24 November 1997 External T.I. 9716465 - 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:

Is thee Income Tax Act Constitutional?

Position:Yes

Reasons:

Constittutional Act, 1867
                      	                  971646
XXXXXXXXXX		                               C. Tremblay

November 24, 1997

Dear Sirs:

Re: Constitutionality of the Income Tax System

This is in reply to your letter of April 28, 1997, addressed to the Honourable David Anderson, former Minister of National Revenue, regarding the constitutional authority of the Income Tax Act.

The constitutional authority for Canadian taxation is established under the Constitution Act 1867, section 91(3) which gives the Parliament of Canada the power to make laws in relation to "the raising of money by any mode or system of taxation". This power extends to both direct and indirect taxation. Under section 92(2) of the Constitution Act 1867, provincial legislatures are given the power to make laws in relation to direct taxation within the province in order to raise revenue for provincial purposes.

It would appear that in your letter you are referring to the 1950 Supreme Court of Canada decision in Attorney General of Nova Scotia v Attorney General of Canada 50 DTC 838. This case dealt with the specific issue of the competence of the Parliament of Canada and the legislature of a province to delegate authority to the other legislature on certain matters, namely labour and taxation. The case however did not address the issue of constitutionality of the Income Tax Act.

In 1988, a challenge was brought on the basis that the Income Tax Act was invalid, because it constitutes direct taxation within a province for provincial purposes. The Alberta Court of Appeal upheld the constitutionality of the Income Tax Act. The judgement in that case is reported at 53 D.L.R.(4th) 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.

In most provinces, provincial income tax is collected by Revenue Canada. As you have noted in your letter, the legislative authority for the province of Ontario to enter into a collection agreement with the federal government is found in the provincial Income Tax Act.

Accordingly, we confirm that the Department is constitutionally empowered to administer the provisions of the Income Tax Act.

We trust our comments will be of assistance to you.

Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch