Is the HST Unconstitutional?

From the outset, let me just say that personally, I don’t care — in fact, I think that harmonizing taxes makes a lot of sense from the practical standpoint of efficiency in terms of revenue collection and remittance — but a lot of people are quite exercised about the issue. This latest effort spearheaded by Wilhelmus Nicholaas Theodore Marie “Bill” Vander Zalm contends that the proposed HST violates Sections 91 and 92 of the British North American Act of 1867.

Evidently, it’s sort of a “states-rights” argument (to put the dispute into a context that may be more familiar to our American friends) insofar as the BNA Act directed that the right to tax income (i.e., a “direct tax”) was delegated to the provinces; and it was clearly indicated that any monies so raised must be raised provincially, and used for provincial purposes. Backers of the petition maintain that according to the BNA Act, the federal government was denied the right to levy income tax and are relying on a precedent from the SCOC rendered in 1950 involving the transfer of powers from the provincial to the federal government as it related to application of the Income Tax Act to bolster their argument.

Good luck with that.

I’m not a lawyer and don’t even play one on the Internets, but it seems completely obvious to me that a consumption tax such as the GST/HST is quite a different animal than a “direct” income tax. The SCOC ruling cited by the petitioners does however throw the whole process into some amount of question. In that particular case, reference was made by federal and provincial attorneys general concerning the province of Nova Scotia’s authority to make a certain law which would permit the imposition of an indirect tax if the power to do so were delegated by the federal Parliament to the provincial Legislature. By unanimous decision the court held that the federal Parliament and provincial Legislatures have non-overlapping powers that cannot be delegated from one law-making body to the other.

Should be interesting to see how this plays out. Especially vexing to the Campbell government is the dictate that should the movement to have the HST aborted succeed, any revenues that may have accrued to the government past its planned implementation date would have to be rebated. The mechanism for how that might work however is entirely unclear…


16 Replies to “Is the HST Unconstitutional?”

  1. I’m also not a lawyer but I believe the courts have the latitude to consider whether striking down a law would place an undue burden on the government, either financially or in some other way. I wonder if this would be one of those cases.

  2. I don’ t know about that either and would like some lawyers to weigh in on the issue to share their opinions.

    I’m wagering heavily that the motion to kill the HST will be defeated, but I’d be most interested to know on what grounds it be based and what the justification for doing so might be.

  3. I highly doubt this is going anywhere. The Constitution LIMITS provinces to direct taxes. As for the federal government it has the following power related to taxing: “The raising of Money by any Mode or System of Taxation.”

  4. I think if the HST were unconstitutional, the people in the Maritimes would have contested this years ago, no?

  5. The HST is simply a shifting of tax burden from corporations to individuals. Full stop.

    No wonder people are incensed by it! Who wouldn’t be unless your last name is Inc. ?

    Meanwhile the HST is coming from the same mental midget who ushered in the income trust tax on the patently false premise that income trusts cause tax leakage, which is nothing but a fraudulent argument that caused Canadians who were dumb enough to take Harper for his word, and lost $35 billion of their life savings for making that false reliance on Mr. Reform Party.

    How did the mental midget “pitch” the concept of the income trust tax and why it was good for all Canadians:

    On the false basis that income trusts were shifting the tax burden from corporations to individuals!

    Who said Jim Flaherty ever needed to be consistent in his logic? Principles are invoked with gay abandon, here, there and everywhere.

    But god forbid that “principles” ever be applied consistently, because they might actually be principles, and Flaherty might actually be believable for once in his public life. He went from policies of “jailing the homeless” in Ontario politics to policies of “impoverishing the elderly” in federal politics.

    I can’t speak to Flaherty’s private life, but I am sure he makes for one hell of an ambulance chasing lawyer or next door neighbour.

  6. hemmingford — I don’t recall the same hue and cry about the HST when it was adopted in the Maritimes quite a long time ago. And their experience with integration of the two systems of taxation since then hasn’t been all that terrible, has it?

  7. Brent — The HST is simply a shifting of tax burden from corporations to individuals. Full stop.

    I’ve heard that general assertion made. Can you explain how it’s so?

  8. I don’t know about in BC but in Ontario the biggest problem is not the integration of the PST & GST, but the fact that the new HST will apply to many items that were exempt under the existing PST environment.

    BTW – It looks like investors in Alberta (and everywhere else in Canada) will be paying HST in Ontario on their mutual fund investment management fees because most funds are based in Ontario.

  9. Yes, many things that were not subject to the PST will now be subject to the HST. That’s because they’re harmonizing the GST and PST. So either you use the larger GST as the base for the new HST or you use the smaller PST as the base and have a much higher HST, and the latter would be soundly rejected by the public and most economists.

  10. It should also be added that many of the PST exemptions were pretty arcane and whimsical. Why should haircuts be exempt, for example?

    It was the same way under the old MST system that was in place prior to the advent of the GST. Back in the day, I used to have a CCH tax manual that was thousands of pages long lovingly detailing all of the intricate regulations of what was taxable and at what rate (it might be recalled that there was a two-tier structure within the MST designed to favour manufacturing operations and the materials contributing to them, not to mention all of the differing applications of the tax to food items…)

    Now, if the government could apply the same approach to income tax in terms of simplification, that would be a truly good thing.

  11. The old MST was too hard to enforce. It was also a “hidden” tax, in that most people did not know that it existed. The GST just means that the end user, is the one to “eat” the tax. Businesses charge it, but they get back the tax that they pay their suppliers…unless they are zero rated. Like…dentists and others who do not charge tax to their clients are, in effect, the end user and must absorb the tax. In reality, they pass it on to the patient! 🙂

  12. hemmingford — As much as I loved the old MST from a personal standpoint for all of its bizarre and sometimes unfathomable regulatory twists and turns, at the end of the day it was absurd. The nice thing about the GST (and the HST) is that it’s almost completely transparent and tax is simply assessed on a “value-added” basis which makes perfect sense.

  13. LFJ — I’m still hoping for an answer.

    In the short term Brent’s probably correct that there may well be some redistribution of revenue from corporations to consumers, but that’s likely to be just a temporary event (much of which will be largely mitigated by various offsets and credits).

  14. I did not see this mentioned in your article but the legislative body here in BC did not get to vote on a bill regarding the HST as it was passed by an executive order making it law and that is where the ‘unconstitutional’ matter may apply.

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