T-113-79
Michael A. Krassman (Plaintiff)
v.
The Queen in Right of Canada (Defendant)
Trial Division, Collier J.—Calgary, May 11; Van-
couver, August 7, 1979.
Income tax — Rebates — Discounting of tax rebates —
Constitutional law — Whether the Tax Rebate Discounting
Act is legislation validly enacted under the criminal law
power, or whether it is ultra vires Parliament as a matter
under the provincial power over property and civil rights -
Tax Rebate Discounting Act, S.C. 1977-78, c. 25, ss. 2(1), 3(1),
4, 5, 6 — The British North America Act, 1867, 30 & 31 Vict.,
c. 3 (U.K.) [R.S.C. 1970, Appendix II, No. 5], ss. 91(27),
92(13).
Plaintiff, a tax discounter, claims a declaration that the
whole of the Tax Rebate Discounting Act is ultra vires Parlia
ment. The key provision of that Act makes it an offence for a
tax discounter to acquire a right to a refund of tax from a
person entitled to a refund for a consideration that is less than
eighty-five per cent of the refund. Other offences for failure by
discounters to do certain things are created, and a penalty on
conviction is provided. Plaintiff argues that the impugned
statute is, in pith and substance, legislation falling within the
scope of the provincial power over property and civil rights,
while the defendant contends that it is validly enacted under
the federal criminal law power.
Held, the action is dismissed. The prohibition by Parliament,
in the tax discounting legislation, is a prohibition in respect of
an economic interest. That can be a proper field for the passing
of criminal legislation. This legislation is, in pith and substance,
an exercise of the criminal law power. Parliament has deter
mined that tax refund discounting is an economic practice that
should, by criminal sanction, be strictly controlled. The legisla
tion is properly within federal competence. The fact that some
of the provinces have concurrently legislated in respect of tax
refund discounting neither detracts from nor enhances the right
of the federal power, in its criminal aspect, to enter this field.
Attorney-General for British Columbia v. Attorney-Gen
eral for Canada [1937] A.C. 368, discussed. Canadian
Federation of Agriculture v. Attorney-General for Quebec
[1951] A.C. 179, discussed.
ACTION.
COUNSEL:
D. P. Maguire for plaintiff.
T. B. Smith, Q.C. and M. L. Jewett for
defendant.
SOLICITORS:
Petrasuk & Company, Calgary, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
COLLIER J.: The plaintiff is a tax discounter. He
falls within the definition of "discounter" found in
the Tax Rebate Discounting Act':
2. (1) In this Act,
"discounter" means a person who acquires, for a consideration,
a right to a refund of tax from a person entitled thereto;
The key provision of the legislation is section 3(1)
which provides
3. (1) Any discounter who acquires a right to a refund of
tax from the person entitled to the refund for a consideration
that is less than eighty-five per cent of the refund of tax is
guilty of an offence.
The legislation goes on to create certain other
alleged offences for failure, by discounters, to do
certain things (see sections 4, 5, and 6). The
maximum penalty, on conviction, is a fine of
$25,000.
In this suit, the plaintiff claims
A declaration that the whole of The Tax Rebate Discounting
Act is beyond the power of the Parliament of Canada under the
provision of The British North America Act, and is void and of
no effect in law.
The plaintiff argues that the impugned statute
is, in pith and substance, legislation falling within
provincial competence only, under "Property and
Civil Rights in the Province" (section 92(13) of
The British North America Act, 1867). The
defendant argues that the legislation is validly
enacted under the federal Parliament's exclusive
authority in respect of criminal law (section
91(27)).
S.C. 1977-78, c. 25.
The plaintiff's submission runs as follows: Par
liament has said taxpayers who overpay their
income tax (or pension plan or unemployment
insurance contributions) are entitled to a refund;
that refund is a chose in action, a form of property;
the legislation under attack, purporting to impose
restrictions on a normally untrammelled right to a
debt or entitlement to property, is in essence, the
regulation of a property and civil right in a prov
ince; Parliament, here, has endeavoured to legis
late in the field under the guise of its criminal law
jurisdiction.
The defendant contends the legislation, viewed
realistically, is legislation dealing with criminal
law. Some other heads of section 91, as well, were
pointed to.
Counsel for both parties referred to and relied
on a number of well-known constitutional law
decisions where the courts have had to determine
whether a particular piece of legislation is within
section 91(27) or section 92(13) 2.
Lord Atkin, for the Privy Council, described the
extent of the powers of Parliament in respect of
criminal law legislation: 3
Their Lordships agree with the Chief Justice that this case is
covered by the decision of the Judicial Committee in the
Proprietary Articles case. ([1931] A.C. 310.) ... The basis of
that decision is that there is no other criterion of "wrongness"
than the intention of the Legislature in the public interest to
prohibit the act or omission made criminal. Cannon J. was of
opinion that the prohibition cannot have been made in the
public interest because it has in view only the protection of the
individual competitors of the vendor. This appears to narrow
unduly the discretion of the Dominion Legislature in consider
ing the public interest. The only limitation on the plenary
power of the Dominion to determine what shall or shall not be
criminal is the condition that Parliament shall not in the guise
of enacting criminal legislation in truth and in substance
2 In re the Board of Commerce Act, 1919 and the Combines
and Fair Prices Act, 1919 [ 1922] 1 A.C. 191. Attorney-Gener
al for Ontario v. Reciprocal Insurers [1924] A.C. 328. Pro
prietary Articles Trade Association v. Attorney-General for
Canada [1931] A.C. 310. Attorney-General for British
Columbia v. Attorney-General for Canada [1937] A.C. 368.
Margarine Reference [1949] 1 D.L.R. 433 (S.C.C.); aff d.
[1951] A.C. 179 (P.C.). The Lord's Day Alliance of Canada v.
Attorney-General of British Columbia [1959] S.C.R. 497. R.
v. Campbell (1965) 46 D.L.R. (2d) 83 (Ont. C.A.).
3 Attorney-General for British Columbia v. Attorney-Gener
al for Canada [1937] A.C. 368, at 375-376.
encroach on any of the classes of subjects enumerated in s. 92.
It is no objection that it does in fact affect them. If a genuine
attempt to amend the criminal law, it may obviously affect
previously existing civil rights. The object of an amendment of
the criminal law as a rule is to deprive the citizen of the right to
do that which, apart from the amendment, he could lawfully
do. No doubt the plenary power given by s. 91(27) does not
deprive the Provinces of their right under s. 92(15) of affixing
penal sanctions to their own competent legislation. On the other
hand, there seems to be nothing to prevent the Dominion, if it
thinks fit in the public interest, from applying the criminal law
generally to acts and omissions which so far are only covered by
provincial enactments. In the present case there seems to be no
reason for supposing that the Dominion are using the criminal
law as a pretence or pretext, or that the legislature is in pith
and substance only interfering with civil rights in the Province.
In the Margarine Reference, Rand J. said this: 4
Mr. Varcoe argues that it is simply a provision of criminal
law, a field exclusively Dominion, and the issue, I think,
depends upon the validity of that contention. In Proprietary
Articles Trade Ass'n v. A.-G. Can., [1931], 2 D.L.R. 1, A.C.
310, Lord Atkin rejected the notion that the acts against which
criminal law is directed must carry some moral taint. A crime
is an act which the law, with appropriate penal sanctions,
forbids; but as prohibitions are not enacted in a vacuum, we can
properly look for some evil or injurious or undesirable effect
upon the public against which the law is directed. That effect
may be in relation to social, economic or political interests; and
the legislature has had in mind to suppress the evil or to
safeguard the interest threatened.
Criminal law is a body of prohibitions; but that prohibition
can be used legislatively as a device to effect a positive result is
obvious; we have only to refer to Adam Smith's Wealth of
Nations, vol. II, cc. 2 and 3 to discover how extensively it has
been used not only to keep foreign goods from the domestic
market but to prevent manufactures in the colonies for the
benefit of home industries; and as late as 1750 for that object,
certain means of iron and steel production in British North
America were by statute forbidden: Ashley, Surveys, Historic
& Economic, p. 327. The Court in its enquiry is not bound by
the ex facie form of the statute; and in the ordinary sense of the
word, the purpose of a legislative enactment is generally eviden-
tial of its true nature or subject matter: Bryden v. A.-G. B.C.,
[1899] A.C. 580; A.-G. Ont. v. Reciprocal Insurers, [1924], 1
D.L.R. 789, A.C. 328; Re Insurance Act of Canada, [1932] 1
D.L.R. 97, A.C. 41; A.-G. Alta. v. A.-G. Can., supra. Under a
unitary legislature, all prohibitions may be viewed indifferently
as of criminal law; but as the cases cited demonstrate, such a
4 [1949] 1 D.L.R. 433, at 472-474. The Privy Council
affirmed the decision of the Supreme Court: Canadian Federa
tion of Agriculture v. Attorney-General for Quebec [1951]
A.C. 179.
classification is inappropriate to the distribution of legislative
power in Canada.
Is the prohibition then enacted with a view to a public
purpose which can support it as being in relation to criminal
law? Public peace, order, security, health, morality: these are
the ordinary though not exclusive ends served by that law, but
they do not appear to be the object of the parliamentary action
here. That object, as I must find it, is economic and the
legislative purpose, to give trade protection to the dairy indus
try in the production and sale of butter; to benefit one group of
persons as against competitors in business in which, in the
absence of the legislation, the latter would be free to engage in
the Provinces. To forbid manufacture and sale for such an end
is prima facie to deal directly with the civil rights of individuals
in relation to particular trade within the Provinces: Shannon v.
Lower Mainland Dairy Board, [1938] 4 D.L.R. 81, A.C. 708.
This conclusion is not in conflict with A.-G. B.C. v. A.-G.
Can., (Reference re Section 498A of the Criminal Code),
[1937], 1 D.L.R. 688, A.C. 368. There, the essential nature of
the legislation was not the equalization of civil rights between
competitors or promoting the interest of one trade as against
another; it was the safeguarding of the public against the evil
consequences of certain fetters upon free and equal competi
tion. There is no like purpose here; there is nothing of a general
or injurious nature to be abolished or removed: it is a matter of
preferring certain local trade to others.
The prohibition by Parliament, in the tax dis
counting legislation, is, as I see it, a prohibition in
respect of an economic interest. That can be a
proper field for the passing of criminal legislation.
Professor Hogg, aptly summarizes the position as
follows 5:
The Margarine Reference should not be read as denying that
the criminal law can serve economic ends. A large part of the
criminal law is devoted to the protection of private property—a
purpose, one might add, which confers a larger benefit on those
who own property than on those who do not. But, apart from
the traditional crimes of theft and its many variants, various
forms of economic regulation have been upheld as criminal law.
The P.A.T.A. case itself upheld anti-combines (competition)
laws under the criminal power, and under this general rubric a
variety of federal laws have been upheld, including prohibitions
on price discrimination and resale price maintenance and a
judicial power to enjoin some of the prohibited practices. The
false prospectus provisions of the Criminal Code have been
upheld as criminal law, establishing that securities regulation—
at least in crude form—is within the criminal law. In short,
there is abundant support for Laskin's assertion that "resort to
5 Hogg, Constitutional Law of Canada, 1977 (Carswell),
p. 281.
the criminal law power to proscribe undesirable commercial
practices is today as characteristic of its exercise as has been
resort thereto to curb violence or immoral conduct."
The main restriction on the federal power, as
earlier set out, is that, under the guise of criminal
law, Parliament may not in truth and substance
encroach on the heads of jurisdiction set out in
section 92.
I agree with the views of counsel for the defend
ant. This legislation is, in pith and substance, an
exercise of the criminal law power. Parliament has
determined that tax refund discounting is an eco
nomic practice that should, by criminal sanction,
be strictly controlled. The legislation is, in my
opinion, properly within federal competence.
Some of the provinces have enacted their own
legislation in respect of so-called "tax refund dis
counting". The following list is not necessarily
complete:
(a) Alberta: an amendment (S.A. 1976, c. 11,
s. 15.6) to the Credit and Loans Agreement Act
does not purport to limit the amount of discount,
but requires that certain information be given by
the discounters.
(b) B.C.: section 37(3) of the Consumer Pro
tection Act, S.B.C. 1977, c. 6 forbids a discount
of more than 15%. Penalties, for violation, are
set out.
(c) Manitoba: an amendment (S.M. 1976, c.
67, s. 58.1) to The Income Tax Act (Manitoba)
makes an assignment of tax refunds (provincial
or federal), if the discount is more than 5%,
invalid. Penalties are, in addition, provided.
(d) Nova Scotia: an amendment (S.N.S. 1977,
c. 24) to the Consumer Protection Act pre
scribes certain informational requirements,
somewhat similar to the Alberta legislation.
(e) Ontario: The Income Tax Discounters Act,
1977, S.O. 1977, c. 55, s. 3 invalidates any
assignments where less than 95% of the refund
is paid. No penalty is provided for a violation of
that particular provision. But there are penalties
for violations of other provisions.
(f) Saskatchewan: by an amendment (S.S.
1976-77, c. 32, s. 21A(2)) to the Saskatchewan
The Income Tax Act, the discount of a provin
cial tax refund is limited to 5%. Penalties for
violation are set out.
The fact that some of the provinces have concur
rently legislated in respect of tax refund discount
ing neither detracts from nor enhances the right of
the federal power, in its criminal aspect, to enter
the field. There are many instances of co-existing
and similar federal and provincial laws each, in
their own field, intra vires 6 . As Professor Hogg
puts it':
The result is that over much of the field which may loosely be
thought of as criminal law legislative power is concurrent.
The action is, therefore, dismissed.
The defendant is entitled to costs.
6 See Hogg pp. 291-293.
' P. 292.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.