"The power to tax involves the power to destroy."
-- U.S. Supreme Court Chief Justice John Marshall, in McCulloch vs. Maryland (1819)
I don't know the formal reasoning behind it in Canada, but this legal opinion states why religious organizations of any sort are tax-exempt in the U.S.
Were government to be given the power of taxation over religious organizations, it could run roughshod over them with discriminatory tax laws. It could even pick and choose which religions it wanted to tax -- not a good thing for minority sects. Either of these would inhibit the free exercise of religion, as guaranteed in the First Amendment of the U.S. Constitution.
Religious organizations are not businesses as defined by American law (nor, I believe, under English common law). Treating them as businesses doesn't work. CtF, you and I are just going to have to agree to disagree on that point.
CtF: sure, the
government can select which corporations it wants to tax. It does it all the time, based on business type and size. But that's not really the point.
Any power of taxation over religious organizations, even non-discriminatory by type or size, would involve the power to destroy them all (100%
income tax, say?). That's why they aren't taxed.
True, McCulloch vs. Maryland itself didn't deal with religious organizations -- Maryland wanted to tax The Bank of the United States, and thus destroy it by that taxation. That principle, of destruction by taxation, has to be avoided with religious organizations, because they are specifically protected from governmental interference in the First Amendment.