6 October 1997 External T.I. 9725815 - 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 the Income Tax Act constitutional ?

Position:

Yes

Reasons:

Constitution Act, 1867

	                                      	972581
XXXXXXXXXX	                                    C. Tremblay

October 6, 1997

Dear Sir:

Re: Constitutionality of the Income Tax System

This is in reply to your letter of August 27, 1997, regarding the constitutional authority of the Income Tax Act.

Section 91(3) of the Constitution Act 1867 gives the federal government 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.

The Alberta Court of Appeal upheld the constitutionality of the Income Tax Act at Winterhaven Stables Ltd. v Attorney General of Canada (53 D.L.R.(4th) 413). The constitutionality of the Income Tax Act was raised again at The Tax Court of Canada in 1994 in the case of Sarraf et al. v Minister of National Revenue (94 DTC 1506) and later 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. 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 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.

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