[No abstract submitted] / Arts, Faculty of / Vancouver School of Economics / Graduate

This thesis attempts to give an equitable and just answer to the problem of subjecting the earnings of co-operative associations to the federal income tax. The first three chapters discuss the nature of a co-operative per se, the development of the co-operative movement in Canada, the financial and business methods of Canadian co-operatives and the effect which the accumulation of tax-free reserves had had upon co-operative plant values. Chapters IV and V trace the Canadian history of the controversy over co-operative income taxation, and explain the particular application of the Income War Tax Act to co-operative associations before the 1946 amendments. The next two chapters examine the recommendations of three government bodies - two in Great Britain and one in Canada - which have wrestled with the question of subjecting co-operative earnings to income taxation. Chapter VIII explains the present Canadian tax law as it applies to co-operatives and compares it to the laws found in Great Britain and certain foreign countries. Chapter IX consists of an examination of the chief arguments advanced by both the advocates of co-operative income taxation and the defenders of co-operatives from such taxation. It will be noted that the problem is dealt with statistically, historically and theoretically. Such a three sided attack is necessary if just conclusions are to be set forth. / Arts, Faculty of / Vancouver School of Economics / Graduate

Closely-held corporations differ from widely-held corporations in that there are only a few shareholders, most or all of whom participate actively in management. This implies that the objective function is the owners' utility rather than profits, and corporate behaviour is influenced by both the corporate and personal income taxes. This dissertation builds a theoretical model of a closely-held corporation based on these features and uses this model to study empirically farmers' decisions to incorporate. The theoretical model determines the financial policy of a closely-held corporation from the static utility maximization problem of its owner. The model differs from previous work in that the set of financial instruments is extended beyond taxable dividends to include owner's salary, in-kind benefits, and the change in loans from the owner. Also, the modelling of the tax system is unusually detailed and includes the special tax provisions applying to incorporated Canadian small businesses . The Kuhn-Tucker conditions for the model show that the quantities of in-kind benefits consumed by the owner will depend on prices which are adjusted for the tax consequences of the goods' purchase. For dividends, salary, and changes in the amount of shareholder's loans, a financial optimum requires that it is not possible to decrease total personal and corporate taxes paid by increasing one financial variable and decreasing another. More specific conclusions are derived from the model in two ways. First, tax rates applying in Ontario in 1980 are substituted in the Kuhn-Tucker conditions to produce graphs showing the optimal financial policy in the more common situations'. Second, linear programming is used to provide numerical examples of optimal financial policies. This information is used to illuminate a number of tax policy issues relating to closely-held corporations. Other chapters discuss the extension of the model to multiple owners, many time periods, and the decision to incorporate. The last issue is studied empirically using a sample of 3,000 Saskatchewan farmers. Probit analysis shows that the probability that a farm will be incorporated is positively related to the farmer's education and the tax savings from incorporation. / Arts, Faculty of / Vancouver School of Economics / Graduate

In its treatment of "small" business at the time of Tax Reform, the government of the day chose not to attempt to achieve the ephemeral goal of strict adherence to concepts such as neutrality and horizontal equity. On the contrary, in implementing the "small business deduction" for Canadian-controlled private corporations its stated intention was to provide "direct assistance to small business — but only to incorporated small business. Conventional wisdom justifies such a policy of providing assistance to small business on the theory that in the absence of special tax concessions (or other assistance) for small business imperfections in the capital markets, which are alleged to reduce significantly the funding available to small business, would limit the ability of small business to fulfil what is seen by adherents to this theory to be its traditional entrepreneurial role in the Canadian economy. The thesis proposed herein does not attempt to assess the validity of a policy of providing assistance to small business through fiscal measures (assuming that it does in fact exist) but rather focuses on a potential inefficiency inherent in one aspect of its (apparent) implementation: there is presently no control mechanism to ensure that the funds made available to incorporated small business through the "small business deduction" are used in furtherance of the purported goal of this tax credit, i.e. "direct assistance to small business." It is suggested in this thesis that the restoration of some form of tax on unreasonable accumulations to replace the departed Part V tax would provide appropriate pressure upon the Canadian-controlled private corporation in terms of guiding the tax deferral benefits available through the small business deduction towards their stated object. Such a tax would, of course, have the complementary function of depriving those corporations which failed to reinvest the deferral benefits of same. Chapter one of the thesis introduces the topic and defines its basic parameters. As a means of laying a foundation for exploring the suggestion that a tax on unreasonable accumulations may be desirable, chapter two reviews the relevant statutory context into which such a tax would have to be placed. Chapter three considers aspects of the justification for such a tax. In the interest of learning such lessons as history might offer in this realm, chapters four, five and six examine specific variations on such a tax which have already found expression in legislative form: chapter four dealing with Canadian experiences in this area, chapter five looking at the American example and chapter six reviewing its British manifestation. Chapter seven analysis the possibilities as to the form which a tax on unreasonable accumulations might in fact take were it to be instituted in Canada. Finally, chapter eight contains some conclusions. / Law, Peter A. Allard School of / Graduate

The taxation of trust income is subject to inherent problems due to the nature of the trust itself which allows the separation of the legal and equitable interests and the creation of differing equitable interests in income arising from property held in trust. Problematic areas include questions as to whom should be taxed on trust income, when and at what rate persons should be taxed, and on what they should be taxed. Taxation of trust income under Canadian law depends on the nature of the income as currently distributable or as accumulating, and on the nature of the trust as testamentary or inter vivos. Provision is made for the taxation of the trust or of the beneficiary. Certain types of income are permitted to retain their character in the hands of the beneficiary. An attempt to devise a logical system for the taxation of trust income reveals in detail the type of problems inherent in such a system. Conceptual and practical difficulties in determining the appropriate taxpayer, rate, and timing of taxation are considered as is the nature of the beneficial interest and its significance for tax purposes. The Canadian taxation of trust income does not completely resolve these problems. The proposals of the Royal Commission and the current law in the United States and the United Kingdom are compared and contrasted with Canadian law. Differences among the rules of the various systems, reflect differences in the way they deal with the problems inherent in the taxation of trust income. The problems and their Canadian solutions are reviewed in comparison with methods adopted elsewhere. Any change to the existing rules would require a number of interrelated changes. It is not clear that improvements which might be effected are justifiable given the increased complexity attendant on their introduction. / Law, Peter A. Allard School of / Graduate

Canada is one of the countries depending on foreign investment to a fairly high extent. After some time of concern about foreign investment¹ the Foreign Investment Review Act (FIRA) was implemented.² With the federal election in 1984 the Canadian government took the stand in favour of foreign investment again and changed FIRA to a more positive "Investment Canada". Anyway, the control of foreign investment should be seen only as part of a larger economic policy, which determines the economic criteria for investment decisions. One of these criteria is the Canadian tax law. And as one example, prior to 1980, all private corporations were entitled to the refundable tax in respect of their investment income. A first limitation was introduced in October of 1973, whereby corporations other than Canadian-controlled-private corporations were denied any refundable tax in respect of income from real property for taxation years commenced after 1979. Finally, as a result of the November 12, 1981 budget, for taxation years commenced after that date, investment income no longer "earns" refundable tax unless the corporation was a Canadian-controlled-private corporation throughout the relevant taxation year. The Canadian taxation of residents and non-residents in Canada, including the taxation of Canadian and non-Canadian-controlled companies and branches of foreign companies, is unequal and discriminating. This thesis will give some ideas about the Canadian taxation of foreign investment in Canada, referring sometimes to the Canadian-German Double Tax Convention as well as the O.E.C.D. Model Double Tax Convention. Since tax planning is a part of general economic investment decisions, the taxation of foreign investments will be evaluated in relation to other investment criteria for investments in Canada. As it will become obvious, there are reasons in favour of the Canadian tax policy on one hand and reasons against it on the other hand. As a conclusion, I am of the opinion that it is worthwhile to consider changes in the taxation of foreign investment. / Law, Peter A. Allard School of / Graduate

Seven provinces in Canada have entered tax collection agreements with the federal government whereby that government collects corporate income tax on their behalf. Quebec, Ontario and Alberta have not entered such agreements and levy and collect corporate income tax pursuant to their own legislation and within their own administrative systems. This thesis will examine the problems resulting from the independent approaches taken by Quebec, Ontario and Alberta, as they affect the corporate taxpayer. The problems fall into three categories. First, provincial adoption of the Income Tax Act (Canada), while assuring some similarity between the federal and provincial systems, can have adverse consequences for the corporate taxpayer. Secondly, differences between the legislation of Canada, Quebec, Ontario and Alberta create inconsistencies that present difficulties for the corporate taxpayer. Thirdly, differences in the administrative systems of the three provinces and the federal government increase the cost to the corporate taxpayer and create compliance problems for it. The thesis concludes that the future of the Canadian corporate income tax system will involve even more provincial independence and, therefore, measures to alleviate some of the problems are discussed. These include a new approach to co-operative federalism, an examination of the efficacy of more provincial autonomy and tax harmonization. This analysis shows that the corporate taxpayer would benefit from more cooperation between the federal and provincial governments together with a degree of harmonization of the tax bases. / Law, Peter A. Allard School of / Graduate

The South African ("SA") mining industry played (and continues to play) a pivotal role in the development of the SA economy. It is therefore no surprise that the industry has long been the beneficiary of favourable tax concessions. One of these favourable tax concessions is the 100% capital expenditure allowance. Access to this allowance is dependent on the interpretation of the definition of "mining operations" in section 1(1) of the Income Tax Act, No. 58 of 1962 ("the ITA"). Currently, there is legal uncertainty in SA regarding the meaning of "mining operations". This is so because central to the term "mining operations" is the term "mineral", which is not defined in the ITA, nor does it have an ordinary fixed meaning. SA courts have further not authoritatively dealt with the meaning of "mining operations" despite being presented with the opportunity to do so in recent case law. This legal uncertainty is further fuelled by a recent draft interpretation note issued by the South African Revenue Service ("SARS"), expressing the view that quarrying operations for inter alia clay for brickmaking and limestone for the manufacture of cement, do not constitute "mining operations". Practically, this legal uncertainty may act as a deterrent to mining companies incurring capital expenditure, essentially curbing the development of the SA mining industry. This study seeks to analyse the different meanings attributed by SARS, SA academic writers and SA courts to the definition of "mining operations" (and the related meaning of "mineral") for income tax purposes. The purpose of this analysis is to determine whether the extraction of clay for brickmaking and limestone for the manufacture of cement constitutes "mining operations". Against this background, Australian legislation and case law on the interpretation of the term "mining operations" and "mineral" will be studied in order to draw a comparison between SA and Australia's treatment of "mining operations". This study further interprets the meaning of "mining operations" through the application of the Savignian interpetation model in terms of which it is concluded that useful guidance can be sought by SA from Australian jurisprudence when interpreting the meaning of the term "mining operations" for income tax purposes and that the purposive test applied in Australia should be adopted by SA courts. Based on the application of this guidance, the key finding of this dissertation is that the extraction of clay for brickmaking and limestone for the manufacture of cement should in principle qualify as "mining operations" and that the capital expenditure incurred in this regard should be eligible for the 100% capital expenditure allowance.

This dissertation consists of three essays on topics in macroeconomics. Chapter One studies whether the rich save a larger fraction than other economic groups. We use The Fiscal Analyzer, a detailed life-cycle consumption-smoothing program, to calculate lifetime net resources, including private wealth, human wealth, and net taxes. We identify a strong negative relationship between the average propensity to consume and lifetime net resources. The average propensity to consume decreases on each component of lifetime net resources except for liquid assets. The results do not change if we consider heterogeneous borrowing constraints among households. Results of models indicate that bequest motives could explain why the rich save more. Chapter Two measures the work disincentives, including explicit taxes and implicit loss of benefits, of the elderly. We use The Fiscal Analyzer to calculate remaining lifetime marginal net tax rates. We find that Uncle Sam is inducing the elderly to retire. The marginal net taxation of labor earnings is extremely high. A significant increase in earnings leads to a higher marginal net tax rate than earning a small extra amount of money. There is enormous dispersion in effective marginal remaining lifetime net tax rates facing households with the same age and resource level. Current-year marginal net tax rates can dramatically understate the work disincentives facing the elderly. Chapter Three explores the different implications of housing price and labor productivity on the skill ratio. I construct a spatial equilibrium model with two skill types of households. When the housing supply increases in the more developed region, the skill ratio in both regions decreases and both types of labor get higher utility. When the labor productivity of high-skilled labor in the more developed region increases, the skill ratio increases in the more developed region and decreases in the less developed region and only the high-skilled labor get higher utility.

Tax planning, where taxpayers arrange their affairs so as to minimize the resulting tax liability, has evolved over the last couple of decades as a result of the change in the way business is conducted by virtue of globalisation and the development in technology. It appears to have become more and more aggressive as taxpayers have the opportunity to access tax benefits not only through utilising loopholes in domestic legislation, but also through international tax loopholes. Revenue Authorities have to respond to this by employing mitigating anti-avoidance mechanisms. One such mechanism employed in South Africa ("SA") is the use of General anti-avoidance Rules ("GAAR") found in s80A-L of the Income Tax Act No. 58 of 1962 ("ITA"). To combat certain shortcomings in this GAAR's predecessor and to stay abreast of international trends, for the first time ever, a Statutory Purpose Element has been included in GAAR. This Statutory Purpose Element, as included in s80A(c)(ii) of the ITA, evaluates the misuse or abuse of the provisions of the ITA as a means to identify impermissible tax avoidance arrangements. Essentially, this calls for the application of the modern approach to statutory interpretation, where the purpose and context of the provisions of the ITA are first identified, before the misuse or abuse of these provisions can be proven. This study evaluates whether the inclusion of this Statutory Purpose Element in GAAR, adds any value or provides any additional powers to SARS when applying GAAR, especially in light of s39(2) included in the Bill of Rights of the Constitution, of 1996, ("Constitution"). The Constitution, the supreme law in SA, already calls for the modern approach to be applied to any statutory interpretation and the findings of this study indicate that s80A(c)(ii) appears to be completely superfluous as it does not award any additional powers to SARS, which were not already granted by the Constitution. If anything, s80A(c)(ii) broadens the scope of GAAR to such an extent, that it most likely will only cause further confusion for taxpayers wanting to engage in tax planning.