An Overview of Tax Law and Concepts

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

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CHAPTER 1

AN OVERVIEW OF TAX

LAW AND CONCEPTS

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

“‘Basic Tax,’ as everyone knows, is the only genuinely funny subject

in law school.”

— attributed to Martin D. Ginsburg

A. THE NATURE OF TAX

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

objectives and constitutional limits 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 legislate; taxpayers seek to legally minimize

their tax bills.

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

be sure, it is diff‌icult, but it is neither dry 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, taxpayers must live with the statute as it is and not

with the one that they wish they had written. We must comply with

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

complex and poorly drafted provisions. Courts must interpret obscure

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

All laws are ultimately behavioural and nowhere more so than in

money matters. When governments take approximately one-half of

one’s earned income as tax, it is understandable that taxpayers will

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 tax law to implement social and

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

public expenditures, promoting economic policies, providing regional

incentives, and redistributing income. A statute that serves so many

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

complex than a narrow single purpose statute.

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

statutory provisions and ask

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

income?

• 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 almost

every principle of grammatical 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 Canadian Act today:

. . . it sweats diff‌iculties at every paragraph; every 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 horrif‌ied.

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

policy that ref‌lects the social, 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 search 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].