THE judicial interpretation of Canadian taxation statutes is influenced by a number of ideas about taxation which have been adopted from the decisions of British courts. One idea that persists throughout the judicial reasoning is that taxpayers are free to arrange their affairs so as to avoid taxes. At times the judges have been quite picturesque in describing this freedom. Lord President Clyde of the Scottish Court of Session once stated, "No man in this country is under the smallest obligation, morally or other, so to arrange his legal relations to his busines or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores."' Mr. Justice Rowlatt, an outstanding English revenue judge, is reported to have observed, "Apparently this part of the country is inhabited by persons so unsophisticated that they enter into transactions without thinking of the Income Tax Acts, whereas everybody who does anything ought to think, how are the Income Tax Acts going to affect, or will they affect at all, this transaction which I am entering into?"2 A necessary corollary to this approach is that the courts ought not to allow the fact that a taxpayer has arranged to avoid taxation to influence their interpretation of the tax law applying to his case. Furthermore, the courts will not deny the legal consequences of contracts and arrangements of taxpayers entered into with a view to avoiding taxation, on the ground that they are contrary to law or to public policy. No one has ever seriously disputed the fundamental wisdom of this judicial approach to taxation. Neither is there cause to take exception to the judges' statements reaffirming this freedom to avoid taxes, provided that they are treated as irrelevant in deciding cases. But other ideas appearing throughout the judicial reasoning in interpreting tax legislation require careful re-examination. One of them is the literal rule of statutory construction. It is repeatedly said that taxation is to be imposed according to the intention of Parliament and that that intention is in turn to be determined according to the plain, ordinary meaning of the language used by the legislature. "It is the letter of the law, and not its assumed or supposed spirit, that governs. The intention of the legislature to impose a tax must be gathered only from the words by which it has been expressed, and not otherwise."3 There is then what may be regarded as a corollary of this doctrine, namely, that considerations of hardship on the