Michael R. Guillemette (Appellant) v. Her Majesty the Queen (Respondent)
Published in: 97 Dominion Tax Cases 1347
Tax Court of Canada
June 25, 1997
(Court File No. 95-3245(IT)G.)
The taxpayer calculated his tax payable for 1992 and 1993 by applying a flat 17% rate to his taxable income figure, and then subtracting the alleged portion of federal taxes paid to the provinces. The Minister assessed the taxpayer for 1992 and 1993, applying the provisions of section 117 of the Act. The taxpayer appealed to the Tax Court of Canada, seeking to impugn section 117 on constitutional grounds.
Held: The taxpayer's appeal was dismissed. The progressive rate structure in section 117 of the Act involves a distinction based on levels of taxable income. But such income levels are not a personal characteristic, so that distinctions based thereon do not contravene the anti-discrimination provisions of section 15 of the Charter (see The Queen v. Thibaudeau (S.C.C.)). In addition, the federal taxation power (under subsection 91(3) of the Constitution Act, 1867) is wide and general, so that the federal government is not constitutionally precluded from using its tax revenues to finance expenditures related to areas of the provinces' exclusive jurisdiction. Furthermore, the collection of personal income taxes by the federal government on behalf of the provinces does not constitute a delegation of the provinces' authority to raise taxes for provincial purposes. Finally, there is no constitutional impediment to transferring property between the federal and provincial governments. The Minister's assessments (predicated on section 117 of the Act) were affirmed accordingly.
M.R. Guillemette, the appellant in person;
R. Carvalho for the respondent.
Before: Hamlyn, T.C.C.J.
Hamlyn, T.C.C.J.: These are appeals with respect to the Appellant's 1992 and 1993 taxation years wherein the Appellant seeks to reduce his assessed tax liability on the basis of a variety of Canadian Charter of Rights and Freedoms (the 'Charter'), the Constitution Act, 1867 challenges to the Income Tax Act (the 'Act').
The Minister of National Revenue (the 'Minister') initially assessed the Appellant for the 1992 and 1993 taxation years by notices dated January 30, 1995.
In his T1 tax return for the 1992 taxation year, the Appellant reported his taxable income as $98,831 and calculated his total tax payable to be $14,539 by applying a non-progressive federal tax rate (17%) and subtracting the alleged portion of federal taxes paid to the provinces.
Using the reported taxable income of $98,831 the Minister assessed the Appellant for net federal tax in the amount of $24,438 (Exhibit A-1, Tab 1) for the 1992 taxation year and assessed the Appellant for a late-filling penalty, installment interest and arrears interest.
In his T1 tax return for the 1993 taxation year, the Appellant reported his taxable income as $150,387 and calculated his total tax payable to be $21,602 by applying a non-progressive federal tax rate (17%) and subtracting the alleged portion of federal taxes paid to the provinces.
Using the reported taxable income of $150,387, the Minister assessed the Appellant for net federal tax in the amount of $40,221.90 for the 1993 taxation year and assessed the Appellant for a late-filing penalty and arrears interest (Exhibit A-1, Tab 1).
By Notice of Objection dated April 21, 1995, the Appellant objected to the Notices of Assessment for the 1992 and 1993 taxation years.
By Notice of Confirmation dated June 26, 1995 the Minister confirmed the assessments for the 1992 and 1993 taxation years.
In assessing the Appellant, the Minister relied on the following assumptions of fact that were accepted by the Appellant at trial:
(a) during the 1992 and 1993 taxation years the Appellant was self-employed in the insurance business;
(b) the Appellant's taxable income for the 1992 taxation year was $98,831;
(c) the Appellant's taxable income for the 1993 taxation year was $150,387;
(d) for the 1992 taxation year the Appellant's CPP contribution payable on his self-employment earnings was $1,392 and he was entitled to total non-refundable tax credits in the amount of $1,334;
(e) for the 1993 taxation year the Appellant's CPP contribution payable on his self-employment earnings was $1,505 and he was entitled to total non-refundable tax credits in the amount of $1,353;
(f) during the 1992 taxation year no income tax was deducted at source but the Appellant made installment payments totaling $23,155;
(g) during the 1993 taxation year no income tax was deducted at source and no installment payments were made;
(h) the Appellant's T1 tax return for the 1992 taxation year was filed with the Minister of National Revenue on December 21, 1994;
(i) the Appellant's T1 tax return for the 1993 taxation year was filed with the Minister of National Revenue on December 21, 1994;
(j) the Appellant's T1 tax return for the 1992 taxation year was required to be filed on or before April 30, 1993; and
(k) the Appellant's T1 tax return for the 1993 taxation year was required to be filed on or before April 30, 1994.
(1) Does section 117 of the Act infringe upon the Appellant's rights as set out in section 15 of the Charter?
(2) Does Parliament have the constitutional authority to raise revenue by way of direct taxation to finance expenditures related to areas exclusively assigned to the provinces?
(3) Is subsection 92(2) of the Constitution Act, 1867 infringed by sections 222, 223(1)(d), 223(3) and 228 of the Act and by the statutory programs of federal transfer payments to the provinces in relation to tax collection?
THE CHARTER AND SECTION 117 OF THE ACT
Does section 117 of the Act infringe upon the appellant's rights as set out in section 15 of the Charter?
Subsection 117(2) of the Act sets out that:
"The tax payable under this Part by an individual upon his taxable income or taxable income earned in Canada, as the case may be, (in this subdivision referred to as the 'amount taxable') for the 1988 and subsequent taxation years is
(a) 17% of the amount taxable if the amount taxable does not exceed $27,500;
(b) $4,675 plus 26% of the amount by which the amount taxable exceeds $27,500 if the amount taxable exceeds $27,500 and does not exceed $55,000; and
(c) $11,825 plus 29% of the amount by which the amount taxable exceeds $55,000."
The Appellant submits that a progressive income tax rate system creates differential treatment in imposing differential financial obligations on two discrete and insular minorities. Section 117, in its progressive structure, denies equality under the law since it affects the minorities of individuals in the $29,590 to $59,180 income bracket, and individuals in the $59,180 and over bracket. People with higher incomes are discriminated against in being subject to marginally higher tax rates; 17% should be the only applicable rate because it is non-discriminatory in being the minimum rate. He further submits personal taxable income is analogous to enumerated grounds and thus worthy of protection and since 51% of federal income tax revenues is derived from 10% of the taxpaying individuals, there is an abuse of the power of the majority at the expense of the minority.
The Appellant's claim is that the progressive tax rates discriminate against individuals based on their taxable income. Consequently, he seeks to have only the 17% marginal tax rate applied to his total taxable income.
Any question of whether there has been a violation of the Appellant's rights as guaranteed by section 15 of the Charter must follow the approach outlined in Andrews [Footnote: Andrews v. Law Society of British Columbia, 1 S.C.R. 143.], and in subsequent decisions. The first question which must be answered is whether the Appellant has been denied one of the four equality rights set out in section 15, i.e. equality before and under the law and the right to equal protection and equal benefit of the law.
Subsection 15(1) of the Charter begins with the words ' [e] very individual is equal before and under the law ... '. This implies that, in considering a challenge under this section of the Charter, a court must compare the government's treatment of one or more individuals with its treatment of other individuals. The comparative nature of this inquiry was reaffirmed by the Supreme Court of Canada. [Footnote: Rudolph Wolff & Co. v. Canada (1990), 69 D.L.R. (4th) 392, and in Symes v. The Queen et al., 94 DTC 6001.]
It is not disputed that section 117 of the Act draws a distinction based on the level of taxable income, such that where the taxable income is higher, there is a corresponding increase in the proportion of tax payable. The application of the higher tax rates of 26% and 29% is based on a person's level of taxable income. As such, it is also not disputed that the amount of tax paid by the Appellant for the 1992 and 1993 taxation years would decrease should his tax liability be limited to the 17% tax rate.
Taxable income is not an enumerated ground under section 15 of the Charter. The issue therefore becomes whether it is an analogous ground. The Supreme Court of Canada approved the 'enumerated and analogous grounds' approach to determining the role of subsection 15(1) in Andrews (supra). This approach was summarized in Turpin. [Footnote: R. v. Turpin,1 S.C.R. 1296, at page 1332.]
The 'enumerated and analogous grounds' approach has been adopted because it most closely accords with the purposes of section 15 and the definition of discrimination. The accepted definition of discrimination, by McIntyre, J., writing at page 174 of Andrews (supra ), is:
"... discrimination may be described as a distinction, whether intentional or not but based on grounds relating to personal characteristics of the individual or group, which has the effect of imposing burdens, obligations, or disadvantages on such individual or group, not imposed upon others, or which withholds or limits access to opportunities, benefits and advantages available to other members of society." (emphasis added)
The section 15 analysis is essentially comparative in nature and, as such, only distinctions which are discriminatory will be caught. Therefore, section 15 is not a general guarantee of equality and it does not extend to eliminating all distinctions.
The key determinant of whether there are analogous grounds is whether the ground has often been the subject of stereotypes or prejudicial assumptions not based on reality. The grounds generally relate to 'personal characteristics' which will usually be fundamental to an individual and not easily changed, except with great difficulty or cost.
It is well established that income level is not a personal characteristic and therefore distinctions based on income level do not contravene section 15 of the Charter. [Footnote: The Queen et al. v. Thibaudeau, 95 DTC 5273 (S.C.C.) at pages 5280 to 5285. See also Vosicky v. The Queen, 96 DTC 6580 (F.C.A.).]
The Appellant cited such measures as the Child Tax Credit, the GST Credit, Guaranteed Income Supplement and Old Age Security payments as evidence that legislation has been enacted with the purpose of improving the conditions of people who suffer disadvantage on the basis of their level of income; as such, he argues that if income level is an analogous ground for the purpose of subsection 15(2) of the Charter, then it must also be so for the purposes of subsection 15(1). I disagree and further, no evidence has been adduced to link these measures to subsection 15(2) of the Charter.
I conclude that subsection 117 of the Act does not infringe upon the Appellant's rights under section 15 of the Charter.
I do not find that subsection 117(1) of the Act is
inconsistent with the Appellant's 'right to equality under the
law, according to[subs] Section 15(1) of the Charter'.
[Footnote: Submissions of the Appellant.]
THE INCOME TAX ACT -- THE CONSTITUTION ACT, 1867
TAXING POWER AND SPENDING POWER
The Appellant submits that the federal government does not have the constitutional authority to impose direct taxation on income in order to finance expenditures related to areas of the provinces' exclusive jurisdiction; only the provinces are authorized by subsection 92(2) of the Constitution Act, 1867 to directly tax its residents for those purposes. From this conclusion the Appellant asks the Court to conclude section 117 of the Income Tax Act is of no force and effect with respect to 'specific portions' of his 'federal personal income tax which is paid to provinces each year.' [Footnote: Ibidem.]
Under subsection 91(3) of the Constitution Act, 1867 the federal government has the power to pass laws for 'the raising of Money by any Mode or System of Taxation'.
Under subsection 92(2) of the Constitution Act, 1867 the provincial government has the power to pass laws for 'Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes[sic] '.
The federal taxation power is wide and general. While earlier jurisprudence found this federal taxing power could not be used to levy taxation for provincial purposes [Footnote: By Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (P.C.); Caron v. The King  , 4 D.L.R. 105 (P.C.).] , later and current jurisprudence and constitutional writings have not accepted this implied restriction on the federal taxing power. [Footnote: Winterhaven Stables Ltd. v. Canada, 53 D.L.R. (4th) 413 (Alta. C.A.) and LaForest, 'The Allocation of Taxing Power Under the Canadian Constitution', 2nd ed. (1981), Canadian Tax Paper No. 65.]
In his text (Constitutional Law of Canada [Footnote: Peter W. Hogg, 'Constitutional Law of Canada', 3rd ed. (1992). ] ), Professor Hogg writes at pages 30-3 and 30-4:
"This decision[Winterhaven Stables] confirmed that there are no limits on the purposes for which the federal Parliament may raise taxes. The decision also confirmed the corollary proposition that the spending power of the Dominion (like that of the provinces) is comparable to that of a natural person, extending to purposes that are outside the legislative authority of the federal parliament."
It is further clear the object of the federal taxing power is in raising revenues for federal purposes and one of those purposes includes the making of payments to the provinces. [Footnote: Winterhaven (supra).]
There is a distinction between taxation power and spending
power. The spending power of Parliament is not explicit but is
derived from its legislative taxing power. [Footnote: Hogg
(supra).] Parliament may spend the revenue it raises through
its taxing power in the manner it so chooses. [Footnote: Winterhaven (supra), page 432, Laforest (supra), pages 45 to
Thus, I conclude that Parliament has the constitutional authority to raise revenue that may in part finance expenditures pertaining to classes of subjects exclusively assigned to the provinces.
With this conclusion, the Appellant's request that
declare section 117 of the Income Tax Act is of no force and
effect with respect to the 'specific portions' of his 'federal
personal income tax which is paid to provinces each year'
[Footnote: Submissions of the Appellant.] is not
warranted. With this finding the net federal tax liability
stands as assessed.
THE INCOME TAX ACT, THE CONSTITUTION ACT, 1867
TAX COLLECTION AND PROVINCIAL TAX COLLECTION
Is subsection 92(2) of the Constitution Act, 1867 infringed by sections 222, 223(1)(d), 223(3) and 228 of the Act, and/or by the statutory programs of federal transfer payments to the provinces?
This issue is similar to the preceding issue and I adopt that reasoning herein with the following additional analysis and conclusions.
The relevant sections of the Act are as follows:
"222. All taxes, interest, penalties, costs and other amounts payable under this Act are debts due to Her Majesty and recoverable as such in the Federal Court of Canada or any other court of competent jurisdiction or in any other manner provided by this Act."
"223. (1) For the purposes of subsection (2), an 'amount payable' by a person means any or all of
(d) an amount payable by the person under an Act of a province with which the Minister of Finance has entered into an agreement for the collection of taxes payable to the province under that Act.
"223. (3) On production to the Federal Court of Canada, a certificate made under subsection (2) in respect of a debtor shall be registered in the Court and when so registered has the same effect, and all proceedings may be taken thereon, as if the certificate were a judgment obtained in the Court against the debtor for a debt in the amount certified plus interest thereon to the day of payment as provided by the statute or statutes referred to in subsection (1) under which the amount is payable and, for the purposes of any such proceedings, the certificate shall be deemed to be a judgment of the Court against the debtor for a debt due to Her Majesty, enforceable in the amount certified plus interest thereon to the day of payment as provided by that statute or statutes."
The Appellant submits that Parliament and the provinces are restricted in their ability to make laws to finance expenditures, citing Atty.-Gen. of Nova Scotia [Footnote: Atty.-Gen. of Nova Scotia v. Atty-Gen. of Canada, 50 DTC 838. ], for the proposition that Parliament and the provinces must make laws separately and independently within their exclusively assigned classes of subjects. He submits that the Constitution Act, 1867 has been violated as the 'cooperative arrangement' aimed at raising revenues for provincial purposes through the direct taxation of provincial residents was transferred to the federal government, constituting an unconstitutional delegation of legislative power. In particular, the Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act (the 'Fiscal Arrangements Act') led to the federal government acting as an agent for the provinces in the collection of income taxes through joint federal-provincial income tax returns. Section 19 of the Tax Collection Agreements between the federal and provincial governments allegedly provides for the termination of said agreements where provincial income tax legislation fails to conform with the Act; the language of sections 222, 223(1)(d) and 223(3), however, deems amounts payable under these sections to be debts to Her Majesty, i.e. the federal government; thus, the provinces have effectively transferred title to their direct taxation revenue, constituting an indirect transfer of legislative authority, for which Parliament lacks the constitutional authority.
The Appellant also submits that section 12 of the Tax Collection Agreements enables the Minister to set the level of provincial taxation by dictating the provincial tax tables, thus restricting the provinces' ability to change tax rates. Finally, he submits that the Fiscal Arrangements Act, mentioned in section 228 of the Act, amounts to an agreement between Parliament and the provincial legislatures to share or transfer exclusively assigned taxation powers: a portion of taxation revenues collected by the federal government from provincial residents is returned to the provinces for provincial purposes, but the federal government has no constitutional authority to directly tax provincial residents in order to raise revenue for provincial purposes; and, in return for the provinces' transfer of direct taxation authority and giving title to their direct taxation revenues to the federal government, Part IV of the Fiscal Arrangements Act undertakes to compensate the provinces for any shortfall in tax revenues incurred due to changes in the Act. Thus, he claims that his sole legal tax obligation owed to the federal government is set at a 17% rate.
The collection of personal income taxes by the federal government on behalf of the provinces (with the exception of Quebec) is an administrative arrangement. This does not constitute a delegation of the authority to raise taxes for provincial purposes.
There is no constitutional impediment to transferring property between the federal and provincial governments and there is no constitutional impediment to delegating power over the collection of revenues from the provincial to the federal governments.
Moreover, the issue of tax collection [Footnote:
M.N.R., 52 DTC 163.] , including tax collection arrangements
between the federal government and the provinces, the title to
tax property, the classification of debt and registration of
ministerial certificates, as well as provincial tax assessments
Mining Corporation Ltd. v. M.N.R., 88 DTC 6399.] are all issues
beyond the appeal of the assessment of this Appellant under
section 12 of the Tax Court of Canada Act and section 169 and
subsection 171(1) of the Income Tax Act.
OTHER RELIEF PLEADED
In terms of other relief requested, the Tax Court of Canada is without jurisdiction to direct the Minister to credit against federal tax owing by the taxpayer the amount of any excess provincial income tax paid by the taxpayer. [Footnote: Boisvert et al. v. M.N.R., 91 DTC 752.] Further, in claiming for a refund for overpayment of taxes, the Appellant is seeking recovery of a debt alleged to be owing rather than relief from an assessment of tax and therefore has not instituted an appeal from an assessment within the meaning of section 169 of the Act. [Footnote: Toner v. M.N.R., 90 DTC 1675.]
The appeals are dismissed. Costs are awarded to the Respondent.