Mr. LAWSON:

In the first place, I want to correct something I said this morning with respect to section 7. I was in error, apparently, in what I had to say with regard to nonresident-owned investment corporations. We had presented to us this morning a bill, nearly every clause of which had not 'been suggested either by the budget speech or by the resolutions in ways and means committee, and several provisions of which amount to straight increases in taxation under the Income War Tax Act; therefore we are trying to struggle through the bill without having had an opportunity to give it previous study.

With respect to section 8, the one specifically before the committee at the moment, I am

Income War Tax Act

soijry that I have to disagree with the hon. member for Broadview and to agree in large measure with the Minister of National Revenue. From my short experience in that office I realize that the Income War Tax Act simply cannot be administered without a wide measure of discretion in respect of many matters. But although I am not objecting in principle t.o the conferring of a discretionary power, the minister cannot in the exercise of that discretion run contrary to some definite principle which may be stated in the act. This brings me to a specific discussion of the section now under consideration.

During the adjournment I had an opportunity to sit down and do a little thinking, and I worked out what I think will be an example of how this will operate. If I am not correct I shall be glad to have the minister correct me.

I am going to take the example of a company which has five subsidiaries. I will call the parent company, company A and the subsidiaries, V, W, X, Y and Z. Each of these subsidiaries is carrying on a similar line of business. Each one annually files a return; and let me assume they have a profit and are paying income tax. What is left of their income after payment of tax goes to the parent company A. Under the present law that income, having been taxed once in the hands of the other company, and being taxed again when it is distributed by the parent company to the shareholders, is exempt from taxation as income in the hands of the parent company. Now, the parent company carries on a business similar to that of the five subsidiaries, and for the purpose of the business of the five subsidiaries it is necessary to have in the head office of the parent company, and associated with it, four officials. The specific duties of these four officials relate in a small measure to the parent company and in a large measure to the five subsidiaries. No deduction is made for their salaries when the income tax return is made by the five subsidiary companies. Let me assume their aggregate salaries amount to $20,000 a year. What result will we get after this legislation is passed?

In the first place let me assume that the income passing from the five subsidiaries to the parent company, and which is non-taxable income in the hands of the parent company, is $100,000. Let me assume that the parent company at the present time from its own operations has an income of $100,000, and that the expense, including the salary of the four officials most of whose time is spent looking after the general affairs of the subsidiaries, is $80,000. At the present time the parent company is paying income tax on a taxable

income of $20,000; the subsidiaries are paying income tax on a taxable income which after payment of the tax is $100,000. How is the minister going to exercise his discretion once this section goes through? It is my submission that he must exercise it in one of two ways. If the minister says, because the gross income of the parent is $100,000 and the net income of the subsidiaries is $100,000, therefore the expenses of the operation of the parent company should be divided fifty per cent to each, the result will be that the parent company will have to pay on a taxable income of $60,000 instead of $20,000.

Mr. LAWSON:

Is the minister to have discretionary power to set the basis, or is it to be as the non-taxable is to the taxable?

Mr. LAWSON:

On what basis?

Mr. LAWSON:

Say $1,000,000 and make it simple.

Mr. LAWSON:

Could the minister give an illustration of what set of circumstances this is designed to meet?