OTTAWA - Brian Mulroney ended up paying income tax on only half the $225,000 he received from Karlheinz Schreiber as part of deal to promote a controversial armoured vehicle project, a public inquiry heard Tuesday.

Lawyers for Mulroney confirmed that, under a negotiated agreement reached with federal and Quebec tax authorities, the former prime minister was deemed to owe taxes on $37,500 in income for each of three years, for a total of $112,500.

The payments were assessed in early 2000 under a procedure known as a voluntary disclosure, in which people can belatedly declare income previously unreported.

Mulroney has acknowledged he received three cash payments of $75,000 each from Schreiber during a 15-month period in 1993-94. But he says he treated that money as a retainer for future services, meaning taxes could be deferred until after he'd actually done the work to earn the payments.

Guy Pratte, the had of Mulroney's legal team, told the inquiry his client declared the full $225,000 in earnings. But under the policies in force for voluntary disclosures at the time, he said, Mulroney was ultimately required to pay taxes on just 50 per cent of the declared total.

Justice Jeffrey Oliphant, the head of the inquiry, seemed puzzled by the explanation of what had transpired.

"Let me get this straight," he said. "He ended up with a voluntary disclosure paying tax on only half of what he would have paid had he declared it in the year earned?"

Pratte confirmed that was correct but stressed that Mulroney got no special treatment and paid what was required under the tax assessment practices then in force.

"I just want to be crystal clear here that the tax authorities were fully aware of the total received by the taxpayer ($225,000)," said Pratte.

"I just want to make sure there's no innuendo here that the taxes were not paid as required under the policy."

Mulroney, for his part, said he took no personal role in the negotiations with the federal and Quebec revenue departments.

"I referred the matter to my tax advisers in 1999," he said. They resolved the matter with the government of Canada and the government of Quebec.

"And after their discussions and negotiations, all I was advised of was that the matter had been resolved and that certain monies were to be paid, and the cheques were issued. That was the extent of my involvement in it."

Mulroney has testified he took the money for what he called "a watching brief," to look for international business for Schreiber's companies. He said he tried to push the idea of having the UN buy the armoured vehicles for peacekeeping and sounded out leaders in China, Russia and France on the concept.

Schreiber said he wanted Mulroney to promote the construction of a plant in east Montreal to build the German-designed armoured vehicles.

"False," was Mulroney's comment on that.

Earlier Tuesday, the former prime minister said he wanted a public inquiry with a far more wide-ranging mandate than the present one.

His ideal inquiry would have gone back to 1988 and investigated the entire Airbus affair, not just what he says is a small chapter.

Such an inquiry would have brought in everyone "from prime ministers to lobbyists to journalists that brought about this travesty."

Oliphant is limited to Mulroney's dealings with Schreiber and is specifically barred from looking into the Airbus affair and the subsequent fallout.

Mulroney said that's not the inquiry he asked for.

He said he wanted an investigation of the allegations against him over Airbus. He won a $2-million libel suit against the federal government and the Mounties over allegations of corruption in the sale of Airbus jets to Air Canada in the 1980s, when he was prime minister.

"When I was asked, my request was to get this thing emptied once and for all and I especially asked that it go back to 1988 and begin and put 'em all in the box - all the prime ministers, all the ministers of justices, all of them, including the journalists, those who had sworn out false information," he said.

"That certainly would have taken in the question of the relationship between Mr. Schreiber and me, but that would have been effectively a fairly small chapter in a big book because we would have probably gotten to the heart of this thing."

Mulroney was in his fifth day of testimony.

Schreiber was due back later this week, but that appearance may be delayed because he is recovering from gall bladder surgery.