Hunt v. The Queen

Hunt v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2022-06-23
Neutral citation
2022 TCC 67
File numbers
2016-1689(IT)G
Judges and Taxing Officers
Randall S. Bocock
Subjects
Income Tax Act
Decision Content
Docket: 2016-1689(IT)G
BETWEEN:
THOMAS HUNT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Motion first heard by written submissions with subsequent oral submissions on January 25th and 26th, 2022 by video conference.
Before: The Honourable Mr. Justice Randall S. Bocock
Appearances:
Counsel for the Appellant:
David R. Davies
Alexander Demner
Counsel for the Respondent:
David Everett
Lisa Macdonell
ORDER
WHEREAS the Court has published on this date its reasons for order attached.
NOW THEREFORE THIS COURT ORDERS THAT:
The Court answers the questions posed to it under section 58 of the Tax Court of Canada Rules (General Procedure) as follows:
a) The charge imposed by either or both of section 207.05 and 207.06 of the Income Tax Act, RSC 1985, c.1, as amended (the “Act”) is a tax; and,
b) Sections 207.05 and 207.06 of the Act, separately or in combined effect, are constitutional because Parliament has not improperly delegated the rate-setting element of that tax to the Minister of National Revenue in contravention of section 53 of the Constitution Act, 1867 (UK), 30 & 31 Vict, c3, reprinted in RSC 1985, Appendix II, No 5 (the “Constitution Act”).
Signed at Toronto, Ontario, this 23rd day of June, 2022.
“R.S. Bocock”
Bocock J.
Citation: 2022TCC67
Date: 20220623
Docket: 2016-1689(IT)G
BETWEEN:
THOMAS HUNT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Bocock J.
I. INTRODUCTION
[1] This application is brought under subsection 58(1) of the Tax Court of Canada Rules (General Procedure) (“Rule 58”). Justice Pizzitelli of this Court rejected two similar but more narrow Rule 58 questions in 2018 [1] . On appeal, the Federal Court of Appeal dismissed the Appellant’s appeal and upheld Justice Pizzitelli. [2] By Order dated March 22, 2021, this Court modified the two Rule 58 questions to include reference to section 207.06 as well as 207.05 of the Income Tax Act, RSC 1985, c.1, as amended (the “Act”).
II. THE RULE 58 QUESTIONS
[2] Consequently, the present Rule 58 questions are as follows:
Is the charge imposed by either or both of sections 207.05 and 207.06 of the Act in law a penalty or a tax? (“First Question”); and,
Are sections 207.05 and 207.06 of the Act, separately or in combined effect, unconstitutional as a consequence of Parliament having improperly delegated the rate-setting element of that tax to the Minister of National Revenue in contravention of section 53 of the Constitution Act, 1867 (UK), 30 & 31 Vict, c3, reprinted in RSC 1985, Appendix II, No 5 (the “Constitution Act”)? (“Second Question”).
III. OVERVIEW OF THE PARTIES’ POSITIONS
A. First Question: is the charge: tax or penalty?
i) Overall position of the Appellant
[3] The Appellant primarily contends that the advantage charge imposed by either or both of sections 207.05 and 207.06 of the Act is in fact a penalty despite being described as a “tax”. [3] The Appellant submits that a penalty is a distinct category separate from a tax, and that the label of “tax” is not determinative of whether a charge imposed is legally a tax or a penalty. [4] Because the label is not determinative, the Court must examine the substance of the advantage charge. When so done, the substance of the advantage charge revealed in its context and purpose is a penalty.
ii) Overall position of the Respondent
[4] The Respondent takes the position that the advantage charge is a tax through application of the correct principles of statutory interpretation to the words of the Act. The core argument of the Respondent is that the text of a provision plays a dominant role in its interpretation, and the text of section 207.05, read in its grammatical and ordinary sense, imposes a tax. Alternatively, the Respondent argues that a contextual and purposive analysis also informs the conclusion that section 207.05, alone or in combination with 207.06, imposes a tax.
B. Second Question: if a tax, is it unconstitutional?
i) Overall position of the Appellant
[5] The Appellant asserts that sections 207.05 and 207.06 of the Act, either separately or in combined effect, are unconstitutional for contravening section 53 of the Constitution Act. The breach arises because Parliament has improperly delegated the rate-setting element of the tax to the Minister through the Ministerial discretion afforded in section 207.06.
ii) Overall position of the Respondent
[6] In response, the Respondent states that both sections 207.05 and 207.06 of the Act are constitutionally valid. Firstly, since section 207.05 imposes a constitutionally valid tax and section 207.06 does not impose any tax, either alone or in combination with 207.05, the section cannot contravene section 53 of the Constitution Act. This is because a section 207.06 does not contemplate a tax and instead only waives the liability to pay the tax. Whatever delegation of taxation power there may be is merely, Ministerial discretion, itself sufficiently constrained to permitted administrative duties.
IV. RELEVANT STATUTORY PROVISIONS
A. Income Tax Act
[7] The relevant provisions of the Act are sections 207.01 (“TFSA Advantage”), 207.05 (“TFSA Charge”), and 207.06 (“TFSA Waiver”). All definitions in parentheses are as they appear in these reasons and not within the Act. Beyond that, the sections of the legislation are as follows:
Taxes in Respect of Registered Plans
207.01 advantage, in relation to a registered plan, means (the “TFSA Advantage”)
(a) any benefit, loan or indebtedness that is conditional in any way on the existence of the registered plan, other than [enumerated exceptions in (i)-(v)];
(b) a benefit that is an increase in the total fair market value of the property held in connection with the registered plan if it is reasonable to consider, having regard to all the circumstances, that the increase is attributable, directly or indirectly, to
(i) a transaction or event or a series of transactions or events that
(A) would not have occurred in a normal commercial or investment context in which parties deal with each other at arm’s length and act prudently, knowledgeably and willingly, and
(B) had as one of its main purposes to enable a person or a partnership to benefit from the exemption from tax under Part I of any amount in respect of the registered plan,
(ii) a payment received as, on account or in lieu of, or in satisfaction of, a payment
(A) for services provided by a person who is, or who does not deal at arm’s length with, the controlling individual of the registered plan, or
(B) of interest, of a dividend, of rent, of a royalty or of any other return on investment, or of proceeds of disposition, in respect of property (other than property held in connection with the registered plan) held by a person who is, or who does not deal at arm’s length with, the controlling individual of the registered plan,
(iii) a swap transaction, or
(iv) specified non-qualified investment income that has not been paid from the registered plan to its controlling individual within 90 days of receipt by the controlling individual of a notice issued by the Minister under subsection 207.06(4);
(c) a benefit that is income (determined without reference to paragraph 82(1)(b)), or a capital gain, that is reasonably attributable, directly or indirectly, to
(i) a prohibited investment in respect of the registered plan or any other registered plan of the controlling individual,
(ii) in the case of a registered plan that is not a TFSA, an amount received by the controlling individual of the registered plan, or by a person who does not deal at arm’s length with the controlling individual (if it is reasonable to consider, having regard to all the circumstances, that the amount was paid in relation to, or would not have been paid but for, property held in connection with the registered plan) and the amount was paid as, on account or in lieu of, or in satisfaction of, a payment
(A) for services provided by a person who is, or who does not deal at arm’s length with, the controlling individual of the registered plan, or
(B) of interest, of a dividend, of rent, of a royalty or of any other return on investment, or of proceeds of disposition, or
(iii) a deliberate over-contribution;
(d) a registered plan strip in respect of the registered plan; and
(e) a prescribed benefit. (avantage)
Tax payable in respect of advantage (the “TFSA Charge”)
207.05 (1) A tax is payable under this Part for a calendar year if, in the year, an advantage in relation to a registered plan is extended to, or is received or receivable by, the controlling individual of the registered plan, a trust governed by the registered plan, or any other person who does not deal at arm’s length with the controlling individual.
Amount of tax payable
(2) The amount of tax payable in respect of an advantage described in subsection (1) is
(a) in the case of a benefit, the fair market value of the benefit;
(b) in the case of a loan or an indebtedness, the amount of the loan or indebtedness; and
(c) in the case of a registered plan strip, the amount of the registered plan strip.
Liability for tax
(3) Each controlling individual of a registered plan in connection with which a tax is imposed under subsection (1) is jointly and severally, or solidarily, liable to pay the tax except that, if the advantage is extended by the issuer, carrier or promoter of the registered plan or by a person with whom the issuer, carrier or promoter is not dealing at arm’s length, the issuer, carrier or promoter, and not the controlling individual, is liable to pay the tax.
Waiver of tax payable (the “TFSA Waiver”)
207.06 (1) If an individual would otherwise be liable to pay a tax under this Part because of section 207.02 or 207.03, the Minister may waive or cancel all or part of the liability if
(a) the individual establishes to the satisfaction of the Minister that the liability arose as a consequence of a reasonable error; and
(b) one or more distributions are made without delay under a TFSA of which the individual is the holder, the total amount of which is not less than the total of
(ii) the amount in respect of which the individual would otherwise be liable to pay the tax, and
(iii) income (including a capital gain) that is reasonably attributable, directly or indirectly, to the amount described in subparagraph (i).
(2) If a person would otherwise be liable to pay a tax under this Part because of subsection 207.04(1) or section 207.05, the Minister may waive or cancel all or part of the liability where the Minister considers it just and equitable to do so having regard to all the circumstances, including
(a) whether the tax arose as a consequence of reasonable error;
(b) the extent to which the transaction or series of transactions that gave rise to the tax also gave rise to another tax under this Act; and
(c) the extent to which payments have been made from the person’s registered plan.
B. Constitution Act
[8] Section 53 of the Constitution Act, titled “Appropriation and Tax Bills,” reads:
53 Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.
V. THE AUTHORITIES GENERALLY- STATUTORY INTERPRETATION
[9] In Stubart Investments, the Supreme Court of Canada (“Supreme Court”) affirmed the modern approach to statutory interpretation. That approach requires that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” [5] The Supreme Court reframed this approach in Canada Trustco as the textual, contextual, and purposive (“TCP”) approach. [6]
[10] A statutory provision must be interpreted according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. [7] Further, where the words of a statute are precise and unequivocal, those words play a dominant role in the interpretation. [8] The Supreme Court in Canada Trustco also noted that “[t]he relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the Court must seek to read the provisions of an Act as a harmonious whole.” [9]
[11] Recent Supreme Court cases provide further insight into this analytical process. If words of a legislative provision appear to be precise and unequivocal, the Court must still examine the legislative context and purpose. [10] An examination of a provision may yield clarity at first glance and yet its context may reveal latent ambiguities. [11]
[12] An interpretive dispute involving multiple legislative objectives and the inter-relationship between two or more statutory provisions may raise the scheme of the Act and the underlying objectives of the provisions to particular significance. [12] In the face of complexity, the Court should not focus on one objective to the exclusion of others. Instead, it should assign an active role to secondary purposes unidentified in preambles or purpose statements. [13] Regardless, primary legislative goals should be proportionately interpreted and balanced with other principles and policies that qualify the pursuit of the primary goals. [14]
[13] After examination, should the legislative language be unambiguous then purpose “cannot be used to create an unexpressed exception to clear language.” [15] Similarly, policy considerations “cannot be permitted to distort the actual words of the statute, read harmoniously with the scheme of the statute, its object, and the intention of the legislature, so as to make the provision say something it does not.” [16]
[14] Ultimately, this exercise “seeks the intent of Parliament by reading the words of the provision in context and according to their grammatical and ordinary sense, harmoniously with the scheme and object of the statute.” [17] Further, “[t]he primary role of the courts…is to interpret and apply those laws according to their terms, provided they are lawfully enacted. It is not the role of the Tax Court to rewrite the legislation.” [18]
VI. A SUMMARY OF THE FACTS CONCERNING THE RULE 58 QUESTIONS
[15] As required in Rule 58, the facts concerning the questions were submitted to the Court on consent. What follows is a relevant summary of those facts.
[16] The Appellant, Mr. Hunt, opened a tax-free savings account (“TFSA Trust”) in early 2009. He contributed 10,000 shares of a private company (“MSC”). In 2010, 2011 and 2012, Mr. Hunt contributed additional MSC shares to the TFSA Trust. In 2013 and 2014, he put in cash. In 2013, upon his retirement, Mr. Hunt sold 14,147 MSC shares for $8.063 a share or $114,067.26. In 2015, the Minister proposed to assess Mr. Hunt a TFSA Charge under section 207.05. The Minister’s agents invited representations concerning a section 207.06 TFSA Charge Waiver (the “TFSA Proposal Letter”). The TFSA Charge amount exceeded $144,000.00.
[17] After negotiation at the representation stage, the Minister’s agents proposed a resolution (the “TFSA Charge Waiver Offer”): Mr. Hunt would agree to receipt of a TFSA Advantage and would withdraw the extent of the TFSA Advantage from the TFSA Trust. No commensurate TFSA contribution room would be credited to the TFSA Trust. The Minister would utilize a TFSA Charge Waiver to reduce the quantum of the TFSA Advantage in relevant taxation years to between 43.1% and 45.8% of the 100% TFSA Charge. The amount of the waiver resulted in a charge pay reflective of the relevant top marginal tax rates applicable. The parties would reciprocally waive further rights.
[18] Mr. Hunt refused the TFSA Charge Waiver Offer. Therefore, the Minister assessed according to the less favourable TFSA Proposal Letter, effectively the full TFSA Charge. Mr. Hunt appealed the Minister’s decision to the Federal Court. The Minister resiled, and on an asserted “just and equitable basis”, reconsidered. The Minister unilaterally reassessed, more or less, on the basis of the TFSA Charge Waiver Offer, minus the further rights waiver. No further reassessments were issued.
VII. ANALYSIS
A. The First Question: is the TFSA Charge a tax or penalty?
i) Interpretative Approach: text, context and purpose (“TCP”)
[19] The parties agree on the applicability of a TCP approach; they maintain vastly different positions on the results of the approach.
(a) The Appellant’s TCP approach
[20] The Appellant states the text of a provision is not determinative of whether the TFSA Charge is a tax and the purpose and context overrides the text in this appeal. The following provides the analytical sequence of the position.
[21] The Appellant argues the cases of Eurig Estate [19] and Syndicats [20] support this position. Courts look behind the wording used in a statute to ascertain the true nature of a charge or levy for constitutional purposes. [21] Eurig Estate struck down an Ontario regulation imposing probate fees because the charge was a tax imposed by a body other than the Ontario Legislature; the Court looked beyond the label of “fees” to find a tax contrary to Section 53. [22] In Syndicats, the Supreme Court said that a previously valid levy became an invalid tax because legislative measures destroyed the nexus between the levy and its regulatory scheme. [23] This suggests that the substance of a tax may be distinguishable from a levy beyond its text.
[22] The “pith and substance” of provisions was the focus of the analysis in Eurig Estate and Syndicats. Nonetheless, Eurig Estate and Syndicats have some relevance in the current issue. There is nothing to preclude the use of Eurig Estate and Syndicats to inform the Court of the interpretive considerations if it decides to look past the words to ascertain whether a charge is in fact a tax or something else.
[23] The Appellant argues Weber [24] and Tokio Marine [25] state that the plain and ordinary meaning of a statute’s words are only one aspect of the modern approach. [26] The Alberta Court of Appeal in Tokio Marine looked through the jurisprudence and concluded that in the modern approach to statutory interpretation, a literal approach is not appropriate and context and purpose must be considered regardless of whether a word or phrase has a plain or unambiguous meaning. This Court notes that the underlying requirement of the interpretative exercise seeks a meaning that is harmonious with the Act as a whole. The legislation at issue in Tokio Marine was the provincial Insurance Act, which arguably calls for a more purposive analysis to ensure the interpretation does not undermine the object of the Act as a whole or violate Charter rights.
(b) The Respondent’s TCP approach
[24] The Respondent argues that in the TCP approach, the text has primacy over context and purpose where the words are clear and unambiguous, as they are in this case. Further, the interpretive approach does not contemplate courts reading beyond the strict words of the statute to see its substantive effect. [27] Several other principles of interpretation are referenced; the greatest emphasis sits jointly on the prohibition against judicial rewriting and the principle of parliamentary sovereignty.
[25] The Respondent argues that the burden to prove a meaning different from the ordinary meaning of a provision is on the party advancing the alternate meaning. [28]
[26] The Respondent notes that Supreme Court has warned on numerous occasions that courts must be cautious to avoid finding unexpressed legislative intention under the guise of purposive interpretation, as it risks upsetting the balance set by Parliament. [29] In Canada Trustco, the Supreme Court observed that in tax legislation, the text often plays a more dominant interpretive role due to the precision and complexity of the Act. [30] In Placer Dome, the Court said that where words are precise and unequivocal, they present a dominant role in the interpretive process. [31]
(c) Some Observations
[27] However, the full picture of the interpretive approach has more nuance. [32] The context and purpose are to be examined even in the absence of clear ambiguity, as in Canada Trustco where the Supreme Court states “in all cases the Court must seek to read the provisions of an Act as a harmonious whole,” [33] because “statutory context and purpose may…reveal ambiguity in apparently plain language.” [34]
[28] To the extent that the plain meaning of section 207.05, either alone or in combination with 206.06 imposes a tax, there is a reasoned argument that Parliament must have intended for it to be so. In any event, closer inquiry into Parliamentary intention may reveal an intent to penalize rather than tax. The intention of Parliament is clearly relevant as one factor in the modern approach to statutory interpretation, along with the object and scheme of the Act. [35]
[29] The question of whether a provision is a tax or a penalty is a question of law. There is no onus on either party to prove one meaning applies.
ii) Applying the TCP analysis to the TFSA Charge
(a) Text
[30] The Appellant’s analysis does not slavishly apply a discrete three-step TCP analysis. The analysis comingles the textual, contextual and purposive framework. The Appellant cites the ordinary meaning of “tax” and “penalty” as defined in Black’s Law Dictionary, expanding on those definitions through Canadian and foreign jurisprudence distinguishing taxes from penalties in the constitutional context. The Appellant qualifies the Lawson criteria as necessary and also insufficient to make the TFSA Charge a tax. [36]
[31] Implicitly, the Appellant tangentially acknowledges that the plain meaning of subsection 207.05(1) is to impose a tax; the only argument made in relation to the text is that the text is not determinative. The Court is urged to examine the underlying meaning of “tax” as opposed to “penalty” and consider whether the function of section 207.05 is more appropriately classified as a penalty.
[32] This textual analysis focuses on purpose rather than text. The word “penalty” is not included in the statutory provision. [37] The definition of a word, itself omitted from a provision, is generally not examined for statutory interpretation. Interpretive disputes centre on a word or phrase within, rather than absent from, the statutory language. Presently, this will not suit since the interpretive question is whether a provision purporting to be a tax is in fact something else, a penalty. Logically, to answer that question the definition of “penalty” is needed to determine whether section 207.05 is a tax or a penalty.
[33] In simplistic contrast, the Respondent asserts the charge in section 207.05 is prima facie a tax because subsection 207.05(1) states that a tax is payable under this part [38] ; there is no ambiguity in the meaning of “tax” and the Lawson criteria is clearly met. [39] The Court notes that this begs the very question: is the text unassailable were it to merely label a cat a dog? Such textual analysis is too narrowly focused on the word “tax” to the exclusion of all other textual elements. It settles inviolate qualities upon the Lawson criteria, which per se are instructive and persuasive, but not irrevocably directive. [40]
[34] Such textual argument per se is not airtight. Residually, the “statutory context and purpose may…reveal ambiguity in apparently plain language.” [41] Further, the amount of the tax payable may impact the textual analysis [42] ; its breadth can introduce ambiguity into an otherwise unambiguous provision.
[35] At the very least, the text of section 207.05 must locate the essence of the TFSA Charge qua tax within the orbit of the factors in Lawson.
[36] The Supreme Court cautions against interpretation that strays from the plain meaning of text in applying the modern approach, especially in the tax legislation context. The presence or absence of certain policy considerations provide important context in framing the Court’s approach to construction. The Court repeatedly cautions against departing from clear language for “unexpressed notions of policy or principle” in statutory interpretation, as it would “introduce intolerable uncertainty” into the Act, [43] This dual emphasis on the primacy of text and judicial restraint may be concerned with the unfairness of a purposive approach disallowing transactions completed by taxpayers relying on the clear and unambiguous text of a provision.
[37] Concerns of legal certainty may be less relevant in application of the TFSA Charge, as the proposed ambiguity does not affect the applicability of the section to the facts. Whether it is a penalty or tax, the effect of the TFSA Charge is clearly a charge of 100% of the TFSA Advantage, with the potential for relief of some or all of that amount by Ministerial discretion applied through the TFSA Waiver. This statutory interpretation exercise does not involve choosing between different interpretations of words in the provision. In the First Question, the assertion is different from the text; the text may disguise a purpose that is inconsistent with the words used. If true, a highly textual interpretive approach would not evaluate whether an unusually punitive provision pronounced as a tax is legally a tax.
(b) Context
[38] The Appellant argues that subsection 207.05(3) of the Act exemplifies a penalty since the target of the TFSA Charge is whoever is “at fault”. [44] However, there are practical reasons for the bifurcation between the individual benefitting from the TFSA Advantage and the person liable to pay the TFSA Charge. One example is the situation described in subsection 207.05(3) where, the issuer has greater control over whether inappropriate funds are placed in a TFSA account. As an anti-abuse provision, the liability to pay the TFSA Charge follows the person in control. No inherent moral opprobrium rests on one party over another. Parliament seeks an efficacious collection of the TFSA Charge. If the TFSA Advantage is effected by the issuer, then it likely applies to multiple TFSA holders. The issuer rather than each TFSA holder individually is the appropriate payor. In a way, this collection method contextually supports a tax for treasury rather than a penalty for dissuasion.
[39] There was also a suggestion that section 207.061 creates an alternative, more modest approach to taxing TFSA Advantages from the TFSA Charge. In contrast to the 100% TFSA Charge in section 207.05, these are two parallel “paths” providing Ministerial choice to address the same advantage.
[40] Again, contextually, an opposite conclusion may be reached. Section 207.061 includes specific amounts as income under Part I where a TFSA investment is “specified non-qualified investment income” or the amount designated within an agreement to waive or cancel liability for tax under Part XI.1.
[41] Section 207.061 is not alternative. It ensures that where the Minister waives the TFSA Charge, the TFSA Advantage may still be taxed as income under Part I. Again, in context, it preserves the notion that a tax and not a penalty is intended by combined effect. The Minister’s potential “unfettered discretion” to waive certain liability under the TFSA Waiver through section 207.061 transforms the tax to the marginal rate under Part I.
[42] As noted by the Respondent, section 146.2 generally exempts income earned in a TFSA from tax. Where general rules are violated, the tax-exempt status is lost and tax is assessed under the applicable taxing provisions: sections 207.02, 207.03, 207.04 and 207.05. [45] If section 207.05 were a penalty, a due diligence defence applies, and a successful defence renders non-qualified income free of tax. Within context, the express inclusion within subsection 207.06(2) of circumstances where a transaction is taxable under another provision affording discretionary relief further buttresses the TFSA Charge being a tax. [46] . In both examples, successful defences neither exempt transactions from taxes nor do penalties afford alternative relief.
[43] The Appellant’s argues that the applicability of a TFSA Charge is outlined in subsection 146.2(6) rather than under Part XI.01. Consequently relief by a due diligence defence for Part XI.01 does not prevent tax being imposed under other provisions. This compound reasoning is not compelling. A provision setting out the requirements for an exemption is not equivalent to a provision setting out liability to pay tax. It is not a charging provision; it does not capture all the circumstances under which TFSA income may be taxable. In this very appeal, the Appellant was assessed under section 207.05 and not section 146.2 or a combination of the two provisions. [47] The application of tax liability under one provision does not preclude the application of another specific taxing provision Parliament believes it should enact. In context, multiple ways exist for the TFSA regime to be abused and multiple anti-abuse provisions address these. Criteria to alleviate double taxation need not be perfect. In the tax versus penalty context itself, legislative attempts to reduce double taxation suggest a provision is a tax and not a penalty. If the double fiscal consequences imposed under section 207.05 as a penalty and another provision as a tax is equivalent to “double taxation”, both are still essentially taxes, not a penalty plus a tax. [48]
[44] “Micro” contexts aside, the “macro” argument persists in this question. All such provisions comprise a larger, in fact the largest, Act levying taxes. Contextually, the words “a tax is payable” express consistently throughout the Act the imposition of taxes. Although not raised or countenanced in submissions, the Court reviewed the concordant and equally authoritative French text concerning the TFSA Charge and TFSA Waiver. Consistently, the word “impôt” is used without variation in the French version where “tax” is used in English. No difference and, consequently, no conflict exists between the two versions which comprise the single federal statute whose whole plain meaning is grasped by examining both versions. [49] Moreover, within the Act, taxation is the norm and penalties are the exception. Barring ambiguity, any interpretation holding that the words “a tax is payable” creates a penalty, where penalties are otherwise exceptionally stated to be so in the legislation, impugns the coherency of the Act and the century old “magic words” employed by Parliament to raise and levy a tax.
Foreign Jurisprudence
[45] Prior to engaging in the substance of the purposive analysis, it is worth addressing the use and utility of foreign jurisprudence which was relied upon by the Appellant.
[46] Foreign jurisprudence is helpful, but not determinative. Foreign case law can be helpful where Canadian courts have not previously sufficiently considered a particular question. [50] This is not the case concerning the question of tax versus penalty.
[47] As well, foreign courts have not considered this question in an analogous or parallel context. [51] If the meaning of “tax” and “penalty” in foreign constitutional cases had the same focus and scope as the meaning of similar words in Canadian non-constitutional law, analogy may be possible. Even then, the interpretive exercise in constitutional issues is different from the interpretive exercise in non-constitutional issues. There is no evidence that this division is lessened or even comparable if the constitutional issue is from a foreign constitution.
[48] Overall, the analogy does not exist and the Canadian jurisprudence is preferred since the foreign jurisprudence is neither comparable nor binding.
(c) Purpose
[49] The Appellant’s purposive arguments centre on the purpose of the TFSA Charge, and, in connection to it, its effect. As mentioned, a number of constitutional cases from the United States and Australia highlight where the judiciary distinguished a charge as a tax or a penalty. However, the broader intention behind these references supports the proposed four-part criteria used to identify taxes versus penalties, which are: [52]
(1) a tax must be levied by a public body and intended for a public purpose;
(2) the primary objective of a tax is to raise revenue;
(3) the primary motive of a penalty is to prohibit or substantially limit certain conduct; though either may have other indirect purposes; and
(4) A charge that is extravagant, prohibitory, or imposes a heavy burden is more likely a penalty.
[50] In applying these criteria, the Appellant takes the position that the charge imposed by sections 207.05 and 207.06, separately or in combined effect must be a penalty because its levy is not for a public purpose. Instead, the primary purpose deters certain behavior and the amount of the charge is “extravagant” and imposes a “heavy burden”. [53]
[51] This first element is taken from the Lawson criteria and is clearly supported by case law. [54] The second and third elements appear to be adapted from foreign case law and are directed at determining the “public purpose” in the first element. In turn, the Appellant argues that the TFSA Charge has no public purpose because its primary motive deters and only coincidentally raises revenue. [55]
[52] The argument that the TFSA Charge is not a tax because it does not have a predominantly revenue-raising purpose was presented to Justice Pizzitelli. He conclusively dismissed it. [56] That part of the decision was not subject to an appeal and remains relevant. [57] Justice Pizzitelli stated at paragraphs 90 to 92:
[90] In my opinion, the Appellant’s argument has no merit for the following
reasons:
1. The Supreme Court of Canada has recognized that tax legislation is utilized for more than simply raising revenue. In Québec (Communauté urbaine) v Corp. Notre-Dame de Bon-Secours, [1994] 3 SCR 3 at pages 15-18 relied on by the Respondent:
This turning point in the development of the rules for interpreting tax legislation in Canada was prompted by the realization that the purpose of tax legislation is no longer simply to raise funds with which to cover government expenditure. It was recognized that such legislation is also used for social and economic purposes. … In our time it has been recognized that such legislation serves other purposes and functions as a tool of economic and social policy….
[91] As the Respondent has pointed out in its submission, the Act provides numerous examples of economic incentives like lower rates of tax on capital gains and capital gains exemption limits to encourage investment in small businesses, as well as financial incentives to implement social policy by way of tax credits to encourage charitable giving or further one’s education or provide assistance to the disabled by way of example.
[92] I agree with the Respondent that tax rules designed to reduce or forego taxes reflect Parliament’s choice on how to exercise its broad powers of taxation, which can include foregoing some or all tax as incentives to implement economic or social policies, but which logically include rules to provide penalties or greater taxation as disincentives to prevent abuse of incentive programs and protect the integrity of such programs delivered through the Act. In my view, a provision to protect the integrity of a taxation provision, be it to tax, provide an incentive or create a disincentive, is no less a legitimate provision relating to Parliament’s broad powers to raise revenue within subsection 91(3), which section not only empowers Parliament to raise revenue “by any mode” but also by “any system” of taxation. The Canadian federal system of taxation contains deductions, exemptions, tax credits, penalties, anti-avoidance rules and a myriad of other provisions as part of its overall goal to raise revenue and so proper elements of such system, including the anti-avoidance element the Appellant refers to, is by definition part of or entwined in the raising of revenue by a system of taxation contemplated by subsection 91(3) of the Constitution and thus is, in pith and substance, taxation.
[53] Canadian courts have clearly stated that the objective of a tax is no longer constrained to raising public revenue. [58] A public purpose may be to implement economic and social policies or protect the integrity of a taxing provision, and these other public purposes are no less legitimate. The law in Canada diverges from the foreign sources cited. As such, these arguments fail.
[54] The fourth criteria raises the question of whether a tax that is punitive or disproportionate transforms it into a penalty or “hybrid tax and penalty”. The obiter in St Arnaud [59] suggests that it is open to a court to find a charge, such as the TFSA Charge, inexplicably disproportionate and therefore a penalty.
[55] In St Arnaud, the Federal Court of Appeal examined subsections 146(9) and 146.3(4). The Court queried why the application of subsection 146.3(4), which relates to the use of registered retirement income funds (“RRIFs”), required twice the income inclusion of subsection 146(9), which relates to the use of registered retirement saving plans (“RSPs”), even though both provisions require that the same conditions be met. [60] Although obiter dicta, it dangles the potential conclusion of a penalty had such an issue been raised on appeal.
[56] Trial courts concern themselves with facts. In St Arnaud, the Appellant taxpayers were victims of fraud who lost significant amounts of money from their RSPs. They were subsequently reassessed for an income inclusion equal to twice the amount they had lost. [61] The actual basis for the levy is unclear. The reasons in St Arnaud imply that the arbitrariness or lack of explanation for the higher income inclusion under subsection 146.3(4) versus subsection 146(9) led the Court to suggest (and not find) that subsection 146.3(4) was a penalty, rather than an onerous income inclusion. Logically, the Federal Court of Appeal did not suggest the income inclusion in subsection 146(9) was a penalty, despite its onerous income inclusion of the full loss. An alternative interpretation is that this further obiter in St Arnaud refutes the argument that a full loss inclusion (100%) of the fair market value of the benefit received constitutes a penalty.
[57] The “punitive” effect of a 100% inclusion rate as the basis for characterizing the charge as a penalty is not convincing. No innate quality in the rate of a charge predicts how severe or disproportionate the tax may be. The means of the taxpayer, the amount to be taxed, and the collection methods imposed may be better indicators of its impact. The context for the TFSA Charge is important in examining the proportionality of the charge. It is limited to certain TFSA Advantages and other benefit-conferring regimes of similar registered plans. Unlike Part I Tax, taxpayers may easily avoid the application of the TFSA Charge by opting not to use a TFSA or other registered plans. The economic incentive to use the TFSA regime is the result of a deliberate government choice to forego taxation revenue to encourage certain forms of savings. The government is able to make rules to preserve the integrity of its benefit-conferring regimes provided they are not arbitrary or capricious.
[58] A charge labelled as a tax may have characteristics so clearly coercive and disproportionate that one concludes it is a penalty; however, this case does not meet that standard.
[59] The TFSA regime is a benefit-conferring structure introduced to encourage personal savings by taxpayers by exempting tax from the income otherwise earned on savings. [62] As such, there is a risk of taxpayers abusing the regime to avoid taxes on investments outside the TFSA rules set by Parliament. The TFSA Charge addresses