Statutory Interpretation in Tax law
Statutory interpretation is the process by which courts interpret and apply the law that is written in statutes. One of the challenges of interpreting a statute is that words often have more than one single meaning. Another challenge of interpreting statutes is the need to reduce uncertainty in the law. As a result, Canadian Courts have had to establish different approaches to statutory interpretation that reduce uncertainty and take society’s complexities into account.
Statutory Interpretation in Tax law
Statutory interpretation is essential in tax law as tax liability is created entirely by statutes, such as the Income Tax Act (“ITA”) or Excise Tax Act (“ETA”). Statutory interpretation in tax law essentially aims to determine the meaning of the words of a particular statutory provision in relation to the taxpayer’s specific circumstances.
Role of the Judiciary in Statutory Interpretation
Statutes, such as the ITA and ETA, do not contain a general rule for interpretation of its provisions. Therefore, the rules of statutory interpretation are derived from the judiciary through case law. Case law is the law made up of judges’ written decisions in court cases rather than the law written in statutes by the legislature.
The rules of statutory interpretation are derived from case law because statutory interpretation is the judiciary’s role. Under the Canadian legal system, Parliament does not have the authority to interpret legislation. Rather, the courts have been provided with the role of interpreting the statutes and determining their meaning.
Approaches of Statutory Interpretation Adopted by Canadian Courts
The Canadian courts have adopted various approaches to the interpretation of tax statutes. These approaches include the “strict” interpretation approach, the “purposive” approach, the “plain meaning” approach, and the “textual, contextual and purposive” approach.
Literal “Strict” Approach
The “strict” literal rule of statutory interpretation is that courts must interpret tax legislation strictly (narrowly). The English House of Lords established the strict approach to interpreting tax statutes in the 1935 case of Inland Revenue Commissioners v. Duke of Westminster, which Canadian courts also adopted. In this case, the House of Lords articulated the principle to statutory interpretation that a tax statute is to receive a strict or literal interpretation.
“Purposive” Interpretation Approach (Modern Rule)
In the case of Stubart Investments Ltd. v. The Queen, the Supreme Court of Canada began to deviate from the strict interpretation approach towards a more broad and “purposive” approach to the interpretation of tax statutes. In that case, the Supreme Court held that:
The words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Regarding the need for a new approach to statutory interpretation in tax law, the Supreme Court of Canada stated that:
The desired objective is a simple rule which will provide uniformity of application of the Act across the community, and at the same time, reduce the attraction of elaborate and intricate tax avoidance plans, and reduce the rewards to those best able to afford the services of the tax technicians.
The modern rule differs from the narrow, strict interpretation rule. It requires provisions of a statute to be interpreted more broadly and in accordance with the object and spirit of the statute in question.
After the Stubart decision, Parliament codified the modern rule of statutory interpretation in section 12 of the Interpretation Act, which reads as follows:
Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.
“Plain Meaning” Approach
The “plain meaning” approach to statutory interpretation is that, if possible, courts should apply the clear and unambiguous meanings of the provisions of a statute without resorting to the general object and spirit of the statute. The Supreme Court of Canada adopted the plain meaning approach to statutory interpretation in order to limit the relevance of the legislative purpose or the intent of Parliament to only those cases where the words of the provision are unclear and ambiguous. In the case of Shell Canada Ltd. v. Canada, the Supreme Court of Canada stated:
It is well established in this Court’s tax jurisprudence that a searching inquiry for either the “economic realities” of a particular transaction or the general object and spirit of the provision at issue can never supplant a court’s duty to apply an unambiguous provision of the Act to a taxpayer’s transaction. Where the provision at issue is clear and unambiguous, its terms must simply be applied.
Therefore, under the plain meaning approach, where the words of a tax statute are plain and clear, the statute must be read and applied according to its terms regardless of the object and purpose of the provision. The Supreme Court of Canada took this approach in order to reduce the uncertainty that arises when clear language in detailed provisions of tax statutes is qualified by judges’ views of the object and purpose of those provisions.
“Textual, Contextual and Purposive” Approach
The textual, contextual and purposive (“TCP”) approach to statutory interpretation was adopted by the Supreme Court of Canada in the case of Trustco Mortgage Co. v. Canada. In that case, the Supreme Court of Canada set out a uniform approach to statutory interpretation based on the TCP approach. The Supreme Court of Canada stated:
The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.
The TCP approach taken by the Supreme Court of Canada was, essentially, a restatement of the modern rule. This approach now applies to interpreting provisions of tax statutes. However, the Supreme Court of Canada stressed the significance of textual interpretation when the statutory provisions are highly technical, which is often the case in tax statutes.
In the Trustco case, the Supreme Court of Canada stated:
As a result of the Duke of Westminster principle… Canadian tax legislation received a strict interpretation in an era of more literal statutory interpretation than the present. There is no doubt today that all statutes, including the Income Tax Act, must be interpreted in a textual, contextual and purposive way. However, the particularity and detail of many tax provisions have often led to an emphasis on textual interpretation. Where Parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayers would rely on such provisions to achieve the result they prescribe.
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By Kaveh Rezaei – Attorney at KR Law Firm
**Disclaimer
This article contains information of a general nature only and does not constitute legal advice. All legal matters have their own specific and unique facts and will differ from each other. If you have a specific legal question, it may be appropriate to seek the services of a lawyer.
