July 9, 1940

NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

What effect will it have on the quantum of the tax?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I do not think it will make any difference at all.

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LIB

John James Kinley

Liberal

Mr. KINLEY:

I should like to ask a question for the information of people connected with smaller businesses throughout the country. At page 1023 of Hansard I find this, respecting the Excess Profits Tax Act:

5. The tax will not apply to businesses whose profits are not in excess of $5,000, and allowance will be made for drawings in lieu of salaries not in excess of $5,000 by sole proprietors or partners.

That means that a small business in the country which did not have profits in excess of $5,000 would be exempt from the excess profits tax?

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LIB

Resolution agreed to. 17. (1) That the definition of income be clarified and extended to cover the amount of annuity payments made to life annuitants under purchased annuity contracts. (2) That the exemption now accorded to dominion government annuities and like annuities sold by provincial governments and insurance companies shall not apply in respect of all contracts issued subsequent to June 24, 1940, nor to contracts or extensions of contracts made since that date to holders of options or contractual rights in existence at that date. (3) The purchasers of annuities be entitled to deduct the annual amounts paid out by them in purchasing annuity contracts not to exceed $300 per year.


LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Before discussion begins I would ask my colleague the Minister of Trade and Commerce (Mr. MacKinnon) to move that paragraph 3 of resolution 17 be struck out.

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LIB
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Perhaps I may say a word about this resolution. The first part of it, that is 17 (1), will clarify the definition of income under the Income War Tax Act, and will bring under tax life annuities. Resolution 17 (2) withdraws the SI,200 exempted in respect of annuity contracts issued after June 24, 1940, and all new contracts or extensions of contracts since that date. It is not proposed to withdraw the exemptions of $5,000 and $1,200 which now exist in respect of certain annuities purchased prior to June 24, 1940.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

It refers only to new contracts.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Yes, and extensions of existing contracts. Contracts are sold under which

Income War Tax Act

the purchaser has the right to increase the amount of the contract at the same rate. After this he will not have that right.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

He is not going to suffer in his present position, with that exception?

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LIB

Amendment agreed to.


LIB

Thomas Vien (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The CHAIRMAN:

We shall now consider the section as amended.

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NAT

Harry Rutherford Jackman

National Government

Mr. JACKMAN:

Would the minister clarify what is meant by the taking away of the right to income tax exemption from' holders of contractual rights which were in existence on June 24? If I understand him correctly, all people who had taken out dominion government annuities, and perhaps other annuities, on the understanding that they would not have to pay income tax when they became operative, have had that right taken away. Many thousands of our citizens are paying in so much a year, perhaps $300 or $400, on annuities so that when they reach a certain age, say fifty or sixty, they will have a $1,200 income. The understanding was that this income would be tax free as it is stated in the contract, "Income derived from this contract is exempt from dominion government income tax." Is it the intention of the government to repudiate its contract in connection with all these annuities?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

If an annuity was purchased before June 24, 1940, whether it contained that clause or not, it is provided that such annuity will be free from income tax. But any annuity purchased after June 24, 1940, will be subject to income tax.

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NAT

Harry Rutherford Jackman

National Government

Mr. JACKMAN:

The resolution reads, "to holders of options or contractual rights." A great many people purchasing annuities do not receive any income from them at the present time; they have only what one might term options or contractual rights.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Air. ILSLEY:

If an option to purchase a further annuity is exercised, it will not be free from income tax. To that extent the provisions of the contracts are altered by this legislation. A purchaser may pay in a very small sum, say one dollar, for an annuity. The annuity purchased will be tiny, but the contract probably contains a clause such as is generally inserted in contracts of that kind entitling the holder at any time in the future to purchase a larger contract at the same rate and on the same terms. If he does that, he will have to pay income tax on the larger

[Mr. Ilsk'y.J

annuity which he purchases after June 24, 1940. He will not be able to escape income tax on that.

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NAT

Harry Rutherford Jackman

National Government

Mr. JACKMAN:

If a husband and wife are paying $300 or $400 on a contract under which they are to receive an annuity at the age of sixty-five, perhaps twenty years hence, will that annuity be taxable? They are putting by so much every year with which to buy an annuity. It is really something in the nature of a contractual right. When that right becomes operative, will the $1,200 annuity be free of tax?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

It will be free of tax if they are paying on a $1,200 annuity; if they are paying on a $200 annuity, and later increase it to $1,200, they will have to pay income tax on the other $1,000.

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July 9, 1940