Their arguments might sound convincing, but those who say governments lack the constitutional power to impose taxes are off base.
Eldon Warman, originator of a grassroots "de-tax" movement that started in Western Canada, has claimed for several years now that people can lawfully refuse to pay taxes or file tax returns. Despite Canada Revenue Agency (CRA) attempts to debunk these claims, at FBC we still have occasional discussions with clients who believe they, too, should jump on the de-tax bandwagon.
The de-tax philosophy can hold appeal for honest hardworking people who are simply fed up with losing a large portion of their income to taxes year after year. They see some logic and hope in the de-tax theory that the Income Tax Act applies only to corporate entities and not to "natural" persons.
The CRA has tried to correct this myth and other tax law misconceptions touted by various individuals and groups who support the de-tax movement.
Via press release, the CRA has stated that, "A number of individuals and groups are actively promoting claims that there are lawful ways to declare oneself exempt from tax. Relying on such 'advice' could result in anything from late filing penalties and interest imposed by the CRA to fines and imprisonment imposed by the court - in addition to having to your pay your taxes. Before paying for such information, or participating in such groups, individuals are urged to seek comments, clarification or guidance from a tax professional or the CRA."
Courts in more than one province also have rejected this myth. In August 2000, the Ontario Superior Court of Justice issued a ruling rejecting arguments that the Income Tax Act applies only to corporate entities. The judge said, in T. Kennedy vs. CRA and the Ottawa-Carleton District School Board, "I find that a 'person' as defined in Section 248(1) of the Income Tax Act includes both a natural person and an artificial person. It follows that the applicant is a 'person' and a 'taxpayer'...His obligations include the filing of annual income tax returns and payment of any income tax owing under his returns."
Two subsequent cases in the Provincial Court of B.C. also debunked the myth. In 2001, the judge found that Peter R. Grant was guilty of 7 charges of failing to provide individual income tax returns on the basis that he, as a person, was included in the definition of a taxpayer.
Between June 2000 and January 2002, Edward Dick appeared as the defendant in what the judge referred to as "something of a test case" on behalf of a de-tax group called the "Freedom Movement". Mr. Dick referred to himself as a "full flesh-and-blood living man", claiming he was neither a "person" nor a "taxpayer". In this case as well, the defendant was found guilty of failing to file income tax returns.
A second myth that de-taxing groups like to promote is that our income tax system is based on voluntary compliance by taxpayers, which proves the government knows the law is unconstitutional and cannot be enforced.
The CRA response to this argument is that, while voluntary compliance is certainly the cornerstone of Canada's self-assessment tax system, this means only that the government expects Canadians to respect their legal obligations. And, if they don't comply voluntarily, The Income Tax Act gives CRA the power to impose fines, seize property, make third-party claims and initiate criminal prosecution. Relative to this argument, the judge in Kennedy vs. CRA said, "In my view there is no support in the common law for the extremely broad proposition that all taxes are voluntary."
Another misconception is that federal income tax is unconstitutional and, because of this, individuals have the right to refuse to pay income tax to the federal government. The truth of the matter is that the Canadian constitution gives the federal government the right to raise money by "any mode or system of taxation" and also gives the provinces the right to impose provincial taxes to raise money for provincial purposes. The courts also have confirmed the federal government's power to levy direct taxes - including income taxes.
Some individuals claim they have not filed tax returns for many years and yet the government has not been able to force them to do so because the Act is unconstitutional and unenforceable. While privacy rules prevent CRA from responding publicly to specific claims of this sort, the agency does suggest people be cautious about believing them.
Yes, there may be occasions where a taxpayer does not need to file a tax return because he has no taxes owing. There may be other situations when CRA has not yet acted against taxpayers who have failed to comply. Under the law, however, taxpayers who fail to comply under court order to file a tax return can be fined anywhere between $1,000 and $25,000 and imprisoned for up to a year on summary conviction. On top of that they have to pay their unpaid taxes along with interest.
So, what do we do at FBC if clients look for our feedback, or even support, when thinking of joining the de-tax movement? We review all the above arguments, plus some others not discussed here, to show that it is the law and in their best interest to file income tax returns and remit the income taxes they owe. We strongly suggest they do not allow themselves to be enticed by unfounded claims of the de-taxing movement, regardless of how tempting it might be to keep those tax dollars in their own pockets.