The Supreme Court of Canada's Tax Jurisprudence: What's Wrong with the Rule of Law

This paper reviews the history of the Supreme Court's tax jurisprudence focussing on the Court's ongoing struggle to define its proper institutional role in the creation and interpretation of the tax laws. An emprical overview is first presented to document the changing nature and volume of the Court's taxation caseload through history, and this is related to the evolution of Canada's fiscal system. Selected judgments from differing periods are then examined to illuminate how the Court has conceived its role in the adjudication of tax issues. The author suggests that tax decisions have been strongly informed by a classical liberal vision of the rule of law and an overriding concern to protect taxpayer liberty, understood as the right to hold private property free from arbitrary state interference. This vision is closely linked to a history of strict construction of tax statutes and of toleration for tax avoidance, fuelling the endless "action and reaction" referred to by Estey, J. In the Supreme Court's landmark ruling in Stubart. In recent decades the Court has increasingly acknowledged the state's interest in promoting values such as positive liberty and substantive equality through the tax system. However the author concludes that it has yet to formulate an interpretative stance that fully reflects such values. The challenge ahead is to reconceptualize the judicial role in tax cases to balance traditional individual liberty concerns with the need to protect the integrity of the tax system. This challenge is presented most starkly by the so-called general anti-avoidance rule (GAAR) enacted in 1988 and now on its way to the Supreme Court. The GAAR departs from a long tradition of piecemeal loophole-plugging by Parliament and instead gives a wide authority to the Courts to determine the legal limits of tax avoidance. As such the GAAR directly confronts the issue of judicial role. It calls for a new working relationship between legislative and judicial branches to repair the tax system's chronic vulnerability to the creative manoeuvres of tax planners. The GAAR invites the Supreme Court of Canada in particular to become a more active, open partner in crafting a tax law that equitably and effectively advances Parliament's policy design.

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