Mr. LAWSON:

Would the amendment mean this: Suppose a settlor has set up a trust. Under that trust someone other than himself gets the benefit, the income from it. The settlor has divested himself of control over the capital of the trust. Let me assume that the trustees, for the benefit of the cestui que trust under the trust agreement, decide to place insurance upon the life of the settlor, the benefit to go to the beneficiaries under the trust. They use the income from the trust for that purpose. Somebody pays taxes on that income as it stands to-day, either the cestui que trust or the settlor. Would this section make those premiums taxable again as against the settlor?

446S

Income War Tax Act

Mr. ROBICHAUD:

There is another section dealing with that.

Mr. ILSLEY:

The gross income of the trust is not taxed. It is the net income of the trust that is taxed-that is, the income after these premiums are paid. Unless the person who gets the benefit of these premiums Is taxed, they are not taxed. But the settlor Is the man who gets the 'benefit of these; he is just taking an indirect way of insuring his life for his children.

Mr. LAWSON:

Yes, I see. Let us say the trust is for the benefit of children, and that it has a gross income of $10,000 a year. Under the present act if the trustees saw fit to place insurance on the life of the settlor for the benefit of the children who are also beneficiaries of the trust, and paid out $2,000 a year in premiums, that $2,000 a year would be exempt from taxation?

Mr. ILSLEY:

That is right. They are taxed on the net.

Mr. LAWSON:

I should like an explanation -of this section.

Mr. ILSLEY:

The explanation opposite the ^section expresses it precisely. The section previously read:

5. "Income" as hereinbefore defined shall for ;the purposes of this act be subject to the *following exemptions and deductions-

Interest paid in respect of succession duties or inheritance taxes.

And claims were made in respect of the interest of many past years, in one year. That is, an estate or taxpayer might pay ten years' interest in one year, and claim that as a deduction from the income of that year. This is contrary to the general principle of the act. It is simply the interest paid in the year, in respect of the year, that should be allowed.

Mr. LAWSON:

Is it not going to be allowed In the previous year? This provision as I see it at the moment touches only estates. It .-strikes me offhand as being terribly unfair. Let us look at the thing from a practical standpoint, as to what happens. At the moment I have a case in mind where the man died in 1936. In due course, and with dispatch, the executors make application for probate. The succession duties branch, in order that the executors may administer the estate, .require a deposit either in cash or in the

iMr. Lawson.]

form of a bond, on account of succession duties. That is done, but nevertheless a contest exists between the succession duties branch of the province and the executors as to the amount payable for succession duties. It is now May of 1939; that contest is still proceeding and it may be a matter of another six months before there is a final determination. When it is settled there is going to be interest on the amount ultimately payable, from one year after the date of death. Surely it is unfair. The executors of the estate have no control over the matter. They are not justified in simply surrendering to the succession duties department and paying any amount that may be demanded. In the interests of the people for whom they are trustees they have to contest the claim, and it must be borne in mind that the succession duties situation is neither pleasant nor easy in Ontario at the present time. When the matter is finally determined the executors will have to pay interest on the amount ultimately determined. The province gets that benefit, but according to this section the dominion comes along and says, " Oh, the income from the estate is not what you beneficiaries actually receive; it is what you actually receive plus whatever interest you pay Ontario on the succession duties. It is true that you never received it; you had no control over it, but we are going to say you did."

Mr. ILSLEY:

That is not the way it will work at all. In the case mentioned by the hon. gentleman the interest accruing each year on the succession duties would be allowed as a deduction in respect of that particular year.

Mr. STEWART:

But it may not be paid in that year.

Mr. ILSLEY:

The interest eventually paid can foe allotted to the year in which the interest was earned. That is what this section says:

Annual interest accruing within the taxation period in respect of succession duties or inheritance taxes.

This prevents a person claiming as a deduction in one year the interest accruing for several years. The interest must be deducted from the income for the period during which the interest accrued. That is all it says, and that is the general principle of the act.

Mr. LAWSON:

That is not what this says, as I read it. Let us take section 6 of

the act:

In computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of-

Income War Tax Act

Then we have this amendment:

Annual interest accruing within the taxation period in respect of succession duties or inheritance taxes;

Mr. ILSLEY:

Section 5 is the section.

Mr. LAWSON:

Oh, I beg your pardon. That makes a vast difference. That is why I could not follow the minister at all.

Mr. CHURCH:

I should like to ask a question in connection with the interest charged on income tax, and this is the only section on which 1 can ask it. I should like to find out from the minister the various interest rates charged by the government on all income tax. I think they amount to usury. This government borrows money for its own purposes at two-thirds of one per cent. Why should it charge the people, under this and all the other sections, a high rate of interest on deferred payments, amounting to usury? In the second place, what about the time of payment? I suggest that after the winter, when people have not the money with which to pay their coal and other bills, is the wrong time to collect; a later month would do. I believe there should be more divisible payments such as the municipalities have. There should be easier terms of payment and less interest and other charges.

Mr. ILSLEY:

Two years ago, I think, the rate was reduced from six per cent to five per cent, and the penalty interest was reduced from four per cent to three per cent. I think that is as far as the government can reasonably be expected to go.

Mr. CHURCH:

It amounts to usury.

Mr. STEWART:

I should like to follow up the question of the hon. member for York South. Assume the case of a dispute between an estate and the succession duties office covering a period of three years. At the end of that period interest is charged for two years and six months, or whatever time the law allows under the succession duties act of the province. The income tax has been paid in previous years; we come to the third year, when a deduction has to be made covering the entire period. We cannot deduct the full amount in any one year. We have paid the income tax for the two previous years. Is it possible to get a rebate covering the interest paid during those first two years, which cannot be deducted in the third year, though the income tax has been paid?

Mr. ILSLEY:

There is a limitation section which would make it difficult if the facts

were as stated by the hon. gentleman; but it is very easy to prevent the limitation section from applying, by the taxpayer simply reserving his rights. The taxpayer knows he has not paid his succession duties; he knows he is going to pay them some time or other, and in making his return he only needs to make some claim for a deduction in respect to succession duties. Then two or three years later, whenever he reaches a settlement, he can obtain a deduction in respect to that particular year. Because of that one year limitation he has to reserve his rights.