How real is the right to pay less tax?

We are quickly approaching the anniversary of the tax proposals that were dropped on Canadians on July 18, 2017. Those proposals sparked heated debate – some would say a revolt – for a number of reasons, not the least of which was the underhanded manner in which they were introduced (in the middle of summer when many were on vacation and allowing just 76 days to provide comments).

The changes received royal assent and became law on June 21. The changes that were eventually implemented – particularly the changes dealing with income sprinkling – are more complex than just about any other changes we’ve seen in decades. The legislation is so complex that many accountants struggle to understand it, and as for the average Canadian, they can do nothing but hope they can afford to hire someone to explain it to them in plain English. If that doesn’t happen, they could be in trouble with the Canada Revenue Agency.

Shouldn’t it be the aim of our government to introduce tax laws that are understandable by the average Canadian?

Taxpayer rights

This has given me cause to reflect anew on what rights we have as Canadian taxpayers. A good place to start is a review of Canada’s “Taxpayer Bill of Rights.” These rights were introduced in 1984 and were revised in 2007 (the current version). The current version differs from the original most notably in that we no longer have the right to be presumed honest until proven otherwise. Innocent until proven guilty? Not if you’re a Canadian taxpayer.

If you read over the “rights” in this document, what you’ll find, for the most part, is a list of trivialities such as “you have the right to service in both official languages” and “the right to be treated professionally, courteously and fairly.” Hardly inspiring.

There is one particular right that stands out among the rest: “You have the right to … pay no more … than what is required by law.” This right to pay the least amount of tax allowed under the law stems from a British court decision that dates back to 1936, known as The Duke of Westminster case (Inland Revenue Commissioners v. Duke of Westminster). Lord Tomlin, the judge in the case, stated: “Every man is entitled, if he can, to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.” This “Westminster Principle” should form the foundation of any tax law in a free and democratic society.

The problems

The problem in Canada today is that our Taxpayer Bill of Rights carries no legal weight. The “rights” espoused are not entrenched in any law, and therefore these “rights” are not protected. These rights are nothing more than a statement to publicize the intentions of the CRA.

What if the CRA chooses not to abide by these so-called rights? You can always speak to the Taxpayers’ Ombudsman (a role appointed in 2007 when the current Taxpayer Bill of Rights was designed). The problem, of course, is that the Taxpayer’s Ombudsman reports to the CRA’s Minister of National Revenue, and has no power to remedy problems that a particular taxpayer may face, and only deals with service-related issues.

When it comes to the right to pay the least amount of tax allowed under the law, I have three concerns. First, when Canadians do structure their affairs to pay less tax it’s all too common for the CRA to force taxpayers to battle in court by rejecting every appeal outright, even when common-sense arguments are put forth; going to court is a step that is not an option for most Canadians due to the cost.

Second, when taxpayers take steps to pay less tax, we often see the government simply change the law to disallow that planning. In other words, we have the right to pay less tax until the government decides that we don’t. Did that right, then, ever exist in the first place? I understand the need for the government to change tax laws when abuses are taking place, but surely there needs to be some distinguishing between abuses and reasonable planning.

Finally, when tax laws are changed, the complexity of those changes is often astounding – as evidenced by the changes enacted last week that affect business owners. Surely there should be a requirement to implement tax laws that are understandable by the average Canadian.

The solution

What we need is a Charter of Taxpayer Rights that carries legal weight and holds our government accountable for these things. The right to pay the least amount of tax allowed under the law and to be subject to tax laws that are understandable by the average Canadian should be legally enforceable rights.

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.