Taxes should not be retroactive

  • August 18, 2023

In separate letters to the House of Commons Standing Committee on Finance and to the Senate Standing Committee on National Finance, the Commodity Tax, Customs and Trade Section of the Canadian Bar Association expresses concerns that the Budget Implementation Act, 2023 contains tax measures that apply retroactively.

The “coming into force,” or CIF, provisions of the GST/HST amendments to the Excise Tax Act change the law retroactively to December 17, 1990 and extend the normal four-year GST assessment period for all taxation years back to December 17, 1990 on certain services provided by payment card network operators, including the authorization of transactions, clearing, settlement and other related services.

“Retroactive tax legislation seeks to impose taxes on transactions that have already taken place. This type of legislation is not only unfair to taxpayers, but also a breach of the rule of law,” the Section says.

This is particularly important in a tax context where courts continue to underscore the importance of predictability, certainty and fairness. Taxpayers have to familiarize themselves with the law and apply it as it exists at the time when they engage in their taxable endeavours.

When it comes to the GST/HST, both vendor and purchaser are expected to know the GST implications of the transactions to which they are parties because that is when a decision must be made to charge and collect the tax.

“Retroactive amendments imposing taxes upset this system,” the CBA letters say. “They undermine the rule of law: the taxpayer’s behaviour is ‘governed successively by two rules: that in force at the moment the behaviour takes place, and that enacted by the retroactive legislation.’”

Opening up statute-barred periods

In addition to those changes, the CIF provisions allow the Canada Revenue Agency to reassess companies for transactions that occurred as far back as 30 years ago, a treatment “normally only reserved for egregious tax misrepresentations and fraud.” This contravenes a key pillar of tax law, that taxpayers should have finality and certainty, and not have to keep records for unduly long periods of time.

The Section says there is no justification for retroactive application of the amendments, which undermine the certainty, predictability, and fairness of the tax system. “People should be governed by laws knowable at the time of their conduct,” it concludes.