Every April, the taxman is the first thing on our minds. While all Canadians know the process for filing income tax returns, the world of tax law is much more complex than the haircut you see from your income every year. If you have questions or concerns about the broader world of tax law, or have an assessment or CRA action you need to dispute, Right Legal can help you find the right lawyer for the job.
What is tax law?
There are three levels of taxation in Canada: the federal government has the power to tax broadly in a manner known as “indirect taxation”, where the tax is collected by intermediaries before being paid to the government. Examples of indirect taxation are the GST (the “goods and services” tax) and income taxes. The provinces have the power to enact “direct” taxation on transactions that occur solely within the province. Municipalities are delegated their taxation powers by the provincial governments, and usually only have the power to tax real estate within their city limits.
All provincial and federal taxes are administered by the Canada Revenue Agency (CRA). The CRA is responsible for collecting taxes, directing other parties to collect (or withhold) and remit tax, and enforce tax payments from anyone owing tax to either level of government. In addition to individuals, all businesses are required to pay tax, and some business owners use increasingly complex corporate structures to minimize the amount of tax they have to pay.
What laws govern taxation in Canada?
The Income Tax Act and the Excise Tax Act are the two leading pieces of federal legislation on taxation. The Federal government has also passed the Federal-Provincial Fiscal Arrangements Act, which includes some taxation provisions as well as establishing the transfer and equalization payment framework across Canada.
What sort of work would a tax lawyer be involved in?
Tax lawyers may work for the Federal or provincial governments through the CRA, where their roles would largely involve litigating citizens’ tax disputes in the Tax Court of Canada and, if appealed, the Federal Court of Appeal. Lawyers for the CRA may also spend time investigating the tax structures citizens and corporations use to reduce payable tax.
Lawyers acting for individuals or corporations will work in conjunction with business lawyers to develop structures, often consisting of partnerships and corporations, to take advantage of federal and provincial tax credits and reduce tax payable. Lawyers may also litigate to dispute tax assessments by the CRA, to protect individuals or businesses from CRA enforcement actions, or to defend against charges of tax evasion.
Points of Interest
The Income Tax Act was originally passed in 1917 as the Income War Tax Act, meant to fund the Federal government in World War I. After the war, the government required the revenue from the income tax to continue operating, and though much of the national taxation framework has changed since 1917, the Income Tax Act is still in place.
Canada had a 7% GST until the Conservative government, led by Prime Minister Stephen Harper, reduced the tax to 6% in 2006 and then to 5% in 2008.
The Supreme Court of Canada ruled in 1978 that provinces could not use their direct taxation power to affect transactions that would take place outside of the province, as interprovincial transactions were the constitutional authority of the Federal government.