Hunt – Tax Court of Canada finds that the advantage tax is a tax, not a penalty
S. 207.05 imposes the 100% advantage tax on the controlling individual of a registered plan, and s. 207.06 authorizes the Minister to waive such tax having regard to listed criteria. The following Rule 58 question was posed to Bocock J:
Is the charge imposed by either or both of sections 207.05 and 207.06 of the Act in law a penalty or a tax?
Bocock J appeared to accept that the relevant context for this question was that “[i]f section 207.05 were a penalty, a due diligence defence applies, and a successful defence renders non-qualified income free of tax,” i.e., if the provision imposed a penalty there would be a due diligence defence rather than any relief being confined to that potentially provided under s. 207.06. However, he went on to find that the provisions did not impose a penalty given inter alia that the “tax” was labelled as such and given that although “a tax may have characteristics so clearly coercive and disproportionate that one concludes it is a penalty … this case does not meet that standard.”
He also found that the discretion accorded to the Minister under in s. 207.06 (being a constrained rather than unfettered discretion) did not have the effect of improperly delegating to the Minister a tax-rate setting discretion contrary to s. 53 of the Constitution Act, 1867.