Mr. RHODES:

Parts of farm tools, such as reaping hooks, rakes, et cetera, were subject to the sales tax at that time while they are not to-day. Split fence posts are also in the same category. The hon. member for Comox-Alberni will be surprised to know that sinkers and floats, including trawlkegs for use in the fisheries were subject to sales tax at that time; they are not to-day. Phonograph records for educational purposes and fox feed were also subject to the sales tax at that time; they are not to-day.

Mr. RALSTON:

Gopher poison.

Mr. RHODES:

Yes, the ingredients for

use exclusively in the manufacture of gopher poison. Apples, dried, desiccated and evaporated; hospital supplies and materials; these were all subject to the sales tax during that period while they are exempted to-day. Despite all the necessities of the case, these articles remain exempted in the list which is now submitted. I mention this only to impress upon hon. friends the necessity of considering this matter from all angles and to ask them to bear in mind the list of articles to which I have just referred. The hon. member for Charlevoix-Saguenay has just returned to the chamber and I am reminded of a question he asked and which I inadvertently failed to answer. I know his absence was necessary because he happens to be the chief whip of the opposition. The articles which we have included in the list to be subject to the sales tax and which have been exempt since 1926 will, according to the best estimate which can be made by the officials of the Department of National Revenue, yield $13,000,000 per year in revenue even under existing conditions.

Paragraph agreed to on division.

11. That schedule IV to the said act, as enacted by chapter fifty-four of the statutes of 1932 enumerating articles exempt for fifty per cent of the sales tax, be repealed and the following substituted as schedule IV:-

Schedule IV

All articles manufactured or produced by the labour of the blind in institutions in Canada established for their care or under the control or direction of such institutions.

Mr. EULER:

Mr. Chairman, I should like to refer to paragraphs 5 and 7 of this resolution.. Ordinarily I do not attempt to defend corporations but I would like to point out to the minister, as I have done already in private, what I regard to be as an injustice in the present enactment. Under the present proposals the $2,000 exemption which applied previously to corporations has been abolished. Last session the family corporation was abolished and this year the rate of taxation on private corporations has been increased to

twelve and one half per cent. I am making no complaint of the principle of income tax or as to the tax as it applies to corporations, because, as I said last night, I appreciate fully the difficulty faced by the minister in raising revenue. When the minister answers me, as 1 believe he will, I am quite sure he will give as a reason for doing what I am complaining about the fact that he needs the money. I admit that that is a strong argument but 3 submit to him and to the committee that it the raising of money by way of taxation whether it be by income or any other sor1 of tax, some regard should be given to the principle that there should be no discrimination as between persons of the same class. The minister has wiped out the exemption of $2,000 for corporations. I have no complaint to make of that action so far as large corporations are concerned, but I want to point out that in the case of small companies which are in effect the property of one man or of one family, the present legislation practically doubles the income tax. I should like to give the committee a few figures. A corporation which makes a profit of $5,000-I think every hon. member will agree that that is not very much-will pay an income tax of $713.75 under the present proposal. I think my calculation is correct. A private person operating a similar business and making a similar profit will pay an income tax of $126. I claim .that the difference is entirely too great. The man who chooses to operate his business as a corporation must pay over $700 in income tax on a profit of $5,000, whereas his competitor who is operating his business as a private concern will pay an income tax of only $126 on the same amount of profit. It seems to me that such a difference is entirely inequitable and unfair. The only result of this legislation will be that the small corporations will give up their charters and revert to ordinary partnerships or single proprietorships. If a man finds it convenient to operate his little business as a joint stock company, there is no reason why the tax should be so great. Where the annual profit is $10,000, the corporation pays a tax of $1,667.38, whereas the private concern pays a tax of only $546. I could continue my calculations but I do not propose to do so. I make no plea for the large corporation but it seems to me that my argument is sound as fa.r as the small corporations making a profit of as low as $5,000 are concerned. The one is paying between five and six times as much income tax as .the other.

I would also like to point' this out to the minister: by reason of wiping out this exemp-

Income War Tax Act

tion and reducing the rate, in the case of tihe small corporation that is making only $5,000 a year, you are under the present proposal practically doubling his tax as compared with that the man would have paid on $5,000 last year. I aim not objecting to an income tax; let those pay who can. What I am objecting to is the difference and discrimination existing as between these various businesses, and against the one that is run as a little corporation for its own purposes, its own convenience, and it is entitled to run it in that way; the law provides for that. I do not see why there should be such a tremendous increase in the income tax of a man carrying on business in that way.

Mr. RHODES:

May I at once thank my hon. friend for his courtesy in discussing this matter with me personally the other day in my office and for leaving with me the figures, some of which he has just mentioned. He takes the case of a man who has an income of $5,000 and who, if he were taxable as an individual, assuming he was a married man with an exemption of $2,000, would pay an income tax of $120. The figure that my hon. friend submitted was, I think, $126.

Mr. EULER:

I added the surtax.

Mr. RHODES:

The tax is $120. If the same man were an incorporated company with an income of $5,000, according to the figure as submitted by my hon. friend the tax would be $713.75. That is correct, but my hon. friend has overlooked the fact that the man, with the income of $5,000, when he pays his income tax, receives his exemption. If he becomes incorporated, as in the instance prepared by my hon. friend, he has no provision in that to pay his own salary; he has worked for nothing.

Mr. EULER:

No.

Mr. RHODES:

Then my hon. friend is not comparing comparable things. He has given the case of an income of $5,000 obtained by an individual and that of an income of $5,000 obtained by an individual who has become an incorporated company. In the one case he is giving the instance of a married man with an exemption of $2,000 and in the other that of a company which has a straight income of $5,000-

Mr. EULER:

No.

Mr. RHODES:

-but in that case the man has to pay himself a reasonable salary as manager of the business which he owns himself. If he does that, he will find that he is in precisely the same position as the individual with the married man's exemption. That is

the fact. But let me point this out to my hon. friend, and I take no exception to his remarks: he is making a plea confined to a restricted number of individuals. He is taking the case of a man who becomes an incorporated. company. The number of instances of that character would be negligible, but even if it were not, the situation would be met by the man receiving a reasonable salary and the income tax officials advise me that a reasonable, fair salary would, in those circumstances, be allowed. Otherwise, why incorporate? While my hon. friend, and quite properly, is making his plea with respect to this restricted class of companies, he must bear in mind that at the same time we are dealing with thousands of companies who, by reason of the exemption of $2,000 being removed., will pay an additional income tax and this means a substantial sum in revenue. Even if the injustice, which I do not admit, were apparent in the case instanced by my hon. friend, he must look at the picture in the large and realize that we are dealing with all companies in Canada; that they are all treated alike, that the $2,000 exemption ds obliterated in every case, and lastly, and what is very important from my point of view at least as Minister of Finance, this involves a considerable increase in the revenue derivable under the income tax.

Mr. EULER:

I cannot let the minister get by with the statement that the matter of salary-and perhaps his officials have so said, and I make that remark without any offence- must be considered. The matter of salary does not appreciably affect the picture that I have drawn. In the figure I gave, there was $5,000 profit in each case and I took it for granted that in each case the business had paid a salary. Supposing the salary is $3,000 a year; all you need to do in each of those cases is to add to the man's income for taxation purposes that $3,000 and the picture will not be appreciably changed at all. You cannot get away from the fact that that $5,000 for the little joint stock oompanjr is immediately subjected to a tax of 12!J per cent, or $625, which is far greater than that borne by the single proprietor. I am not making a plea for the big corporation because, the larger the profits, the less is the discrimination. I am speaking only on behalf of the smaller one and I deliberately took the figure of $5,000, as a modest figure, to show what a tremendous discrimination there was. I would ask the minister to have it figured out. The matter of a reasonable salary in both cases, say $3,000 if you like, will not greatly alter the tremendous discrimination that exists in the two instances.

CJV.R.-Wages

The minister has made a point of the fact that he is quite consistent; that you must look at the larger picture; that this applies to big corporations. That is quite true; I am in favour of that. He also says that this means a considerable sum of money in revenue. That is very good; he needs it. But I would like to point out to him the very thing he did in a sales tax item under discussion not so long ago when he made an exemption in favour of the small baker. Even last year the small producer of cakes, pies and so on was exempted. I think in this case he will find his own argument turned against him. This year he gives an exemption to the baker who does a business of under S3,000 a year, saying that he is passing the tax on to the higher one. Should he not make the same concession to the little fellow who happens to be conducting his business as a joint stock company? As I say and as I am sure his officials will tell him, when he takes the big corporations with large profits, if there are any to-day that have large profits, he will find this difference very largely disappears or at least is not nearly as great, but it is very formidable and trying to the small chap who is endeavouring to run his little business as a joint stock company for quite legitimate reasons and not with the purpose of making tremendous profits. I would like the committee to bear that figure in mind-and I am allowing for salary paid in both cases-that the tax to the man who is running his business as a joint stock company and who earns $5,000 profit, is over $700, while to the man who is running his business as a single proprietor, the tax is $120. The difference is entirely too great; it is unfair, inequitable, and I think some change should be made to afford some relief.

Progress reported.