Are federal income taxes unconstitutional… in Canada?

February 5, 2008

The Canadian constitution is comprised primarily (but not exclusively) of two parts, the British North America Act (a.k.a. the Constitution Act) of 1867 and the Charter of Rights and Freedoms (a.k.a. the Charter) of 1982. The Charter does not address taxation, but the Constitution Act does, in fact many Canadians may be surprised to learn that it explicitly defines the limited powers of each level of government.

Sections 91 and 92 enumerate the areas over which federal and provincial governments can exercise legislative jurisdiction; it is important to recognize that each level of government has exclusive jurisdiction over its own areas. The federal taxing power is defined in Section 91:“The raising of money by any mode or system of taxation.” The provincial taxing power is defined in Section 92: “Direct taxation within the Province in order to the raising of a revenue for provincial purposes.”

The obvious question arises — how can the provincial government have exclusive jurisdiction over direct taxation in the province (which includes income taxes) if the federal government can raise money by any mode or system of taxation? This apparent contradiction has two competing interpretations:

The first argues the qualifier “for provincial purposes” means the province only has exclusive jurisdiction over direct taxation when the revenue is used for provincial purposes, whereas the federal government obviously uses the revenue for federal purposes.

The second argues that supreme court rulings have already interpreted in other cases “for provincial purposes” to be simply an explanation rather than a limitation and point to the original text a few years before ratification in which the federal clause was worded slightly differently, “The raising of money by any other mode or system of taxation“.

To me, it appears as though the first explanation is somewhat lacking — if the only use of government revenue is for its own purposes, why would such a qualifier even need to be included at all? It would only make sense to include “for provincial purposes” in the provincial clause if there was an implicit acceptance of the possibility that a government may raise revenue for some other purpose — that means we can’t just assume all federal government revenue is raised for federal purposes.

In other words, even if you accept the federal government’s constitutional right to direct taxation, you can not accept that federal budgets can include any expenditure the government chooses — they are still barred from direct taxation for provincial purposes. Under that interpretation, the federal income tax may be legal, but much of what it funds may not be.

On the other hand, the second interpretation is much stronger. If the federal government has power to raise money by any mode or system of taxation, excluding the power of direct taxation granted exclusively to the provinces, the problem is resolved outright and the federal income tax is unconstitutional.

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