What is Wrong with Revenue Canada's Argument:
Comment on a Letter from Revenue Canada to Prof. Pierre Lemieux
by
Paul McKeever, B.Sc.(Hons), M.A., LL.B.
Disclaimer: The following is not legal advice and should not be used or relied upon as such. Paul McKeever accepts no responsibility for any loss suffered by a person who uses, abuses, or relies upon the following information. If you wish to have legal advice, you would be well advised to retain the services of a lawyer. Paul McKeever, by presenting the following information, does not thereby become retained by any person.
In his letter to Pierre Lemieux (a visiting professor at the University of Quebec at Hull), Pierre Gravelle, Q.C. (a lawyer), who was then Deputy Minister of Revenue, asserted essentially that the federal Parliament has the constitutionally -conferred legislative power to make a law which imposes a direct tax, such as the federal Income Tax Act. I have spoken to at least one other person who has received such a letter in response to correspondence concerning his or her freedom not to pay the tax. I think it appropriate to comment on such letters.
How reliable is Revenue Canada's position respecting the scope federal Parliament's taxation power? Clearly, Mr. Gravelle did not set out to write a scholarly article on the subject of the federal Parliament's power to tax, but he does represent government when writing to taxpayers in such a way and, to the extent that he is incorrect, taxpayers are being mislead. I submit, therefore, that it is important to evaluate the conclusions which Mr. Gravelle has drawn from the cases and statutes he cites as authority for the Ministry's position. I say "Ministry's position" because Mr. Gravelle was speaking on behalf of the Ministry. Thus, hereinafter, I will refer to Mr. Gravelle's letter as a letter from the Ministry of Revenue, and to his position as that of the Ministry of Revenue ("RevCan").
First, RevCan refers Prof. Lemieux to subsection 91(3) of the Constitution Act, 1867, but not to the complete wording of section 91(3) which is:
"91. Legislative Authority of Parliament of Canada. -- It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act) the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say,--
[...]
3. The raising of Money by any Mode or System of Taxation."
In my submission, in the letter to Prof. Lemieux, RevCan wrongly took the position that the federal Parliament's power to make tax laws is of unlimited scope and includes the power held by the provincial Legislatures to make tax laws. I say that it took such a position because it neglected to point out that it shall be lawful for the federal Parliament to make laws in relation only to matters not coming within the Classes of Subjects assigned, mostly in section 92, to the provincial Legislatures. The phrase "The raising of Money by any Mode or System of Taxation" refers to a Class of Subjects which is provided "for greater certainty, but not so as to restrict the generality of the foregoing Terms of" section 91 concerning the exclusive legislative jurisdiction of the provincial Legislatures. This is clearly the case if one simply applies logic and grammar: if the scope of the federal Parliament's taxation powers were truly as unlimited as that suggested by reading the words "The raising of Money by any Mode or System of Taxation" in isolation, then the provincial Legislatures would have no power at all to make a law which imposes a tax of any sort, because the federal legislative power with respect to matters falling within the classes of subjects enumerated in section 91 is said to be "exclusive". But we know that s. 92(2) does, in fact, give the provincial Legislatures the "exclusive" legislative authority to make laws in relation to "Direct Taxation, within the province, in order to the raising of a revenue for provincial purposes" (one will notice, also, that RevCan neglected to reproduce that part of section 92 which makes it clear that the provincial Legislatures' taxation power is "exclusive" of the federal Parliament). This logical impossibility (provincial Legislatures having an exclusive power with respect to some taxes, but the federal Parliament having an exclusive power with respect to all taxes), which stems from reading the words "The raising of Money by any Mode or System of Taxation" in isolation - was identified very early on in the case of Citizens Ins. Co. v. Parsons, [1881], 8 Appeal Cases 406 (soon to be available on this web site): in that case, it was made clear that, to determine the respective scopes of the federal and provincial law-making powers, one must read sections 91 and 92 together to resolve any inconsistencies. One cannot determine the scope of a federal power by simply reading in isolation the list of classes set out under section 91.
Indeed, sections 91 and 92 of the Constitution Act, 1867 were read together to determine the respective scopes of the federal and provincial taxing powers in Caron v. R (1924), 1 Dominion Tax Cases 49, wherein it was clearly decided that the federal Parliament does have the power to impose a direct tax, but only if the tax is one which raises a revenue only for federal purposes. The federal Parliament was not, at the time (1924), engaged in the massive transfer payment and conditional grants schemes to the provinces. Thus, all income-tax derived revenues being at the time spent only on federal purposes, the federal Income Tax Act was held not be a law for the making of which the federal Parliament lacked authority.
Despite the fact that the decision in Caron is binding authority on the Federal Court of Appeal, and that it has never been overturned, it would appear that RevCan did not bring the case to the attention of the federal appeal court judge in the case of Kasvand v. R (1995), 95 Dominion Tax Cases 5618. There, Hugessen, J.A. concluded, without elaborating, that one need only read that part of subsection 91(3) that reads "The raising of Money by any Mode or System of Taxation" to see that the federal Parliament does not lack the legislative authority to make a law which imposes an income tax (i.e., the federal Income Tax Act). This, of course, is the same argument made by RevCan in its letter to Prof. Lemieux. However, it is my submission that there is ample authority that justice Hugessen's decision was not consistent with binding precedent and that, therefore, his decision was incorrect (to investigate this further, see my critique of the Kasvand decision): both Parsons' case and the Caron case stated clearly that the federal Parliament's taxation power does not include the power held by the provincial Legislatures.
Most interestingly, the fact that the federal Parliament's taxation power does not include the taxation powers held by the provincial Legislatures was clearly stated in Attorney General of Nova Scotia v. Attorney General of Canada, [1950] S.C.R. 31: one of the two cases to which RevCan actually used as alleged support for its position. In that case, the Chief Justice of the Supreme Court of Canada decided that:
"Under the scheme of the British North America Act there were to be, in the words of Lord Atkin in The Labour Conventions Reference [[1937] A. C. 326], "watertight compartments which are an essential part of the original structure."
Neither legislative bodies, federal or provincial, possess any portion of the powers respectively vested in the other and they cannot receive it by delegation. In that connection the word "exclusively" used both in section 91 and in section 92 indicates a settled line of demarcation and it does not belong to either Parliament, or the Legislatures, to confer powers upon the other."
Thus, the decision in that case actually proves to be incorrect that which RevCan implied (i.e., that the scope of the federal Parliament's taxation powers is unlimited). One wonders if RevCan has even read the decision. Apparently, RevCan's chief reason for citing the case was to state that "The Supreme Court of Canada decision [in that case] did not hold unconstitutional the imposition of income tax by the federal gouvernement". I am not sure how that is relevant at all: the case also did not say that the imposition of income tax by the federal government is constitutional. One can point to thousands of decisions that did not make a given conclusion (for example, the Sue Rodriguez case is yet another example of a decision in which the Supreme Court of Canada did not hold unconstitutional the imposition of income tax by the federal government). The 'trick' in law, of course, is to cite cases in which the court actually did say something that does support your position on some aspect of the law. In my submission, RevCan's position is not in any way supported by the decision in Attorney General of Nova Scotia v. Attorney General of Canada and, if RevCan had read and understood the case, its use in the letter to Prof. Lemieux could have no function other than to mislead or intimidate him by making him think that it was case authority for RevCan's position.
RevCan did, in its letter to Prof. Lemieux, correctly represent that, in the case of Winterhaven Stables Ltd. v. Attorney General of Canada (1988), 53 D.L.R. (4th) 412, the Alberta Court of Appeal upheld the constitutionality of the federal Income Tax Act. However, RevCan neglected to mention to Prof. Lemieux, who is a resident of Quebec, that the decision in Winterhaven is binding only on the courts of Alberta. It also neglected to mention to Prof. Lemieux that the decision in Winterhaven did not respect the decision in Caron v. R., which was made by a court of superior jurisdiction, and which was, therefore, binding legal precedent. To date, especially outside of Alberta (but, arguably, also in Alberta), the decision in Caron v. R. remains the accurate statement of the law respecting the scope of the federal Parliament's taxation powers. Moreover, the decision in Winterhaven, were it adopted in other provinces, would - in my opinion - actually decrease the scope of the federal legislative power respecting taxation relative to the scope set out in the Caron decision (see my debate with tax lawyer David Sherman regarding this issue).
One final matter. RevCan commented in its letter to Mr. Lemieux that "The system only works if taxpayers voluntary [sic] comply with these requirements in an honest and responsible manner". Two things beg to be said about this statement. First, when one is punished by the state for not doing something, it cannot rationally be said that it is a matter of volunteering to do that thing: it is coercion by the state, plain and simple, and to continue this nonsense that we somehow have a "voluntary" income tax system is an insult to Canadian intelligence. Second, a free country only works if its governments respect the rule of law by not making and enforcing laws respecting which the constitution gives them no authority to make or enforce: it is neither honest nor responsible for a government to enforce a law which it had no constitutionally-conferred authority to make. Finally, how responsible can Canadians really be if they do not, likewise, demand that governments act only pursuant to the powers given to them by the constitution? In my opinion, for government or the governed not to obey the constitution is a bigger shirking of responsibility than to enforce or comply with the enforcement of an unconstitutional law.