Six Urban Myths - Taxation

"I am proud to be paying taxes? I could be just as proud for half the money." - Arthur Godfrey

Temporary Taxation in Canada

In 1917, the Income War Tax Act (7-8 George V, Chap. 28) introduced Canadians to a 'temporary' tax on corporate and personal income.

After 88 years it's safe to say that the first myth of taxation is that Parliament considers taxation to be 'temporary.'

Taxation Isn't Constitutional

You've heard that it is against Canada's Constitution for the federal government to collect income taxes.

The British Parliament in the British North America Act, 1867 91(3) specifically empowered the federal government of Canada with the authority for "the raising of money by any mode or system of taxation".

The highest court in Canada has held that this power to raise money through taxes is "apparently limitless" (Re Anti-Inflation Act [1976] 2 S.C.R. 373 at 390 (S.C.C.), per LASKIN, C.J.)

American readers who've heard the same thing (i.e., Congress cannot legally collect taxes) should read the Sixteenth Amendment to the Constitution, which when ratified in 1913, empowered the U.S. Government to impose income taxes directly on its citizens.

So the second myth of taxation is that the federal government doesn't legally have the authority to collect taxes.

I Can't Be Convicted Of Evasion If I Believe?

Perhaps, you've heard that in order to be convicted of evasion you have to have a 'guilty mind' and if you believe, you really believe, that collecting taxes is illegal you cannot be convicted of evasion.

239(1)(d) Income Tax Act ("ITA") provides that every person who wilfully evades or attempt to evade taxes imposed by the ITA is guilty of an offence.

The offence of evasion is a true criminal offence: R. v. Klundert (2004), 242 D.L.R. (4th) 644 (Ont. C.A.) per DOHERTY, J.A. at 32; and R. v. Knox Contracting Ltd., [1990] 2 S.C.R. 338 (S.C.C.) at pp. 346-348.

There are two constituent elements of a crime: the prohibited conduct (actus reus) and the requisite fault (mens rea).

Parliament's use of the word "wilfully" in 239(1)(d) ITA implies by something done by conscious design or on purpose; but does that really mean what it sounds like?

No; mistakes of law generally aren't a defence (e.g., 19 Criminal Code), but certain factual mistakes (e.g., errors of addition) could be - it depends on the circumstances.

"A person's mistaken belief that a statute is invalid or is otherwise not applicable to that person's conduct is a mistake of law. It is, however, a mistake of law that is irrelevant to the existence of the fault requirement in s. 239(1)(d).": Klundert at 59; Criminal Code s. 19; R. v. Ricci (2004), 190 O.A.C. 375 (Ont. C.A.)

The third myth of taxation is that you cannot be convicted of evasion if you believe you don't have to pay taxes.

What Canada Revenue Tells Me Is Binding On Them

A taxpayer calls a Canada Revenue Agency ("CRA") hotline or goes to a local tax service office and gets their question answered, or receive other guidance on how to 'properly' do what that taxpayer is obliged to do under the ITA.

What if the advice is wrong? Most Canadians think that they can rely on it, but can they?

The short answer is that they can't - that the fourth myth.

Why this is true is somewhat complex: Since 1931 Canada's Parliament has been sovereign and they could pass any law they wanted (Burma Oil Company v. Lord Advocate [1965] AC 75 (H.L.)), but with the Canada Act, 1982 (U.K.) Parliament became subject to The Charter of Rights and Freedoms, which imposed legal limits on Parliament's ability to infringe certain fundamental rights.

The ITA is a complete code (i.e., covering all aspects of its subject matter) and it is the job of taxpayers to follow it, CRA to enforce it, the courts to interpret it and then back to Parliament if amendment is needed.

These various interests are perpetually in conflict: taxpayers want to pay as little tax as legally permissible (Inland Revenue Commissioners v. Westminster (Duke of), [1936] A.C. 1 (H.L.)) but Parliament wants to collect as much money as it possibly can.

Subject to a Charter prohibited infringement of a fundamental right, Parliament's complete code in the ITA is paramount. In other words, no one at CRA can change one word in the ITA and if any advice they give is contrary to the Act, that advice is ineffective and the ITA provision will prevail. Thus, CRA's advice is only binding on them - and you - if it's correct. It all goes back to the ITA and Parliamentary supremacy.

CRA's Can't Find My Offshore Funds

Perhaps you set up an asset-protection trust somewhere and you've been collecting

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