*Mr. CLEAVER:

While I support the

cooperatives I think it would be well that all the facts should be brought out, and if it is not going to tax too much our already overworked officials in the department I think it would be helpful if we had on the record the amount of taxes paid by the line elevators during the last five years and an estimate of the volume of business done by the line elevator companies in that period as compared with the volume of business done by the pools.

Mr. ABBOTT:

I do not think we can give the information for individual line elevators.

Mr. CLEAVER:

I am only asking for the totals, and I am not pressing for it.

Mr. ABBOTT:

We will try to get that information along with the information asked for by the leader of the opposition.

Mr. ZAPLITNY:

I have a few questions which I think should be answered because they deal with the principle of this matter, and I think this is the proper place for them. Could the minister tell us whether the legislation he has in mind as based on the resolution to be adopted will in any way differentiate between private business and cooperative business?

Mr. ABBOTT:

Yes, it will, more particularly with respect to non-member business. My hon. friend will appreciate that the legislation will have a differentiation in that respect.

Mr. ZAPLITNY:

The next question is

this. I understand that one of the first provisions of the resolution is that section 4 (p) of the Income War Tax Act will be repealed, although it does not say so in those terms?

Mr. ABBOTT:

That is correct, and that is what the commission recommend.

Mr. ZAPLITNY:

Could the acting minister tell the committee briefly what are the chief reasons why it is proposed to repeal this legislation?

Mr. ABBOTT:

The reasons are those given in the report of the McDougall commission and also given by the Minister of Finance in his budget speech, Hansard, page 2920, as follows:

The reasons for this recommendation-

That is, that section 4 (p) be repealed.

-are summarized in the report as follows:

"As a result of the ambiguities of language and the difficulty of administering the section, and because we are of the opinion there is no general class or group of cooperative associations in Canada to-day whose income should be declared not to be liable to taxation, we are of the opinion that the section in its present form cannot survive the attacks made upon it."

Mr. BENTLEY:

I am not quite satisfied with the reply I got a little while ago, and I also think it might be well if the hon. member for Calgary West had a little bit of a reply, so far as possible, given him to-night to his question. His question was, "What is a cooperative and what is a profit?" This resolution is important because it deals with those two very things.

All through our life in western Canada we were in the low income groups, mostly speaking. Every dollar we had to spend to provide for the needs of our families was important. We endeavoured to deal with the various dealers and concerns which we had to buy our goods from at the place of business where we thought we could get the best services or goods for the least amount of money. We found that this was not working as well as we should have liked. We had learned that in other countries, and even in other parts of Canada, there was a way of doing this, to save ourselves some money by buying collectively, because we felt there were too many middlemen between ue and the place where our goods were manufactured, or between us and the product of our labour from the farm and the place where it was finally put into consumable form, that we did not get our full share of the consumer's dollar for our wheat and meat and other farm products, and that we paid far more than the actual cost of manufacture of the goods we had to buy; that there were too many middlemen. Therefore we built these cooperative organizations so that we could pool our money in a collective way, to buy the goods we required with the least use of middlemen or speculators between the makers of these goods and ourselves. We did the same thing in building our marketing organizations. We endeavoured to build by the pooling of our money, not for the sake of interest on the money, but to put the money together to build marketing facilities and a machine which would take a little bit closer, under our own control, our grain and products to the people who were actually going to consume those goods.

That was our purpose. We tried a variety of methods in both the producer and con-

Income War Tax

sumer fields, and the dividing line is so thin that some day we may have to debate that point, but I will not do it to-night.

Earlier in the evening I asked the minister a question about the revolving-door fund and how it would be taxed, and when I had finished someone said that I was just as clear about it as the minister, and he did not understand a word. I said I appreciated the compliment. I am sorry if the minister did not understand what I meant, and I am going to try to make it clear to him. He stated that the intention is to tax any increase in a revolving fund. My question was, what place do you decide is the point above which is an increase? I drew up a little table here to show how a revolving fund works, and why I wanted this question answered, and how the minister might answer it.

I am going to assume that we started a cooperative, a consumer cooperative, if you like, in 1940. We operated that year. One man who had a good-sized family and ran a tractor bought his gasoline, drugs, hardware and groceries from that place, and the amount was a thousand dollars. I make it a thousand for the sake of the even figure. The patronage dividend declared at the end of the season was four per cent, which is $40, fifty per cent of which, by agreement with the cooperative is retained, in the revolving-door fund, to revolve back into his pocket after being employed for four years; that is, in the fifth year it would come back. So that in 1940 he put $20 into that reserve. In 1941 business was not quite so good, so that the dividend declared was not quite so high; it was three per cent on the same amount of goods bought by this man. Therefore the dividend at three per cent is $30, half of which stays in, namely, SIS, making $35 all told. In 1942, on the same amount of business, but because of fluctuations in cost of operation and so on, the dividend is 3J per cent; that is $35 on the $1,000, or $17.50 in the revolving fund.

Do you wish to call it eleven o'clock, Mr. Chairman? .

Mr. ABBOTT:

I wonder if the committee would allow my hon. friend to complete his example, so that I can have the week-end to look it over.

Mr. BENTLEY:

It will take me about five minutes. I should like to complete it.

Mr. ABBOTT:

It would be helpful to have the statement, so that I may have an opportunity of checking on the matter.

Mr. BENTLEY:

I gave the amount in 1942, $17.50. In 1943, the fourth year, the business in the cooperative has been a little better; that is, it has been more efficient in

TMr. Bentley.]

operation, or in some way the dividend is as high as it was in the first year; that is, four per cent again, or $40, fifty per cent of which, or $20, remains in the revolving fund. Added together, this means that in those four years this individual has in the fund $72.50.

Let us now understand the purpose of this fund. It is not for investment purposes; it is his share of the money necessary to provide the facilities and the machinery required to supply him with these goods and services from the shelf, out of the tank, or through the warehouse. He has already paid for these facilities with that. Having served their purpose, they then come back to him from the earnings of the next year, because in that year new members come in and should take a responsible share of financing their share of these facilities which are to serve them, because this is clearly a service organization.

In the fifth year, 1944, the dividends declared on the same amount of money are 4J per cent, which makes $45. That gives him $22.50. That would be a total of $95 that year. The first year, 1940, revolves, and therefore he gets $20 back. That leaves his fund $75. There has been a variation in the fund of $2.50. This year, having got the first year's back it is $2.50 higher, if my mathematics are correct. Does the minister get the point? It can vary from year to year according to the efficiency of the organization and the ability of the men they hire to operate it and buy the goods that they wish to buy collectively to put there. All the way along, because of the operations, they can increase or decrease the dividends, which will vary from year to year. The point I am getting at is, at what stage does the government's plan say the fund has reached a level from which an increase in the revolving fund is considered to have taken place for taxation purposes? Does the minister get the point?

Mr. ABBOTT:

I think I follow my hon. friend, but I would ask if he would allow me to read his statement in Hansard and give him an answer later? If the committee wishes to pass the resolution I shall give the answer on the next resolution or at some other time. It would be better if I followed his statement in Hansard and gave a considered reply. Will the committee care to pass the resolution?

No.

Resolution stands.

Progress reported.

It being five minutes after 11 o'clock, the house adjourned, without question put, pursuant to standing order.

Questions

Monday, July 29, 1946