Beware of tax protester schemes

By Wilmot George | January 31, 2012 | Last updated on September 21, 2023
5 min read

“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.”

Furthermore, where it is deemed that a taxpayer has willfully evaded (or attempted to evade) the payment of taxes imposed by the ITA, in addition to any penalty otherwise levied, section 239(1) allows for a fine of up to 200% of the amount of tax owing, or a fine plus imprisonment of up to two years.

The CRA has made their position clear with regards to the natural person argument. In a technical interpretation dated September 17, 2007, the CRA states the following:

“…the Act applies to every resident of Canada (artificial or natural) on his or her taxable income earned in Canada or abroad during a particular year…every such individual must file a return if he or she owes taxes for the year; has a capital gain for the year; disposes of capital property during the year; or has an outstanding balance under the home buyer’s plan or life-long learning plan legislation. Failure to file a return could lead to fines and penalties in addition to interest on the balance of tax outstanding.”

Also, a CRA Newswire notice titled “Don’t Buy Into Illegal Tax Protestor Schemes” was issued on November 30, 2011. In the notice, the CRA warns Canadians to stay clear of tax protesters who try to promote the natural versus legal person argument, or risk reassessment of income tax plus interest and penalties.

As an example, the notice cites an Ontario tax protester who was fined approximately $522,000, which represented 150% of the federal taxes evaded. In addition, the individual was given a one year conditional sentence, was ordered to pay the fine imposed, and was required to surrender his passport and perform 180 hours of community service.

For participants of the tax protester movement who wish to correct their tax affairs, the notice offers the opportunity to come forward under the CRA’s Voluntary Disclosures Program. Under the program, those who come forward before CRA action is taken may be able to avoid penalties or prosecution. However, outstanding taxes plus interest would still be payable.

Given the above, I think it’s safe to say that the natural person argument is, in its current form, facing a dead end. This message was clearly communicated by Judge D.J. Kovatch in the Saskatchewan case of The Queen v. Amell, Keyzer and Amell dated July 21, 2010. In his ruling, Judge Kovatch stated the following:

“At the outset of the trial, each of the Defendants claimed to be ‘natural persons’ and claimed the rights of natural persons. In argument, [the accused] asserted that the income of natural persons was not caught by the Income Tax Act, and that natural persons were not taxable. I gather that this argument is based upon some interpretation of provisions of a prior income tax act. However, I need not go further into the history of these provisions or further elaborate upon the argument. If there ever was a natural persons exemption from income tax, that exemption has long since been abolished by Parliament, and any such exemption is now dead.”

As you prepare your clients for tax filing season, be mindful of the CRA’s position regarding tax protester schemes and educate your client’s accordingly. Remember, as per Epictetus, only the educated are free…The context in which this phrase is used is the key.

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Wilmot George

Wilmot George, CFP, TEP, CLU, CHS, is vice-president, Tax, Retirement and Estate Planning at CI Global Asset Management. Wilmot can be contacted at