Mr. Ritchie (Dauphin):
Mr. Chairman, I should like to speak for a few moments on this clause. As a member of a profession for whom this legislation was primarily designed, I might say that putting the rate back at 3316 makes it about as neutral as it can be.
November 1, 1979
The hon. member who just sat down pointed out that dummy corporations have people who get money out of them through wages that they basically do not earn. Many small businesses have people on their payroll who, strictly speaking, might not be considered productive. This seems to be one of the disadvantages of tax systems.
One of the problems that has come from this is the high margin of income tax rates that we have. If the marginal income tax rates were not so high, this sort of thing would not occur so much. Without some provision like this, say with limited liability, it would be almost impossible for physicians, for example, to hold property in groups and to have facilities. Most provinces do not allow physicians to incorporate their incomes; certainly Manitoba does not. I realize that Alberta does allow professional people to incorporate their incomes, but it has probably changed the rules to some extent.
I have considered this over many years and have discussed it with my accountant at various times but I could never see where it paid to incorporate a medical practice, except for the limited liability aspect. For instance, if four doctors decided to build a facility for $150,000 or $200,000, they would pretty well need to have a company to do so. It would have to be organized on a partnership basis. In any case, the tax changes of 1972 made partnerships almost impossible to carry on on an income tax basis if there was any complexity. Most accountant firms will advise against partnerships of almost any kind. As I say, the 331/3 is as neutral as can be.
The hon. member who just spoke implied that all physicians and all professionals were pretty well assured of an income. Mr. Chairman, they are no more assured of an income than the corner grocer. Physicians and lawyers who work on a salary for a firm must pay income tax just as we do. It is not necessarily true that many will come in the door demanding to be paid high salaries or be provided with a high income. I might say that in a practical sort of a way the physician in Manitoba makes about $10 or $14 per hour before taxes. Ele makes up for some of this by working 50 to 60 hours a week. Whether that is too much, I do not know.
I would to like to point out there are many professions, such as pharmacy, which are not included in this. In practice, however, pharmacists can incorporate their companies. They have to be able to incorporate because of the large stock they carry and so on. Usually about half of their income can be classified in the same way as incomes of lawyers and physicians.
If everything went very well and circumstances were exceptionally favourable, it might be that a person could use the 331/3 per cent and make considerable money. However, from my discussions with many physicians, I find they have tended to lose on this. By and large their companies have not been around for a long time. They have been holding companies or real estate companies.
It would be almost impossible to get facilities without having some kind of company. Presumably we would not have
Income Tax Act
clinics and this sort of thing where there is a physical facility. Physicians have told me that having a company has not particularly resulted in their making money. In many cases, their income has been less than had they paid the marginal rate.
The limited liability feature, the possibility of bankruptcy, suits for injuries and so on make it necessary for professionals to be able to set up companies of some kind. This may not be the best way to do that. I have gone through the white paper on taxation of 1970 and subsequent legislation. As a professional, I do not particularly ask for favours. However, something has to be set up in order that facilities can be built and manned.
Another problem that remains unsolved is those who have spent long years preparing themselves and do not earn money until they are in their thirties. They presumably then earn a high income and pay a great deal in tax. Obviously that is a difficult problem. While this change may not necessarily be the best, it seems the most neutral we can arrive at for the moment.
I would ask the parliamentary secretary whether this effective 331/3 per cent rate commenced in November of last year, or will it become effective when this bill is passed, or, in fact, is it effective at the present time?
Subtopic: INCOME TAX ACT