Case: Hunt v. Canada, 2026 FCA 88 (CanLII)
Keywords: Income Tax Act, R.S.C. 1985 (5th Supp.), c.1; “no taxation without representation” principle
Synopsis:
Parliament creates the “TFSA”, described by the Federal Court of Appeal as a “flexible, registered, general-purpose account that allows them to earn tax-free investment income”. (See para. 1). Due to “potential misuse”, Parliament enacts strict limits and imposes 100% liability on those who “abuse the scheme by realizing an advantage” (i.e., by taking 100% of the benefit obtained from a transaction that is “intended to artificially shift income into a tax-free savings account and other registered plans in order to exploit tax-free attributes”). (See para. 3). At the same time, however, Parliament permits the Minister to “waive or cancel all or part of the 100% liability when it is just and equitable to do so”. (See para. 3).
In this case, the Minister assesses the Appellant for an “advantage tax” for five taxation years. Following a judicial review application, the Minister reconsiders and issues an assessment that cancels a portion of the Appellant’s liability. (See para. 4). The Appellant appeals to the Tax Court, challenging the constitutionality of the liability imposed by s. 207.05 of the Income Tax Act. The Federal Court of Appeal eventually dismisses that challenge on the basis that “not all of the sections bearing on the constitutional issue were challenged”. The Appellant then ‘recasts’ and ‘relaunches’ his challenge to include ss. 207.01, 207.05, and 207.06 of the Act. (See para. 5). The Appellant’s arguments:
- sections 207.01, 207.05, and 207.06 separately and cumulatively impose a penalty, not a tax, and so the defence of due diligence is available; and
- the Minister, part of the Executive Branch of Government, is the one determining the rate of tax and this is not permitted by the Constitution Act, 1867, 30 & 31 Vict. C. 3 (U.K.). (See paras. 7-8).
The Tax Court (Bocock J.) dismisses this renewed challenge; the Court of Appeal (Stratas, Laskin, and Roussel JJ.A.) dismisses the appeal. (See para. 6).
Importance:
Regarding the Appellant’s first argument, the Court of Appeal engaged in a detailed discussion of “accepted principles” of statutory interpretation at paras. 9-14.
The Court started with the basic proposition from Rizzo & Rizzo Shoes Litd. (Re), [1998] 1 S.C.R. 27 that the words of a statute must 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”. Importantly, however, the Court also observed that “the precise manner in which those three elements should be assessed and analyzed has varied somewhat, causing uncertainty – something especially bad in such a fundamental, frequently recurring and important area”. (See para. 10).
Helpful language for an Application for Leave to Appeal to the Supreme Court of Canada?
Of further interest, the Court of Appeal described the Supreme Court of Canada’s decision in R. v. Wilson, 2025 SCC 32 as being “at odds” with previously accepted judicial methodology which uses the text of a given statute as the “anchor of the interpretative exercise”. (See paras. 11-12). More directly, the Court says that the Majority in Wilson: “did not refer to the principle that the text is the anchor, seemed to de-emphasize the role of the text in the interpretation exercise, arguably found unexpressed legislative intention under the guise of purpose interpretation, and did not attempt to reconcile its reasoning with the earlier cases. This is regrettable.” (See para. 12). In that same para., the Court also appears to be saying that it prefers the approach in R. v. Carignan, 2025 SCC 43 because it reflects the “long string of cases” pre-dating Wilson.
Will the Supreme Court of Canada wish to get the last word on this inter-Court dialogue?
Herein, the Court of Appeal concluded that the Tax Court had followed the correct methodology to find that ss. 207.05 and 207.06 of the Income Tax Act did not impose a penalty; emphasizing that these provisions “clearly and unambiguously” state they are dealing with a “tax” and that the word “penalty” is not present in the text and margin note. (See paras. 15-17).
Regarding the Appellant’s second argument, the Court of Appeal embarked on a detailed examination of s. 53 of the Constitution Act, 1867 at paras. 31-38. Some key highlights:
- 31: fundamental rights, freedoms, and democratic protection are not exclusively sourced in the Charter;
- 32: Section 53 of the Constitution Act, 1867 says the “obligation to pay taxes” can only be imposed by “those we elect or…delegates who are adequately constrained by laws passed by those we elect”;
- 33: Section 53 applies to provincial Legislatures;
- 37-38: delegation of taxation power can comply with s. 53 of the Constitution Act, 1867 but must be limited to setting the “details and mechanism” of the tax.
In the circumstances of this case, the Court of Appeal found that s. 207.06 does not give the Minister “a discretion so untrammelled that it can be considered a ‘standardless sweep’”. (See para. 42). Rather, the text, context, and purpose of the section “shows that the grant of a waiver…is not up to the whim or idle say-so of the Minister”. (See para. 43).
In reaching this conclusion, the Court of Appeal noted that the Minister’s decision to waive or not waive liability is subject to judicial review and, therefore, an assessment of its “substantive reasonableness, procedural fairness, and adequacy of reasons”. (See para. 47). Finally, it endorsed as a “legitimate exercise in prudent law-making” the approach taken by Parliament to avoid the “game” of attempting to legislate what “just and equitable” mean using “complex, tangible and unwieldly rules and exceptions”. (See paras. 48-51).
Counsel for the Appellant: David Davies, Alexander Demner, Tyler Berg (Thorsteinssons LLP, Vancouver)
Counsel for the Respondent: David Everett, Lisa Macdonell, Shannon Fenrich, Katherine Shelley (Ministry of Attorney General, Vancouver)