"I am proud to be paying taxes… I could be just as proud for half the money." - Arthur Godfrey
Temporary Taxation in Canada
In 1917, the Income War Tax Act (7-8 George V, Chap. 28) introduced Canadians to a 'temporary' tax on corporate and personal income.
After 88 years it's safe to say that the first myth of taxation is that Parliament considers taxation to be 'temporary.'
Taxation Isn't Constitutional
You've heard that it is against Canada's Constitution for the federal government to collect income taxes.
The British Parliament in the British North America Act, 1867 §91(3) specifically empowered the federal government of Canada with the authority for "the raising of money by any mode or system of taxation".
The highest court in Canada has held that this power to raise money through taxes is "apparently limitless" (Re Anti-Inflation Act [1976] 2 S.C.R. 373 at 390 (S.C.C.), per LASKIN, C.J.)
American readers who've heard the same thing (i.e., Congress cannot legally collect taxes) should read the Sixteenth Amendment to the Constitution, which when ratified in 1913, empowered the U.S. Government to impose income taxes directly on its citizens.
So the second myth of taxation is that the federal government doesn't legally have the authority to collect taxes.
I Can't Be Convicted Of Evasion If I Believe…
Perhaps, you've heard that in order to be convicted of evasion you have to have a 'guilty mind' and if you believe, you really believe, that collecting taxes is illegal you cannot be convicted of evasion.
§239(1)(d) Income Tax Act ("ITA") provides that every person who wilfully evades or attempt to evade taxes imposed by the ITA is guilty of an offence.
The offence of evasion is a true criminal offence: R. v. Klundert (2004), 242 D.L.R. (4th) 644 (Ont. C.A.) per DOHERTY, J.A. at §32; and R. v. Knox Contracting Ltd., [1990] 2 S.C.R. 338 (S.C.C.) at pp. 346-348.
There are two constituent elements of a crime: the prohibited conduct (actus reus) and the requisite fault (mens rea).
Parliament's use of the word "wilfully" in §239(1)(d) ITA implies by something done by conscious design or on purpose; but does that really mean what it sounds like?
No; mistakes of law generally aren't a defence (e.g., §19 Criminal Code), but certain factual mistakes (e.g., errors of addition) could be - it depends on the circumstances.
"A person's mistaken belief that a statute is invalid or is otherwise not applicable to that person's conduct is a mistake of law. It is, however, a mistake of law that is irrelevant to the existence of the fault requirement in s. 239(1)(d).": Klundert at §59; Criminal Code s. 19; R. v. Ricci (2004), 190 O.A.C. 375 (Ont. C.A.)
The third myth of taxation is that you cannot be convicted of evasion if you believe you don't have to pay taxes.
What Canada Revenue Tells Me Is Binding On Them
A taxpayer calls a Canada Revenue Agency ("CRA") hotline or goes to a local tax service office and gets their question answered, or receive other guidance on how to 'properly' do what that taxpayer is obliged to do under the ITA.
What if the advice is wrong? Most Canadians think that they can rely on it, but can they?
The short answer is that they can't - that the fourth myth.
Why this is true is somewhat complex: Since 1931 Canada's Parliament has been sovereign and they could pass any law they wanted (Burma Oil Company v. Lord Advocate [1965] AC 75 (H.L.)), but with the Canada Act, 1982 (U.K.) Parliament became subject to The Charter of Rights and Freedoms, which imposed legal limits on Parliament's ability to infringe certain fundamental rights.
The ITA is a complete code (i.e., covering all aspects of its subject matter) and it is the job of taxpayers to follow it, CRA to enforce it, the courts to interpret it and then back to Parliament if amendment is needed.
These various interests are perpetually in conflict: taxpayers want to pay as little tax as legally permissible (Inland Revenue Commissioners v. Westminster (Duke of), [1936] A.C. 1 (H.L.)) but Parliament wants to collect as much money as it possibly can.
Subject to a Charter prohibited infringement of a fundamental right, Parliament's complete code in the ITA is paramount. In other words, no one at CRA can change one word in the ITA and if any advice they give is contrary to the Act, that advice is ineffective and the ITA provision will prevail. Thus, CRA's advice is only binding on them - and you - if it's correct. It all goes back to the ITA and Parliamentary supremacy.
CRA's Can't Find My Offshore Funds
Perhaps you set up an asset-protection trust somewhere and you've been collecting income offshore for years; or, possibly you want to sell your condo in Barbados and plan to keep the proceeds in Belize.
§2(1) ITA imposes taxes on residents of Canada, not only on their Canadian source income but on their worldwide income. The limits on this general rule are few, narrow and require specialized expert advice to interpret (e.g., in-coming immigrants and Tax Treaties).
Just so we're clear, what we are talking about here is the crime of tax evasion.
In the post 9/11 world, secrecy doesn't exist like it did.
Domestically in the U.S. the Bank Secrecy Act (1970; "BSA") was expanded and clarified after 9/11 with passage of the USA Patriot Act (2001; HR 3162 RDS). Congress decided that an effective way to catch terrorists was to monitor cash transaction and require reporting from "money services businesses". Since the threshold for transactions in now in aggregate US$1,000 per day, it's a very tight filter.
Canada established The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to collect, analyze and, when appropriate, disclose financial intelligence on suspected money laundering, cash transactions and terrorist financing activities.
Internationally the U.S. used its political and diplomatic clout to step up foreign disclosure of suspicious transactions.
Canada and the U.S. belong to various international organizations that share financial and other information. One of the most dreaded of these among tax havens is The Organisation for Economic Co-operation and Development ("OECD"), which has obtained commitments from 33 of the world's 35 listed tax havens to comply with the OECD's principles of transparency and effective exchange of information.
By compelling tax havens to disclose banking information OECD members obtain fiscal information for the one purpose (combating money laundering and tracing terrorist's funds), which they can then use for another purpose (fighting fraud and other tax crimes).
It is myth number five that you can access or use offshore money and not have be discovered; it can happen in any of a thousand different ways, the majority of which his entirely beyond your control.
If a taxpayer finds themself in this position and wants to take advantage of an amnesty provision, then must retain the services of a tax lawyer. Because communications with an accountants aren't usually privileged (in Canada - Baron et al. v. The Queenm [1990] 1 C.T.C. 125 (F.C.A.); or in the U.S. - U.S. v. Arthur Young et al., (1984) 465 U.S. 805 (S.C.)) only a lawyer can achieve this without disclosing their client's before the terms are agreed to, and reduced to writing.
CRA Is There To Help
CRA says it wants you to be, "treated fairly and have the information, advice…[you] need to meet [your] obligations:" http://www.cra-arc.gc.ca/agency/fairness/rights-e.html.
Except CRA doesn't, and can't, hold itself accountable for any "information [or] advice" it gives. If they make a mistake, and you rely on their wrong 'advice', it will be you who will pay.
CRA has an opinion on everything to do with taxes; but having an opinion is no guarantee that the opinion is correct. To do what CRA says is the safe decision, but it may not always be the right decision: Canada v. Imperial Oil Ltd., [2004] 2 C.T.C. 190 (Fed. C.A.).
Caveat: Employees have little, or no, scope to tax plan. The wealthy and businesses do potentially have such flexibility, but deciding whether to take advantage of their opportunities is a question that requires an in-depth analysis of their particular circumstances by expert accountants and lawyers.
A creative tax plan may be challenged, but a creative and highly successful plan (i.e., one that defers or eliminates a lot of taxes) will be challenged. A safe rule of thumb is 'if you can't afford - or don't want - to fight about it, don't do it.'
This is not to say that all potential problems with CRA are self-created - they aren't.
In R. v. Roberts & Viccars, [1998] B.C.J. No. 3184 (Prov. Ct.) the court stayed charges under §24(1) of the Charter, against the accused charged with tax evasion and fraud. The court found that, "the abuses in his case are varied and blatant and span the investigation … what [the CRA officer] did, aided and abetted by his supervisor…" showed "distain for the Charter."
In R. v. Saplys [1999] O.J. No. 393 (Ont. Gen. Div.) granted a stay when the investigation proved to be so unfair as to contravene fundamental notions of justice that it undermined the integrity of the justice system and compromised the defendant's right to a fair trial.
So the sixth myth of taxation is that CRA is there to help you; they are there to collect taxes for Parliament, any help they give will be incidental to that larger purpose.
What About Your Rights?
If you believe you have a problem with CRA, or if you believe its officers have broken your rights (e.g., §§7, 8, 10(b) or 11(d) of the Charter) to whom, should you complaint?
Unlike most federal government departments CRA doesn't have an Ombudsman, so you cannot go there.
In another abuse case (in which the court excluded the evidence under §24(2) of the Charter), defence attempts to go to supervisors, local TSO directors, national directors, national director-generals, the Commissioner and even the Minister of National Revenue all proved to be ineffective.
CRA publishes Your Rights, but declarations without accountability are meaningless. CRA says that it requires its officers to adhere to a Code of Ethics and Conduct, but then refuses to release a copy so compliance with the Code can be tested.
Natural justice requires that both sides be heard - audi alteram partem; but what if one side isn't listening? CRA may police the ITA, but "who polices the police?"
In the cases above, only the courts were able to restrain CRA in, what a senior CRA officer characterized as "rebels out there deciding policy" when the indications were that this was an entire SI office that was "out of control" (Roberts & Viccars, above).
While the courts have indicated a willingness to protect Charter rights (R. v. Clayton and Farmer, (2005) Docket No.s C37990; C36722 (Ont. C.A.) per Doherty, J.A. at § 95) they are not the optimal venue for seeking redress for these wrongs; the expense and time involved in such litigation limits access for many. Even an award of costs against the Crown (cf., Saplys, above) would prove to be adequate compensation.
CRA's failure to recognize the dichotomy between their policies and their application is creating a crisis of confidence for many Canadians who believe themselves to have been a victim of a process, which CRA labels as "fair."
If this applies to you then email your Member of Parliament ("MP") and ask them for an Inquiry to establish an Ombudsman for CRA. Your MP's contact information may be found in the Parliamentary directory (http://www.parl.gc.ca/). When you write, please copy the Honourable Paul DeVillers, at DeVillers.P@parl.gc.ca. Mr. DeVillers is Parliamentary Secretary to the Prime Minister and he has expressed an interest in taxpayer equity and rights.
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