Case Comment: Kasvand v. R.
Determining the Scope of Parliament's Taxation Powers: Is it Sufficient to Read Only Subsection 91(3) of the Constitution Act, 1867?
Paul McKeever, B.Sc.(Hons), M.A., LL.B.
In Kasvand v. R., Donna Kasvand, a taxpayer, made the argument that the federal Parliament lacked the legislative power to make laws which imposed a direct tax, such that the federal Income tax is outside the jurisdiction of (i.e., "ultra vires") the federal Parliament. Justice Hugessen stated that "It suffices to read paragraph 91(3) of the Constitution Act, 1867...to see that [Donna Kasvand's] point is wholly without substance."
Was Justice Hugessen correct? To conclude that the federal Parliament does have the legislative power to impose a direct tax (such as the income tax), does it suffice to read paragraph 91(3) of the Constitution Act, 1867?
It is my respectful submission that Justice Hugessen's reasons conflict with prior decisions in courts of superior jurisdiction and that, for that reason, they are incorrect.
Section 91(3) of the Constitution Act, 1867 says:
91. 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.
You will note that it appears to give the federal Parliament unlimited power to impose any sort of tax law it wants to impose. Presumably, it is for this reason that Justice Hugessen concluded that the federal Parliament has authority to impose a direct tax such as a tax on income. However, subsection 92(2) of the Constitution Act, 1867 to which Justice Hugessen did not refer, states that:
"92. In each province the legislature may exclusively make laws in relation to matters coming within the classes of subjects next hereinafter enumerated, that is to say, -
direction taxation within the province, in order to the raising of a revenue for provincial purposes."
Thus, subsection 91(3) of the Constitution Act, 1867 appears to be in conflict with subsection 92(2). Specifically, it is clear that "direct taxation within the province, in order to the raising of a revenue for provincial purposes" falls within the federal description of "...any mode or system of Taxation". But it is logically impossible for both the federal Parliament and the Provincial Legislatures to have exclusive jurisdiction over "direct taxation within the province, in order to the raising of a revenue for provincial purposes". This conflict begs the question: when determining the scope of the federal Parliament's power to make a tax law, need we really read only subsection 91(3), as Justice Hugessen stated, and ignore subsection 92(2)?
In Citizens Insurance Company v. Parsons, 7 Appeal Cases 96, the conflict between subsection 91(3) and 92(2) was discussed, though the discussion was obiter dicta (i.e., remarks made in passing which were not necessarily relevant to the case at hand). With respect to the conflict, Sir Montague Smith of the Judicial Committee of the Privy Council (then, our highest court), said:
"So "the raising of money by any mode or system of taxation" is enumerated among the classes of subjects in sect. 91; but, though the description is sufficiently large and general to include "direct taxation within the province, in order to the raising of a revenue for provincial purposes," assigned to the Provincial Legislatures by sect. 92, it obviously could not have been intended that, in this instance also, the general [federal] power should override the particular [provincial] one...It could not have been the intention that a conflict should exist; and, in order to prevent such a result, the two sections must be read together, and the language interpreted, and, where necessary, modified, by that of the other. In this way it may, in most cases, be found possible to arrive at a reasonable and practical construction of the language of the sections, so as to reconcile the respective powers they contain, and give effect to all of them."
Decisions of the Judicial Committee of the Privy Council continue to be binding precedent on courts of a lesser jurisdiction, such as the Federal Court of Appeal. Consequently, were these comments not obiter dicta, it would be clear that Justice Hugessen's comment was contrary to binding precedent and, consequently, incorrect.
However, in a subsequent case decided by the Judicial Committee of the Privy Council, J.E. Caron v. The King (1924), 1 Dominion Tax Cases 49, the issue of the conflict between subsection 91(3) and 92(2) was again addressed. This time, the comments were not obiter dicta. Their Lordships stated that:
"The whole matter turns on the construction and application of ss. 91 and 92 of the British North America Act of 1867 [now called the Constitution Act, 1867], and their Lordships in determining it are assisted and guided by the mass of decisions on these two sections which have been previously given by the Board..."
There Lordships then reproduced section 91(3), quoted above, and continued:
"Money raised by an income tax Act is unquestionably money raised by a mode or system of taxation.
It is true that by the provisions of s. 92 the Legislature in each Province may exclusively make laws in relation to certain matters coming within the classes of subjects which are there enumerated, and that one of these classes of subjects is 'direct taxation within the Province in order to the raising of a revenue for provincial purposes'.
As such particular direct taxation is reserved to the Province, to that extent there is some deduction to be made from the totality of power apparently given exclusively to the Dominion Parliament to raise money for any purpose by any mode or system of taxation.
Upon any view there is nothing in s. 92 to take away the power to impose any taxation for Dominion purposes which is prima facie given by head 3 of s. 91. It is not therefore ultra vires on the part of the Parliament of Canada to impose a Dominion income tax for Dominion purposes..."
Although it has apparently been missed or purposely overlooked in many decisions since the Caron case, this decision of the Judicial Committee of the Privy Council decided that the federal power to impose an income tax is not unlimited and is not exclusive to the federal Parliament. Specifically, the federal Parliament, according to this decision, lacks the power to impose a direct tax (such as an income tax) to raise a revenue for provincial purposes. And, perhaps more to the point, the Committee decided unequivocally that, when determining the scope of the federal Parliament's power to impose a tax, it does not suffice to read only subsection 91(3) of the Constitution Act, 1867: to determine the scope of the federal Parliament's taxing power, subsections 91(3) and 92(2) must be read together, and some deduction must be made from the otherwise unlimited and exclusive taxing power of the federal Parliament.
The decision of the Judicial Committee of the Privy Council remains binding precedent with respect to the Federal Court of Appeal. Consequently, and with the greatest respect, it is my submission that Justice Hugessen's conclusion (that the federal Parliament does not lack the legislative authority to make the federal Income Tax Act) was based upon reasons that are in conflict with binding precedent. In the absence of reasons that were consistent with binding legal precedent, Donna Kasvand's argument ought not to have failed.
Full Text of Donna E. Kasvand (Applicant) v. Her Majesty the Queen (Respondent)
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