Duke of Westminster Principle

Jeff Keill
Apr 23, 2024
3 min read

Updated: Apr 7

by Jeffery A. Keill CFP, CIM, FMA,FCSI

Mastering Taxation: Unveiling the Westminster Principle

Leave it to the Brits to make taxation fun. Well somewhat fun. Back in 1936 during the UK case proceedings of the Inland Revenue Commissioners (IRC) vs Duke of Westminster, Lord Tomlin stated' Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be."

This became known within our nerdy tax-circles as the Westminster Principle. In other words, one should be able to arrange their personal situation to result in only paying their fair share of taxes within the law, and not a penny more. In living our lives this can be taken to mean that everyone has a personal responsibility to make sure they can take advantage of opportunities as allowed by law to make sure they pay the least amount of tax. To do otherwise, in my humble opinion, is simply voluntary philanthropy to the government and is surely a measure of insanity.

Understanding the Ramsay Principle

Now leave it to the Brits to be a tax buzz-kill. (Boo!) In 1982 the House of Lords came down with a decision that changed, somewhat, the limitations one can arrange their affairs. In the case of IRC vs. Ramsay Ltd, the decisions and ruling was made that, at its core, when a transaction comprises a series of pre-arranged artificial steps, devoid of any genuine commercial purpose other than tax avoidance, the proper course of action is to scrutinize the transaction as a whole. This is known as the Ramsay Principle. In other words, you can work within the law of tax avoidance so long as the initial intent and activity was not to merely gain benefit from tax avoidance. ( Again- Boo!).

Canada's Tax Landscape: Embracing the GAAR Legislation

Like chocolate bars and steam engines, Canada decides to follow these tax positions. The former being naturally self actualizing and latter being the CRA's catch all legislation- Section 245- General Anti- Avoidance Rules more commonly known by the acronym GAAR which I find amusingly sounds like Grrr!

So what are we taxable beings to do? Understand the rules and keep the faith.

Life is dynamic. It is forever changing. Life transitions almost always mean money transactions. With each of these activities, we as tax payers should be reviewing and re-examining ways to pay no more than our fair share of taxes. Canadian tax laws change opening and closing loopholes. Old programs disappear and new ones emerge. Not so long ago the Tax Free Savings Account did not exist.

Streamlining Tax Planning

To help with the examination of paying less tax- consider K&A'S 4 D's of Tax Planning. That is to Defer, Deduct, Divide and Don't Declare. Each of these is a blog on their own. To learn more about these 4 D's please read our Serious Money Brief Discussion Paper called The 4 D's of Tax Planning. It is a good summary to help organize and arrange your affairs to ensure you legally only pay your fair share of tax.