“Only the educated are free.” Epictetus
As tax filing season approaches, be mindful of this quote when consulting clients, and be careful of the context in which it is used—particularly when fielding questions about tax protester schemes.
The above quote, from the Greek philosopher Epictetus, appears on a website that promotes the Paradigm Education Group, a group that teaches the “natural person” argument when it comes to tax filing obligations for Canadian taxpayers. For at least a decade, there have been organizations and individuals who have promoted the natural person argument which suggests that natural persons are not subject to the Income Tax Act (ITA).
These organizations/individuals, often referred to as “tax protesters” or “detaxers”, generally claim a distinction can be drawn between the natural person (i.e. human being) and the legal person (i.e. one created by the government, typically by way of a social insurance number) when it comes to reporting income for tax purposes.
The general idea is that, when acting in the capacity of a natural person, tax is not payable on income received. Drawing from several court cases on this matter, arguments to support this concept were put forth as follows:
“…there is not proof beyond a reasonable doubt, that Parliament intended to tax people who declare themselves to be “natural persons”; any money earned by an individual in their capacity of a “natural person”, as opposed to their capacity as a taxpayer or legal representative of the taxpayer is not subject to the Income Tax Act requirement to pay taxes, nor are they required by the Income Tax Act, to file T1 Individual Income Tax returns.” (The Queen v. Sydel; British Columbia; July 11, 2006)
“In a nutshell…Paradigm suggested that an individual could execute a contract for hire, and thereafter receive all payments as an individual contractor. Further, that this same individual would receive these payments as a natural person, and the payments received as a natural person, not a statutory agent identified by a social insurance number, would not receive these funds as income, and would not be obligated to pay income tax upon them.” (The Queen v. Amell, Keyzer and Amell; Saskatchewan; July 21, 2010)
“…the accused made it clear that the CRA had no jurisdiction over the natural person, and they would not allow the CRA to breach their rights…These amounts ‘were received for [the accused’s] labour with no intent to profit’. He concluded by saying that he only wanted to keep what was rightfully his. A natural person is not acting for a profit and can keep what is naturally his.” (The Queen v. Amell, Keyzer and Amell; Saskatchewan; July 21, 2010)
Not surprisingly, the courts have repeatedly struck down this argument, and, to the chagrin of many tax protesters, have levied significant penalties and fines in addition to taxes owing, plus interest. In some cases, jail time has also been imposed.
When addressing whether or not income of a “natural person” is subject to the ITA, the CRA seems to rely on section 2(1) of the ITA which states that, “An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.”
The CRA has indicated that the term “person” should be used to refer to individuals, corporations and trusts. Also, section 2(2) of the ITA defines “taxable income” as a “taxpayer’s income for the year” (plus certain additions and deductions that are not specifically applicable to the natural person argument), while section 3 provides that “income” includes, “the taxpayer’s income for the year from each office, employment, business and property.”