May 9, 1952

?

Some hon. Members:

No.

Topic:   ALBERTA TAR SANDS
Subtopic:   INQUIRY AS TO PROGRESS OF RESEARCH
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LIB

Elie Beauregard (Speaker of the Senate)

Liberal

Mr. Speaker:

There were so many interruptions I could not hear the question. I will leave it entirely to the minister to decide whether the question should be answered now or later.

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LIB

George Prudham (Minister of Mines and Technical Surveys)

Liberal

Mr. Prudham:

I think perhaps it would be better as a return, so if the hon. member will put the question on the order paper I shall be glad to table the reply.

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WAYS AND MEANS


The house in committee of ways and means, Mr. Beaudoin in the chair.


INCOME TAX ACT


Resolved, that it is expedient to introduce a measure to amend the Income Tax Act and to provide, amongst other things: 1. That for the 1953 and subsequent taxation years there be substituted for the graduated rates of tax and the defence surtax that are at present applicable to the income of individuals, the following graduated rates of tax: (a) 17 per cent of the amount taxable if the amount taxable does not exceed $1,000, (b) $170 plus 19 per cent of the amount by which the amount taxable exceeds $1,000 if the amount taxable exceeds $1,000 and does not exceed $2,000, (c) $360 plus 22 per cent of the amount by which the amount taxable exceeds $2,000 if the amount taxable exceeds $2,000 and does not exceed $4,000, (d) $800 plus 25 per cent of the amount by which the amount taxable exceeds $4,000 if the amount taxable exceeds $4,000 and does not exceed $6,000, (e) $1,300 plus 30 per cent of the amount by which the amount taxable exceeds $6,000 if the amount taxable exceeds $6,000 and does not exceed $8,000, (f) $1,900 plus 35 per cent of the amount by which the amount taxable exceeds $8,000 if the amount taxable exceeds $8,000 and does not exceed $10,000, (g) $2,600 plus 40 per cent of the amount by which the amount taxable exceeds $10,000 if the amount taxable exceeds $10,000 and does not exceed $12,000, (h) $3,400 plus 45 per cent of the amount by which the amount taxable exceeds $12,000 if the amount taxable exceeds $12,000 and does not exceed $15,000, (i) $4,750 plus 50 per cent of the amount by which the amount taxable exceeds $15,000 if the amount taxable exceeds $15,000 and does not exceed $25,000, (j) $9,750 plus 55 per cent of the amount by which the amount taxable exceeds $25,000 if the amount taxable exceeds $25,000 and does not exceed $35,000, (k) $15,250 plus 60 per cent of the amount by which the amount taxable exceeds $35,000 if the amount taxable exceeds $35,000 and does not exceed $50,000, (l) $24,250 plus 65 per cent of the amount by which the amount taxable exceeds $50,000 if the amount taxable exceeds $50,000 and does not exceed $75,000, (m) $40,500 plus 70 per cent of the amount by which the amount taxable exceeds $75,000 if the amount taxable exceeds $75,000 and does not exceed $100,000, (n) $58,000 plus 75 per cent of the amount by which the amount taxable exceeds $100,000 if the amount taxable exceeds $100,000 and does not exceed $150,000, (o) $95,500 plus 80 per cent of the amount by which the amount taxable exceeds $150,000 if the amount taxable exceeds $150,000 and does not exceed $250,000, (p) $175,500 plus 86 per cent of the amount by which the amount taxable exceeds $250,000 if the amount taxable exceeds $250,000. 2. That for the 1952 taxation year the graduated rates of tax applicable to income of individuals be the average of the present rates (including defence surtax) and the rates set out in paragraph 1. 3. That with respect to income of corporations earned on and after January 1, 1952, the present rate of tax shall be increased from 15 per cent to 20 per cent on the first $10,000 of taxable income and from 38 per cent to 50 per cent on taxable income in excess of $10,000, and that the defence surtax be repealed. 4. That there may be deducted from the amount of income tax otherwise payable by a corporation for a taxation year in respect of income earned on and after January 1, 1952, (a) the amount of income tax payable to the government of a province for that taxation year in respect of income earned on and after January 1, 1952, as a result of its operations in that province, or (b) 5 per cent of the taxable income of the corporation of that taxation year under the Income Tax Act that is earned on and after January 1, 1952, as a result of its operations in that province, whichever is less. Income Tax Act 5. That for the 1952 and subsequent taxation years the maximum amount in respect of medical expenses that may be deducted in computing taxable income be increased (a) to $2,000 in the case of a person who may at present deduct a maximum of $1,000, (b) to $1,500 in the case of a person who may at present deduct a maximum of $750, and (c) to $500 for each dependent in respect of whom a maximum of $250 may at present be deducted, subject to a maximum deduction of $2,000 by a husband and wife between them or by a person in respect of all his dependents; and that there be included in the medical expenses that may be deducted in computing taxable income those medical expenses that at present are not included by reason only that they were not incurred in the appropriate twelve-month period in which they were paid. 6. That crown corporations that are classed as proprietary corporations in the Financial Administration Act shall pay tax on income earned on and after January 1, 1952. 7. That the special deduction from income to a taxpayer whose principal business is the production, refining or marketing of petroleum or petroleum products or the exploring or drilling for oil or natural gas or mining or exploring for minerals, be allowed for expenses incurred in the 1955 operations on the same basis as for expenses incurred in the years 1951 to 1954. 8. That the special deduction from income and taxes of a taxpayer whose principal business is production, refining or marketing of petroleum or drilling for petroleum be allowed for expenses incurred in respect of deep-test oil wells in 1953 operations on the same basis as for similar expenses in operations of the years 1950 to 1952. 9. That the exemption of the income from a metalliferous or industrial mineral mine for the first three years of production now applicable to mines coming into production during the years 1946 to 1954 be extended to mines coming into production during the year 1955. 10. That a corporation resident in Canada whose gross revenue for a taxation year ending on or after January 1, 1952 derived from the distribution to or generation for distribution to the public of electrical energy, gas or steam is more than one-half its total gross revenue for the same period shall be entitled to a deduction from the tax otherwise payable by it under the Income Tax Act to the extent necessary to reduce to 43 per cent the rate of tax payable by the corporation under that act on that part of its taxable income for that taxation year that is derived on and after January 1, 1952 from such distribution or generation.


LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. James Sinclair (Parliamentary Assistant to the Minister of Finance):

I was going to suggest, Mr. Chairman, that we follow the practice we followed yesterday and have a short general discussion on the principle of the entire resolution on the first item, then on the subsequent items stick to the actual subject matter of the items under consideration.

I think perhaps I should lead off this discussion on the first item by answering some of the points raised during the first stage of this debate when the Speaker was in the chair by certain members who dealt with tax matters in the budget debate. In his remarks the other evening the minister pointed out that many excellent speeches were made during that debate but that very few of them actually related to tax matters.

Income Tax Act

So I will confine myself to those points raised in speeches which related to tax matters coming under this resolution.

The one speech which I should mention which was entirely on tax matters, and principally on the tax matters in this resolution, was the speech by the hon. member for Hamilton West, so perhaps I could start by answering the various points which she raised. If there are further technical points which may arise during the discussion on the resolution and which may need some working out, then the minister will prepare suitable replies for delivery when the bill is before the house.

On page 1555 of Hansard for April 24, the hon. member objected to the fact that in calculating the defence surtax for 1951, taxpayers were required to take 10 per cent of the amount which was the tax before deducting the credit for dividends from Canadian taxpaying corporations. The defence surtax was also calculated before the calculation of the credit for any foreign taxes. By this arrangement the tax is increased or decreased by any surcharge or payment before applying any tax credit, and this arrangement is not new. It has been the existing practice.

I shall give an example of when we reduced the tax by a percentage, the very opposite of what was done in 1951. When the tax was reduced by 4 per cent in 1945 and 16 per cent in 1946, those percentage reductions were applied before applying the tax credits for foreign taxes. Those, of course, were the only tax credits we had at that time. The hon. member will appreciate that the effect of that was to give a maximum reduction, since it was on the larger amount. The arrangement of the 1951 form carried out the intent of the 10 per cent tax credit for dividends, which was that the total tax of the taxpayer be reduced by an amount equal to 10 per cent of the net dividend income from Canadian tax paying corporations. Actually, the observation applied only to tax returns for 1951, since we have now removed the surcharge, and it is not a problem which will recur.

On page 1556 of Hansard the hon. member referred to the recommendation of the Canadian Bar Association and the Canadian Institute of Chartered Accountants that the taxpayer be permitted to add dividend income of his spouse in excess of $250 to his own income and so receive the benefit of the same 10 per cent tax credit for Canadian dividends. The exemption of the taxpayer is reduced when his spouse has an income over $250 because the extent to which the taxpayer has to support his spouse is reduced if the spouse has extra income. The extent to which the

taxpayer has to support his spouse is reduced regardless of whether the spouse's income is from dividends, interest or wages. This suggested amendment would give special alleviation only to the couple where the spouse's income was from dividends.

On page 1556 of Hansard the hon. member referred to a case where the taxpayer supported a dependent sister in 1951. The taxpayer incurred heavy medical expenses in respect of this dependent sister in 1951, but was able to pay only a small part of them. Finally the dependent sister died in 1951. I think that is the situation. The member stated that the taxpayer is not allowed to claim an allowance against his 1952 tax for the medical expenses incurred and paid in the twelve-months period ending in 1952 because the sister, having died in 1951, is no longer a dependent of the taxpayer. This does not appear to be in accordance with the law. Section 26(l)(b)(iii) reads in part, "or any dependent in respect of whom he may make a deduction from income under section 25 for the year in which the expense was incurred." I am informed by the officers of the Department of National Revenue that they would like to have the details of this case from the hon. member.

Topic:   WAYS AND MEANS
Subtopic:   INCOME TAX ACT
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PC

Ellen Louks Fairclough

Progressive Conservative

Mrs. Fairclough:

May I ask a question? Do I understand the parliamentary assistant to imply that the subsequent amounts as paid will be allowed?

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

If they are for the twelvemonths period ending in 1952, even though the sister is now deceased and is not classed as a dependent so far as the dependent exemption for this year is concerned.

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Subtopic:   INCOME TAX ACT
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PC
LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

That is the interpretation which the officials have placed on section 26(l)(b)(iii). Once again, it is an administrative point. Perhaps if the hon. member would see the officials-

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Subtopic:   INCOME TAX ACT
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PC

Ellen Louks Fairclough

Progressive Conservative

Mrs. Fairclough:

I am wondering if that is because of the amendment which was made by the minister this year in withdrawing the word "incurred". Prior to the budget speech this year, the expenses were theoretically supposed to be incurred and paid in the same year, although that practice was not pressed in the district offices.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Perhaps the hon. member could follow that up with the appropriate officials.

The next point was this matter about which I am quite sure we will hear a lot this afternoon, the 4 per cent medical deduction. On page 1557 of Hansard she said that the taxpayer who has medical expenses in excess

TMr. Sinclair.]

of 4 per cent of his income loses an exemption each year equal to 4 per cent of his income. Over ten years she said the total of this amount which could not be deducted could be $1,500, and this might be the factor in deciding whether or not one of his children attended university.

This is a common slip which almost everyone who is dealing with tax returns makes. It is certainly a slip I have made myself, in regarding the amount of income exempt from tax as being an actual tax saving. If in this case the 4 per cent of a man's income is $150, that means he has an income of $3,750. Presumably he has one child, since we are looking forward to a university education ten years from now. His exemption, therefore, should be $2,150 and his taxable income would be $1,600. He has to pay 17 per cent on the first $1,000 and 19 per cent on the next $600. The loss of a $150 exemption means an additional tax of $28.50. Over ten years this would amount to $285-quite a significant sum it is true, but $28.50 per year is not likely to mean the difference between university or no university.

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Subtopic:   INCOME TAX ACT
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PC

Ellen Louks Fairclough

Progressive Conservative

Mrs. Fairclough:

When I made that remark I do not think I called it tax; I think I called it tax basis.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Yes, that is quite true. Then the member criticized the estimate I used in the case for eliminating the 4 per cent on medical expenses.

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Subtopic:   INCOME TAX ACT
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PC

Ellen Louks Fairclough

Progressive Conservative

Mrs. Fairclough:

I did, yes, but not as a

major objection-only as one of the minor objections.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

Subsequent to that I got a letter from a citizen in Hull also expressing grave doubts about my arithmetic, so I settled down and worked out sample cases which were then checked by the department. This citizen was thoughtful enough to send copies of the letter, not only to my minister but also to the member for Eglinton and to the member for Winnipeg North Centre. I was equally thoughtful, therefore, and sent them copies of my reply.

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CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

Co-operative Commonwealth Federation (C.C.F.)

Mr. Knowles:

I shall be equally thoughtful and give you a reply today.

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Subtopic:   INCOME TAX ACT
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LIB

James Sinclair (Parliamentary Assistant to the Minister of Finance)

Liberal

Mr. Sinclair:

I am glad that so much thought has been given to the matter.

The next case is a very difficult one which I think lawyers describe by saying that hard cases make bad law. The hon. member referred to the case of an immigrant who came into the country in November, and mentioned the impact of the family allowances. There are two situations. The first situation occurs when a Canadian child is born in November. In December the child

Income Tax Act

is eligible for family allowance of $5. Because of that the parent gets the exemption of $150 for the child in receipt of family allowance-that is the lower exemption- but they have only had $5 in family allowances. However, at the end of the family allowances for eleven months at $8, making $88. Because the family allowance is not payable in the last month. The taxpayer is now eligible for the larger income tax deduction of $400, so that averages out.

This case mentioned by the hon. member, however, does not average out because the immigrant family comes in here at the end of the year, and a year later the children become qualified for family allowance. They draw family allowance for just one month, but because of that the parent, the father, on his income tax return can claim only $150 instead of $400. It is a problem which is known. There is no easy answer for it. It has been suggested that perhaps we could pro rate both the family allowance and the income tax exemption across the months. That would be a fairly difficult problem as far as administration is concerned. Since this case is so rare,-and it is rare for one reason, namely that it is a fairly fortunate immigrant who at the end of one year is in a position to be paying substantial income tax-it has been decided not to change it, or not to make it, as the hon. member suggested, optional whether they take the family allowance or not.

That leads me automatically into the other comment which was made in connection with this particular item on the impact of taxes and family allowances. I refer to the now famous speech by the hon. member for Moose Jaw. I know he has been dealt with rather severely by some of his colleagues, so I will not say anything uncharitable about him; but I will deal with the proposal he makes purely from the point of view of the impact of taxation under item 1.

To be entirely fair to the hon. member I want to read his exact words as reported at page 1573 of Hansard:

The taxpayers are going to spend $332 million this year on family allowances. I say at once that most of this money will be well spent, but I cannot help wondering how badly my good friend, the hon. member for Comox-Alberni (Mr. Gibson), needs three family allowance cheques to make ends meet. There must be many other people in Canada in the same category.

Topic:   WAYS AND MEANS
Subtopic:   INCOME TAX ACT
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May 9, 1952