2 November 1994 External T.I. 9427325 - CONSTITUTIONALITY OF THE INCOME TAX ACT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

validity of the Income Tax Act as pertains to 1950 case involving the Lord Nelson Hotel Ltd. (1950) S.C.R. 31

Position TAKEN: Income Tax Act is constitutional

Reasons FOR POSITION TAKEN:

the taxpayer's rationale is unsupported by jurisprudence. It would appear that the argument raised is based on a massive public mailing from an unidentified source which expounded on the unconstitutionality of the Income Tax Act. The 1950 supreme court case quoted did not indicate that the federal government did not have the power to impose direct taxes.

A. Humenuk
XXXXXXXXXX		942732

November 2, 1994

Dear Sir:

Re: Constitutional Authority of the Income Tax Act

We are replying to your letter of October 17, 1994 in which you request a ruling that the Income Tax Act is legally enforceable under the Constitution Acts, 1867 to 1982 and that the Department was correct in denying your earlier request of September 2, 1994.

Your September 2, 1994 letter to our Surrey Taxation Centre requested a ruling that no tax be collected from you and that all the tax paid by you since 1950 be refunded with interest. You also asked for a letter of authority exempting your employer and your pension plan administrator from the requirement to withhold tax from any salary or pension you may receive.

In both of your letters you refer to the 1950 Supreme Court of Canada decision in Attorney General of Nova Scotia v Attorney General of Canada (1950) S.C.R. 31 as the authority for your position that the Income Tax Act is ultra vires the Parliament of Canada and that the federal government does not have any legal authority to impose an income tax on you. This case dealt with the specific issue of the competency of the Parliament of Canada and the Legislature of a Province to delegate authority to the other to legislate on certain matters, namely labour and taxation. The case did not address the issue of the constitutionality of the Income Tax Act and the decision certainly did not indicate that the federal government could not impose direct taxes.

The arguments you raise were the subject of a 1988 court challenge which was heard at the Alberta Court of Appeal. In response to the specific charge that the federal Income Tax Act was invalid in that it constitutes direct taxation within a province for provincial purposes, the court upheld the constitutionality of the Income Tax Act. The judgement in that case is reported in volume 53 of the 4th edition of the Dominion Law Reports at page 413: Winterhaven Stables Ltd. v Attorney General of Canada. The Supreme Court of Canada refused leave to appeal on April 13, 1989.

The constitutionality of the Income Tax Act was also raised at the Tax Court of Canada in 1994 in the case of Sarraf et al. v Minister of National Revenue (94 DTC 1506) and again at the Federal Court-Trial Division (Sarraf v the Queen 94 DTC 6553, 94 DTC 6554). As one of several arguments challenging the validity of a particular assessment of tax on each of the taxpayers, they argued before the Tax Court that, by reason of section 92(2) of the Constitution Act, 1867, the federal government did not have the power of direct taxation within a province. While crediting the taxpayers with ingenuity and boldness for presenting such an argument, the Tax Court dismissed the case on the basis that the Parliament of Canada is limited in its taxing powers only by the Canadian Charter of Rights and Freedoms. Both taxpayers appealed this decision to the Federal Court-Trial Division but the Crown moved for an order striking their respective statements of claim. In granting both of the Crown's motions to strike these statements of claim, the Federal Court-Trial Division said

"(the taxpayer's case) has no possibility whatsoever of succeeding."

In those provinces where provincial income tax is collected by Revenue Canada, the legislative authority covering the collection agreement between the federal and provincial government is found in the provincial income tax legislation. For example, the authority for the province of British Columbia to enter into a collection agreement with the federal government is found in section 54 of the provincial Income Tax Act (chapter 190 of the Royal Statutes of British Columbia 1979 as amended).

In summary, our research indicates that there is no support for your position that the Income Tax Act is ultra vires the Parliament of Canada under the Constitution Acts, 1867 to 1982. As required by section 151 and subsection 156.1(4) of the Income Tax Act, it is the obligation of every person required to file an income tax return under section 150 to estimate and remit the amount of tax payable under the Act. Furthermore, any person paying an amount described in section 153 of the Act, including salary, wages or pension benefits, is required to withhold the appropriate amount of tax as set out by Regulation and to remit the amount withheld to the Receiver General of Canada within the time period specified in the Act. Failure to comply with these requirements would result in the assessment of interest and possibly penalties.

Accordingly, we confirm that the Department is constitutionally empowered to administer the provisions of the Income Tax Act and that we are unable to comply with the requests set out in your letter of September 2, 1994.

You have asked for the name of the Minister of Finance, the Director General of the Rulings Directorate and the senior officer of Revenue Canada in Surrey, British Columbia. The Honourable Paul Martin is the Minister of Finance. Mr. Rick Biscaro is the Acting Director General of Rulings Directorate of the Policy and Legislation Branch of Revenue Canada and his address is the same as that appearing at the top of this letter. Mr. Brian Laurie is the Acting Director of the Surrey Taxation Centre and his address is the same as that appearing on the letter you previously received from the Surrey Taxation Centre.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch