Charles-Émile Huet, Robert Dufresne, Nelson O'CONNOR and Antonin Giasson v. Minister of National Revenue, [1990] 2 CTC 2245, 90 DTC 1792

Lamarre Proulx, T.C.J. [Translation]:—These four appeals were heard on common evidence. They concern section 61 of the Income Tax Act (the "Act"), which deals with purchases of income-averaging annuities. This section, which was included in the Act in 1970, was radically amended by retroactive legislation that received Royal Assent on March 30, 1983 but took effect following November 12, 1981. [1] If a taxpayer had not concluded a written contract prior to November 13, 1981, he could not use this income-averaging formula.

Facts

In January 1981 the appellants, who were fishermen in the Gaspésie area, sold their fishing boat to the Cooperative des pêcheurs unis du Québec. Their accountant recommended that they place the proceeds in term deposits and purchase an income-averaging annuity in February 1982 that would allow them to average out the sudden increase in their income resulting from the capital gain and the recapture of depreciation. With the help of their credit union they met a representative of the La Sauvegarde life insurance company in late February or early March 1981. They decided at that time to purchase such a contract from this company but decided to wait until early 1982 before signing the final agreement. On November 12, 1981 the Notice of Ways and Means Motion concerning the budget was tabled in the House of Commons. One of the tax changes in this budget was the repeal of the type of deduction contemplated by the appellants. In early February 1982 the appellants were nevertheless invited to attend at the office of a credit union in the area, where they met with one or more representatives of La Sauvegarde. He or they explained the proposed tax measure but also said that there was a 99.9 per cent chance that this measure would not be approved, that they could consequently purchase the annuity contract in question and deduct the purchase price and that, in any event, the changes were not yet in effect. Each of the appellants and La Sauvegarde then signed an income-averaging annuity contract.

However, at the same time as the annuity contract was signed, La Sauvegarde had each of the appellants sign a letter absolving the credit union of all liability. Although these letters are not completely identical, they are very similar and I shall reproduce here the letter signed by one of the appellants, Mr. Giasson:

La Sauvegarde Life Insurance Company

1 Complexe Desjardins Montreal, Que.

Further to our agreement concerning the purchase of an annuity in February 1982 at a minimum rate of 11%, I understand that the latest federal budget jeopardizes the said agreement.

Nevertheless, I believe that I am entitled to this contract and request that it be issued as agreed. La Sauvegarde will not be liable in any way for cancellation thereof by the federal government and I believe that I have valid arguments at my disposal to defend my interests.

I also agreed that the right to redeem the contract should be abrogated.

Yours sincerely,

Antonin Giasson

On November 29, 1985 the appellants received a letter from the Group Chief, Special Investigations, Department of National Revenue, informing them that the income-averaging annuity contract issued by La Sauvegarde was not deductible because it was not in accordance with the provisions of the Income Tax Act. The appellants were later assessed accordingly.

The arguments of counsel for the appellants were based on the following constitutional principles: On the one hand, the constitutional principles relat- ing to the manner in which the taxation power must be exercised in Canada or, in other words, the regular operation of the budgetary process, and, on the other hand, the rights guaranteed by the Canadian Bill of Rights (the “Bill”) and by the Canadian Charter of Rights and Freedoms (the "Charter").

The rights that had, according to counsel for the appellants, been violated fell into three categories:

First, the right to enjoy property, protected by paragraph 1(a) of the Bill, which provides that an individual should not be deprived of this right except by due process of law. Counsel for the appellants contended that there had been no due process of law.

Second, we come to the right of life, liberty and security of the person protected by section 7 of the Charter. Counsel for the appellants argued that the uncertainty in which the taxpayers were left was tantamount to an infringement of their right to security of the person.

Third, there was the right to equality before the law protected by both the Charter and the Bill. He raised this because La Sauvegarde had been investigated by the Department of National Revenue. Consequently, contracts concluded by La Sauvegarde in contravention of section 61 resulted in reassessments of the taxpayers who were the other parties to the contracts.

First Argument: Budgetary Process

Counsel for the appellants noted that subsection 91(3) of the Constitution Act, 1867 gave Parliament alone the right to tax. The government or the Minister of Finance did not have authority to impose taxes. In this context he referred me to Bowles v. Bank of England, [1913] 1 Ch. 57 at 84, Gruen Watch Company of Canada Ltd. et al. v. A.-G. Canada, [1950] O.R. 429; [1950] C.T.C. 440; revd in part [1951] O.R. 360; [1951] C.T.C. 94 (sub nom. Bulova Watch Co. v. A.-G. Canada) at pages 432-33, and the article by Professor E.A. Driedger in Canadian Tax Journal, Vol. 30, No. 4, at page 562, from which I should quote the following:

In Britain, the Bowles decision was in part at least overcome by the Provisional Collection of Taxes Act, which provided that a resolution adopted by the Committee of Ways and Means has effect as law for a limited period. There is no such law in Canada. In this country, the budget resolutions usually contain a paragraph that the proposed law is to have effect retroactively to the day of the budget speech. When the statute is enacted, it purports to change the law as of budget day. If a taxpayer in the meantime brought proceedings to recover taxes collected as forecast in the budget speech and were lucky enough to have a decision before the proposed statute received Royal Assent, he surely would win hands down as the taxpayer did in the Bowles case.

There is, however, the question whether the taxes collected before approval by Parliament may be retained by the Crown. The Canadian Bill of Rights (not to be confused with the new Charter of Rights) states in section 1 that the existence of the "right of the individual to (the) . . . enjoyment of property, and the right not to be deprived thereof except by due process of law" is recognized and declared, and in section 2, "Every law of Canada shall unless it is expressly declared by an Act of the Parliament of Canada that it shall operate notwithstanding the Canadian Bill of Rights, be so construed and applied as not to abrogate, abridge or infringe . . .any of the rights or freedoms herein recognized and declared .. .". The taxpayer's contention then would be that, in the absence of such a declaration, retroactive taxes are confiscatory and hence a violation of the Canadian Bill of Rights. The courts, if they agree, would be bound to hold the retroactive provision in a taxation statute inoperative.

It is, of course, understandable that certain classes of taxes should go into effect as soon as an intention to levy them is announced in order to prevent people from taking advantage of or profiting from proposed future changes in the tax laws. But then, the authority of Parliament should be obtained as was done in England.

(It should be noted that in the instant case the respondent's assessments were issued after the retroactive legislation acquired the force of law. This was not the situation in Bowles, where the taxes had been collected before the retroactive tax legislation came into effect.)

Like Professor Driedger, counsel for the appellants argued that retroactive tax legislation was confiscatory.

Again in his argument concerning the budgetary process, counsel for the appellants added: [Translation] "Taxpayers should not have to bear the consequences of Parliament's failure to pass its laws quickly enough". He wondered whether the enactment of legislation with such pronounced retroactive effect did not jeopardize the principle of the rule of law, according to which the rights of citizens are determined by the law and not by acts of the government. In this context counsel for the appellants referred me to the Supreme Court of Canada decision in what is known as Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721; 19 D.L.R. (4th) 1 at page 23 (S.C.R. 750), where the Court quotes Mr. Raz: '"The rule of law’ means literally what it says: the rule of the law. It has two aspects: (1) that people should be ruled by the law and obey it, and (2) that the law should be such that people will be able to be guided by it”.

Would an enactment having a retroactive effect very distant in time from when it is enacted be contrary to the principle of the rule of law? What must the taxpayer use as a guide during this period lasting one and one-half years? "The rule of law is a fundamental postulate of our constitutional structure." This quotation at page 750 of the Reference re Manitoba Language Rights is taken from Roncarelli v. Duplessis, [1959] S.C.R. 121; 16 D.L.R. (2d) 689 at page 707 (S.C.R. 142).

Counsel for the appellants summarized the first part of his constitutional argument as follows: [Translation] ”. . .when a taxpayer has to submit a return or do something that has a tax impact on him, absent legislation existing at that time, he cannot be required to comply with the budget rather than the Act and he cannot be required to do so by retroactive legislation that imposes this burden on taxpayers".

Rights Guaranteed by the Bill and the Charter

The second part of the argument of counsel for the appellants concerned the application of the rights and freedoms guaranteed by the Bill and the Charter.

Right to enjoyment of property: paragraph 1(a) of the Bill provides that enjoyment of property is a right of the individual and that he is entitled not to be deprived thereof except by due process of law. Counsel for the appellants argued that the excessive delay between the date on which the legislation took effect and the date on which it was enacted meant that there was no due process of law.

Section 7 of the Charter provides that "Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice". Counsel maintained that the late assessment of the taxpayers infringed this right.

The third right that was allegedly infringed in this case, according to counsel for the appellants, was the right to equality before the law, which was guaranteed by paragraph 1(b) of the Bill and section 15 of the Charter. In this connection counsel referred me to the statement of Ritchie, J. of the Supreme Court of Canada in A.-G. Canada v. Jeannette Lavell et al., [1974] S.C.R. 1349, at pages 1365-66 and 1373 :

In considering the meaning to be attached to “equality before the law" as those words occur in section 1(b) of the Bill, I think it is important to point out that in my opinion this phrase is not effective to invoke the egalitarian concept exemplified by the Fourteenth Amendment of the US Constitution as interpreted by the courts of that country. (See Smythe v. The Queen, per Fauteux C.J., at pp. 683 and 686.) I think rather that, having regard to the language employed in the second paragraph of the preamble to the Bill of Rights, the phrase “equality before the law" as used in s. 1 is to be read in its context as a part of "the rule of law” to which overriding authority is accorded by the terms of that paragraph.

“Equality before the law” in this sense is frequently invoked to demonstrate that the same law applies to the highest official of government as to any other ordinary citizen, and in this regard Professor FR Scott, in delivering the Plaunt Memorial Lectures on Civil Liberties and Canadian Federalism in 1959, speaking of the case of Roncarelli v. Duplessis, had occasion to say.

The relevance of these quotations to the present circumstances is that “equality before the law" as recognized by Dicey as a segment of the rule of law carries the meaning of equal subjection of all classes to the ordinary law of the land as administered by the ordinary courts, and in my opinion the phrase “equality before the law” as employed in section 1(b) of the Bill of Rights is to be treated as meaning equality in the administration or application of the law by the law enforcement authorities and the ordinary courts of the land. This construction is, in my view, supported by the provisions of subsections (a) to (g) of s. 2 of the Bill which clearly indicate to me that it was equality in the administration and enforcement of the law with which Parliament was concerned when it guaranteed the continued existence of “equality before the law".

3. that equality before the law under the Bill of Rights means equality of treatment in the enforcement and application of the laws of Canada before the law enforcement authorities and the ordinary courts of the land, and no such inequality is necessarily entailed in the construction and application of s. 12(1)(b).

Counsel for the appellants argued that only La Sauvegarde was investigated and that accordingly only the clients of La Sauvegarde were assessed. This was consequently a flagrant violation of their right to equality before the law.

Budgetary Process (Respondent's Position)

Concerning the argument that the tax legislation amending section 61 of the Act retroactively was contrary to the principle of the rule of law because of the time that elapsed between the date it came into effect and the date on which it was passed, counsel for the respondent stated that the process observed was in accordance with parliamentary practice and to this effect she filed an extract from Beauchesne's Rules and Forms of the House of Commons of Canada [2] stating that a ways and means motion was necessary for the imposition of a new tax. If a budget has been tabled, this resolution is also tabled on the day on which the budget receives first reading, or shortly thereafter. A bill based on this notice of ways and means motion is tabled later and the bill is given first, second and third reading before receiving Royal Assent, like any other bill. There was nothing in the documents filed that would lead me to doubt the actual process of passing the legislation. In any event, with respect to parliamentary procedure, in the Reference re the Resolution to Amend the Constitution, [1981] 1 S.C.R. 754 at 785, we find that the courts will intervene only after a law has been enacted and not beforehand (unless they are asked in a reference for their opinion on a bill).

Power to Legislate Retroactively in Tax Matters

Section 91 of the Constitution gives Parliament the power to tax, and counsel for the respondent argued that nothing could prevent Parliament from taxing with retroactive effect. She referred me to the decision of the House of Lords and the Privy Council in Colonial Sugar Refining Company Ltd. and Irving, [1906] A.C. 360 at 366.

The Parliament had undoubted power to impose taxation . . . and it is now disputed that the Parliament could, if it thought fit, make the Act retroactive, and impose the duties from the date of the resolution. That practice is (it is believed) universally followed in the Imperial Parliament, and (their Lordships were told) is common in the Colonial Legislatures in Acts of this description, and for obvious reasons it is convenient and almost necessary. There was nothing, therefore, in either the subject-matter of the Act or in the mode of dealing with it, which was beyond the power of the Parliament.

In this decision, however, it was not so much the retroactive effect that was at issue as the lack of consistency in the excise duties payable in the various states of Australia. However, this was not an effect of the impugned legislation but of the legislation of certain states in that country.

Counsel for the respondent also referred me to Brent W. Swanick v. M.N.R., [1985] 2 C.T.C. 2352; 85 D.T.C. 630. This involved a similar situation to that in the instant case in that it also concerned the November 1981 budget and the retroactive effect of the Act of March 30, 1983. In that case also the appellant argued that he had been deprived of his right to enjoy his property otherwise than by due process of law. Judge Bonner of this Court, relying on Gustavson Drilling (1964) Ltd. v. M.N.R., [1977] 1 S.C.R. 271; [1976] C.T.C. 1; 75 D.T.C. 5451 at pages 6-7 (D.T.C. 5454; S.C.R. 279) reaffirmed the power of Parliament to enact tax legislation with retroactive effect. In Beesley v. M.N.R., [1986] 2 C.T.C. 2018; 86 D.T.C. 1498, the Chief Judge of this Court rendered a similar decision also on the basis of Parliament's power to enact retroactive legislation and the normal practice of government to enact retroactive legislation in the tax field.

Subsection 5(4) of the Interpretation Act, R.S.C. 1985, c. 1-21 provides that an act or one of its provisions may be dated prior to the date of assent. "Where an Act provides that certain provisions thereof are to come or are deemed to have come into force on a day other than the date of assent to the Act, the remaining provisions of the Act are deemed to have come into force on the day of assent to the Act."

In Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; [1989] 4 W.W.R. 97; [1989] 1 T.S.T. 2126; the judges unanimously held that the British Columbia legislature had the power to make tax legislation enacted in 1981 retroactive to 1974.

In Gustavson Drilling (1964) Ltd. v. M.N.R., supra, Dickson, J., speaking for the Supreme Court of Canada, stated the following at pages 8-9 (D.T.C. 5455-56; S.C.R. 282-83):

Second, interference with vested rights. The rule is that a statute should not be given a construction that would impair existing rights as regards persons or property unless the language in which it is couched requires such a construction: Spooner Oils Ltd v Turner Valley Gas Conservation Board, [1933] SCR 629, 638. The presumption that vested rights are not affected unless the intention of the legislature is clear applies whether the legislation is retrospective or prospective in operation. A prospective enactment may be bad if it affects vested rights and does not do so in unambiguous terms. This presumption, however, only applies where the legislation is in some way ambiguous and reasonably susceptible of two constructions. It is perfectly obvious that most statutes in some way or other interfere with or encroach upon antecedent rights, and taxing statutes are no exception. The only rights which a taxpayer in any taxation year can be said to enjoy with respect to claims for exemption are those which the Income Tax Act of the year give him. The burden of the argument on behalf of appellant is that appellant has a continuing and vested right to deduct exploration and drilling expenses incurred by it, yet it must be patent that the Income Tax Acts of 1960 and earlier years conferred no rights in respect of the 1965 and later taxation years. One may fall into error by looking upon drilling and exploration expenses as if they were a bank account from which one can make withdrawals indefinitely or at least until the balance is exhausted. No one has a vested right to continuance of the law as it stood in the past; in tax law it is imperative that legislation conform to changing social needs and governmental policy. A taxpayer may plan his financial affairs in reliance on the tax laws remaining the same; he takes the risk that the legislation may be changed.

Conclusion on Budgetary Process and Power to Legislate Retroactively

Concerning the budgetary process there is no doubt, in my judgment, given the canons of construction and the case law cited earlier, that tax legislation may validly be retroactive. In this case the assessments were not issued before the law took effect. They are accordingly valid. The rule of law is an important argument and this undoubtedly is why one of the canons of construction is to the effect that legislation is not retroactive unless there is an express provision to the contrary. (In the case of the retroactive legislative at issue here there was such a provision.) In the tax field it seems that legislative retroactivity is not contrary to the principle of the rule of law. The budgetary process is an eminently public process that is known and accepted. Retroactive tax legislation does not take taxpayers by surprise and its retroactive effect does not usually, at least in the instant case, go beyond the date on which the ways and means resolution is tabled.

Rights under the Bill and the Charter

In the reference concerning the constitutionality of sections 32 and 34 of the Reference re Workers' Compensation Act, 1983 (Nfld.), [1989] 1 S.C.R. 922; 56 D.L.R. (4th) 765 at 766 (S.C.R. 924), the answer to question 1, "Does section 15(1) of the Charter of Rights and Freedoms (the "Charter") apply to causes of action prior to April 17, 19852”, was "No". Section 7 of the Canadian Charter of Rights and Freedoms came into effect on April 17, 1982. The date on which the retroactive legislation received royal assent was March 30, 1983, the date on which it took effect was after November 12, 1981 and the assessments were issued on May 14, 1986.

I mention these dates to help me determine whether I must consider sections 7 and 15 of the Charter. Since the enactment received Royal Assent on March 30, 1983, I have no doubt that section 7, which was relied upon by the appellants, can be considered. Section 15, on the other hand, which was also raised by the appellants, may be considered since the assessments were dated May 14, 1986 and were the appellants' causes of action.

Concerning section 7 of the Charter, counsel for the respondent referred me to pages 1003-1004 of the decision of Wilson, J. in Irwin Toy Ltd. v. A.-G. Quebec, [1989] 1 S.C.R. 927;94 N.R. 167:

What is immediately striking about this section is the inclusion of “security of the person" as opposed to "property". This stands in contrast to the classic liberal formulation, adopted, for example, in the Fifth and Fourteenth Amendments in the American Bill of Rights, which provide that no person shall be deprived "of life, liberty or property without due process of law". The intentional exclusion of property from s. 7 and the substitution therefor of “security of the person" has, in our estimation, a dual effect. First, it leads to a general inference that economic rights as generally encompassed by the term "property" are not within the perimeters of the s. 7 guarantee. This is not to declare, however, that no right with an economic component can fall within “security of the person". Lower courts have found that the rubric of "economic rights" embraces a broad spectrum of interests, ranging from such rights, included in various international covenants, as rights to social security, equal pay for equal work, adequate food, clothing and shelter, to traditional property contract rights. To exclude all of these at this early moment in the history of Charter interpretation seems to us to be precipitous. We do not, at this moment, choose to pronounce upon whether those economic rights fundamental to human life or survival are to be treated as though they are of the same ilk as corporate-commercial economic rights. In so stating, we find the second effect of the inclusion of "security of the person" to be that a corporation's economic rights find no constitutional protection in that section.

That is, read as a whole, it appears to us that this section was intended to confer protection on a singularly human level. A plain common sense reading of the phrase "Everyone has the right to life, liberty and security of the person" serves to underline the human element involved; only human beings can enjoy these rights. "Everyone" then, must be read in light of the rest of the section and defined to exclude corporations and other artificial entities incapable of enjoying life, liberty and security of the person and include only human beings.

Conclusions-Rights under the Bill and the Charter

With respect to the argument concerning the right of enjoyment of property and the right not to be deprived thereof except by due process of law, as guaranteed by paragraph 1(a) of the Bill, and the argument concerning the right to security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice, as provided in section 7 of the Charter, I feel that the retroactive tax legislation was valid and was properly applied and that, if there was an infringement of the rights to enjoyment of property or security of the person, this resulted from the proper application of the Act and was in accordance with the principles of fundamental justice. On November 12, 1981 individuals and financial institutions were warned that the tax benefit provided in section 61 of the Act would be abolished. The letter signed by each of the appellants at La Sauvegarde's request bears witness to this. The usual budgetary process was followed and the retroactive tax legislation was passed. The assessments were issued after the legislation came into effect.

Paragraph 1(b) of the Bill and section 15 of the Charter were raised by the appellants to argue the following unequal treatment: counsel for the appellants seemed to suggest that only persons who had contracted with La Sauvegarde had to suffer the repeal of the tax benefit for 1981. He apparently inquired of the respondent whether the cases of other taxpayers who had claimed the section 61 deduction had been audited. Here we are no longer analyzing the legislation itself to determine whether there was inequality but rather examining the methods of enforcing the legislation.

While it is now doubtful that section 15 of the Charter may apply to an act of the government, (Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; 56 D.L.R. (4th) 1 at pages 18-19 (S.C.R. 163-64)) it would seem from Lavell, supra, that paragraph 1(b) of the Bill may be relied upon to ensure that people are treated equally in the application of legislation. In the enforcement or policing of legislation it has always been accepted that investigations relating to such enforcement may be conducted on a sample basis, on the basis of informations laid or according to any other objective test relating to the enforcement of the legislation and does not have to be done on a universal basis. It does not seem possible or logical to proceed in any other way. The fact that an investigation is conducted on the above bases is essential to ensure full compliance with the law and not an arbitrary or discriminatory exercise of administrative power. This is not unequal treatment of individuals in that all persons are subject to the possibility of investigation and that these investigations are conducted on the basis of objective criteria and for objective reasons, impartially and without favour. In this context note should be taken of the Supreme Court of Canada decision in Smythe v. The Queen, [1971] S.C.R. 680; 71 D.T.C. 5252 at page 5254 (S.C.R. 685-86) where an aspect of the administra- tion of justice is discussed, namely, discretionary power in prosecutions. The employee of the respondent called to testify indicated that he did not know whether only persons who had signed contracts with La Sauvegarde had been reassessed. He had never heard of any directives to this effect. La Sauvegarde had been investigated and this explained the reassessment of the appellants. It should also be recalled that, according to the Act, the taxpayer is responsible for determining the tax he owes. Information Circulars No. 71-14R3 dated June 18, 1984 and No. 73-10R3 dated February 13, 1987 explain the respondent's methods in tax audits. No evidence was adduced to persuade me that the respondent acted differently in the case of the appellants.

Since the appellants knew that after November 12, 1981 there would be legislation preventing them from requesting a deduction under section 61 of the Act, since the usual budgetary process was followed, and I refer especially to the tabling of the ways and means resolution, since retroactive tax legislation is valid, since in the enforcement of the law all persons are likely to be subject to investigation, since this does not constitute unequal treatment where the choice of subjects is made on the basis of objective and relevant tests and since no evidence to the contrary was adduced, the appeals of the appellants are dismissed.

Appeals dismissed.