The Dominion-Provincial Tax Agreements in Canada

Canada has recently instituted a significant war-time fiscal plan. As a federal state, the Dominion has been plagued by the complicated problems of federal finance; and to meet the severe burdens of war finance, it has found it necessary to simplify the federal financial structure. This change has been accomplished by formal agreements between the Dominion and the provinces whereby the latter have agreed to retire from certain fields of taxation for the duration of the war.The agreements do not require amendment of the British North America Act (1867), but they do necessitate abstinence of the provinces from exercising a portion of their authority under it. By the terms of that fundamental law, the provinces are authorized to levy “direct taxation within the province in order to the raising of a revenue for provincial purposes” and “shop, saloon, tavern, auctioneer, and other licenses in order to the raising of a revenue for provincial, local, or municipal purposes.” The Dominion, however, is granted the power to raise revenue by “any mode or system of taxation.” Under this distribution of tax authority, it was natural that various sources should eventually be taxed by both the Dominion and the provinces. By 1940, not only the provinces and the Dominion, but also in some instances municipalities, were levying income and corporate taxes. Inasmuch as the rates varied from province to province and from municipality to municipality, there was inequality of the tax burden throughout the Dominion. In order to secure a maximum of revenue for war purposes, the Dominion government deemed it necessary to tax corporations and incomes at the same rate throughout Canada; and for this reason, the government requested the provinces (and municipalities) to retire from these fields of taxation for the war period.