Taxation Without Representation

The government's budget proposals may be treated as law for years without ever being approved by Parliament.

There has been a lot of talk of late about the need to rejuvenate our democracy and rebuild Canadian confidence in our political process. This being budget week, I would suggest that we begin that process by addressing a troubling trend in the Canadian tax system: namely, the long-term implementation of fiscal measures that have never been enacted into law.

Every year, as part of the budget, the government announces proposed changes to the Income Tax Act that are made effective immediately, despite the fact that they are merely proposals. Eventually (or so the theory goes), the proposed legislative changes will be enacted and made retroactive to the date of the budget. Until that time, the amendments are not legally binding, but taxpayers almost invariably choose to comply with them on the understanding that they will soon be enacted into retroactive law.

At first glance, this seems to represent a considerable compromise in our commitment to the rule of law and its assertion that the law should be certain, prospective, and publicly declared. For one thing, new tax laws, once enacted, are generally made applicable to prior taxpayer conduct. For another, there is always a period of some duration when the government's fiscal decisions are effective and effected, despite the fact that they are not law. Strictly speaking, this is taxation without representation, at least until Parliament acts.

For a variety of reasons, however, these formal violations of the rule of law are ones that we accept. Why? The first big reason is that the rule of law is not the only value on the table - both the government and the public have an interest in preventing individual taxpayers from rearranging their affairs in a way that undermines the government's tax policy. This would be very difficult to achieve without the element of surprise that characterizes the federal budget.

However, I think the other reason we accept the budget process and the various ways it infringes on the rule of law is that we consider those infringements to be formal, limited, or otherwise justified. We accept the compromise to the ideal of prospectiveness because the Supreme Court of Canada has confirmed that Parliament can enact valid retroactive tax laws. We accept the compromise to the ideal of legal publicity because publicity is achieved in substance when the budget announcement is made. And we accept the compromise to the ideal of legal certainty because we take it on faith that the government will soon enact the promised legislation and so we consider it not particularly unreasonable or burdensome to be asked to comply with it immediately.

Sound justifications for the budget process? Likely so. However, they quickly begin to break down when the government fails to enact the proposed measures in a timely fashion. For as the legislative gap becomes more and more prolonged, the eventual enactment of the legislation becomes less and less certain, and it becomes increasingly unreasonable to ask taxpayers to assume that the government's proposed fiscal measures will in fact become law.

Lest the problem seem terribly abstract, let me provide a current example of this type of delay.

In December 2002, the minister of finance released proposed amendments, which would introduce “split-receipting rules” into the Income Tax Act's charitable donation regime. Essentially, the rules state that a gift is not void just because the donor receives a benefit from the donee, and establish a procedure for calculating the “eligible” amount of the gift for tax purposes. The amendments represent a major change to the laws governing gifts in the common law provinces, and a major change in administrative practice for the entire country.

Seven years after the minister's announcement, the split-receipting rules are firmly entrenched. The Canada Revenue Agency has published guidelines elaborating the situations in which they apply. Charitable organizations have created and distributed millions of receipts containing the prescribed information. Academics and practitioners have delivered papers addressing how they should be interpreted and applied. And yet - seven years, three Parliaments, and seven parliamentary sessions later - they still have not been enacted into law.

Lay blame where you will - the repeated prorogations of Parliament, the complexities of legislating in a jurisdiction where there is more than one legal system, the general approval of the policy, and the lack of political interest in the charitable sector have all likely played a part in delaying the enactment of the rules.

Whatever the cause, the effect on our democracy is the same - with every passing year that this “unenacted law” is administered by the Canada Revenue Agency and given legitimacy by the sector, our commitment to the rule of law and the parliamentary process gets a little more tenuous.

As budget day 2010 approaches, the question bears repeating: How long should taxpayers reasonably be expected to assume that the government's proposed fiscal measures will in fact be enacted into law?

My own view is that seven years is too long. And my guess is that most Canadians would agree.