An Overview of Tax Law and Concepts

• Author: Vern Krishna
• Profession: Professor of Common Law, University of Ottawa Barrister at Law
• Pages: 3-31

3

CHA PTER 1

AN OVERVIEW OF TAX

LAW AND CONCEPTS

“We are about to consider the unpleasa nt subject of taxes.”1

“‘Basic Tax,’ as everyone knows, is t he only genuinely funny subject

in law school.”

— attributed to Martin D. Ginsburg

A. THE NATUR E OF TAX

This chapter provides a broad overv iew of the income tax system, policy

objectives and constitutional lim its on the power to tax. Tax law in-

volves expropriating money from tax payers for governmental purpo ses.

Hence, there is a natural tension between the tax collector and the

taxpayer. Governments legi slate; taxpayers seek to legally minimize

their tax bills.

Tax law has a reputation of being a diff‌icult and d ry subject. To

be sure, it is diff‌icult, but it is neither dr y nor unpleasant. Yes, tax

law is replete with obtuse language, has a great deal of technical detail

and is often incomprehensible even to the brightest minds. Albert Ein-

stein — an acknowledged genius — conceded: “The hardest thi ng in the

world to understand is the Income Tax.”

1 Louis Eisen stein, The Ideologies of Taxation (Cambri dge: Harvard University

Press, 2010) at 4.

INCOME TAX L AW4

Nevertheless, tax payers must live with the statute as it is and not

with the one that they w ish they had written. We must comply with

the law or face severe sanctions. Advi sors must advise on uncertain,

complex and poorly drafted provisions. Court s must interpret obscure

legislation in lengthy court battles that can extend over a decade.

All laws are ultim ately behavioural and nowhere more so than in

money matters. When governments take approximately one-half of

one’s earned income as tax, it is underst andable that taxpayers w ill

expend considerable energy and resources devising creative ways to

minimize the government’s bite. Tax lawyers are always busy.

Revenue is an important, indeed imperative, justif‌ication of tax

law. However, governments also use t ax law to implement social and

political policies. Thus, tax law balances different objectives: funding

public expenditures, promoting economic policies, providing regional

incentives, and redistr ibuting income. A statute that serves so m any

diverse and, often, conf‌licting pur poses is necessarily going to be more

complex than a narrow single pur pose statute.

As we work through this text, we should delve into the purpose of

statutory provisions and ask

• Is the provision “normative” and necess ary to accurately measure

inc ome?

• Is the provision intended to promote social, economic or cultural policy?

• How effectively does the provision achieve its objective?

The Income Tax Act2 (the Act) is badly drafted and violates a lmost

every principle of gramm atical construction. The comments of a mem-

ber of the British Parlia ment speaking about the Ir ish Home Rule bill in

1889 would equally describe the Ca nadian Act today:

. . . it sweats diff‌icultie s at every paragraph; ever y provision breeds a

dilemma; ever y clause ends in a cul-de-sac; da ngers lurk in every line;

mischiefs ab ound in every sentence a nd an air of evil hangs over it all.

Our high school English teachers would be horr if‌ied.

Shorn of its technical lang uage, however, the Act is an instrument of

policy that ref‌lects the soc ial, political, economic and moral values of so-

ciety. Thus, the statute evolves as our values and policies change. There is

a reason or purpose underlyi ng every provision. The rationale is there for

those who make an effort to sea rch for it. As Frankfurter J said:

Legislation h as an aim: it seeks to obviate some mi schief, to supply an

inadequacy, to effect a change i n policy, to formulate a plan of Govern-

2 RSC 1985, c 1 (5th Supp) [ITA].