I hope the minister will give full consideration to including as exempt under resolution 7 investment companies other than the personal corporations which are mentioned in the resolution. I should like to point out to him what a serious disability these investment companies labour under at the present time in connection with the corporation tax. Let me give an illustration. A trust with a capital of $1,000,000 invested, say in bonds at 5 per cent, has an income of $50,000. The management fee, which is the charge for the only value added t-o it, repre-
Excess Profiits Tax Act
senting an item which might be equivalent to value added in manufacture if one were processing goods, is half of one per cent, namely, $5,000. Yet if this company receives $50,000 of income through holding bonds, the tax on that under the present schedule would be 30 per cent, or $15,000. Here we have the absurd situation of a company, on the one hand, merely charging $5,000, which is all it can obtain for having rendered the service of looking after these investments, and then the government, on the other, for doing nothing at all in this particular instance, charging 30 per cent on the $50,000, or $15,000, which is three times the management fee. The two things are not comparable. All that an investment company does is to act as a conduit between the earning corporation and the ultimate recipient, so there is no service to be rendered to the company by the government. For its small service the management is entitled to only $5,000, yet the government charges $15,000.
The minister mentioned that stocks of other Canadian corporations were tax free in the hands of an investment trust company operating under a Canadian charter. That is quite so, and on investigation he will probably find that a goodly portion of the securities these investment companies hold are not bonds, but shares in other Canadian companies, because the onerous taxation of the last ten or fifteen years has driven investment companies into acquiring shares of other Canadian companies rather than buying the bonds of the government or of other corporations. We have there a situation which is virtually killing the business. If it were better known how serious the taxation burden was, I do not think a justification for most investment trusts could be made.
Topic: EXCESS PROFITS TAX ACT