Guillemette v. Canada
Michael R. Guillemette, Appellant, and
Her Majesty the Queen, Respondent
Court File No. 96-3678(IT)G
Vancouver, British Columbia
Bowman T. C. J.
Heard:February 19, 1998
Oral Judgment:February 20, 1998
In filing his return for 1994, the taxpayer deducted from the tax that otherwise would have been calculated (a) the net tax shown as B.C. tax; (b) the difference between the federal tax payable based on the higher (29%) rate and the basic rate of 17%; and (c) 16% of the federal tax otherwise payable (based on Revenue Canada's admission that the federal government pays out of every dollar of tax collected, 16 cents to the provinces). Following the MInister's disallowance of such deductions, the taxpayer appealed to the Tax Court of Canada, raising constitutional arguments concerning the delegation of legislative powers, the alleged discriminatory nature of the progressive rate structure, and the exercise of the federal government's taxing powers.
Held: The taxpayer's appeal was dismissed. His constitutional arguments were untenable. Although the province of British Columbia cannot delegate its legislative powers to the federal government, it can constitute Canada as its agent to collect the tax imposed by it under its own provincial Income Tax Act. Secondly, the progressive federal tax rate structure is not discriminatory. Thirdly, the mere fact that the Government of Canada makes payments to the provinces out of funds raised by it by direct taxation on inhabitants of the province, does not pro tanto render the exercise of the federal government's taxing powers ultra vires. Indeed section 36 of the Constitution Act clearly indicates that the making of equalization payments by the federal government to the provinces is an acceptable federal function under the Constitution. The Minister's assessment was affirmed accordingly.
The Appellant, in person;
R. Carvalho, for the Respondent.
JUDGMENT:--The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is dismissed with costs.
REASONS FOR JUDGMENT
BOWMAN T. C. J. (Orally):I will render judgment in the case of Guillemette v. The Queen, 96-3678(IT)G.
This is an appeal from an assessment for the 1994 taxation year. The issues raised are precisely the same as those raised by the Appellant for the 1992 and 1993 taxation years in Appeal 95-3245(IT)G. Hamlyn, J. of this Court dismissed the appeals for those years and the matter has now, I understand, been appealed to the Federal Court of Appeal. Since I am in respectful agreement with the disposition made by Hamlyn, J., these reasons need not be lengthy.
Notice of the Constitutional question raised was given to the Provincial Attorneys-General under Section 57 of the Federal Court Act.
The Appellant in filing his return of income for 1994 deducted from the tax that would otherwise have been calculated in the return the following amounts:
(a) the net tax shown as B. C. tax, ($15,558.50);
(b) the difference between the federal tax payable based on the higher (29%) rate and the basic rate of 17 per cent; and
(c) 16 per cent of the federal tax otherwise payable on the basis that the Government of Canada has admitted in the 1994 Income Tax Guide that it pays out of every dollar of tax collected, 16 cents to the provinces.
Firstly, so far as the B. C. tax collected is concerned, Mr. Guillemette contends that the Tax Collection Agreement between British Columbia and the Government of Canada is an unlawful delegation of the province's taxing authority to the Government of Canada.
I agree that the province cannot delegate its legislative powers to the federal government or vice versa. This is clear from the judgment of the Supreme Court of Canada in Attorney-General of Nova Scotia v. Attorney-General of Canada 50 D. T. C. 838. That is not, however, what was done. B. C. imposes tax under the B. C. Income Tax Act and the tax imposed is a percentage of the federal tax. Under the Tax Collection Agreement it has neither abrogated nor delegated its sovereign power to tax within the limits of the legislative competence conferred upon it under the British North America Act (now the Constitution Act). It has merely constituted Canada its agent to collect the tax imposed by it under the provincial Income Tax Act. I might mention that the place to challenge provincial taxes is in the provincial courts, not this court, which has jurisdiction in respect only of federally imposed taxes.
The second argument is that the progressive tax rate imposed by Canada, whereby lower income taxpayers are taxed at 17 per cent and higher income taxpayers are taxed at 29 per cent on income over a certain amount, is discriminatory. With respect, I do not agree. High income taxpayers are not a discrete and insular group as that expression has been used in other constitutional cases.
In Vosicky v. The Queen  1 C. T. C. 85, the Federal Court of Appeal said at page 86:
"The establishment of different tax rates for different income brackets does not constitute discrimination on a ground enumerated in section 15 or on any analogous ground. Changes in the Income Tax Act, and especially in the rates of tax from one year to another, are a fact of life in a democratic society; that such changes may operate unfortunately for certain taxpayers or even be seen by some as inequitable does not give rise to any legal remedy."
I discussed the matter at somewhat greater length in Vosicky v. The Queen, 97 D. T. C. 328 and in Hover v. The Queen, 93 D. T. C. 98. The matter was also discussed by Mr. Justice Rothstein in Stanwick v. The Queen, 95 D. T. C. 5651.
The appellant's third point is that the province under Section 92 of the British North America Act (now the Constitution Act) has exclusive power to make laws in relation to direct taxation within the province in order to the raising of a revenue for provincial purposes. Therefore, he contends, to the extent that the federal government raises taxes by direct taxation from the inhabitants of a province, to the extent that that money is used to pay to the province (16 cents on the dollar in 1994) it is ultra vires. He relies on two decisions of the Judicial Committee of the Privy Council in Bank of Toronto v. Lambe 1887, which is reported in 1917 at 27 CTC 82, and J. E. Caron v. The King, 1 D. T. C. 49. In the latter case the judicial committee said:
"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."
The Privy Council then goes on and says:
"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."
Then it goes on to say:
"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;"
I do not regard this observation as constituting a restriction on the federal taxing power. I think the mere fact that the government of Canada makes payments to the provinces out of funds raised by it by direct taxation on inhabitants of a province, does not pro tanto render the exercise of the federal government's taxing powers ultra vires. In this regard I am in respectful agreement with the Alberta Court of Appeal in Winterhaven Stables v. Attorney-General of Canada  53 DLR (4th) 414 at page 431, where the Court said:
"I agree with the conclusion of the learned trial judge on this point where he states [at page 418]:
There is also some question as to whether it can be said that some of the money raised under the Income Tax Act is being raised for provincial purposes. The actual revenues collected under the Income Tax Act are paid into the Consolidated Revenue Fund pursuant to the Financial Administration Act, R. S. C. 1970, c. F-10. This Consolidated Revenue Fund is a non-segregated fund comprised of revenues received under the Income Tax Act and revenues from other sources. Moneys are then paid by authority of Parliament from this fund to the provinces for the purpose of assisting in financing the provincial programmes of post-secondary education, health and welfare. The moneys then are first collected and paid into the Consolidated Revenue Fund. The accounts are structured so that the source of all revenues cannot be distinguished. It is therefore not possible to trace the payments made by the federal government to the provinces for provincial purposes to any specific source."
Although I accept what the Alberta Court of Appeal said, I would prefer to put my decision on a somewhat different basis.
It is clear from Section 36 of the Constitution Act, that the making of equalization payments by the federal government to the provinces is an acceptable federal function under the Constitution. Indeed, I should have thought that making equalization payments to the provinces was a perfectly legitimate federal responsibility, quite apart from Section 36 of the Constitution Act, and therefore the raising of taxes for that purpose is a legitimate purpose.
It was suggested, but I do not think too seriously, that possibly Section 36 of the Constitution Act is itself unconstitutional. This raises an intriguing question, but I do not think I need to deal with it.
For these reasons, as well as those given by Mr. Justice Hamlyn, the appeal is therefore dismissed with costs. Thank you.