. Jarvis:

Let me return to the first area of misunderstanding, that the parent must die before the tax can be deferred on the passing of the farm to the child. Mr. Speaker, I submit to the House that this is not only unsatisfactory; it is deplorable. Many whose opinion I value share this position. For example, Farm and Country magazine published on March 27 a story headed, "Leaving a farm to a son in a will has never been a satisfactory means of transferring the farm from one generation to the other." Let me quote from that story by Lyall MacLach-lan. It reads in part:

There have been too many cases where sons have reached their fifties and had nothing for their years of hard work on the farm except a promise of the farm when father was gone. As the years pass by, family relationships often change, as a daughter-in-law and then grandchildren appear on the scene. We all know wills can be changed at any time .. .

Those of us who counsel and help farm families with their transfer programs have been striving to get away from the idea of leaving everything in the will. We urge farmers, depending on their individual circumstances, to start a tranfer program as early as possible in their lives and not to depend on their wili for transferring the main farm business.

The proposed change in the Income Tax Act will encourage farmers to do the very thing we have been working to change. However, perhaps when the details of the proposal are known, it

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will include deferment on any capital gains tax when a father transfers his farm to his children while living.

What a vain hope that was, Mr. Speaker. In the same publication there is a story concerning Gordon Hill, president of the Ontario Federation of Agriculture. The story is headed, "Budget moves undermined Whelan, Hill warns federal cabinet session", and reads in part:

Federal budget proposals hurting Canada's farm population 'have undermined the confidence we have in (agriculture minister) Gene Whelan,' the federal cabinet was told recently.

'Also, it's undermined the confidence we had in the government,' Gordon Hill, president, Ontario Federation of Agriculture, added. In an open confrontation, he said the move on capital gains and elimination of the tariff on imported fruit and vegetables plus beef had 'shocked farmers.'

'It's bloody well not good enough,' snapped Hill. Exempting farms from a capital gains tax only on the death of the father 'keeps young men hanging around waiting for the old man to die.,-

Hill said the appointment of Whelan as Minister of Agriculture met with farmer approval. 'He's doing a good job. He's talking the farmers' language. He was convincing farmers that the federal government was trying to solve their problems. Then came the Turner budget. Now we've got a lot of doubts.'

Finally, let me read an editorial in the same publication, written by Don Coxe. It is headed, "Tax deferral misleads farmers". According to the story:

Turner's budget move was hailed in government press releases as 'solving the problems of family farm inheritances.' In reality, what Turner has done is to give a tax deferral to those heirs who are Canadian residents at the time of the death of a parent owning a farm which they inherit; those who stand to benefit most are those whose families have done no estate planning.

He concluded this thought by saying:

'Better dead than in the red' could become the watchword of farm estate planning.

In order to be absolutely fair to the Minister of Agriculture, let us consider for a moment what he has been telling farmers and farm organizations across this country. I believe I have read every speech he has made since the budget speech, and there have been many. Let me begin by quoting what he said to the Canadian Horticultural Council, at the Chateau Laurier on February 27, 1973:

Farmers specifically got an exemption from the capital gains tax for family farms passed from parents to children.

Later in this speech he said:

-the budget has brought important gains for farmers, and in particular the exemption from capital gains for transfers of family farms from parents to children.

Next let me read from the speech he delivered to the Waterloo County Federation of Agriculture. He said:

The capital gains tax was changed for farmers who pass their farms on to their children.

From there he moved to Port Elgin, Ontario, and addressed the farmers during the Saugeen and district farmers rural-urban night. He said:

In closing, I would like to review some of the gains farmers made as a result of the new budget announced last month. First of all, farmers got a cut in income taxes-by as much as 47 per cent for those with an income of $5,000. Second, there was the exemption from capital gains tax for farms passed on from parents to children.

Finally, let me quote from the speech he made to the Farm Forum at Weyburn, Saskatchewan. He said:

In the budget speech last month, we announced a change that will exempt family farms from the capital gains tax if they are passed down from parent to child.

Those are fine words, Mr. Speaker, but one must be particularly impressed by what the minister did not say to the farmers of this country. First, he has not said a farmer must die first; he has not said that in any speech. Second, he has not said that the tax is only deferred. He spoke repeatedly of tax exemptions. Third, he has not told farmers of the residency rule. Fourth, he has not told the farmers that the provisions apply to land only, if indeed that is his understanding and that of the Minister of Finance. The minister, even though he will not deign to inform the farmer, has given him some advice. I refer to his remarks as recorded at page 1580 of House of Commons Debates for February 22, 1973. He said:

I am happy to see that the budget aims at preserving the family farm. The tax concession does not apply to the corporate giants but to farm families who pass on their farm from one generation to the next.

I think the change is important enough that farmers should consult a lawyer-and even for a farmer this is a concession-or an accountant if they are planning a transfer of their farm to their son, son-in-law, daughter or whoever it may be. There are several methods of transferring a farm from father to son or daughter including gifts spread over a number of years. A good accountant can tell them how this can best be done. The change announced in the budget changes the rules of the ball game, to the benefit of the family farm, and I want every farmer to get the most he can out of these concessions that are rightfully his.

From the day this session commenced to the present day, the Canadian farmer has been misled, misinformed and mistreated; and not one incident can be found of this government's willingness to inform farmers of the exact nature and import of the capital gains tax legislation in a frank, open and honourable manner. In closing, sir, may I quote again from the remarks of the minister to this House as recorded at page 1582 of House of Commons Debates for February 22. He said:

We have talked about the family farm. It is easy for many people to talk about a family farm, people who really have no feeling in this regard. I think one has to be raised on a family farm to really understand what it means and to have the feeling of having produced crops. One must be in this position to know what it is to create things. I have been criticized before for saying I feel that farmers are the salt of the earth and closer to God because they create things.

In light of what has been produced by this government with regard to the family farm, I can only say, Mr. Speaker, that it is a good thing our farmers are close to God, because about all the Canadian farmer can hope for now is divine intervention. Finally, I wish to quote what my leader said in Regina on September 15, 1972:

We will act to ensure that capital gains tax does not apply to transfers of average sized farms within the family unit.

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Some hon. Members:

Hear, hear!

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NDP

Alfred Pullen Gleave

New Democratic Party

Mr. A. P. Gleave (Saskafoon-Biggar):

Mr. Speaker, I wish to say a few words on this bill. First I wish to quote from a letter sent to one of the British Columbia members by a farm organization in that province. It lists three items

April 5, 1973

the farmers in that area would like to see in the tax proposals which are passed into legislation. They are as follows:

(a) the need for farm transfers within a family without capital gains taxation.

(b) the need to remove taxes from the sale of marketing quotas.

(c) the need for maintenance of the basic herb concept.

They are not asking for a great deal. It will not cost the government a significant amount of money and will not bankrupt the Canadian economy. It could be done without causing a great deal of distress to the Minister of Finance (Mr. Turner). It may even help the Minister of Agriculture (Mr. Whelan) to look like a better guy. However, it is aparently just too much to hope for.

The basic problem of the government and those who plan our taxation system is that they do not understand what it means to let agriculture survive in this country. Never mind helping them to survive, but just to let them survive. That is our problem. The government is hopelessly behind the times in its thinking. They are attempting to have a taxation system that was relevant to agriculture 15 years ago. That is another problem: the practices in farming are changing very quickly.

The second item with respect to the need to remove taxes from the sale of marketing quotas would not have been raised in this House or this country 10 years ago, and certainly not 15 years ago: I think I am absolutely safe in saying 10 years ago. However, it has now become a very important factor in the operations of a significant number of farmers in Canada today. The dairy industry, to name only one sector, has gone the furthest in making a saleable quota part of the total marketing operation. Perhaps it should not have been done that way. I think better methods could have been devised, but that is beside the point. The point is that in many areas the industry "low operates in that way.

If a cream shipper-I do not refer to the big shot dairy farmer, but the ordinary person milking 10 cows and shipping cream, or the person milking 10 to 15 cows and shipping industrial milk in Saskatchewan or many other provinces-has to purchase a quota, he has to borrow money. He is making an investment. If he borrows money, he has to pay interest. If he sells his operation, he must either try to recover that money, sustain a loss or those who take over the operation from him must sustain a loss. The present taxation provisions make it difficult for them to finance the operation.

I do not know whether this government and the minister responsible seriously want the kind of farm we have in Canada today to survive. They had better make up their minds pretty soon. The kind of taxation imposed decides, to a very considerable extent, the type of farm that will continue. The manner in which transfers take place, how money is invested and how the farm is passed from one generation to the other is decided by the taxation system. If the taxation system makes it impossible for family farms to finance their operations, they will cease to exist.

I now wish to deal with item (a), the need for farm transfers within a family without capital gains taxation. In their wisdom, those who planned our taxation system said, a farmer can transfer without capital gains taxation, but he must die before he can do so. There are not many

Income Tax Act

tax provisions where a person must die before he is entitled to an exemption, but that is the case here. What about transfers that are made while the farm owner is still living? Most farmers I know do not want to hang on to the farm until they go to the cemetery; they want to be able to turn it over to their son, son-in-law or whoever it may be. Many prefer to quit so they can relax and take it easy. They may wish to help the son or the family along for a few years. But no, this cannot be done. They have to cash in their chips to get any benefit from this provision. I do not understand why.

Perhaps the minister has some good reason why it is so. Maybe it will cost the government less money if farmers have to die before passing on their land, rather than passing it on while they are still alive. If that is the case, I think the minister should tell us. I think only a few of them will be able to pass it on if they wait till they cash in their chips, because the children will get tired of waiting and will leave. Perhaps the minister will get some more money in that way, but he should at least tell the House why this particular method was chosen.

While the minister is at it, he should also tell us why he did not give consideration to the position of family farm corporations. We now have a significant number of farms run by a father and son or by a family corporation. These farms are also transferred, yet no reference is made to them in the bill. This bears out by my belief that the drafters of this legislation did not understand what they were dealing with and did not choose to consult anyone who did. I get a bit irked when I think of people in my constituency in Saskatchewan who are trying so hard to run their own farms and produce grain, cattle and hogs, yet their ordinary needs are not considered.

Mr. Speaker, there are enough economists in the Department of Agriculture, and I do not know what the Minister of Agriculture is going to do with them. He said that he did not like economists; I have heard him make some harsh remarks about them. But let me tell the minister that they have been the fastest growing force in his department during the last three or four years. The minister has spent more money gathering in economists than gathering in anybody else.

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LIB
NDP

Alfred Pullen Gleave

New Democratic Party

Mr. Gleave:

Not you; but you have them, buster. Having acquired all these economists, they cannot even tell the Department of Finance how to arrange a taxation system that will enable the farmers to continue operating. It is either that or the Department of Finance will not listen to them.

We tried to talk the government into leaving the basic herd alone so that farmers would be able to build up and maintain a stable herd of cattle. But even that was too much. No minister of the government has stood in this House and explained why the government could not afford to leave the basic herd as it was. If there is a reason, why does not a minister tell the House what it is? That is the logical and reasonable thing to do.

All of us have to pay our share of taxes and, goodness knows, they are high enough. Although we are prepared

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to do this, one of the basic precepts of income tax is that it should not kill the goose that lays the golden egg; in other words, it should not destroy entrepreneurial activity, if for no other reason than that this activity produces revenue. I should like to know how much tax the government is collecting from dairy producers in foreign countries who are going to sell Canada over 25 million pounds of butter. Are the economists that the Minister of Agriculture has in his stable going to advise the government how to tax butter producers in New Zealand or other countries? The government ran out of time to pay subsidies so as to get the cheese factories out of business in Ontario. This year they gave them an extension of time so they could collect the grant to quit producing Cheddar cheese. The government could have saved taxes by not paying the cheese factories not to produce cheese.

I say it is about time the government started to think about the ordinary guy in the farming business in Canada. The government has programs to get them out of farming. The agricultural adjustment program was another scheme the government dreamed up in some back room to kill off the taxpaying farmer of Canada. They wanted them shuffled out. I do not know whether these farms will get any better, but they are certainly going to make them bigger. There is a good scheme going now to get them big enough that Kraft will buy all the milk. Then you will have a one-man show.

The government will then have the problem of trying to get Kraft to pay income tax. Kraft will probably move its head office and the government will be pretty badly strapped. Before the government finishes its grand master plan to close down the cheese factories and let Kraft take over, it had better develop some method of getting tax moneys from Kraft. Otherwise, the government may experience some small difficulty.

The government has set up some pretty good outfits. For example, there is the Canada Grains Council. I asked the minister about this today. The government gives this council some of the taxpayers' money, then the council publishes a little pamphlet which is just like the one put out by the Department of Agriculture. So there is more duplication there, but I do not know whether they think it is important. The minister in charge of the Wheat Board is also responsible for this council. He sends out questionnaires to find out how farmers want their two-price wheat system implemented. Then these retired farmers write us letters asking how they can get paid their share. These are the retired people for whom the two-price wheat system fails to provide, the people who have retired and whose sons have taken over their farms. They write to us saying they are dependent on their farms for some of their income and that they want their share.

The government and the minister are not really thinking about the ordinary operator and how he can solve his problems. Today the Canadian Co-operative Wool Growers met in Ottawa and invited the minister to speak to them at the Chateau Laurier. An hon. member who represents a number of these people was in attendance. I am not sure whether he heard this statement, but he should have because it is indicative of the situation on farms

throughout western Canada. The statement made by the minister to the wool growers' association was as follows:

I think one of the most important challenges you face right now is to make the industry grow, and to get more farmers into the business. I say that because I believe you don't have enough volume to build up a consumer market. You don't have enough volume to make it attractive for businessmen to invest in a top-notch marketing system, including packing plants.

It does not matter whether it is the wool growers or anybody else, if they are to obtain an increase in the price of their products and invest more money in the industry, they must have confidence that they will be able to obtain a reasonable return. They must be confident in the belief that if they invest, their money will be secure and they will be able to make a decent living. If farmers do not have that confidence, they will not stay on the farm.

The minister has said that dairy farmers in Ontario are not able to employ enough workmen to operate their farms. I suggest this is because we have persuaded too many young people to leave the farm. Anyone who has observed population trends knows that it is easy to convince young people to move from rural areas to the city, but extremely difficult, once they have become urbanized, to persuade them to move back to the country and work in a rural environment. That is what has happened in this country. The minister agrees that it has happened because we have not provided encouragement or security to young people living and working on the land. Instead, we have developed policies which result in the very opposite, namely, encouraging people to leave the land.

I recall attending a meeting during the election campaign in a little place called Hafford in the northern end of my constituency. This meeting was arranged by people involved in the dairy processing industry and officials of the provincial government: they got these people together to persuade them to go back to milking cows and producing industrial milk. Some five years earlier these people in the town of Hafford were milking cows and shipping cream. The dairy commission changed the method of quota payments, and many of the producers dropped out of the industry. Some of their sons and daughters had left the farm and had no intention of returning. I assure the Minister of Agriculture that we in Saskatchewan will have an uphill job getting these young people back to the farm. This is mainly because of politics adopted by this government.

The same situation exists in the hog industry. There was a real upsurge in hog production in 1969 and 1970. Then we hit a downturn in price and this government did not make any move to protect the producers until it was too late. We will now have a difficult task increasing hog production.

I see that the Minister of Finance and the Minister of Agriculture have got together. I do not know at this point whether they are discussing a charge in these taxation proposals, but I hope they are.

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An hon. Member:

One or the other should resign.

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April 5, 1973