Great Article About What Is Unconstitutional Provincial Indirect Taxation
Benjamin Alarie and Finn Poschmann have written a very good opinion article in today's Financial Post newspaper entitled "Ontario's quiet taxes through regulation". In this article, they correctly point out that under Canada's Constitution, a province's powers to impose taxes are broad and limited. They write:
"Canada's constitution and the case law that surrounds it define the relative jurisdiction and powers of the federal government and the provinces. In matters of taxation, government authority is extensive, and legislatures may enact laws imposing a wide range of taxes.
Despite these broad powers, governments are limited in what they may do without legislative approval. They may use regulation, which is not approved by a legislature, to set fees to recover the costs of goods or services they provide to the people being charged the fee. They may not, however, use regulation to impose taxes that fund the general activities of government."
Read more: http://www.financialpost.com/opinion/story.html?id=2940982#ixzz0lw205pO8
The focus of the article is Regulation 66/10, which directs the Ontario Energy Board to assess a special levy on the Independent Electricity System Operator and distributors in respect of and in proportion to the amount of electricity they distribute. As a result, the discussion is focused on this particular levy (not HST).
That being said, the authors have made the following important points that may arise in HST debates soon or in the case of a big assessment in the future:
- From the perspective of the Constitution Act, 1867, taxes are either direct or indirect; in Canadian law, a direct tax is paid by the person on whom a charge is levied, and an indirect tax is passed on to others, as with most sales taxes. Under subsection 92(2) of the Constitution, provinces have the jurisdiction to impose direct taxes but not indirect taxes.
- In no case ...does a province have the constitutional ability to impose a tax -- direct or indirect --through regulation alone.
- In the event of a successful constitutional challenge that showed the levy to be a tax, however, the province would be under an unambiguous legal obligation to return the revenues.
- The province could impose retroactive tax legislation allowing it to keep the revenue.
The article is worth reading and saving --- in the event of an audit and assessment.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
