Friday, September 23, 2013
In the last twenty-plus years, I’ve read countless court decisions on income tax. They are an important tool for tax practitioners because they provide guidance in tax planning.
The tax court’s role is to settle disputes between taxpayers and the government. They do that by applying the tax laws as written in the Income Tax Act—a statute passed by the parliament of Canada. They also follow common law principles that includes concepts such the meaning of property or trusts, concepts not specifically defined in the act. The point to understand is the courts do not make the tax laws despite what some might think. The courts interpret and apply them.
Taxpayers can easily fall into a situation where logic says this is fair and this how it should be, but the tax law says otherwise. Moreover, one taxpayer may follow steps A, B & C and achieve certain tax results while another may follow A, C & B and get completely different results.
Taxpayers have stood in court and said, “that’s not fair,” and the judge agrees, but he is left with no alternative but apply the laws as written by parliament. Judges emphasis this point in their decisions. “My hands are tied.”
Because the tax laws are vast, complex and fluid, tax professionals help their clients to avoid tax traps and the refrain, “that’s not fair.”