Justice Iacobucci and the 'Golden and Straight Metwand' of Canadian Tax Law

Abstract

Justice Iacobucci and the 'Golden and Straight Metwand' af Canadian Tax Law † David G. Duff Associate Professor, Faculty of Law, University of Toronto. I Introduction Among the many areas of law that Justice Iacobucci has shaped through his judgments at the Supreme Court of Canada, perhaps none has felt his influence as greatly as Canadian income tax law. Of twenty-seven substantive income tax cases decided by the Court while he was a member,1 [End Page 525] Justice Iacobucci individually wrote decisions in sixteen2 and co-authored judgments in four.3 Of these twenty decisions, fifteen were unanimous,4 three were majority decisions,5 and only two were dissents.6 During his years at the Supreme Court of Canada, Justice Iacobucci dominated Canadian income tax law as no other member of the Court before him ever did. More importantly, Justice Iacobucci's tax judgments effected a fundamental shift in the Supreme Court of Canada's approach to Canadian tax law – away from the emphasis of the late 1970s to the early 1990s on the purpose of the relevant legislation and the economic or commercial reality of transactions toward an emphasis on the statutory text and the legal form of transactions characteristic of traditional Anglo-Canadian tax jurisprudence. As an examination of some of his most important tax decisions makes clear, this shift was motivated by a conception of the rule of law (at least as applied to Canadian tax law) that emphasized judicial restraint, legal certainty, and individual liberty. In this respect, in the words of Elizabethan jurist Sir Edward Coke, Justice Iacobucci's tax decisions consistently sought to replace the 'the incertain and crooked cord of discretion' with 'the golden and straight metwand of the law.'7 The article proceeds as follows. Part ii provides essential background to Justice Iacobucci's tax decisions by explaining the traditional approach to tax statutes adopted by English and Canadian courts and the more purposive and substantive approach adopted by us courts and favoured by [End Page 526] the Supreme Court of Canada from the late 1970s to early 1990s. Part III reviews four key tax decisions written by Justice Iacobucci and released by the Court between 1994 and 2002, showing how their emphasis on the text of the relevant statutory provision and the legal form of transactions differed from the Court's purposive and substantive approach of the late 1970s to the early 1990s. Part iv evaluates the merits of this renewed emphasis on the statutory text and legal forms, examining the reasons why Justice Iacobucci adopted this approach to tax statutes and its connection to his conception of the rule of law. Part v concludes. II Background Judicial approaches to the application of tax statutes involve two related aspects: interpretation of the relevant statutory text and characterization of the various transactions and relationships to which the statute applies.8 To the extent that taxpayers engage in tax-motivated transactions that contradict the scheme or purpose of the relevant statutory text, these aspects are necessarily linked, since textual interpretive approaches are apt to characterize transactions without regard to taxpayer motivations, while purposive approaches are more likely to characterize or re-characterize transactions in light of the statutory scheme. As background to Justice Iacobucci's tax decisions, this part of the paper reviews the traditional Anglo-Canadian and American judicial approaches to tax statutes, as well as the approach favoured by the Supreme Court of Canada from the late 1970s to the early 1990s. A Traditional Anglo-Canadian and American Judicial Approaches to Tax Statutes Following early uk tax decisions, Canadian courts originally adopted a narrow approach to tax legislation, interpreting tax statutes in a strict and literal manner and resolving any ambiguous taxing provisions in favour of the taxpayer. In his judgment in the House of Lords 1869 decision in Partington v. Attorney-General,9 for example, Lord Cairns declared that 'the principle of all fiscal legislation' was that...