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anaaian income 












Chartered Accountant 

19 Duncan St., Toronto 

{The Compiler' 8 projita will be donated to the Navy League of Canada) 

Amount of Income Tax Payable. 


Unmarried per- 
sons and widows 

• 1 




or widowers 
without depend- 
ent children. 


Joint Stock 







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5. 320 














































Canadian Income Tax 









Chartered Accountant 


>• O » J ) 

. '. > > > . J 

19 Duncan St., Toronto 

( The Compiler^ 8 profits will be donated to the Navy League oj Canada) 

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• • • .• • 

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To Extracts from Hansard Report on House of Commons Debate and to 

Instructions of the F'inance Depariment 


Abnormal Business Profits 30 

Accounting Period Sec. 4 (2) ^ 27 

Accounts. Finance Minis'cer may require 

production of Sec. 8 (2) 35 

Accumulative Dividends 17 

Administration of Act by Minister Sec. 22 42 

Agricultural Institutions Sec. 5 (b) 31 

Amount of Tax Sec. 4 26 & 27 

Annual Return of Total Income to Min- 
ister: ^ 

By Companies Sec. 7 (2) : 34 

By Employers Sec. 7 (4) 34 

By Guardians, etc Sec. 7 (3) 34 

By Persons . . . .; Sec. 7 (1) 34 

Annuity Contracts Sec. 3 4 

Appeals : 

Board may increase assessment Sec. 15 (1) 40 

By Persons objecting to assessment . . . Sec. 14 39 

Costs Sec. 15 (2) 40 

From Board of Referees to Excbequer 

Court Sec. 17 (3) 41 

Appointment of Officers, under the Act . . . Sec. 23 42 

Appreciation of Property 7 

Assignments of property to evade Tax Sec. 4 (4) 27 


Finance Minister to determine the 

amount of tax Payable Sec. 10 (1) 37 

May be increased by Board Sec. 15 (1) 40 

Not to be set aside for technical reasons Sec. 19 (1) 41 

Notice, of Sec. 10 37 

Assets— Exhaustion of (Mines and Wells) . Sec. 3 (1) (a) 4, 19, 20 

Auditors, Balance Sheet and Profit and Loss 

Account to be forwarded with Return 34 

Bad Debts, Company's allowance for 16 

Balance Sheet and Profit and Loss Ac- 
count of Auditor to be sent in by 
Companies 34 

• • • 


Benevolent Societies, Income not liable to 

Tax Sec. 5 (e) 31 

Board of Referees Sec. 2 (a) 1 

do. Sec. 12 (1) 38 

Increase of assessment by Sec. 15 (1) 40 

Bond Coupons 18 

Bond Interest: 

Income from Bonds of Dominion no'c 

liable to taxation Sec 5 (i) 31 

To be charged before assessing profits 18 & 19 

Branches in Canada of extra Dominion busi- 
ness - Sec. 3 (3) 5 

Business Profits War Tax Act: 

Not to pay under, and under Income Tax 

Act as well 29 & 30 

Relationship of, to Income Tax Acc 29 & 30 

Calculation, Method of, Normal and Super- 
tax 27 

Calendar Year, Companies may substitute 

fiscal year for Sec. 4 (2) 26 

Canadian Red Cross Funds, payments to . . . Sec. 3 (1) (c) 24 & 25 

Charitable Institutions, not liable to taxa- 
tion Sec. 5 (d) 30 

Claim, for exemption when Tax deducted a'c 

source Sec. 6 (2) 33 

Clubs, when not liable to Tax Sec. 5 (g) 31 

Companies : \ 

Income of which is selling products at 

less 'Chan fair prices to Shareholders. Sec. 3 (2) 5 

Liable to taxation on profits whether 

distributed or undistributed , 27 

Large profits 29 

Not opera'cing for gain — exempt 32 

Pay Normal tax of 4 per cent, but not 

Supertax Sec. 4 (2) 26 

Profits taxable however represented 20 

Whose fiscal year is not the calendar 

year Sec. 4 (2) 27 

Pay on 1917 profits under Business Pro- 
fits Tax Act or Income Tax Act, 

whichever is greater / 29 

Computation of Income 5 

Contingent Liabilities, Company's allow- 
ance for 16 

Coupons, Bond 18 

Court of Revision, Board of Referees shall 

act as Sec. 13 39 

Cumulative Dividends, Taxation re 17 

Date of Payment of Tax * . . . Sec. 10 38 

Date of Return Sec. 24 42 


Deductiox, allowed on account of amounts 
Under Special War Revenue Act of 

1916 Sec. 4 (5) 27 

Under Business Profits War Tax 1916. . Sec. 4 (5) b 27 

From Property Income 21 

How to be claimed when Tax deducted 

at source i Sec. 6 (2) 33 

Re Contributions to Patriotic and Can- 
adian Red Cross 24, 25 

Of Tax to be made by Trustees 34 

Of Taxes from Rents received 20 

Definitioiys. . Sec. 2 1 & 2 

Depreciation, allowance provided for Sec. 3 (1) (a). 4, 6 

Distributed or undistributed profit liable to 

taxation : 28 


Allowance of Normal Tax on 3 

Amount received as dividends to be in- 
cluded in assessment Sec. 3 (1) (d) 4 

Cumulative 17 

Return of, paid by Companies Sec. 7 (4) 35 

Dominion War Loan, interest exempt from 

tax Sec. 5 (i) 24, 31 

Earnings, Company's Shareholders assessed 

on 14 

Educational Institutions, not liable co Tax- 
ation Sec. 5 (d) 31 

Employers, to make Returns of Employees 

liable to taxation Sec. 7 (4) 34 

Not required to deduct tax from salaries 34 

Estates, Trustees of, to deduct Tax before 

paying beneficiary 34 

Excepted Income Sec. 3 4 

Exchequer Court: 

Appeal from Board of Referees to Sec. 17 41 

To have exclusive jurisdiction to deter- 
mine all quescions Sec. 18 41 

Executors, to make Annual Returns Sec. 7 (3) 34 

Exemption from Tax — Sec. ;j (1) a, b, c 4 

Depreciation Renewals 4, 25, 32 

Dominion War Loan interest 25, 32 

How to be claimed when Tax deducted 

at source Sec. 6 (2) 33 

Incomes not liable to Taxation Sec. 5 31, 32 

Patriotic and Canadian Red Cross Sec. 3 (1) (c) 4 

Payment at source 33 

Exhaustion of Assets — •. Sec. 3 (1) (a) 4, 19 

Expenses, Personal and living, not to be 
taken into consideration when deter- 
mining the Income Sec. 3 (1) (d) 4 


False Statements, penalty for Sec. 9 (2) 36 

Farmers' Associations, wh.en not liable to 

tax : .".Sec. 5 (h) 31, 32 

Fees, to be regarded as Income liable for tax Sec. 3 (1) S 

Fiscal Year, Companies may make return 

for their Sec. 4 (2) 26 

Form of Appeal — 

To Minister of Finance 43 

From Board of Referees. 43 

Form of Return, as prescribed by Minister. Sec. 7 (1) 34 

Forms 4b 

Holding Companies Sec. 3 (2) 4, 24 

Husband and Wife, both to be assessed 

where separate income and be entitled 

to exemption of $3,000 each 2, 28 

Transfer of proi>erty between, after 

1/8/17 Sec. 4 (4) 26 


Definition of Sec. 3 (1) 3, 12 

Disposal of 8, 13, 20, 21 

Excepted Sec. 3 (1) 4 

From real estate 9, 12 

Not liable to Taxation Sec. 5 30, 31 

Of Companies 3 

Income Tax, levy of Sec. 4 (1) 25 


Penalty for not furnishing Sec. 9 (1) 36 

Required by Minister S-ec. 8 (1) 35 

Inquiry, under authority of Finance Min- 
ister Sec. 8 (3) 35 

Insurance Policy, proceeds of Sec. 3 ( 1 ) 20 

Interest, in default of payment Sec. 10 38 

Investment in real estate 10 

Joint Stock Companies, pay normal Tax 

of 4 per cent, but not supertax Sec. 4 (2) 26 

Large Profits 28 

Liability for Tax continuous Sec. 10 (3) 38 

Liabilities Contingent, Company's allow- 
ance for 16 

Life Insurance, Income from, but not pro- 
ceeds of Life Insurance Policies liable 
to tax Sec. 3 (1) 4 

Life Insurance Companies, what Income 

liable to taxation Sec. 5 (f) 31 

Living Expenses, not to be taken into con- 
sideration Sec. 3 (1) (d) 4 

Losses through Stock speculation • • • • 4 



Married Persons, allowance of $3,000 Sec. 4 (1) (a) 26 

Marriage Settlement 2 

Military Pay, when not liable to Tax Sec. 5 (j) 31 

Minister, Powers of Sec. 22 42 

Minors, who have income liable for Tax 3 

Mortgage Interest Paid 23 

Mutual Corporations, when not liable co 

Tax Sec. 5 (f) 31 

Naval Pay, when not liable to Tax Sec. 5 ( j) 31 

Non-resident, carrying on business in Can- 
ada 5, 25 

Normal Tax Sec. 2 (c) 1 

And Sec. 4 (1) (a).. 25, 27 
Not Ijable, Incomes Sec. 5 31 & 32 

Objectors, to assessment, appeal Sec. 14 39 


Authorized by Minister to make enquiry Sec. 8 (3) 36 

Appointment of Sec. 23 42 

Partners, assessed in individual capacity .. Sec. 4 (3) 27 


Not assessed as such, but in individual 

capacity Sec. 4 (3) 2, 16 26 

Tax on profits, not only on drawings 4, 14 

Patriotic Fund, subscriptions Sec. 3 (1) (c) 23, 24 

Payment of Tax: 

At source '. Sec. 6 (1) 32,33 

Date of Sec. 10 (1) 38 

Default of, co bear interest Sec. 10 (1) 38 


For making false statements Sec. 9 (2) 36 

For not making return Sec. 9 (1) 36, 37 

For not giving informa'cion Sec. 9 (1) 36, 37 

For not producing Accounts Sec. 9 (1) 36, 37 

Person, definition of Sec. 2 (d) 1 

Powers, of Minister of Finance Sec. 22 42 

Private individual with salary and rents 18 

Privately Owned Companies, attempt to de- 
feat the Ao'c Sec. 3(4) 5, 15 16 

Professional, Income liable to Tax Sec. 3 (1) (a) 4 

Profits, liable whether distributed or not. . Sec. 3 (1) 4, 28 

Profit and Loss Account — auditor's, 'co ac- 
company return 34 

Property, depreciation of 6 

Property Transfer 'co evade taxation Sec. 4 (4) 26 

Racing Association, when liable for Tax 32 

Rate of Tax Sec. 4 26 & 27 

Real Estate: ' 

Capital and Profits 22 

Business 9, 11 

Depreciation of 6, 11 


Real Estate — Continued. 

Entire business 9 

Income from 8, 11, 12 

Investment in 7, 10 

Productive property , 8, 11 

Purposes of speculation • 7, 10 

Unproductive 7 

Recovery of Tax Sec. 21 42 

Red Cross Funds, payments tO Sec. 3 (1) (c) 23,24 

Referees, Board of Sec. 2 (a) , 1 

Religious Institutions, not liable to taxa- 
tion Sec. 5 (d) 30 

Renewals, allowance for Sec. 3 (1) (a) 4 

Rents, received 19 

Residents in Canada liable to Tax Sec. 4 (1) 26 

Retroactive Tax to ls;c Jan., 1917 Sec. 24 42 

Returns, Annual, of Total Income to Min- 

Of Companies Sec. 7 (2) 34 

By Employers Sec. 7 (4) 34 

Of Guardians Sec. 7 (3) 34 

Of Persons Sec. 7 (1) 34 

Returns : 

Companies' returns to be accompanied 
by auditor's Balance Sheet and Profit 

and Loss Account 34 

By Companies of Dividends paid Sec. 7 (4) 17, 34 

By whom to be made and signed Sec. 7 (2) 34 

Date of Sec. 24 42 

Form of Sec. 7 (1) ^.. 34 

If none made. Minister may determine 

amount of Tax Sec. 10 (2) 38 

Minister not bound by Sec. 10 (2) 38 

Penalty for not making Sec. 9 (1) 36 

To be made by those who have deducted 

Tax for others at source Sec. 6 (1) 33 

To cover year 1917 Sec. 24 42 

When to be made Sec. 7 (4) 34 

Three forms 'co be made out, two of 
which go to Local Inspector of Taxa- 
tion or Commissioner, Ottawa, and 
one to be retained. 
Return of Capital not to be regarded as in- 
come 20 

Salaries, return to be made of salaries of 

employees , Sec. 7 (4) 34 

Secrecy, of Officials Sec. 11 38 


Allowance to, when Normal Tax has 

been paid by Company 3, 17 

Assessed on earnings 14 


Shareholders — Continued. Page 

When liable to supertax in respect to 

Companies' earnings 15, 16, 17 

Source, deduction of tax at Sec. 6 (1) 33, 34 

Stock Bought, partial payment on 23 

Subscriptions to Patriotic Funds, etc 23, 24 

Supertax, 2 per cent, to 25 per cent Sec. 2 («) 2 

Sec. 4 (1) (b) to (g)..25, 26 
Company's Shareholders liable for, ^ 

where intense to defeat Act , 16 

When payable on undistributed gains. . Sec. 3 (4) 15 


A debt due to the Crown Sec. 20 42 

Assessment and levy of Sec. 4 (1) 25 

Continuation of liability for Sec. 10 (3) 38 

Incomes not liable for Sec. 5 31 & 32 

Method of calculating normal and super- 
tax 28 

Recovery of by Crown Sec. 21 41 

Retroactive to 1st January, 1917 Sec. 24 42 

Taxes : 

Deduction off, from rentsi received 20 

On unproductive property 22 

On vacant houses 20 

Taxpayer to receive credit for the tax paid 

by the Company on his dividends. .. Sec. 3 (1) (d) 4 

Transfer of property to evade tax Sec. 4 (4) 26 

Trustees to deduct tax at source 33 

Undistributed Profits Sec. 3 (4) 5, 14, 17 

United States Co. doing business in Canada 25 

Unmarried Persons, allowance of $1,500 Sec. 4 (1) 

Unproductive Real Estate 9 

Vacant Houses, taxes on -. . . 20 

Wages, are taxable as income Sec. 3 (1) 3 

War Bonds, interest not liable to taxation. Sec. 5 (i) 24, 31 

Widows or Widowers without dependent 

children, allowance tax free of $1,500. . Sec. 4 (1) (a) 26 

Widows or Widowers with dependent child- 
ren, allowance of $3,000 Sec. 4 (1) (a) 26 

Wife and Husband, both to be assessed and 

be entitled to exemption of $3,000 

each if separate income 2, 28 

Women, liable under the Act 2 

Year, means calendar year Sec. 2 (g) 2 

Corporations may, however, make re- 
turn for their fiscal year Sec. 4 (2) 26 


1 Ht 



{As reported in Hanaard) 


7-8 GEOEGE V. 

. CHAP. 28. 

An Act to authorize the levying of a War Tax upon 

certain incomes. 

[Assented to 20th Septeiuher, 1917.] 

TTIS Majest}^, by and with the advice and consent of 
-^^ the Senate and House of Commons of Canada, 
enacts as follows : — 

1. This Act may be cited as The Income War Tax gj^^^.^. ^^^.j^ 
Act, 1917. 

2. In this Act, and in any regulations made under Definitions 
this Act, unless the context otherwise requires, — 

{a) ^ ' Board ^^ means a Board of Keferees appointed "Board." 
under section twelve hereof; 

( /; ) ' ' Minister ' ^ means the Minister of Finance ; " Minister." 
(c) * ' normal tax ' * means the tax authorized by para- .« formal 
graph {a) of section four of this Act; tax." 

(r/) *^ person'' means any individual or person and « person." 
any syndicate, trust, association or other body and 
any body corporate, and the heirs, executors, 
administrators, curators and assigns or other legal 
representatives of such person, according to the 


** Taxpayer." 

" Year." 



and wife. 

Sectiox 2 — Continued. 

law of that part of Canada to whicli the context 
extends ; 

" Supertax." (e) " Supertax' ' means the taxes authorized by para- 
graphs (b) to {g)y both inclusive, of section four 
of this Act; 

(/) *^ taxpayer" means any person paying, liable to 
pay, or believed by the Minister to be liable to pa}^, 
any tax imposed by this Act ; 

(g) ^^year'' means the calendar year. 

Sib Thomas White: We do not assess a partnership as such. 
We assess the individual partners. Let us say that A. and B. are 
partners carrying on a business. We do not make an assessment 
against A, and B. for income which they jointly derive, hut ice 
make an assessment against A. as to his interest in the income 
which he derived and his share of the undistributed profits, and 
against B. similarly; and in that way we assess the partners. 

Sir Thomas White: ''Person'' includes women. Husband 
and wife includes a wife who has an income in her own name. . . 
I think it well that both wife and husband should be assessed in 
respect of their assessable income, and should be entitled to the 
exemption of $3,000 each (but see Sec. .) (4)). 

Mr. Lemieux: The husband is liable, and the wife is also 

Sir Thomas White: Yes. 

Mr. a. K. Maclean: A case might arise where the tax would 
be imposed twice. For instance, take the case of a marriage settle- 
ment paid under the terms of the settlement out of the income of a 
husband. The husband might be taxed for it, and it might be of 
such an amount when received by the wife that she would be liable 
to taxation also for the same thing. 

Sir Thomas White: No. 

Mr. a. K. Maclean: // a man pays $10,000 a year under a mar- 
riage settlement to a trustee, that icould be part of his income, 
and he would pay tax on it. When it is paid by the trustee to the 
wife, she would be in receipt of an income of $10,000 a year, and 
she would be liable to taxation. It might be argued that the tax 
would be imposed twice. 

Sir Thomas White: It ivould certainly not be so held, because 
while the husband might have an income, this amount paid under 
the marriage settlement icould be among his liabilities. I think 
it ivould be held that the husband would be liable to taxation on 
his net income, that is to say his income less the amount he was 
obliged to pay to his wife. 

Mr. a. K. Maclean: In any event, the investment would be in 
the name of the trustee? 


Re Section 2 — Continued. 

Sir Thomas White: // the husband s^t aside securities in 
trust, clearly he icould divest himself of those securities, and the 
interest icould he interest derived hy the trustee, not by the hus- 

Mr. Lemieux: It is often arranged in marriage settlements 
that the amount to be paid shall be considered as alimony. Jn 
such a case would the alimony be assessable? 

Sib Thomas White: If the wife had an income under a mar- 
riage settlement in excess of the exemption provided for by this 
Act, whether it is called alimony or not, it is the intention that she 
should be assessed. 

Mr. German : An incorporated company is to be assessed and Income of 
then the persons deriving incomes from that incorporated com- ^'o'^panies 
pany are also to be assessed. There would certain to be a double holders. 
assessment, one of the incorporated company and one of the in- 
dividuals who derive their incomes from the incorporated company. 

Sir Thomas White: While the company is assessed on its 
income its shareholders are also assessed upon their incomes, but 
there is an allowance made to the shareholder of the normal taai 
when the normal tax has been paid by the company upon the divi- 
dend which he receives. While we assess a corporation upon its 
income to the extent of the normal tax, when we come to assess 
the shareholders in respect to their incomes including the divi- 
dends which they receive from the corporation so assessed, we 
make an allowance equal to the normal tax which the corporation 
has paid upon the dividends derived by the shareholders. A cor- Allowance 

poration is liable on its income only to the normal tax, and that\^f^^^^' 

the shareholders who will have to make returns of their income 

to the department will, when they are making such returns, be 

permitted to deduct the normal tax in respect of dividends derived 

from companies subject to this taxation. As to that portion of 

their income subject to the super-tax, they will pay, because the 

corporation is liable only to the extent of the normal tax. 

Sir Thomas White: "Persons'' ivill embrace minors as to eZZ Minors. 
as others if they have the income. 

3. (1) For the purposes of this Act, ** income'' means income, 
the annual net profit or gain or gratuity, whether as- 
certained and capable of computation as being wages, 
salary, or other fixed amount, or unascertained as 
being fees or emoluments, or as being profits from a Fees, 
trade or commercial or financial or other business or 
calling, directly or indirectly received by a person from 
any office or employment, or from any profession or 
calling, or from any trade, manufacture or business, 
as the case may be; and shall include the interest, 

or not. 



Section 3 — Continued. 

dividends or profits directly or indirectly received 
from money at interest upon any security or without 
security, or from stocks, or from any other investment, 
and, whether such gains or profits are divided, or dis- 
tributed or not, and also the annual profit or gain from 
any other sour.ce; including the income from but not 
the value of property acquired by gift, bequest, devise 
or descent ; and including the income from but not the 
proceeds of life insurance policies paid upon the death 
of* the person insured, or payments made or ci-edited 
to the insured on life insurance endowment or annuitv 
contracts upon the maturity of the term mentioned in 
the contract or upon the surrender of the contract; 
with the following exemptions and deductions: — 

(a) such reasonable allowance as may be allowed by 
the Minister for depreciation, or for any expendi- 
ture of a capital nature for renewals, or for the 
development of a business, and the Minister, when 
determining the income derived from mining and 
from oil and gas Avells, shall make an allowance 
for the exhaustion of the mines and wells ; 

(b) the amount of income the tax upon which has 
been paid or withheld for payment at the source 
of the income under the provisions of this Act ; 

(c) amounts paid hy the taxpayer during the year 
to the Patriotic and Canadian Red Cross Funds, 
and other patriotic and war funds approved by 
the Minister; 

(d) for the purposes of the normal tax, the income 
embraced in a personal return shall be credited 
with the amount received as dividends upon the 
stock or from the net earnings of any company or 
other person which is taxable upon its income un- 
der this Act: Provided, however, that in deter- 
mining the income the personal and living expenses 
shall not be taken into consideration. 

(2) AVhere an incorporated company conducts its 
business, whether under agreement or otherwise, in 


Sectiox 3 — Continued. 

such inaiiiKa* as either directly or indirectly to benefit 
its shareholders or any of them, or any persons directly 
or indirectly interested in such company, by selling 
its product or the goods and commodities in which it 
deals at less than the fair price which might he ob- 
tained therefor, the Minister may, for the purposes of 
this Act, determine the amount which shall be deemed 
to be the income of such company for the year, and in 
determining such amount the Minister shall have re- 
gard to the fair price Avhich, but for any agreement, 
arrangement or understanding, might be or could have 
been obtained for such product, goods and commodi- 

(3) In the case of the income of persons residing or i^on-r€ 
having their head office or principal place of business ^^°ts- 
outside of Canada but carrying on business in Canada, 
either directly or through or in the name of any other 
person, the income shall be the net profit or gain aris- 
ing from the business of such person in Canada. 

(4) For the purpose of the supertax only, the Undistn- 
income of a taxpayer shall include the share to Avhich ^"^^^ ^^^°^' 
he would be entitled of the undivided or undistributed 

gains and profits made by any syndicate, trust, associa- 
tion, corporation or other body, or any partnership, if 
such gains and profits were divided or distributed, 
unless the Minister is of opinion that the accumula- 
tion of such undivided and undistributed gains and 
profits is not made for the purpose of evading the tax, 
and is not in excess of what is reasonably required for 
the purposes of the business. 

On Section 3 — Income: 

Mr. Cockshutt: How is one's income to be computed? /Computation 
venture to say that there are very few people in this country who ot income, 
know exactly what their income is. They may te desirous of having 
the proper amount entered, hut there are so many factors that have 
to be taken into consideration in connection ivith the origin and net 
result of a man's income. Suppose, for instance, a man has $15/)00 
invested in real estate and that $.50,000 of that amount is invested 
in a paying enterprise lohich allows him to take care of his muni- 
cipal taxes, fire insurance, depreciation, and the general upkeep of 

tion of 

Re Section 3 — Continued. 

his property. The other $25,000 may he bringing in nothing, but 
the taxes have still to fte i)aid and the necessary repairs made. 
Is any allowance made for what may be called '* depreciation of 
capital " in a real estate investment? Everybody knows that when 
property is vacant it rapidly deteriorates. Vacant property is a 
very rapid income destroyer. I have had a good deal of experience 
in that line, and I know that a man's income can be eaten into 
very rapidly by unproductive property. I venture to say that any- 
body who owns very much real estate has some unproductive pro- 
perty that is not onty not bringing him in any income, biit 
is actually eating into the income he receives from other 
sources. I have a good deal of that kind myself at the 
present time, as I have no doubt a good many men in this 
House have. Has the Minister taken that into consideration, 
and is any allowance to be mad^ for this depreciation of capital? 
In other words, if a man has a certain amount of income from one 
source, and some other investment in property has depreciated in 
value and eaten into his income, is that taken into account in cal- 
culating the amount of income that w4ll be liable to taxation? 1 
am not, of course, wishing to escape paying what I should legiti- 
mately pay, but if the Minister should ask me what my income 
was in any one year, though I keep books and endeavour to make 
an entry of everything, I should have the very greatest difficulty 
in telling him what my income was, and that being so, how will a 
man who keeps no books and makes no entries ascertain his in- 
come? Take, for instance, the farmer; he probably keeps his wife 
and family out of the products of his farm. He does not begin to 
estimate his expenditure until he goes outside of his family ex- 
penses, which are provided for by the farm. I only instance this 
as one case, because it occurs in many other callings. A merchant 
often helps himself to the goods in his own store, not counting this 
as really part of his income. Those are a few of the difficulties 
which present thetnselves in estimating an income. I would also 
like the Minister to tell me whether any regard is to be paid to the 
depreciation which may occur in a man's property. For instance, he 
might be worth $100,000 this year, and when he makes his returns 
at the end of the year he may find his property is only ivorth $90,- 
000. He has lost $10,000 on his investment. Will he be allowed 
to deduct that $10,000 from his $15,000 income, or will he be assessed 
on the ivhole $15,000, and be obliged to look after the depreciation 

Sir Thomas White: I think it would 'be a very dangerous 
admission to make that the estimate made by a taxpayer that his 
property has depreciated to the extent of. say, $5,000 or $10,000, 
tvould be sufficient to justify that $5,000 or $10,000 being deducted 
from his income. It would be proper for the riian who has pro- 
ductive properties to take into account the rentals received, and 
to pay the taxation and the repairs actually made in connection 
with those properties. The balance might fairly be considered his 
net income. My hon. friend raises the question as to whether 

Re Section 3 — Continued. 

there should he an allowance lor depreciation. I do not think it 
possible to get an income taxation down to a mathematical nicety 
such as is suggested where the amount of annual depreciation 
would he allowed because it would be almost impossible to 
estimate such depreciation, and as against that there would 
have to be set off the possible appreciation of that pro- Apprecia- 
perty, because real estate does appreciate. In the admin- ^^^^ ^^ 
istration of an income tax you must get down to a sound, but 
rough-and-ready basis — a basis of good sense. How much did the 
man derive from his real estate investments? How much did he 
actually pay out for taxes and repairs? The balance is his ^^co)He. . ,^ ^^^ 
/ do not believe he should be allowed to deduct the depreciation 
of his property, because the fact that it might have appreciatea 
in value has also to be taken into consideration. I do not think 
we can get it down to a basis where you can set off the deprecia- 
tion the tax-payer thinks he might fairly be entitled to deduct in 
respect to property, even property which may be vacant. The 
depreciation would appear in the returns, and I think the onus 
would be very strongly on the taxpayer to show beyond peradven- 
ture that such depreciation had taken place. I do not like to ad- 
mit the principle that depreciation should be allowed. Take an- 
other case — which might come within the instances my hon. friend 
has brought to the attention of the House — a man has an income 
of, say, $10,000; he is carrying a piece of unproductive real estate TJnproduc- 
in the West, upon which he has to pay taxes. I do not think he tive real 
should be allowed to deduct the taxes he pays in respect of that ' 
property. His income is the return he derives from his profes- 
sion or calling. If he is carrying a piece of real estate for purposes 
of speculation, he could carry it himself. I draw the distinction 
between that case and the case of a man who is deriving income 
from properties which are productive. His income is the rentals j^g.^i estate 
he receives from such properties, but he is entitled to take into speculation. 
account what he pays in the way of taxes, and repairs actually 

Mr. a. K. Maclean: I thoroughly agree with the Minister. 1 
do riot see how you can introduce any such principle into the Bill 
that would meet the case mentioned by my hon. friend (Mr. Cock- 
shutt). ,A private individual might as well urge that his physical 
strength is depreciating from year to year, and that his earnirig 
capacity is growing less, and therefore he should have some allow- 
ance made for physical depreciation. Take the case the Minister 
has just cited. Say a man is resident in Toronto, and is in receipt 
of an income of $25,000 a year, and say he has unproductive pro- 
perty in the West which requires a disbursement on his part of 
$5,000 a year for taxes. In estimating his income, surely that 
$5,000 would not be taken into account? 

Sir Thomas White: / do not follow my hon. friend. 

Mr. a. K. Maclean: 7 understood the Minister to say that the 
fact a man was paying an annual tax bill of $5,000 upon unproduc- 


Disposal of 


Re Section 3 — Continued. 

five property in the West would not he taken into consideration 
in calculating his income f 

Sir Thomas White: My view is he should 7iot be allowed to 
deduct it because his income is $25,000 and he is speculating in the 

Mr. Pugsley: Suppose this unproductive property was in To- 
ronto, instead of in the West? 

Sir Thomas White: The reason 
because my hon. fiend referred to it. 

I mentioned the West was 

Mr. a. K. Maclean: Suppose a professional man has an income 
of $25,000 a year, and he owns an unproductive property in the city 
of Ottawa, the taxation on which is $5,000; surely, he would only 
be liable upon an income of $20,000. 

Sir Thomas White: // part of his income was from produc- 
tive property then he should be allowed to deduct taxes and repairs. 
My hon. friend put forward the case of a man holding unproductive 
property in the West, upon which he luas paying taxes. These are 
very difficult questions to deal with, but I do not think he should 
be exempt from this income tax to the extent of what he pays for 
taxes on unproductive property held for speculation. Let me cite 
a case in regard to which I have had a good deal of ^experience. 
Take the income taxation of the city of Ottawa, or the city of 
Toronto — the assessor goes to a bank, say, and asks for the names 
of the officials of the bank and their salaries, and he assesses from 
$5/j00 down, if the salaries are such. Those in receipt of the in- 
comes may use them in different ways. Some may spend their 
incomes foolishly, others may invest in property, others may be 
carrying investments at a loss, others may pay taxes upon their 
homes, but the assessment is upon the amount of income received 
as salary. That is the way all assessments are made in this pro- 
vince. A man is not asked ivhat he does with his income, he is 
not asked whether he invests part of it in mining stocks or 
whether he pays taxes upon property with which he is speculating, 
or whether he pays margins upon stocks. He is simply assessed 
upon his income. Every man in the city of Ottawa is liable to 
assessment on the amount of income he receives. If he is a Min- 
ister he pays income tax upon his $7,000 or whatever it may be; 
if he is an official he pays also. Once you introduce the principle 
that a man in receipt of a salary of $25,000 can deduct the taxation 
ichich he is paying upon property which may be appreciating very 
much faster than the amount of the annual taxation, you are intro- 
ducing a very dangerous principle into taxation. I do not believe 
that that principle is included in any taxation in this Dominion. 
The point is: How much does a man make? If he is a lawyer, 
how much does he make after paying out all expenses in connec- 
tion with his profession? Then I ivould say that after deducting 
the outgo from ivhat he has received the balance is the income of 
that individual and he should be assessed upon it. 


Re Section 3 — Continued. 

Mil. Pugsley: Supposing his entire business was the owning Entire 

and managing of real estate? business 

real estate. 
SiK Thomas White: My Jion. friend 7ias raised a point which 

is absolutely different from that which we are now considering. 

We are considering now the case of an individual who derives his 

income from his profession or callirtg and who has to pay taxes 

upon some property ivhich he has been camjing for the purpose of 

speculation or not — it does not make any difference. 

Mr. Pugsley: Take myself, for example. The only property i Income from 
own practically is real estate. I might have three or four houses ^'^^^ estate. 
which were bringing me a very good income and I might have 
other places which were vacant, and on which I had to pay 
insurance, water rates and taxes. Would not the net income from 
all these different properties combined be that on ichich I would 
have to pay the tax? 

Sir Thomas White: I would say " yes,'' and my hon. friend 
would take all the incomes from these productive properties, and 
that he tvould pay the taxes on this other unproductive property 
deducting with respect to it, and the balance would be his income. 

Mr. Pugsley: Suppose I had unproductive property in Ontario unproduc- 
or in the West? tive real 

Sir Thomas White: / would say that if my hon. friend was 
carrying some unproductive property with the idea of making 
money on its appreciation he should not be allowed to deduct it. 

Mr. Pugsley: Suppose a man were carrying it because he could 
not sell it and had to pay the taxes? 

Sir Thomas White: In a taxation measure of this kind, while 
that and every other principle should be discussed you will never 
be able to determine with mathematical exactness' — the cotirts usu- 
ally have to determine that — as to ivhat should be allowed. It 
would be very dangerous to lay down the principle that if a man 
has an income of $25,000 and he is carrying unproductive property 
throughout this country, not being a man who is tnaking his in- 
come from, the holding and administration of real estate, he should 
be allowed to deduct the charges on this property from his income. 
If you adopt that view, you are introducing a very dangerous prin- 
ciple and one ivhich should not be allowed. 

M'r. Lemieux: My hon. friend is making a distinction between ji^ai Qstate 
say a professional man who goes into an occasional real estate deal business. 
and a man whose calling is real estate. 

Sir Thomas White: A landlord who has a number of houses. 

Mr. Lemieux: If a man who buys real estate and has to pay 
a large part of his income in municipal and other taxes, the amount 
which he so pays would be deducted from his income. That is 
what I gather from the remark of my hon. friend. But a profes- 
sional man, say a lawyer, who has bought some real estate, even if 
the real estate is not a revenue producer, has to pay the taxes and 
he cannot deduct that from his income? 

Real estate 

in real 

Re Section 3 — Continued. 

Sir Thomas White: / would say not. If a man is carrying unpro- 
ductive property and is paying taxes upon it, I do not know why he 
should assume that he is losing money by doing so. I think we must 
assume the contrary, namely, that the annual increment on the 
property is equal to the taxation which he is paying out. I think 
it would he a very unsound principle to lay down that a man should 
deduct from the income which he makes from his trade, profession 
or calling, the amount which he may pay out in taxes upon property 
in which he is speculating. 

Mr. Cockshutt; f do not wish to embarrass the Minister in 
any way in coming to a conclusion. I can quite see that if the 
Minister's statement was followed out to its logical conclusion and 
finality, a man might be paying on an income when he really did 
not have an income at all but rather an outgo. There are such 

The Minister must know, as I certainly know, that there are 
men who are known as property poor. Such a one may not be a 
speculator. Investment in real estate is considered to be a legiti- 
mate enterprise. If it is not I am sorry I am in the business. 
But, I have been the owner of real estate for many years, believing 
that it was a sound investment, and I have been in that way trying 
to build up the community of which I am a part. The Minister in 
reply to the hon. member (Mr. A. K. Maclean), said that if a man 
had an income of $2o/J00 and $5,000 of it was going to carry a dead 
horse in the West, or anywhere else, — not necessarily in the West 
because we have lots of them in the East — this $5,000 should not be 
deducted. Well, reverse it. Suppose a man has an income of 
$5,000 and he has $25,000 to pay out, where is he going to be? He 
will be paying on the $5,000 btit he icill be $20,000 worse off than he 
was at the beginning. I know many men icho would be very glad of 
the opportunity of unloading their real estate but who are carrying 
it and who are what is known as property poor. They have pro- 
perty that is unproductive and they are trying to meet the losses 
on that property out of the revenue derived from property that is 
productive. That has been the case in many toivns and cities in 
Ontario. It is impossible for anybody in the renting business to 
build a house at the present high prices of labour and raw material 
and make a return of six per cent, on his investment, unless he is a 
remarkably capable man. It is the exception rather than the rule that 
a man has a six per cent, return on his investment in real estate. 
I think the Minister should take this into his serious consideration, 
because there are many men who went into real estate not as a 
speculation but as a legitimate investment. All our trust com- 
panies are in real estate as a legitimate field of investment. If 
the principle which the Minister has enunciated is carried out to 
its logical conclusion a man's incorne icill go into one pocket and 
go out of the other twice as fast, until his capital is entirely con- 
sumed. A man with an income of $5,000 or $10,000 may have an 
outgo of $15,000 or $20,000. The Minister should make an allow- 
ance for certain conditions; before the final balance is struck he 


Re Section 3 — Continued. 

should distinguish hetiveen productive real estate, and vacant and 
unproductive property.. 

In other words, the net results of his property operations for 
that year should be the amount he derived from his real estate. 
I cannot see it in any other way, and I am not saying this with a 
view to depreciating the amount that the Minister should get, tut 
simply to arrive at a basis whereby we may calculate what is just 
and fair and right to a man who has made his investment, believ- 
ing it to be straightforward and honest. 

Siu Thomas White: // ive admit the principle that ice must Deprecia- 
take into consideration, depreciation in real property and securi- tion in real 
ties, and in addition to that the taxation that a man m^ay pay out l^^^P^^^y. 
upon unproductive property ivhich he holds, we shall go a long way 
to defeat the purpose of this Bill. 

Mr. Cockshutt: / would not take the depreciation without 
also taking the appreciation; I would take the two together. 

Sir Thomas White: My hon. friend says he would not take 
the depreciation without taking the appreciation. We all know 
how difficult it is to determine the value of a piece of property at 
any time, and how arbitrators differ. How is the department to 
determine what the annual depreciation has been in a piece of pro- 
perty upon which a man has paid out taxes? I think there is a 
clear distinction between the case of a landlord with a row 0/ Real estate 
houses from which he derives his income, his principal business productive 
being the administration of his property in those houses, his in- Property. 
come being the revenue he derives from them, and his outgoings 
the taxation and repairs upon those properties for which he has /Reaj estate 
paid during the year, and his income, for the purposes of this Act, income from. 
being the difference between the two; and the case of a man who, 
in his calling, derives a net income of $25,000, and who uses that 
$25,000, either in speculation or in legitimate investment. For 
the purposes of this taxation measure, we ought to ascertain a 
man's income in his calling, and having determined that, assess 
him on that amount under this Act. Take my own case: I own 
some property in Canada which is non-productive, and upon which 
I pay, say, $1,200 or $1,500 in taxes. I say that I should be assessed 
on my income derived as a Minister and any other income I may 
have, and that I should not be allowed to deduct the amount I paid 
in taxes on that unproductive property. 

Mr. Pugsley: Suppose that, instead of being an individual, i< Real estate 
was a real estate company? company. 

Sir Thomas White: That is different. 

Mr. Pugsley: It owns land with buildings on it in one block, 
and in the next block land which is not bringing in any income. 
If it is a company the Minister will allow its revenues to be put 
on one side and its total taxation on the other. Why should the 
individual be treated more harshly than the company? 

Sir Thomas White: The corporation is in that business. It 
could not legitimately own the property unless it was in that busi- 


Re Section 3 — Continued. 

ness. A real estate agent should he assessed on any income lie 
derives in respect of his husiness. A man owning property, deriv- 
ing income from that property, should he assessed on his income 
in respect of that husiness. But the hanker, who has an income 
of $25,000 from the hank, should, in my opinion, he assessed upon 
the $25,000, no matter what he does with the money. 

Income from ^^^ Herbert Ames: Say that there is a hlock of houses that are 
real estate, rented regularly. If that is owned hy a joint stock company you 
take the total rentals from the houses and deduct the total expen- 
diture in connection with the properties, and, we will say, you have 
$1,000 to the good. You are taxed as a company only on the 
$1,000. But supposing that I, an individual, wishing to live on 
investments, erect a hlock of huildings, and that the gross income 
is $5,000, and that the gross outgo is $-'i,000, so that the net value 
to me is $1,000, shall I he taxed on the $5,000? 

Sir Thomas White: You will he taxed on the $1,000 hecause 
you are deriving part of your income from these properties. 

Mr. Pugsley: If all in one row, hut suppose there are two 
separate hlocks in the same town. 

Sir Thomas White: The same principle would apply. The 
danger in allowing deductions for taxation upon non-prodiictive 
property is that it is impossihle to ascertan how much that pro- 
perty has appreciated in the year, and the man may he speculat- 
ing with it. 

Mr. Pugsley: That would apply to the row of houses too. 

Sir Thomas White: Ves, and it would he open to the court 
to say how much it had appreciated or depreciated, hut for the 
purpose of practically administering an Act such as this, you could 
not hold an inquiry as to how much each piece of property had 
depreciated. I should say that the onus would he on the taxpayer 
to show affirmatively and heyond douht that there had heen a loss 
in connection with that property. 

Mr. Lemieux: / think that the Minister ought to explain what 
he understands hy net income. 

Income de- ^'^^ Thomas White: I have a very clear view as to what would 
finition of he included in income as defined hy this Bill. I have always found, 
and I think the courts have found, that it is hetter to take a icord 
in. its plain, common-sense meaning. If a man is employed as an 
official, let us say, in a hank, and receives a salary of $5,000, his^ 
net income for the purposes of this Act will he $5,000 hecause he 
earns that sum from his occupation. The question has heen raised: 
supposing that tnan, in addition to having a salary of $5,000, 
derives $1,000 more hy way of rental from some houses which he 
owns. Let us assume that he has to pay out in connection with 
this house $300 for taxes, repairs, and other outgo. He derives 
from that particular investment " $100 net; therefore, if he has 
no other investments outside from which he derives income, his 
net income for the purposes of this Act is $5,100, made up of 


Re Section 3 — Continued. 

$5,000, which he earns from the bank, and $700 the net income 
from the productive property which he owns. Let us take the fur- 
ther case whic?i was under consideration. Assume *hat an 
official drawing a salary of $5,000 owns some unproductive 
property — let tis say, some vacant land, and that he pays, in 
order to retain that land, $1,500 or $2,000. My own opinion is that 
his income, notwithstanding the fact that he pays out that amount 
in respect of the unproductive property which he nolds, is $5,000, 
the income which he derives from his calling. To show my hon. 
friend the fairness of the view which I put forward, let us com- 
pare the two cases. Two men, let us say, are employed by the ^y „Qg„i ^f 
Bank of Montreal, and each draws a salary of $10,000. One of income. 
these men has no outside property at all; he spends the entire 
$10,000 upon himslf and his family. Clearly he is assessable for 
$10,000, which is his income. The other man spends only $1,500 
or $2,000 upon himself and his family — he may have a smaller 
family — and tcith the balance of the money speculates in stocks 
or pays taxes upon property which he holds and which gives him no 
return. Would anybody seriously argue that the first man should 
be taxed upon $10,000, and that the other man should not be taxed 
at all, or should be taxed only upon $2,000 or $3,000? Get it down 
to a common-sense basis. What is the man's iiicome from his trade, 
profession or calling? If he is an official what is the amount of his 
income? — if he is a lawyer,' how m,uch does he make out of his 
office after paying the necessary outgoings? We are not concerned 
with what he does ivith the money after he gets it; we are con- 
cerned with the amount of his net income. If he spends it on his 
family; if he wastes it; if he speculates in stocks with it, or if he 
buys lands for investment and pays taxes upon them, — we have 
nothing to do ivith that. But, if he has some landed property out- 
side from which, after paying the necessary outgoings in respect to 
that property, he derives additional income, we add to the salary 
which he gets in his official position the net amount ichich he re- 
ceives from that investment, and the two together will make his 
assessable income. 

Mr. Lemieux: Suppose a man has a net income of $5,000 and, on 
account of unproductive property which he holds, he is obliged, by 
the law, to pay municipal taxes to the extent of $2,000. Of his in- 
come $3,000 is exempt. Do you assess him upon $5,000 or upon 
$3,000? In any case, he has to pay the municipal taxes. Will he 
have to borrow in order to pay the federal taxation? 

Sir Thomas White: This measure does not and cannot provide 
how a man will find the money to pay his income tax. In the case 
mentioned, the income of the party is $5,000. If he is married, he 
is entitled to $3,000 exemption; therefore, he will be taxed upon 
$2,000 and will be liable to pay $80. As to how he will get that 
money, I am not in a position to say, but he will be liable for it 
under this Act. I do not see how it could be othericise, tmless we 
reduce the Act to a nullity. 


Re Sectiox 3 — Continued. 

Me. C. a. Wilsox: Suppose a lawyer collects in fees $5,000 in 
a year, and the expenses of running his office are $3,000, his net 
revenue for purposes of taxation will be $2,000 f 
Sib Thomas White: Yes. 

Sir Wilfrid Laurier: In section 3 it is provided: 
Undistri- "Income . . . shall include the interest, dividends or profits 

biited directly or indirectly received from money at inttrest upon any 

profits. security or without security, or from stocks, or from any other in- 


That is quite intelligil)le, hut I want an explanation upon what 

" And, whether such gains or profits are divided or distributed 
or not." 

Sir Thomas White: My right hon. friend has touched upon a 
very important provision of this measure, and he asks a very pro- 
per question. We have been desirous of assessing, not only the 
amount which a man may choose to take out from his business, 
but also his share of the profits which are actually earned by the 
partnership during the year. A partnership might earn $100,000, 
tax on pro-^' ^^^^ ^^ ^^ ^^* assessed as a partnership, the assessment would be 
fits, not only «po/i $100,000 less the exemptions. But the partners might say: 
on drawings. There is an income tax and we will not take $50,000 apiece — if that 
was the share to which they were each entitled; — we will take 
only $5,000 apiece, and will pay income tax only upon that $5,000. 
That would not be fair. My right hon. friend would have to pay 
upon his income because it is definite and ascertainable; but 'if a 
partner were entitled to one-half of the partnership profits, and if 
he took only part of his profits out of the business and that ivere 
counted as his income, he would escape taxation on part of what 
he had really earned in the partnership. If we are going to assess 
an individual who is in business upon his profits in that business, 
then we should assess a partnership, or a joint stock company upon 
its profits in its business. But we assess the partners individu- 
ally upon their incomes, and therefore it is necessary to assess them 
not only upon the profits that are actually distributed, btit upon 
the profits to which they are entitled. There is one point in this 
connection to which my right hon. friend has drawn attention. 
Following the words which he has quoted, we have these words: 

" And whether such gains or profits are divided or distributed 
or not.** 
Sharehold- '^^^ intention was that u'e should assess shareholders in respect 

ers assessed not only of the dividends which they actually receive, but also of 
on earnings, fjieir share in the earnings of the company though not actually 
distributed amongst them. The idea tvas to prevent the company 
from paying a small diindend and piling up large reserves which 
it could at any time distribute to its shareholders. But there is 
in the Bill a provision further on. Subsection // of the same sec- 
tion provides that: 
Section 3 ''For the purpose of the supertax only, the income of a taxpayer 

subsection 4. 5??a?Z include the share to which he would be entitled of the un- 


llE Section 3 — Continued. 

divided or undisturbed gains and proiits made by any syndicate, Sharehold- 
trnst, association, corporation or other body, or any partnership, ers, when 
if such gains and profits were divided or distributed, unless the liable to 
Minister is of opinion that the accumulation of such undivided and re^ecfof ^ 
undistributed gains and profits is not made for the purpose of company's 
evading the tax, and is not in excess of tvhat is reasonably re- earnings. 
quired for the purposes of the business.'' 

There are some privately-owned companies which might defeat Privately 
the purpose of this Act by paying a small dividend and accumu- owned 
lating profits instead of distributing thern amongst their sharehold- ^^^"^P^^i^s- 
ers. This subsection is to prevent such an evasion of the tax. I 
can see a possible hardship in that shareholders who are not seek- 
ing to evade any liability under this measure and who receive, let ■ ' 
lis say, a dividend of JO per cent., would find themselves, under the 
express terms of this measure, assessable for, say 12 or 15 per 
cent, because the company earned at that rate. 

Sir Wilfrid Laurier: I present my views to my hon. friend as 
I understand this Bill. The principle of the measure is that every 
entity should be taxed — a corporation, a partnership; and then 
besides that, the partners or the shareholders who receive their 
share of the profits. Every busi7iess ascertains' itS' profits for the 
year. Then it considers its liabilities, the contingent possibilities 
in the way of losses or the need for improvements. After having 
provided for these things, it distributes to its shareholders' or to its 
partners the excess profits. My hon. friend taxes first the profits of 
the company, and then he taxes what is left in the entity, that is 
to say, in the partnership or association. Then he taxes' also what 
comes to the shareholders or the partners. I raise no objection. 
But the measure may work a very severe hardship to a corporation. 
Suppose a corporation has earned $100,000 of profits during the year 
and distributed $50,000 to its shareholders and retains $50,000 to 
provide for contingent liabilities, or necessities, or losses. The Min- 
ister takes the power to ass^ess the corporation in respect of what 
may be its intention in so acting. Every association, whether it be 
a partnership or a corporation, works for individuals. If it keeps 
its profits in its' coffers, it is to that extent acting to the detriment 
of the partners or shareholders, but for the benefit of the part- 
nership and inAhat way for the ultimate benefit of the partners 
or shareholders'. Therefore, if it keeps that amount back in good 
faith for the interest of the company, I think that should be taken 
into consideration. If on the other hand this action is taken to 
evade taxation and to cheat the revenue, that is a different matter. 
It seems that in this measure no distinction is" made between an 
honest intention and a fraudulent intention. We presume that the 
intention on the part of the taxpayer would be to have the Bill 
honestly enforced. This should be taken into consideration. 

Sir Thomas Whitf:: I think no difficulty is likely to arise in 
the case presented by my right hon. friend. Take such a case as 
he mentions? — that of a company 'earning profits of $100,000, 

J5 r ' : 

for bad 
debts and 

of partner- 

Re Section 3 — Continued. 

It is proper for that company to deduct from its gross revenue 
enough to make allowance for bad and douhtful debts and for any 
contingent liahilities — / am not speaking of some liaMlity of a fanci- 
ful nature that might he expected in the remote future. When 
these items are deducted from the gross revenue the result is the 
net profits. Having done that — and it i» open to a company to do 
that, and companies do it, because it is sound from an accounting 
standpoint — if the company has still a net income of $100,000, even 
although it distribiites only $50,000 to its shareholders, it should 
pay the normal tax of 4 P^^ cent, upon the ivhole $100,000. That is 
the net income, ju»t as my hon. friend's net income is the amount 
which he derives as an individ^ial. 

My right hon. friend, I think, is a little mistaken, possibly, as 
to how ice assess partnerships. We do not assess a partnersliip as 
an entity ; the assessment is not against the partnership, but against 
the individual partners. We assess a joint stock company upon its 
net earnings, according to a proper definition of that term, mak- 
ing them pay the normal rate of 4 V^r cent. In the case of the 
shareholders of that company, loho pay upon income partly made 
up from the dividends received from the company, under a provi- 
sion which we shall reach later on in the Act, an allowance is made 
to the extent of the dividends which were taxable which they have 
received from the company. The provision to which I specially 
draw attention is to prevent privately-owned companies — compan- 
ies with a few shareholders, family concerns — from paying out 
small dividends and accumulating an immense reserve which could 
be distributed at a later date. 

Sir Herbert Ames: Let me cite a case in connection with un- 
distributed profits which would work a very real hardship. The figures 
I shall give are not exact, but it is a case of ichich I have personal 
knowledge. We are going to tax the revenues of 1911. Now I know 
of a firm that^ ran behind $100,000 in the year 1915. In the year 
1916 it came out about even, and in the year 1911 it made $100,000. 
They always carried forward from year to year a certain amount of 
profit and loss out of which the dividends are paid. Now in the 
third year, although $100,000 had been made, in view of the fact 
that nothing had been made in the previous year, and $100,000 lost 
the year before, no dividends icere paid. The three years were one, and the business has practically stood still. I think the 
firm did a wise thing in paying no divideiids. If you are going to 
tax this undistributed $100,000 which they made in the third year, 
you are going to do an injury, because you are asking them to pay on 
profits that were never made. 

Sir Thomas White: That would be a case in which the dis- 
buted profits, cretion of the Minister could be exercised, as provided in the sub- 
when sub- section. It is only where the intent is to defeat the Act that these 
it^* *^ super- undistributed profits will be subject to the supertax. 

Sir Thomas White: By sub-section Jt provision is made for 
the application of a supertax to undistributed gains or profits pro- 
vided that the Minister is of the opinion that the accumulation of 
such undivided and undistributed gains and profits is made for the 






buted gains. 


Re Section 3 — Continued. 

purpose of evading the tax. My own view is there is not likely to 
be an attempt at abuse, except in the case of a close corporation, 
and in such a case I think wise discretion would have to be exer- 
cised to see that the corporation paid the proper share of taxation. 
Every corporation will be assessed by the department in respect of 
its net income at the normal rate of Ji per cent. 

Clause (d) of subsection (1) of section 3 provides that "for the Taxpayer 
purpose of the normal tax, the income emkraced in a personal return to receive 
shall be credited with, the amount received as dividends upon the credit for 
stock or from the net eartiings of any company or other person Yfy\^^QQ^ 
which is taxable upon its income under this Acty Having assessed on his 
all the companies, when we get a return from a shareholder, he dividends. 
will be entitled to credit of the amount paid by the corporation 
upon dividends he received which are embraced in this return. 

Mr. Lemieux: Will he do that himself, or will the department 
do it? 

Sir Thomas White: He will make a return showing how 
his income is made up. Say, part of his income was derived from 
shares in a company which has paid the normal tax upon its in- 
come. In that case he would be credited tvith the amount which 
was so paid. The department would scrutinize his return, and in 
preparing his assessment would make the necessary allowance. 
Subsection Jf of section 7 provides that all corporations, associa- Companies 
tions, and syndicates shall make a return of all dividends and to make re- 
bonuses paid to shareholders and members. That would help the ^V^°^ ^| 
department in making the necessary adjustments. x)fi\^. 

Mr. Lemieux: Would it not be better to have the companies 
deduct the tax of the individual shareholders? 

Sir Thomas White: 2Vo, they pay their own in full, then we 
make the allowance in the case of the individual shareholders. An- 
swering my hon. friend's second question; if he asks the question 
from a strictly legal point of view, I should say that a shareholder ji^^^yi^y^i^iQ^ 
receiving accumulated dividends would be liable to taxation on dividends. 
those dividends as part of his income. 

Mr, Lemieux: Then, it is retroactive? 

Sir. Thomas White: If they were cumulative for a period of 
two or three years, my view would be that in the administration 
of the Act it would be fair to make the assessment of the dividends 
for one year, that is if it was a preferred dividend. I shall consider 
the matter; because I do not like to have anything left to the dis- 
cretion of the Miniser, or the referees. I think, legally speaking, 
if a shareholder gets cumulative dividends for three or four years 
in one payment in a year, it is part of his income for the year. 

Mr. Graham: A difficulty might be that in all matters of as- 
sessment the assessment of one year is taken, in a measure, as the 
basis for the next year. No matter what the return may be the 
officer in charge will simply look it over and see that a man re- 
ceived, say, $H00 in dividends last year from a certain company, 
and this year he only acknowledges $150. 


Re Section 3 — Continued. 

There are, as the hon. gentleman has said, companies that have 
paid no dividends for several years', hut within the last year they 
have been catching up on the arrears of dividends. There will be 
some injustice in charging what was really, or what should have 
been, their income for two or three years back as the income for 
this year. 

Bond Mr. Lemieux: When you speak of dividends you should speak, 

coupons. of coupons which represent a fixed amount. A certain big hotel com- 
pany issued coupon bonds, but a few months after the war broke 
out that company ceased to honour its' coupons. It is expected that 
in a year or two the company loill be in a position to pay the 
coupons. In that case I do not see any reason why you should 
not make an allowance for the coupons which were due, but unpaid, 
before this Bill came into operation. 

Sir Thomas White: / am afraid we could not do that. In the 
back years they did not receive their interest in a particular year, 
but they do receive their interest after that and they will have to 
pay on that. 

Mb. Loggie: Referring to subsection -) of section 3, and deal- 
ing with the supertax only, it is not uncommon to find companies 
in business for many years but never declaring any dividends. They 
may make some profit, but they never have money to pay dividends. 
They are borrowers from the bank and all the profits that are avail- 
able go to pay indebtedness, yet the books may show substantial 
profits. Or these profits may be locked up in investments that are 
not liquid, and cannot be easily converted into money.. 

Subsection .) of section 3 provides that surplus profit, undivided, 
may be assessable for the supertax if the Minister says so. I would 
point out that when profits are undistributed, or left in the busi- 
ness, the profits from the business in the following year will be 
greater than they were previously, when the profits were distributed 
in the way of dividends. That is something that the Minister ought to 
take into consideration. I wish to draw the attention of the Minister 
to ayiother matter in connection with the net income of private indi- 
viduals. A man who conducts, say, a dry-goods business is known as 
Individual ^' business man. A private individual earning a salary and receiving, 
with salary besides his salary, rents from houses that he owns, so that his net in- 
and rents. come is $3,000 or $'i,000, would be considered, I assume, as a business 
man, and his transactions would be treated in the same manner 
as those of any business firm? 


Sir Thomas White: Yes. 

Mr. Nesbitt: Does the Minister propose allowing a corpora- 
tion to deduct bond interest before assessing the profits at the 
end of the year? 

Sir Thomas White: Without doubt, interest upon bonds is 
a fixed charge and net profits are only ascertained after deducting 
interest upon underlying charges, all interest payments, operating 
expenses and overhead — in other icords, the net profits, according 
to a properly drawn balance sheet. 


Re Sectiox 3 — Continued. 

Mr. Nesbitt: A corporation having no bonds and having stock 
will he in a very much ivorse position than a corporation that just 
carries bonds. 

Sir Thomas White: I saw that argument advanced in one of 
the neicspapers, htit I submit it is not sound. The corporation that 
has a share capital pays' upon its net earnings and its sharehold- 
ers, upon receiving their dividends, are credited with the tax that 
i& paid by the corporation. Take the case of a company which has 
a large bonded indebtedness. The holders of those bonds, not the 
company, are assessable under this Income Tax Bill for the in^ 
comes which they receive. The holder of the bonds pays upon the 
earnings of the company which are used to pay its bonded interest. 

Mr. Nesbitt: My hon. friend is quite right as to the individual 
shareholder or bondholder, but he is not right as to the corporation, 
as the corporation with stock is paying the four per cent, on the 
whole profit, whereas the corporation with bonds outstanding has 
that four per cent, deducted. 

Sir Thomas White: I understand that the corporation in the 
one case would pay a considerable sum, let us say, and in the other 
case it would not. But if you take that corporation loith only a 
nominal share capital and distributing all its net profits to its 
bondholders, its bondholders are the virtual proprietors of the com- 
pany. I do not mean to say that they are legally the proprietors, but 
they are virtually the proprietors of the company because they hold 
its bonds and they get, by way of interest, all of its earnings or 
practically all of its earnings. Now take the case of the company 
that has no bonded indebtedness but has a large share capital and 
pays out dividends to its shareholders. The shareholders there are 
virtually the proprietors of the company, not legally, but virtually 
the proprietors of the company as the bondholders in the former 
case are virtually the proprietors of that company. That is to say, 
they take all of its earnings. The net result is about the same be 
cause the bondholders are assessable as individuals in respect to 
the bond interest which they derive^ It is true that the other com- 
pany is assessed upon its net earnings, but the shareholders in their 
assess7uent are allowed to credit the amount which the company 
paid in respect of the dividends which form part of their income. 
Therefore the bondholders in the one case and the shareholders in 
the other are virtually the proprietors of the two companies and 
they are both taxed and are taxed upon about the same basis. 

Mr. Lemieux: / notice among the exemptions: 

''Such reasonable allowance as may be allowed by the Minister for 
depreci'ition, or for any expenditure of a capital nature for renewals, 
or for the development of a business. And the Minister, when deter- 
mining the income from mining and from oil and gas wells, shall of as^ets^^" 
make an allowance for the exhaustion of the mines and wells."" 

There are other businesses in which something akin to exhaustion 
may take place. Take real estate. A man may buy three or four 
acres and derive income from their sale, but as the sales take 


Return of 

of an 

Taxes on 



of taxes 
from rents 

Disposal of 

Re Section 3 — Continued. 

place that source of income hecomes exhausted ; iiart of the income 
is a return of capital. 

Sir Thomas White: Undoubtedly there is" a return of capital 
in such a case, and even if no provision eosisted in the statute, we 
should properly make an allowance in respect to the exhaustion of 
mines and oil wells. In a real estate transaction such as my hon. 
friend mentioned a certain amount of the return would 6e regarded 
as return of capital and a certain amount as profit. We would\ 
deal only with the profij. 

Mr. Pugsley: From the Minister's statement to my hon. friend 
for Rouville {Mr. Lemieux) it might be inferred that the proceeds 
of an insurance policy paid to a widow would be exempt. Did he 
not mean that it would not come in as part of the income for that 
year, but that later it would be subject to taxation as part of her 
capital? It becomes capital or principal upon the income from 
which this statute operates. 

Sib Thomas White: True, later. 

Sir Thomas White: / do not mean to say that, if a yuan had 
a row of houses* from tvhich he received rents, and if there were 
some vacanciC't in those houses during the year, he would not be 
allowed to deduct, from the total income which he received from 
the row of houses, the taxes which he would pay in respect of the 
vacant houses as well as of those not vacant. 

Mr. Pugsley: Suppose there are two rows of houses in differ- 
ent parts of the city, or suppose the rows are in different towns. 
Why should there be any difference? 

Sir Thomas White: There is no difference if there are two 
rows of houses. Let us take two rows of houses and say that a 
man derives from those $5,000 a year and that some of them during 
the year are vacant and others are occupied, but that they are 
two rows of houses from which he has been in the habit of de- 
riving an income. Nobody would contend that he should not be 
allowed to deduct the taxes from the income which he would re- 
ceive in respect of those two rows of houses. Let us go back to 
my former example. Two men have each a salary of $10,000. One 
man has a family to keep and spends the entire $10,000 upon him- 
self and his family in their maintenance and education. The other 
man has a considerable quantity of real estate, and has to pay 
out $4,000 or $5,000 of his income on taxes. We must not assume 
that that money is lost. He is paying it out to protect his own 
property; and the first ynan that I have mentioned would have every 
reason to complain if we assessed him upon the full $10,000 and 
explained to him as a reason why we did not assess his neighbour 
who drew precisely the same salary as he did, that he held a good 
deal of real estate and took a considerable amount of that income 
to pay taxes upon that real estate. I think the first man would have 
a real grievance. He would say: His income is the same as mine; I 
spent mine in keeping my family and educating my children, and 
he spent his in paying taxes upon some unproductive real estate 
which may give him an excellent return in years to come. I do not 


Re Section 3 — Continued. 

believe we sJiould go hack of the man's income. If a man has an 
income of $10,000, and diminishes that income hy losses he makes 
on real estate, or by amounts paid for taxes, or otherwise, what is 
the difference hetween that and the man who has an income of 
$10,000 and loses $5,000 in a stock speculation f He might say: "I 
have lost $o,000 in stocks, therefore I want you to asses^ me at 
$0,000, instead of $10,000.'' We should say, ''No, your income was . 
$10,000; you speculated in stocks, which is not the ordinary 
course of your business at all, and you lost this money; that does 
not affect your income, which is $10,000." If you laid down the 
principle that you would allow a man to deduct losses made in 
business in which he is not engaged, such as stock speculation, or 
real estate speculation, you might just as well never pass the Act, 
because it would be evaded in numberless ways. The true prin- 
ciple of the matter is, what is a man's income? Every one knows 
what you mean. If you ask a man on the street ''What is so-and-so's 
income?" nobody will misunderstand you. You will be told it is 
the amount he gets from his employer, if he is employed. If, on 
the other hand, his income is derived from stocks, bonds or securi- 
ties, everybody understands it is what he receives in the way of 
interest and dividends upon those securities. It is a common-sense 
matter. My hon. friend quoted section 3, to show that not only 
was individual income included — that is to say the individual in- 
come of a man from his trade, profession or calling — but also 
his income from investments. We all know what that means. It 
means his income from investments after he pays any necessary 
outgoings in connection with those investments, whether it is 
house property or not, plus the income he receives in his trade, 
profession or calling. It is not for us to inquire what he does with 
his income after he gets it. We are not interested in knowing 
whether he loses it in a stock speculation, or spends it foolishly. If 
you have to follow what a man does with his income, and allow it 
to be urged that lie lost it in a stock speculation, or in a real estate 
speculation, or spent it foolishly, you might just as well never pass 
the Act. 

Mr. Cockshutt: I have a piece of property which has been in Deductions 
the family for three generations. It has come down to me as an from prop- 
inheritance and I ivould hesitate to part with it. I am not what ^"^ income. 
you would call a real estate dealer, but I have my investments 
largely in real estate, and as a business man I have made my re- 
turns for years to the city of Brantford as to my income. I should 
be very sorry indeed to think I was deceiving them, but I have taken 
a course which I am bound to say is the course I ivould take if the 
Finance Minister asked me to tell him what my income was — I 
would do my best to tell him my net income, deducting all expendi- 
tures in the loay of taxes, repairs, insurance and everything of that 
kind, ivhich every man who owns property knows he has to make. 

Siu Thomas White: There is no objection to that. 

Mil. Cockshu'it: But, according to the Minister, there is an 
objection to it. He instances the case of a man who loses part of 


Taxes on 
tive prop- 

Ileal estate 
capital and 

Re Section 3 — Continued. 

his salary in speculating and real estate. When I make ^my rey 
turns to the Brant ford assessors, I deduct the repairs, taxes, in- 
surance, and everything. On the other side, I put the rent received, 
and the difference is my income. I think that is the fair way of 
doing it, and it ivas" with a view to getting the matter settled and 
enabling a man to make a proper return to the department that I 
raised the question. I am, in a small way, a trustee for some real 
estate, and I know this method of making returns has been found 
equitable and satisfactory by the courts. If it is proper for a trus- 
tee, it ought to be proper for an individual. There i» another point 
I wish to mention. If the Finance Minister tells a man he has 
an income of $25,000, and the man himself says "My iyicome is 
only $15,000,*' it is up to the Minister of Finance to show him where 
the $25,000 is. If a man only has an income of $15,000, and it is 
sought to a&sess him on an income of $25,000, I think he has a very 
reasonable grievance against the Government. I am not saying 
this with a view to paring down at all, because I am quite satis- 
fied and willing to pay anything I may be called upon to pay under 
this Act; but, as a man who has to make a report, I do not want 
to be subject to a $10,000 fine for making a false report. I teas not 
dealing at all with the matter of salary or anything but an income 
from real estate, which income is the difference between the revenue 
and the outgo or expenditure. It seems to me that is equitable and 
right. I cannot see it in any other way. 

Sir Thomas White: We icere discussing the question raised 
by my hon. friend' from Rouville {Mr. Lemieux), whether a man 
with a salary of $10,000 should be alloived to deduct from it the 
taxes which he might pay in respect of some unproductive pro- 
perty which he held. If a man's income is derived from real 
estate his calling, so to speak, is that of a landowner, although, of 
course, he is not a professional man in that sense He has to take 
his unproductive houses and estimate the net return, as my hon. 
friend has suggested. The proposition I am laying down is that a 
man ivith an official salary of $10,000 should not deduct from\ it 
the $1,000 or $2,000 that he may have to pay in taxes on unproduc- 
tive property. I am in the position where I shall have to pay in 
this respect just like other people. I have to pay taxes on unpro- 
ductive property, and I certainly do not intend to deduct the taxes 
from my income. I think that is how the boards will construe the 
Act. That is the loay they have construed the income tax legisla- 
tion of the United States. 

Mr. McCrea: Suppose that a man has two properties that he 
is carrying on his books at a certain value. One of them he sells 
for possibly twice ivhat he is carrying it at. Would that be con- 
sidered as income for that year? The other property lie sells at a 
loss. How would the Minister treat that? If one is counted as 
profit, the other should be counted a^ loss. As I understand the 
Minister, capital will have nothing to do with profits. If a man has 
a property and sells it at a profit of 20 or 50 or even a hundred per 
cent, that will not be taxed. If he sells his property at a loss, do I un- 
derstand that lie will not be allowed to deduct that amount? 


Re Section 3 — Continued. 

Sir Thomas White: / think I agree with my hon. friend. It 
uoiild not be fair to count as income in any given year the profit 
which one might make on the sale of real estate which a man had 
held for a number of years, for that would nat he annual gain, and I 
do not think it would be possible to apportion a certain amount of it 
in respect of the year in question. The same argument would apply 
to the other property. A great number of the questions that have been 
raised here are of theoretical importance, but not likely to become 
a practical is»ue in the administration of the Act. In connection 
with the Business Profits War Tax we had many cases where pro- 
perties were sold at a profit after being held for a number of years. 
But in the working out of the Act it was recognized that that was 
not gain for that particular year and no difficulty was experienced. 

Mr. Verville: Suppose I am paying $1,000 interest on a pro- j^jort^'affe 
perty mortgage? Would I be allowed to deduct that amount from interest 
my income? If I am taxed on that $1,000, and the man who receives paid. 
it counts it as part of his income and is also taxed on it, that tvould 
be double taxation? 

Sir Thomas White: In the case my hon. friend suggests, where 
he is paying $1,000 interest upon a mortgage upon some property 
uhich he holds, he would be entitled to deduct front the revenue 
which he derived from that property the interest which he paid on 
the mortgage. On the other hand, the mortgagee would derive from 
my hon. friend the thousand dollars which would be a part of his 

Mr, Lemieitx: Take the case of a man who buys some stock Partial 
and makes only a partial payment and the stock is hypothecated paj'ment 
icith the bank. Let us say that I buy 500 shares of Ottawa Electric, ^ou^ht^ 
and that I pay for- 100 shares, the bank carrying the stock, how 
should I be assessed in that case? 

Sir Thomas White: This Bill will work out in this way: My ■ 
hon. friend, we will say, is entitled to $1,000 on those shares, out 
of which he has to pay $600 to the bank for carrying them. The 
balance of $.'iOO would be the net earnings which my hon. friend 
would derive from the investment. 

Sir Thomas White: I want to make it perfectly clear that by Payments to 
this legislation it is not provided that a man may deduct from the Patriotic 
amount of his taxation the amount he contributes to the Patriotic p°^ 9,*°' 
and Canadian Red Cross Funds. Funds!^*^^* 

That is a deduction from the total amount of a person's in- 
come. If a man's income ts» $10,000 a year and he subscribes and 
pays $1,000 to the Canadian Patriotic Fund, then he would be en- 
titled to deduct that and say that his income for the purpose of 
taxation is $9,000, but he is not entitled to say: My tax under this 
measure is $J,00 or $500. and because I have paid $.'iOO or $500 to the 
Patriotic Fund, I am not entitled to pay anything more. 

Mr. Li':miei:x: / was asked this evening if a subscription made 
this year to the Patriotic -Fund or to the Red Cross Fund would be 


from Dom. 
war loans. 

Re Section 3 — Continued. 

deducted in accordance with the explanation given hy my hon. 

Sir Thomas White: Yes, this Bill applies to incomes for the 
calendar year. Therefore, any contribution made during this cal- 
endar year may &e deducted from the income. 

I have endeavoured to hear in mind that if the tax is too heavy 
it may seriously affect contributions to the Patriotic and Red Cro»s 
Funds, ivhich have been so generously supported by the people of 
Canada. But if we allow contributors to these funds to deduct these 
contributions from the amount of taxation to which they are liable 
under this mea&ure, will that not be tantamount to our paying their 
subscriptions? 2'here might be cases in which subscribers have sub- 
scribed, and will sub&'cribe, more than the amount of their taxes, 
but it would seem to me that if we took their subscriptions as cash 
in payment of the taxes under this measure, the Government would 
simply be paying their contribution and ass'iiming the burden of 
the fund to that extent. My hope was and is that this income tax, 
while undoubtedly heavy, is not unduly heavy, having regard to war 
conditions, and that the well-to-do people of this country icho have 
done so well with the Patriotic and Red Cross Funds will still con- 
tinue their subscriptions. I have believed it desirable not only that 
the Patriotic Funds and Red' Cross should be smstained, but that 
these contributions should be continued in the interests of the 
donors themselves, because when a man gives to the Patriotic Fund 
or any other worthy object, he really benefits himself as well as the 
object to which he is contributing, hi connection with the Patriotic 
Fund these contributions have made for patriotic spirit which has 
meant a great deal in connection with the prosecution of this war. 
I should dislike very much there being any feeling that discrimin- 
ation existed. Some citizens subscribe directly: others concur in 
legislation taxing themselves and others for the purposes of the 
Patriotic Fund. Probably each taxpayer will indicate in his return 
the amount for which he has been taxed for patriotic funds. 

Mil. Marcil: If a man has invested in Dominion war loans and 
has derived a certain revenue therefrom, is that revenue exempt? 

Sir Thomas White: All war loan issues are exempt from. Dom- 
inion taxation. 


On Subsection 2, Section 3 — Holding Companies: 

Sir Wilfrid Laurier: What is the meaning of this? Can my 
hon. friend give a concrete case? 

Sir Thomas White: If a company owns all the stock of an- 
other company, there is no reason why it should not take the 
product of that second company at any price that may be agreed 
upon irrespective of whether it is a fair market price or not, be- 
cause the first-named company owns all the shares of the second. 
There might be an international case in which a company in the 
United States loould own all the shares of a company in Canada. 
The Canadian company might be doing a highly profitable business 


Re Section 3 — Continued. 

if it was carrying on its affairs in the iLsual course, hut hy reason 
of a contract wliich it might have with the United States company 
to sell its products at a very low rate, it might show no profits at 
all. I may say this section is the same as the one in the Business 
Profits War Tax Act, inserted for the purpose of making such com- 
panies contribute reasonably under that -measure of taxation. 

On Subsection 3, of Section 3 — Non-residents: 

Sir Herbert Ames: May I ask the Minister what will happen jy^on 
in a case like this. I know a gentleman in Montreal who is man- residents. 
ager of a large business concern. He is an American citizen, and 
still holds, technically speaking, his residence in the United States. 
He is taxed on. his income in the United States, but he draws his 
income as a salary in Canada. Will he be taxed a second time 
in Canada, and therefore have to pay two income taxes? 

Sir Thomas White: I should say the Government which should 
give away would be the Government of the United States. This 
gentleman is domiciled in Canada and is drawing his salary in Can- 
ada. There is no reason why he should not pay the income tax. 
If he is subject to an income in the United States, that is a matter 
he should take up with the United States Government. I cannot 
see how we could distinguish his case from the case of any one 
else drawing a salary in Canada. 

Mr. Loggie: Does this subsection include a corporation? 

Sir Thomas White: Yes. 

Mr. Loggie: Does a corporation doing business in Canada, x^nited 

whose head office is in the United States, have to make up a state- States Co. 

ment of the revenue from its Canadian business? doing 

business m 

Sir Thomas White: Yes. Canada. 

4. (1) There shall be assessed, levied and paid, upon income tax. 
the income during the preceding year of every person 
residing or ordinarily resident in Canada or carrying 
on any business in Canada, the following taxes : — 

(a) four per centum upon all income exceeding over $i,500 
fifteen hundred dollars in the case of unmarried^lJ'and 
persons and widows or widowers without depend- over$3,ooo, 
ent children, and exceeding three thousand dollars 

in the case of all other persons ; 

and in addition thereto, 

(b) two per centum upon the amount by which the over $ 
income exceeds six thousand dollars and does not two per^nt. 
exceed ten thousand dollars; and, 


Section 4 — Continued. 

(c) five per centum upon the amount by which the 
income exceeds ten thousand dollars and does not 
exceed twenty thousand dollars; and, 

(d) eight per centum of the amount by w^hich the 
income exceeds twenty thousand dollars and does 
not exceed thirty thousand dollars; and, 

(e) ten per centum of the amount by which the 
income exceeds thirty thousand dollars and does 
not exceed fifty thousand dollars ; and, 

(/) fifteen per centum of the amount by which the 
income exceeds fifty thousand dollars and does not 
exceed one hundred thousand dollars ; and, 

(g) twenty-five per centum of the amount by which 
the income exceeds one hundred thousand dollars. 

(2) Corporations and joint stock companies, no 
matter how created or organized, shall pay the normal 
tax upon income exceeding three thousand dollars, but 
shall not be liable to pay the supertax ; and the Minister 
may permit any corporation subject to the normal tax, 
the fiscal year of which is not the calendar year, to 
make a return and to have the tax payable by it com- 
puted upon the basis of its income for the twelve 
months ending with its last fiscal year preceding the 
date of assessment. 

Partner- (3) Any persous carrying on business in partner- 

Habie^to ax. ship shall be liable for the income tax only in their 
individual capacity. 

(4) A person who, after the first day of August, 
1917, has reduced his income by the transfer or assign- 
ment of any real or personal, movable or immovable 
property, to such person's wife or husband, as the case 
may be, or to any member of the family of such person, 
shall, nevertheless, be liable to be taxed as if such 
transfer or assignment had not 'been made, unless the 
Minister is satisfied that such transfer or assignment 
was not made for the purpose of evading the taxes 
imposed under this Act or any part thereof. 

Over $10,000 
to $20,000, 
five per cent. 

Over $20,000 
to $30,000, 
per cent. 

Over $30,000 
to $50,000, 
ten per cent. 

Over $50,000 
to $100,000, 
per cent. 

per cent. 

tions pay 
4 per cent. 
Fiscal year 
of corpora- 

Transfer of 
to evade 


Sectiox 4 — Continued. 

(5) Taxpayers shall be entitled to the following Deductions 
deductions from the amounts that would otherwise be ^ ^^^ ' 
payable by them for income tax, — 

(a) from the income tax accruing for the year Amounts 
one thousand nine hundred and seventeen the fpedanvar 
amounts paid by any taxpayer for taxes accruing ^crSTs 
during the year one thousand nine hundred and for 1917 and 
seventeen under the provisions of Part I. of The 
Special War Revenue Act, 1915, and from the 
income tax payable for any year thereafter the 
amounts paid by the taxpayer for taxes accruing 
during such year under the said Part I. of the 
said Act; and, 

(h) from the income tax accruing for the year one Amounts 
thousand nine hundred and seventeen the amounts Bu^siness^^ 
paid by any taxpayer under The Business Profits ^^^J^^ Y^^ 
War Tax Act, 1916, and any amendme^s thereto loie, for 
for any accounting period ending in the year one period end- 
thousand nine hundred and seventeen. In the case ^^^ ^° ^^i'^- 
of a partnership each partner shall be entitled to 
deduct such portion of the tax paid by the part- 
nership under The Business Profits War Tax Act, 
1916, as may correspond to his interest in the 
income of the partnership. 

Sir Thomas White: A corporation is liable to taxation upon Companies 
its profits, whether distributed or undistributed. There is a clause tlfxation on 
— section S (Jf) — to the effect that undistributed profits which were profits 
in the opinion of the Minister being held for the purpose of evad- whether 
ing the tax ivould be subject to the supertax distributed 

Sir Thomas White: It is perfectly clear. In the first place t»"ibuted. 

four per cent, is collected upon all incomes exceeding $3,000. That ^^^'thodof 
• ^T. ^ ^- .. T^ ^ . t «Jv^^ x^^^ , caloulatins: 

IS the starting point. If a man has an income of $100,000 the way normal tax. 

you start to determine how much he is to pay is this: You sub- 
tract $3,000 from $100,000, that leaves $97,000, and of that you 
take four per cent. 

Sir Wilfrid Laurier: The normal tax runs all the way up? 

Sir Thomas White: All the way up to $100,000. Take the con- Calculation 
Crete case of a*man with an income of $1,000. In the first plac^ of normal 
he is entitled to be taxed at the rate of four per cent, upon all his ^^^ super- 
income in excess of $3,000. Four per cent, upon .t>.'i,uO0 is $UiO. ^^^' 
Then, as the income exceeds $6,000 by $1,000, there is two per cent. 


Re Section 4 — Continued. 

additional upon that $1,000, ivhich is $20. Add $20 to $160 and you 
have $180 as his tax. 

Income of / think it well that 'both wife and hushand should be assessed 

husband j^ respect of their assessable income, and should he entitled to the 

exemption of $3,000 each, hut in order to prevent evasion of the tax 

subsection Jf of section J/ has been inserted. 

The effect of that ivill be that bona fide transfers, some of which 
might occur, will of course not be affected, but if the circumstances 
are such that the transfer is made for the purpose of evading the 
tax, in order that the "benefit may be had of the double exemption, 
this subsection will meet the case. I think the Act as it stands 
with exemptions to each, is probably fair. The law of the several 
provinces recognizes the right of property in the wife as an in- 
dividual, and it seems to me she should &' entitled to exemption. 

Large Sir Thomas White: / ivant to say a word or two with regard 

profits. tQ fjiQ question of large profits. Take a balance sheet which shows 

that a concern makes, we will say, $1,000,000. The man who^ is 
not acquainted with a balance sheet thinks that that means that 
this firm has made $1,000,000 in cash. How are the^ profits; can 
riedf They may be in stocks of goods bought at the top of the 
market, at the high prices prevailing in war time, in raw material 
bought at higher prices than have ever prevailed before; they may 
be represented by extensions of plant which have been made dur- 
ing the year, and instead of the firm or company having $1,000,000 
in cash they may owe this $1,000,000, or they may owe the bank 
$100,000 or $200,000 at the end of the year. It has a bearing upon 
the amount of actual cash it is proper to take out of these firms 
by means of the Business Profits War Tax. The balance sheet will 
show that, but the statement goes out to the country that a company 
has made $1,000,000 and an uninformed man might reach the con- 
clusion that they made $1,000,000 in cash, whereas it may have 
gone into extension of plant, or stocks of goods which will depre- 
ciate next week or before they are sold, or into raw material which, 
when worked up into finished product, shows a loss. Thus, in 
dealing with the question of how much cash a company or a busi- 
ness Jias, you must have regard to the situation that prevails in 
that way. The situation is that the taxation power of the Govern- 
ment is not exhausted and it will be exercised at the proper time, 
having regard to the conditions that then prevail and to the necessi- 
ties with which we are then confronted arising out of the war. 

Sir Wilfrid Laurier: Under the conditions which my hon. 
friend has just stated, a balance sheet showing $1,000,000 of profits 
one part of which has gone into extension of plant, another into 
goods on the shelf and another into raw material, is my hon. friend 
to tax the business in accordance with the principle laid down in 
section S of the Bill in the following words: 

" And shall include the interest, dividends or pfofits directly or 
indirctly received from money at interest upon any security or with- 
out security, or from stocks, or from any other investment, and 
whether such gains or profits are divided or distributed or not.*^ 


Re Section 4 — Continued. 

Sir Thomas White: There is no douht that under this income Profits tax- 
tax measure, if a company such as my right hon. friend has in mind ^^^^ however 
— let us say a commercial company — shows hy its balance sheet that ^^P^^^^^ ^ • 
it has made a net profit of $100,000, even although that net xtrofii 
is represented in goods, which will he taken according to the in- 
ventoried value, the tax will apply to the $100,000. 

Sir Thomas White: It has been stated that this income tax i^uginegg 
is to take the place of the Business Profits War Tax Act. It i« Profits War 
intended to do nothing of the kind. Tax Act. 

This income tax legislation does not refer to the Business Profits 
War Tax at all, except to this^ extent: If an individual or a firm or a 
company has to pay the tax imposed by the Business Profits War Tax 
Act, and if that is greater than the amount for which that individual 
or firm or company would be liable under this income taxation 
ineasure, then the individual or firm or company pays the greater 
tax, and does not pay the income taxation. . . . The Business 
Profits War Tax Act was introduced in 1916, and at that time it was On 1917 
stated, and it so appears in the measure itself, that liability to taxa- P^^^^s com- 
tion under section 3 of that Act, which is the operative clause, the greater 
would terminate on December 31, 1917. , tax. 

Let us see what the position is. I pointed out to the House that 
this measure was introduced in 1916, and it was retroactive in 
effect. It applied to profits made in 1915, although such profits 
had in many cases been distributed to shareholders or invested in 
plant. What is the position of the Business Profits War Tax Act 
to-day f It is this: the individuals, firms and companies who are 
liable under that tax paid out of their profits of 1916, because the 
tax was retroactive, the amount to which they were liable in re- 
spect of 1915, and they pay this year, 1917, upon their profits of 
1916. Next year, 1918, they will pay a heavy taxation against their 
profits of 1917. The point I make is that this was a three year 
measure, retroactive, and that is the feature which is lost sight of 
for one year. They paid in 1917, and they ivill pay in 1918, the 
heaviest business tax in the world. That holds the situation until 
1918, so far as concerns those ivho are making abnormal profits 
out of the war. This income tax provides that if by chance there 
should be any firms — and I believe there will be very few indeed — 
whose taxation under the business profits war tax payable next 
year, in respect of their earnings this year, will be equal to or less 
than the taxation which they would pay under this measure, they 
may deduct it. That is all it means. The idea is simply they are 
not to pay the heavy business profits war tax and this income tax 
as well. 

Mr. Pardee: Do they deduct the amount of the income tax 
under this Bill from their original business war tax, and pay the 
business war tax in full? 

Sir Thomas White: No, it is the other way around, f^ apposing 
my hon. friend was fortunate enough to be taxable next year, 1918, 
to the extent of $100,000 under the Business Profits War Tax Act 





not liable 
to tax. 

Re Section 4 — Continued. 

amendment of this year, and supposing if that Act were not in ex- 
istence he would be liable under this legislation to pay $50,000, 
he ivould pay the $100,000. He pays the larger tax. 

Hansard, p. 4819. 

Mr, Pardee: As I understand this matter, the hon. Minister of 
Finance has practically said that the Income Tax is being introduced 
in lieu of what is known as the Business Profits War Tax. 

Sir Thomas White :^ No, that is not correct. 

Mr. Pardee: As I understand the matter, the Business War Tax 
is to come to an end, and will not be continued after the end of the 

Sir Thomas White: The Business Profits War Tax, by its 
terms, comes to an end on December 31st of this year. When that 
measure was introduced, it was thought the war would be at an 
end by that time. I stated expressly the other day that we should 
tax abnormal business profits resulting from the war and in the 
next Budget that I bring down we shall deal with that matter. 

Mr. Pardee: Can we take it in this way: that the present War 
Tax Profits Bill expires December 31, 1911? 

Sir Thomas White: By its terms. 

Mr. Pardee: Will there be a renewal? 

Sir Thomas White: I have stated that next year a taxation 
will be imposed on excess business profits. I stated also the other 
day that it might be necessary to make some allowance for neces- 
sary plant extensions, but I laid down the principle, as strongly a? 
/ could, that abnormal business profits due to the war must be 
abnormally taxed. 

5. The following incomes shall not be liable to taxa- 
tion hereunder, — 

(a) the income of the Governor General of Canada; 

(b) the incomes of Consuls and Consuls General who 
are citizens of the country they represent and who 
are not engaged in any other business or profes- 
sion ; 

(c) the income of any company, commission or asso- 
/ ciation not less than ninety per cent, of the stock 

or capital of which is owned by a province or a 
municipality ; 

(d) the income of any religious, charitable, agricul- 
tural and educational institutions. Boards of 
Trade and Chambers of Commerce; 


Section 5 — Continued. 

(e) the incomes of labour organizations and socie- 
ties and of benevolent and fraternal beneficiary 
societies and orders; 

(/) the incomes of mutual corporations not having 
a capital represented by shares, no part of the 
income of which inures to the profit of any mem- 
ber thereof, and of life insurance companies, 
except such amount as is credited to shareholders' 
account ; 

(g) the incomes of clubs, societies and associations 
organized and operated solely for social welfare, 
civic improvement, pleasure, recreation or other 
non-profitaible purposes, no part of the income of 
which inures to the benefit of any stockholder or 

(h) the incomes of such insurance, mortgage and 
loan associations operated entirely for the benefit 
of farmers as are approved by the 'Minister ; 

(i) the income derived from any bonds or other 
securities of the Dominion of Canada issued 
exempt from any income tax imposed in pursu- 
ance of any legislation enacted by the Parliament 
of Canada; and, 

(j) the military and naval pay of persons who have 
been on active service overseas during the present 
war in any of the military or naval forces of His 
Majesty or any of His Majesty's allies. 

Ox Section 5 — Incomes not liable to tax; paragraph (j) : 

Mr. Graham: / presume that, as a matter of fact, comparatively Military and 
few incomes of men at the front will he taxable any way? naval pay. 

Sir Thomas White: Some. Their pay is exempt. 

Mr. Graham: / know that the pay they receive as members of 
the military forces is exempt hut their entire incomes are not ex- 
empt. Has the Government considered the question of exempting 
the entire incomes, up to a certain amount, of men who are serving 
at the front? 

Sir Herbert Ames: They will he exempt to the extent of 
■$3/)00 hesides hy this Bill. 

Mr. Graham: I imagine they will he exempt up to $3,000. 
But suppose a man's income is $5,000, would it he unreasonahle 


Farmers' in 
surance and 


of tax at 

Re Section 5 — Continued. 

that, in consideration of the fact that he is serving at the front, 
he should be exempt to that extent F I have not thought of the 
matter very much. It was suggested to me to-day. I am not sure 
of the effect it would have on the finances, hut the Minister might 
think it over and it might he worthy of consideration. 

Sir Thomas White: / think it worthy of consideration. As 
a matter of fact there is no exemption we could give that would 
be more than these men deserve, but when we exempt the military 
and naval pay of thos»who have been on active service overseas, 
we practically exempt them all from the income tax levied because 
there is a $3,000 exemption besides. 

Mr. Graham: That is for married men. 

Sir Thomas White: Yes, and $1,500 for single. My own view 
is that there will be no taxation for those who are at the front. 

Sir Herbert Ames: What is the argument in favour of para- 
graph (h)?: 

The incomes of such insurance, mortgage and loan assoications 
operated entirely for the benefit of farmers as are approved by the 

Supposing a co-operative, mortgage or loan association was con- 
ducted for the benefit of people who were not farmers? In the 
cities there are co-operative building societies. 

Sir Thomas White: Paragraph (/) exempts them: 
If a company is not operated for the gain of the shareholders it 
will be exempt. 

Mr. Murphy: 7s the Minister satisfied that under paragraph 
(g) of section 5 a club or association, with the ingenuity, for in- 
stance, of a racing association, could not bring itself within that 
exemption? If the Minister has given the matter thought, I would 
ask him for an answer. If he has not, I would commend the matter 
to him. 

Sir Thomas White: 7 think the word "non-profitable'* would 
exclude such associations. It is not the intention to exempt a 
racing association that is operated for gain. 

Mr. Murphy: Racing associations would not admit they are 
operating for gain. 

Sir Thomas White: The question is one of fact. If any gain 
were made, they would clearly be liable under this measure. The 
object of this exemption is obvious on the face of it. 

6. (1) All persons in whatever capacity acting, 
having the control, receipt, disposal or payment of 
fixed or determinable annual or periodical gains, pro- 
fits or income of any taxpayer, amounting to or exceed- 
ing fifteen hundred dollars in the case of unmarried 
persons or widows or widowers without dependent 


Section 6 — Continued. 

children, and three thousand dollars in the case of all 
other persons, shall, on behalf of such taxpayer, deduct 
and withhold an amount equal to the normal tax pay- 
able upon the same under this Act, and shall pay the 
amount so deducted to the Minister, and shall also 
make and render a separate and distinct return to the 
Minister of such gains, profits or income, containing 
the name and address of each taxpayer. 

(2) When the income tax of a taxpayer, is withheld Noexemp- 
and deducted under the provisions of this section, such notice given 
taxpayer shall not receive the benefit of any exemption ^alje^*"^^ 
or deduction under this Act unless he shall, not less 
than thirty days prior to the day on which the return 
of his income is due, under section seven hereof, {a) file 
with the person who is required to withhold and pay 
the tax for him a notice in writing claiming such 
exemption or deduction and thereupon the tax to the 
extent of such exemption or deduction shall not be 
withheld from such taxpayer, and, (h) file with the 
person aforesaid and with the Minister such return of 
his income and a statement of the deductions and ex- 
emptions as the Minister may direct. 

Mr. a. K. Maclean: Would the Minister briefly state the pur- Trustees to 
pose of this section and how and when it could &e iitilizedf Could deduct tax. 
you use it for instance in the case of brokers on an exchange? 

Sir Thomas White: This section covers a class of trustees in 
whom securities are vested in trust to pay over the income. It is 
to ensure that the Government will get the tax from that source. 
We look to the trustees. Of course, if he pays it on behalf of the 
beneficiary, the beneficiary is made the allowance. This is taxa- 
tion at its source. 


Mr. McKenzie: Is there anything in the Bill to cover estates? 
There are in this country large estates where money is acciimulat- 
ing, perhaps by reason of the children not being of age. 

Sir Thomas White: A trustee, having property vested in him 
and having an income in respect of it, is liable to pay. If he pays, 
in respect of the share of income which the beneficiary receives, the 
beneficiary receives credit for that payment; but if, under the con- 
ditions of the trust under which he is acting, he gets income which 
he accumulates for those who may come into being, say a genera- 
tion from now, he is liable as a person in respect of that income, 
so that estate is taxed. 


return to 
of total 

Returns, by 
whom to be 
made and 

7. (1) Every person liable to taxation under this 
Act shall, on or before the twenty-eighth day of Feb- 
ruary in each year, without any notice or demand, 
deliver to the Minister a return, in such form as the 
Minister may prescribe, of his total income during the 
last preceding calendar year. In such return the tax- 
payer shall state an address in Canada to which all 
notices and other. documents to be mailed or served 
under this Act may be mailed or sent. 

(2) The return in the case of a corporation,* asso- 
ciation or other body, shall be made and signed by the 
president, secretary, treasurer or chief agent having a 
personal knowledge of the affairs of such corporation, 
association or other body, or, in any case, by such 
other person or persons employed in the business liable, 
or believed to be liable to taxation, as the Minister 
may require. 

(3) If a person liable to taxation hereunder is un- 
able for any reason to make the return required by 
this section, such return shall be made by the guardian, 
curator, tutor or other legal representative of such 
person, or if there is no such legal representative, by 
some one acting as agent for such person, and in the 
case of the estate of any deceased person, by the 
executor, administrator or heir of such deceased per- 
son, and if there is no person to make a return under 
the provisions of this subsection, then such person as 
may be required by the Minister to make such return. 

Returns by (4) All employers** shall make a return of all per- 

saiaries^?nd^ ^^^^ ^^ their employ receiving any salary or other re- 
by compan- muueration, any portion of which is liable to taxation 
dends, etc. Under this Act, and all corporations, associations and 
svndicates shall make a return of all dividends and 
bonuses paid to shareholders and members. Such re- 
turns shall be delivered to the Minister on or before the 

* Auditor's Balance Sheet and Profit and Loss Account must be 
forwarded with return. 

** Return by employers to cover particulars of salaries of employees 
receiving $1,000 or more per annunj. Tax will not be deducted from 
salaries by employers. 

Return by 
legal repre- 


Section 7 — Continued. 

twenty-eighth day of February* in each year, without 
any notice or demand being made therefor, and in 
such form as the Minister may prescribe. 

(5) The Minister may at any time enlarge the time Enlarging 
for making any return. returns^ 

Ox Section 7 — Annual Returns to Minister of Total Income. 

Mr. Michaud: Are special forms' to 'be sent to the taxpayers? 

Sir Thomas White: There are certain forms in the schedule, 
hut we have power given under a later provision of the Act to call 
for such information as we require from the taxpayer, and the 
mode of administration will be ju&t as under the Business Profit 
Tax, to send the necessary forms' to citizens and to have them filled 
up and returned to the department. 

8. (1) If the Minister, in order to enable him to make Additional 
an assessment, desires further information, or if }ie ^"^°™^*^^°* 
suspects that any person who has not made a return 

is liable to taxation hereunder, he may, by registered 
letter, require additional information, or a return con- 
taining such information as he deems necessary, to be 
furnished him within thirty days. 

(2) The Minister may require the production, or the Production 
production on oath, by the taxpayer or by his agent ^ount^e'tc^^ 
or officer, or by any person or partnership holding, or 
paying, or liable to pay, any portion of the income of 

any taxpayer, of any letters, accounts, invoices, state- 
ments and other documents. 

(3) Any officer authorized thereto by the Minister inquiry as 

1 1 . • 1 T " i» to income. 

may make such inquiry as he may deem necessary tor 
ascertaining the income of any taxpayer, and for the 
purposes of such inquiry such officer shall have all the 
powers and authority of a commissioner appointed 
under Part I. of the Inquiries Act, Revised Statutes of 
Canada, 1906, chapter one hundred and four. 

9. (1) For every default in complying with the pro- Penalty, 
visions of the two next preceding sections, the tax- 
payer, and also the person or persons required to make 

* Time extended in 1918 to 31st March, 1918. 




Sectiox 9 — Continued. 

a return, shall each be liable on summary conviction to 
a penalty of one hundred dollars for each day during 
which the default continues. 

(2) Any person making a false statement in any 
return or in any information required by the Minister, 
shall be liable on summary conviction to a penalty not 
exceeding ten thousand dollars or to six months' im- 
prisonment, or to both fine and imprisonment. 

Sir Wit>frid Laurier: By the preceding section the Minister 
may compel a man to produce letters, accounts, etc.. on oath. Suh- 
section 2 of section 9 says that " any person making a false 
statement'^ shall be liable on summary conviction to acertain 
penalty. Now, if a man makes a false statement binder oath he is 
guilty of perjury, and he ought to have the benefit of a jury, and 
not be tried simply by a magistrate. 

Sir Thomas White: / think he would be liable to both. If a 
man commits perjury he would be liable under the Criminal Code. 
The provision in subsection of section 9 for a penalty on summary 
conviction is in addition to the penalties of the Criminal Code. 

Mr. Michaud: Under subsection 2 he would be, liable to 6 
months' imprisonment, and he could still be brought before a high 

Sir Wilfrid Laurier: A man should not be subject to two trials 
and two penalties. It should be either the one or the other. It is 
all right to provide for a penalty on summary conviction, but if a 
mail makes a false statement under oath he ought to be tried by 

Sir Thomas White: // he made a false statement in the returns 
he would be liable to the penalties provided here, and I think he 
could be proceeded against for perjury. 

Mr. Robb: I call the Minister's attention to what seems to me 
to be a hardship. In section 1 (//) it is provided that: 

''Such returns shall be delivered to the Minister on or before 
the twenty-eighth day of February in each year, without any notice 
or demand being made therefor.'' 

Then section 9 provides for a penalty of $100 for each day during 
which the default continues. Now firms or individuals may un- 
knowingly default. 

Sir Thomas White: Legislation of this kind always inns this 
way. There is confidence that the Government will not exercise the 
powers given here oppressively, in the case of a citizen defaulting 
unknowingly. It is necessary that the onus be put on the citizen 
of making the returns. But in the practical working out of the 
Act, just as in the Business Profits Tax Act the various officials 
throughout the country will send the forms out and keep in touch 


Re Section 9 — Continued. 

with the recipients until the returns are made. I think I can as- 
sure my hon. friend that no »uch injustice as he imagines may 
result will be done to citizens. It is a penalty not exceeding $10,- 
000. There is always discretion within the limits fixed. It might 
be a fine of $10 or $50. 

Mr. Marcil: Ignorance of the laic is no excuse, but how is an 
ordinary citizen, who does not read our deliberations and who does 
not get the statutes, to know that he must make his returns be- 
fore February 28th f 

Sir Thomas White: We will contrive to let him know. We 
will get the organization, and secure information as to the citizens 
thought to be liable, give them the for^ns, and have these forms filled 
in. I admit it is a big task. At the present time we have the Business 
Profits War Tax organization. We have a Commissioner of Taxa- 
tion, an assistant commissioner, and a staff in the Finance Depart- 
ment. Then we have representatives in every province from Nova 
Scotia to British Columbia. That organization can be extended by 
the addition of other officials. The whole Dominion is covered, 
and by the expansion of that staff the business profits taxation as- 
sessment could be made, and this taxation as well. 

Sir Wilfrid Laurier: Men in the country may forget they are 
assessablei. Will your officers look after the assessment rolls in^ 
every municipality, and search out the parties who are likely to be 

Sir Thomas White: We shall be obliged to do it. We would 
not expect to administer this tax upon the unsolicited returns of . 
the public. It would not be possible to do it. The country will have 
to be covered. It will have to be ascertained, so far as it can be, 
who are properly liable to assessment, and those persons will be 
notified, just as the Assessment Department here notifies taxpayers. 

10. (1) The Minister shall, on or before the thirtieth Assessment, 
day of April in each year, or on or before such other 
date as he may in any case or cases prescribe, deter- 
mine the several amounts payable for the tax, and 
shall thereupon send, by registered mail, a notice of 
assessment in such form as the Minister may prescribe 
to each taxpayer notifying him of the amount payabie Dateof 
by him for the tax. The tax shall, be paid within one paynaent. 
month from the date of mailing of the notice of assess- 
ment. In default of pajrment, interest at the rate of 
seven per centum per annum shall be paid on such tax - 
until the said tax and interest are paid. 

(2) The Minister shall not be bound by any return Minister 
or information supplied by or on behalf of a taxpayer, ^y returns, 
and notwithstanding such return or information, or if 


tion of 
for tax. 


Board of 


Section 10 — Continued. 

no return has been made, the Minister mav determine 
the amount of the tax to be paid by any person. 

(3) Any person liable to pay the tax shall continue 
to be liable, and in case any person so liable shall fail 
to make a return as required by this Act, or shall make 
an incorrect or false return, and does not pay the tax 
in whole or in part, the Minister may at any time assess 
such person for the tax, or such portion thereof as he 
may be liable to pay, and may prescribe the time within 
which any appeals may be made under the provisions 
of this Act from the assessment, or from the decision 
of the Board, and may fix the date of payment of the 

11. No person employed in the service of His Majesty 
shall communicate or allow to be communicated to any 
person not legally entitled thereto, any information 
obtained under the provisions of this Act, or sillow any 
such person to inspect or have access to any written 
statement furnished under the provisions of this Act. 
Any person violating any of the provisions of this 
section shall be liable on summary conviction to a 
penalty not exceeding two hundred dollars. 

12. (1) The Governor in Council may appoint a 
Board or Boards of Referees, and may prescribe the 
territory or district within which a Board shall exer- 
cise jurisdiction. A Board shall consist of not more 
than three members, and the members of a Board shall 
jointly and severally have all the powers and auth- 
ority of a commissioner appointed under Part I. of the 
Inquiries Act, Eevised Statutes of Canada, 1906, chap- 
ter one hundred and four. 

(2) Every member of the Board shall take an oath 
of office in form I of the Schedule to this Act before 
performing any duty under this Act. All affidavits 
•nade in pursuance of this subsection shall be filed with 
the Minister. 

Sir Wilfrid Laurier: How many of these toards will you have 
and will they he distributed over the country? 


Re Section 12 — Continued. 

SiE Thomas White: That would depend on the number of 
appeals. From our experience of the Business Profits War Tox Act I 
should say that it would not 'be necessary to appoint permanent 
boards, but if there should be a number of appeals in, say, Nova 
Scotia, we would appoint a board of referees consisting of one, 
two or three members for the purpose of hearing and determining 
appeals. There may be very few appeals and there would be no use 
in appointing a permanent board in each province because that 
would involve considerable expense. We might appoint a county 
judge, or some lawyer of standing, or a business man, as the case 
might be, have a court of revision held and have the appeals dis- 
posed of in summary fashion. 

Mu. Robb: What remuneration is provided for these referees? 

Sir Thomas White: There is no remuneration fixed in the Act. 
It would be a matter of arrangement like the appointment of a 
commission under the Inquiries Act. I am told by the parliamentary 
counsel that it is not necessary to insert in the Act the amount of 
remuneration. It would only hamper us in the administration of the 
Act to do so. I should say that the usual fee of $20, $25 or $30 a 
day for a lawyer or county judge acting as a referee would be paid, 
but I should not like to be confined to that. 

13. A Board shall act as a Court of Eevision, and Court of 
shall hear and determine any appeal made by a tax- 
payer under this Act in such place in Canada as the 
Minister may direct. 

14. Any person objecting to the amount at which he Notice of 
is assessed, or as having been wrongfully assessed, 

may, personally or by his agent, within twenty days 
after the date of mailing of the notice of assessment, 
as provided in section ten of this Act, give notice in 
writing to the Minister in form II. of the Schedule to 
this Act that he considers himself aggrieved for either 
of the causes aforesaid, otherwise such person's right 
to appeal shall cease, and the assessment made shall 
stand and be valid and binding upon all parties con- 
cerned, notwithstanding any defect, error or omission 
that may have been made therein, or in any proceed- 
ing required by this A'ct or any regulation hereimder : 
Provided, however, that the Minister, either before or 
after the expiry of the said twenty days, may give a 
taxpayer further time in which to appeal. 


Hearing and 
decision by 


Increase of 
by Board. 

Section 15. 

15. (1) A Board, after hearing any evidence adduced, 
and upon such other inquiry as it considers advisable, 
shall determine the matter and confirm or amend the 
assessment accordingly. A Board may increase the 
assessment in anv case before it. The Board shall 
send a copy of its decision by registered mail to the 
taxpayer or his agent or officer. 

(2) In any case where the appeal is unsuccessful, the 
Board may direct that the person who appealed shall 
pay the costs or part of the costs of such appeal ; and 
if such appeal is successful, a Board may recommend 
that the costs or any part thereof be paid by the Crowm. 
The tariff of fees shall be as prescribed by the Board. 

On Section 15 — Hearing and Declsion by Board. 

Mr. Robb: Does paragraph one of this section mean that the 
board has only the right to increase assessments? 

Sir Thomas White: The hoard shall determine the matter. 
The matter will be the matter of the appeal The taxpayer will he 
appealing on the ground that he is wrongfully assessed and it will 
be for the court to reduce or confirm the assessment*. Then the 
power is given, if the court thinks^ it is a proper case, to raise the 
assessment. It is the same power that is exercised by the ordinary 
court of revision in regard to the assessment of real property. 

Mr. Robb: Should it not read: ''May increase or decrease the 

Sir Thomas White: I submit that the section as it appears 
is necessary for this reason: The appeal will he on the ground that 
the assessment is too high or that the assessment should not have 
been made. In determining the matter, it is clear that the ooard 
may reduce the assessment or hold that the party is not liable for 
it. The appeal will not he on the ground that the assessment 
should be increased. Therefore we think it necessary to provide that 
the court shall increase Vie assessment. If a party comes before 
the court and it appears that a mistake has been made, that he has 
not been assessed enough, he submits himself to the jurisdiction of 
the court and if the court says that his a&sessment shall be in- 
creased, it will only be because he is liable for an increased amount. 
No hardship can result to the man in question, because the assess- 
ment depends upon his return, and if the court should find that he 
is assessable for more than the amount for which he has been 
assesssed, it only means that he has not made a proper return. If, 
in the course of the suitor's evidence, it transpires, under the 
questioning of the court, that his income, instead of being $5,000, 
is $20,000, the court says: Not only have yoii no cause for complaint, 
but it is clear that under this measure you should be assessed for 


Re Section 15 — Continued. 

$20,000. It is most unlikely that any injustice would result from 

placing this power in the hands of the court. 

16. If the taxpayer fails to appear, either in person Proceeding 
or by agent, the Board may proceed ex parte or may ^^ ^'''**^' 
defer the hearing. 

17. If the taxpayer is dissatisfied with the decision Appeal to 
of a Board, he may, within twenty days after the mail- courr"^"^ 
ing of the decision, give a written notice to the Min- 
ister in form III of the Schedule to this Act that he 
desires to appeal from such decision. If the taxpayer 

gives such notice, or if the Minister is dissatisfied with 
the decision, the Minister shall refer the matter to the 
Exchequer Court of Canada for hearing and determin- 
ation, and such reference may be made in form IV of 
the Schedule to this Act, and he shall notify the tax- 
payer by registered letter that he has made such 
reference. On any such reference the Court shall hear 
and consider such matter upon the papers and evidence 
referred, and upon any further evidence which the 
taxpayer or the Crown produces under the direction of 
the Court, and the decision of the Exchequer Court 
thereon shall be final and conclusive. 

18. Except as hereinafter expressly provided, the Exclusive 
Exchequer Court shall have exclusive jurisdiction to JfE^xche- 
hear and determine all questions that may arise in con- ^^^^ Court, 
nection with any proceeding taken under this Act, and 

may award costs in connection therewith. 

19. (1) No assessment shall be set aside by a Board No assess- 
or by the Court upon the ground that there has been TeTLldefor 
any error or omission in connection with any proceed- te<^b°i<^ai 
ings required to be taken under this Act or any regula- 
tion hereunder, but such Board or Court in any case 

that may come before it may determine the true and 
proper amount of the tax to be paid hereunder. 

(2) All the proceedings of the Board and of the Proceedings 
Exchequer Court shall be held m camera if requested '"^ ^«^^^- 
by the taxpayer. 


Tax a debt 20. The taxes and all interest and costs assessed or 
CTown! imposed under the provisions of this Act shall be re- 
coverable as a debt due to His Majesty from the per- 
son on whom it is assessed or imposed. 

Recovery of 21. Any tax, interest, costs or penalty that may be 
assessed, recovered or imposed under this Act may, 
at the option of the Minister, be recovered and imposed 
in the Exchequer Court of Canada or in any other 
Court of competent jurisdiction in the name of His 

^minMe^r^ 22. The Minister shall have the administration of 
Act. this Act, and the control and management of the collec- 

tion of the taxation levied hereby, and of all matters 
incident thereto, and of the officers and persons em- 
ployed in that service. The Minister may make any 
Regulations, regulations deemed necessary for carrying this Act 
into effect. 

ment of^ 23. The Governor in Council may from time to time 

officers to appoint officers and other persons to carry out this Act 
AcTand ^^ or any order in council or regulations made thereunder, 
salaries ^^^ ^^^ Govemor in Council may assign the names of 
office of such officers and other persons, and grant such 
salaries or pay for their services and responsibilities 
as he deems necessary and reasonable, and may ap- 
point the times and manner in which the same shall 
be paid. 

First return 24. The first rctum to be made by taxpayers under 

Feb^'28r*' section seven of this Act shall be made on or before the 

iGiT'fi^rst twenty-eighth day of February, one thousand nine 

year's in- hundred and eighteen,* and all taxpayers shall (sub- 

ilxed. ^ ^ ject to the provisions of subsection two of section four) 

be liable to taxation in respect of their income for the 

year ending the thirty-first day of December, one 

thousand nine hundred and seventeen, and for each 

year thereafter, as provided by this Act. 

* Altered to 31st March, 1918. 



Form I. 

The Income War Tax Act, 1917, 

I, make oath 

and swear that I will faithfully and honestly fulfil the 
duties which devolve upon me as a member of a Board 
of Eeferees under The Income War Tax Act, 1917. 
Sworn before me this 

day of 

A.D., 19.... 

Form II. 

The Income War Tax Act, 1917. 

In the matter of the assessment of 

To the Minister of Finance, 

I hereby give notice that I object to the amount at 
which I am assessed for the following reasons : 

(here shortly describe reasons) 
or,l am not liable to taxation under the above Act for 
the following reasons : 

{here shortly describe reasons) 

Dated this day of 19 . . 


Form HI. 

The Income War Tax Act, 1917. 

In the matter of the assessment of. 

To the Minister of Finance, 

I hereby give notice that I am dissatisfied with the 
decision given by the Board of Referees in this matter 
for the following reasons : 

{here shortly describe reasons) 
and that I desire to appeal to the Exchequer Court of 

Dated this day of A.D., 19. . 




As Published by the Department of F'inance 

^ PAGE 2 


Gross Income Derived From 

1. Salaries and wages None 

2. Professions and vocations None — 

3. Commissions from sale of Real Estate $1000 

4. Business, trade, commerce or sales or dealings in pro- 

perty, whether real or personal 7500 

5. Farming (Horticulture, dairying or other branches) 

None — 

6. Rents 7o0 

7. Dividends (A). Canadian Corporations — 

Standard Transportation Company 

Ltd 2') 

Rainbow Mining Company Ltd... 150 
(B). Foreign Corporations — 

New York Trading Company 15 

Albany Tool Company, Inc 66 

8. Interest on notes, mortgages, bank deposits and 
securities other than reported in item 7 

Interest on Mortgages 72 

Bank Interest 21 

1200 Par Value Bonds of Jones Paint Co. Ltd. 12 

1000 Municipal Debentures. Town of Midvale 55 

9. Fiduciaries, (Income received from guardians, trus- 
tees, executors, administrators, agents, receivers or 
persons acting in a fiduciary capacity) — 

Income {not capital) from Estate of Andrew Doe 

{People's Trust Company, Executor) St5 

10. Royalties from mines, oil and gas wells, patents, 
franchises and other legalized privileges None — 

11. Interest from Dominion of Canada Bonds, issued 
exempt from Income Tax $S,000 ].50 

12. Other sources not enumerated above — 

% Interest in Shaw Hardware Company Partner- 
ship) jgo 

13. Total Income $10,9)1 


As Published by the Department of Finance 



Amount Claimed for — 

14. Depreciation .. On Store Building {not land), (Brick) $12,') 

On Equipment, used in business IJ^O 

Store Fixtures iOO 

15. Bad debts, actually charged off within the year JfO 

16. Allowance for exhaustion of mines and wells None — 

17. Contributions actually paid to the Patriotic and Can- 
adian Red Cross Funds and other approved War 
Funds Patriotic and Canadian Red Cioss 250 

18. Interest paid on monies borrowed and used in the 
business Mortgage on Store Property, $1000 00 

19. Federal, Provincial and Municipal taxes on property 

used in the business — 

General Municipal Taxes 180 

20. Interest from Dominion of Canada Bonds, issued ex- 
empt from Income Tax 150 

21. Other claims for deductions must be specified in de- 
tail — • 

Business Operating Expenses 4200 

Repairs (stating particulars) 150 

22. Total Exemptions and Deductions $5395 

2S. Amount paid under Business Profits War Tax Act, 1916, 

which accrued in the 1917 accounting period Year 

ending December 31, 1917 — None. 
I hereby certify that the foregoing return contains a true and 
complete statement of all income received by me during the year 
for which the return is made. 

Date loth March, 1918. 

Signature John Brown. 



Return to desk from which borrowed 
This book is DUE on the last date stamped below. 

LD 21-100m-9,'48(B399sl6)476 



Syrtcus; N. Y. 

PIT. JAI. 21. 1901 

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