Elliott v. Canada
Bruce Elliott,
Appellant, and
Her Majesty the Queen, Respondent
And between
Larry Dysert, Appellant, and
Her Majesty the Queen, Respondent
And between
Todd Pickett, Appellant, and
Her Majesty the Queen, Respondent
And between
Larry Dysert, Appellant, and
Her Majesty the Queen, Respondent
And between
Todd Pickett, Appellant, and
Her Majesty the Queen, Respondent
[2013] T.C.J. No. 54
2013 TCC 57
Court File Nos. 2010-898(IT)G, 2010-899(IT)G, 2010-900(IT)G
Tax Court of Canada
Edmonton, Alberta
Boyle T.C.J.
heard: March 12-14, 2012.
Judgment: February 21, 2013.
Court File Nos. 2010-898(IT)G, 2010-899(IT)G, 2010-900(IT)G
Tax Court of Canada
Edmonton, Alberta
Boyle T.C.J.
heard: March 12-14, 2012.
Judgment: February 21, 2013.
(79 paras.)
JUDGMENT:-- The appeal
from the assessments made under the Income Tax Act with respect to the Appellant's 2005 and 2006 taxation years is
allowed, with costs, and the matter is referred back to the Minister of
National Revenue for reconsideration and reassessment, in accordance with the
Reasons for Judgment attached hereto.
REASONS FOR JUDGMENT
1 BOYLE
T.C.J.:-- The three taxpayers, Mr. Dysert, Mr. Elliott and Mr. Pickett, are
American citizens who have been assessed Canadian income tax on their revenues
from providing professional consulting services to Syncrude Canada Ltd.
("Syncrude") in Edmonton and Fort McMurray, Alberta, in 2005 and 2006
pursuant to a two-year contract (later extended to four years) between Syncrude
and their US professional firm.1
2 It
is the taxpayers' position that during the years in question, they were not
residents of Canada nor deemed to be residents of Canada. It is their further
position that, in any event, the so called "tie-breaker rules" in
Article IV of the Canada-United States Income Tax
Convention (the "Treaty") would deem them to
be residents of the United States (the "US"), not Canadian residents,
with the result that they would be non-residents of Canada for purposes of the
Canadian Income Tax Act ("ITA"). The taxpayers' position with
respect to the Treaty's tie-breaker rules is that in the years in question (i)
the taxpayers' Edmonton apartments were not permanent homes, or (ii) that their
centres of vital interests were in the US because their personal and economic
relations were closer to the US, or (iii) that their habitual abodes were in
the US.
3 It
is the Respondent's position that the taxpayers were (i) resident in Canada, or
deemed to be resident in Canada as sojourners, and (ii) under the tie-breaker
rules in the Treaty, deemed to be Canadian residents by virtue of them (a)
having permanent homes in the years in Edmonton as well as in the US, and (b)
either having closer personal and economic relations to Canada (centre of vital
interests) or having their habitual abodes in Canada in the years in question.2
4 Shortly
before the week of trial, the Respondent abandoned the argument in its replies
that the taxpayers' US limited partnership, Conquest Consulting Group
("CCG"), carried on business in Canada through a fixed base. Thus, I
do not need to address the issue of whether the presence and activities of the
taxpayers in Canada as active partners of CCG constituted a fixed base or
permanent establishment for treaty purposes.3
Facts
5 The
three appeals were heard together on common evidence over a period of three
days. Each of the taxpayers testified. Their Canadian accountant was also
called as a witness. The Respondent did not call any witnesses. All of the
witnesses testified in a wholly credible fashion and were not challenged on
credibility. There is no material disagreement regarding the facts.
6 Each
of the three taxpayers are certified cost and estimating professionals with
lengthy and very successful careers in the cost engineering field at major
international companies, including Fluor Engineering, Eastman Kodak and Intel. They
are long-time acquaintances and colleagues, two of them having worked together
early in their careers at Fluor and all three of them at Eastman Kodak. Prior
to undertaking work at Syncrude in 2004, all of their professional careers had
been entirely in the US.
7 Cost
engineering as a professional service consists of a number of related
activities including cost estimating, project planning and scheduling, project
control and management, as well as other areas such as dispute resolution. In
the business world, it is particularly important in the context of large
projects and mega-projects. Professional accreditation and education of cost
management professionals is organized by AACE International, Inc., the
Association for the Advancement of Cost Engineering International
("AACE"). AACE's certifications are independently accredited by the
Council of Engineering and Scientific Specialty Boards, the same council that
accredits, among other things, the Professional Engineer or P. Eng. designation
in Canada. Eastman Kodak was an early leader in the field and in the late 1980s
and early 1990s had one of the world's leading project estimating and
management departments. Each of the taxpayers has held significant roles at
AACE on boards and panels.
8 Each
of the taxpayers was born in the US and have been US citizens throughout their
lives. With the exception of the years 2004 through 2008 during which they
provided services to Syncrude, they had each lived their entire lives only in
the US. By 2004, they each had married and had children. They had each acquired
substantial family homes in the US. All of their adult children and their
families lived in the US, often nearby, their dependent children lived at home
or, if away at college, called their parents' homes home. Their extended
families, siblings and parents, et cetera, also all lived in the US. They had
the personal effects one would expect of mid-to-late career successful
professionals: multiple cars, a motorcycle, a motor home, acreage with horses,
dog kennels for eight English Mastiff show dogs, art, recreational and exercise
equipment, et cetera. They also had the financial assets one would expect,
including significant retirement and other investment accounts with major US
financial institutions. All of these remained sited in the US throughout.
9 They
also had personal and social involvement in their US home communities as one
might expect, such as long-time friends and long-standing involvement with
local charities, local theatre, et cetera. They held positions on AACE
International, a US entity. At least one had very good personal friends in
other parts of the US from the times he lived and worked in other states.
10 In
short, they were "all American", well established in and only in the
US in their personal lives and professional careers. Nothing in their lives was
in any way related to Canada before their work in Alberta began.
11 In
late 2003, Syncrude was in need of enhancing its project estimating and project
control management capabilities. It was preparing to commence another major
upgrader facility/project in Fort McMurray. Its previous upgrader project came
in late and significantly over estimated costs - in the 100% range, measured in
billions of dollars. Syncrude was not satisfied with the assessment and ranking
of its estimating capabilities by Independent Project Analysis
("IPA"), a benchmarking firm for businesses undertaking projects.
Syncrude and IPA were planning a mapping session for March 2004 to identify its
gaps and needed enhancements, and to plan how they were to be resolved and
addressed.
12 In
2004, Mr. Elliott was still the long-time head of Eastman Kodak's world wide
Capital Estimating Department, a group he had started and built up. However,
Eastman Kodak's fortunes by then had been in decline for some time. His group,
which had 23 estimators a decade previous, had been pared back to 8 by 2004,
but he and his team were still regarded as leaders in the sector. Eastman
Kodak's decline led to attempted headhunting of the group's members on a
regular basis. Mr. Dysert had left the group in early 2003 and became lead
estimator at Intel in Oregon.
13 In
November, 2003, Syncrude had IPA contact Mr. Elliott to see if he would be
interested in the opportunity to work with Syncrude to improve its estimating
and project control capabilities. To this point, he had never heard of
Syncrude, although he recognized many of its corporate
owners/participants/venturers. He left it that they should speak again after
the November/December US Thanksgiving/Christmas holiday period had ended.
14 A
Syncrude officer called him during the second week of January 2004 to invite
him to Fort McMurray in early February to discuss Syncrude's situation further.
He went to Fort McMurray for one and one-half days in early February. Syncrude
discussed its interest in enhancing its estimating and project control
capabilities. Mr. Elliott was only interested in the estimating aspect.
Syncrude's project management of the Fort McMurray upgrader project was some
form of joint venture between Syncrude and Colt Engineering, an engineering
consulting firm, functioning as a department of Syncrude under the name CoSyn.
CoSyn was headed by Mr. Elliott's contact at Syncrude and its offices were in
Edmonton. After the one and one-half days of Fort McMurray meetings, Mr.
Elliott went to meet more of the CoSyn team at its Edmonton offices. Mr.
Elliott was invited to participate in Syncrude's March mapping session to be
facilitated by IPA that would be addressing Syncrude's concerns. He suggested
that Mr. Dysert and Mr. Pickett should come to that session as well. This
suggestion was well received as they were well-known individuals in the cost
engineering sector.
15 This
led to renewed discussion among the three Appellants of establishing their own
professional consulting firm. They attended the Alberta March mapping session
together.
16 Following
their return to the US, they received an information packet from Syncrude
outlining the work that it wanted the Appellants' firm to do. CCG submitted a
proposal and draft contracts were sent back and forth. Among other things CCG
scaled back both the scope and duration of the work Syncrude wanted them to
perform. The contract included a provision requiring Syncrude to bear their
costs of returning to their US homes upon completion of the work.
17 The
Appellants established CCG as their professional firm in 2004. It was
originally established as a US limited liability company ("LLC"), but
converted into a US limited liability partnership ("LLP") upon the
advice of their US advisors in order to be certain CCG itself qualified for
Treaty benefits. CCG's business office, records and bank accounts et cetera
were all located in the US. All of the management, business, financial, contract
negotiation, and client development work of CCG was done by the Appellants
throughout while they were in the US. Syncrude made payments to CCG under the
contract in the US. CCG had other very significant clients generating very
significant professional fees from projects around the world during the period
in question. Since the three Appellants were committed to working primarily on
the Syncrude contract, they had CCG recruit other professional estimators to
work for it to complete most of this other work in the years in question. The
Appellants would take care of other CCG work when home on home visits under the
Syncrude contract or by returning to the US during the course of their Syncrude
work for CCG related business travel.
18 The
Appellants arrived in Edmonton in April and May 2004. They arrived with only
their suitcases and briefcases. They obtained their initial Canadian
work permits at the Edmonton airport. The first to arrive rented a car for
a short period. They checked into a local hotel for short periods to settle
into their Syncrude work and to find appropriate long-term accommodation. This
involved leaving virtually all of their assets in the US. They each leased
modest 2 bedroom apartments in the same complex. They negotiated leases that
allowed them to leave on much abridged notice in the event their local work
ended during the term (this was required by Syncrude under the terms of the
housing allowance). They equipped their apartments as men staying alone could
be expected to, a bed from The Brick, sparse modest furnishings from IKEA, a
work desk or table, and a good-sized television. When they completed their work
for Syncrude in 2008, 90% of their Canadian furnishings went to Goodwill or the
trash and only their clothes, books and technical manuals, and filing cabinets
returned home to the US with them.
19 They
each leased Toyotas from the same dealer. They maintained their US drivers'
licences and did not seek to obtain Alberta licences. AAA coverage was
maintained and CAA coverage was not sought.
20 They
maintained their cell phones with their US carriers. They had land lines in
their apartments as these were required to allow guests' entry through the
building's front door. There was insignificant use of the land lines.
21 The
Appellants maintained all of their US health and life insurance. They obtained
the provincial health insurance coverage that Alberta makes generally available
to otherwise out-of-province workers in such temporary work circumstances, and
which Syncrude made all such workers aware of. At least one of the Appellants
arranged for US insurance which would cover the cost of air ambulance back to a
US hospital if he was hospitalized while in Canada.
22 The
Appellants left all of their US banking, financial, investment, pensions, and
retirement savings in place. The only financial arrangements by them in Canada
were a single checking account each used for day-to-day living expenses in
Canada.
23 During
the term of their Syncrude work the Appellants each took home visits to the US,
generally monthly as provided in the Syncrude contract. In addition, they would
schedule time off from their Syncrude commitments for other CCG business to be
completed in the US.
24 There
were only a very few visits to Alberta by their family members and for very
short periods of time. These were typically for such things as visiting Banff,
skiing the Rockies and attending the Stampede, although there was reference to
a five day stay in Edmonton in January.
25 It
is not disputed that the Appellants were physically present in Canada for more
than 183 days in 2005 and 2006.
26 These
arrangements all continued in place unchanged in all material respects
throughout. The initial Syncrude contract was extended for a further two year
period. During the negotiation of the extension, the Appellants insisted on
certain further key changes to the scope of work, reporting arrangements and
length of renewal term, including keeping it shorter than Syncrude wanted.
Law
·
The relevant provisions of the ITA are in sections 2, 248 and 250 and set out
below:
·
Tax payable by persons resident
in Canada
·
2. (1) 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.
[...]
Definitions - In this Act,
[...]
"non-resident" means not resident in
Canada
[...]
·
250(1) Person deemed resident -- For the purposes of this Act, a person shall, subject to subsection
(2), be deemed to have been resident in Canada throughout a taxation year if
the person
sojourned in Canada in
the year for a period of, or periods the total of which is, 183 days or
more;
[...]
·
(3) Ordinarily resident -- In this Act, a reference to a person resident in Canada includes a
person who was at the relevant time ordinarily resident in Canada.
[...]
·
(5) Deemed non-resident [by
treaty] -- Notwithstanding any other provision of this
Act (other than paragraph 126(1.1)(a)), a person is deemed not to be resident
in Canada at a time if, at that time, the person would, but for this subsection
and any tax treaty, be resident in Canada for the purposes of this Act but is,
under a tax treaty with another country, resident in the other country and not
resident in Canada.
* * *
·
Impôt payable par les personnes
résidant au Canada
·
2. (1) Un
impôt sur le revenu doit être payé, ainsi qu'il est prévu par la présente loi,
pour chaque année d'imposition, sur le revenu imposable de toute personne
résidant au Canada à un moment donné au cours de l'année.
[...]
(1) Définitions -- Les définitions qui suivent s'appliquent à la présente loi.
[...]
"non-résident"
Qui ne réside pas au Canada.
[...]
·
250(1) Personne réputée résider
au Canada -- Pour l'application de la présente loi, une
personne est réputée, sous réserve du paragraphe (2), avoir résidé au Canada
tout au long d'une année d'imposition si :
elle a séjourné au
Canada au cours de l'année pendant une période ou des périodes dont l'ensemble
est de 183 jours ou plus;
[...]
·
(3) Résident habituel -- Dans la présente loi, la mention d'une personne résidant au Canada
vise aussi une personne qui, au moment considéré, résidait habituellement au
Canada.
[...]
·
(5) Personne réputée
non-résidente [en vertu d'un traité fiscal] -- Malgré
les autres dispositions de la présente loi (sauf l'alinéa 126(1.1)a)), une
personne est réputée ne pas résider au Canada à un moment donné dans le cas où,
à ce moment, si ce n'était le présent paragraphe ou tout traité fiscal, elle
résiderait au Canada pour l'application de la présente loi alors que, en vertu
d'un traité fiscal conclu avec un autre pays, elle réside dans ce pays et non
au Canada.
The relevant provisions of the Treaty are set out
in Article IV:
·
CONVENTION BETWEEN CANADA AND
THE UNITED STATES OF AMERICA
·
WITH RESPECT TO TAXES ON INCOME
AND ON CAPITAL
·
ARTICLE IV
·
Residence
For the purposes of this
Convention, the term "resident" of a Contracting State means any
person that, under the laws of that State, is liable to tax therein by reason
of that person's domicile, residence, citizenship, place of management, place
of incorporation or any other criterion of a similar nature [...]
Where by reason of the
provisions of paragraph 1 an individual is a resident of both Contracting
States, then his status shall be determined as follows:
he shall be deemed to be
a resident of the Contracting State in which he has a permanent home available
to him; if he has a permanent home available to him in both States or in
neither State, he shall be deemed to be a resident of the Contracting State
with which his personal and economic relations are closer (centre of vital
interests);
if the Contracting State
in which he has his centre of vital interests cannot be determined, he shall be
deemed to be a resident of the Contracting State in which he has an habitual
abode;
if he has an habitual
abode in both States or in neither State, he shall be deemed to be a resident
of the Contracting State of which he is a citizen; and
if he is a citizen of
both States or of neither of them, the competent authorities of the Contracting
States shall settle the question by mutual agreement.
* * *
·
CONVENTION ENTRE LE CANADA ET
LES ÉTATS-UNIS D'AMÉRIQUE
·
EN MATIRE D'IMPTS SUR LE REVENU
ET SUR LA FORTUNE
·
ARTICLE IV
·
Résidence
Au sens de la présente
Convention, le terme "résident" d'un État contractant désigne toute
personne qui, en vertu de la législation de cet État, est assujettie à l'impôt
dans cet État en raison de son domicile, de sa résidence, de sa citoyenneté, de
son siège de direction, de son lieu de constitution ou de tout autre critère de
nature analogue [...]
Lorsque, selon les
dispositions du paragraphe 1, une personne physique est un résident des deux
États contractants, sa situation est réglée de la manière suivante:
Cette personne est
considérée comme un résident de l'État contractant où elle dispose d'un foyer
d'habitation permanent; si elle dispose d'un foyer d'habitation permanent dans
les deux États ou ne dispose d'un tel foyer dans aucun des États, elle est
considérée comme un résident de l'État contractant avec lequel ses liens
personnels et économiques sont les plus étroits (centre des intérêts
vitaux);
Si l'État contractant où
cette personne a le centre de ses intérêts vitaux ne peut pas être déterminé,
elle est considérée comme un résident de l'État contractant où elle séjourne de
façon habituelle;
Si cette personne
séjourne de façon habituelle dans les deux États ou si elle ne séjourne de
façon habituelle dans aucun des États, elle est considérée comme un résident de
l'État contractant dont elle possède la citoyenneté; et
Si cette personne
possède la citoyenneté des deux États ou si elle ne possède la citoyenneté
d'aucun d'eux, les autorités compétentes des États contractants tranchent la
question d'un commun accord.
The Analytical Matrix
or Grid to Determine the Appellants' Residence
A. The first issue to be decided is whether the
Appellants were resident in Canada for purposes of the ITA. This question potentially has two components:
(i) were they factually resident here as that term
has
been interpreted for purposes of the ITA; and
been interpreted for purposes of the ITA; and
if they were not
factually resident in Canada, are they deemed to have been resident in Canada
under paragraph 250(1)(a) of the ITA applicable to those who sojourn in Canada for 183 days or more in a
given year.
B. If the Appellants were not resident in Canada in
the years in question, the entire analysis ends there and the Appellants are
successful.
C. If the Appellants are found to have been
resident in Canada for purposes of the ITA, the analysis must then turn to the Treaty and in particular to
Article IV. A finding that they are taxable under the ITA based upon their being resident or being deemed to be resident in
Canada will make them residents of Canada for purposes of the Treaty by virtue
of paragraph 1 of Article IV. However, Article IV continues with its so called
"tie-breaker rules" if a person is a resident of both treaty
countries. It is conceded in this case that the Appellants are each residents
of the US for purposes of paragraph 1 of Article IV of the Treaty. Therefore,
the application of the tie-breaker rules in paragraph 2 of Article IV of the
Treaty will need to be considered and applied.
The hierarchy of the paragraph
2 tie-breaker rules begins by deeming a dual resident to be a resident of the
country in which he had a "permanent home available to him". It is
conceded that each Appellant had a permanent home available to him in the US.
The first issue to be decided under the Treaty is whether the Appellants also
had permanent homes available to them in Canada. If their Alberta living
arrangements did not constitute permanent homes, they will be deemed to be
residents of the US, and not Canada, for purposes of the Treaty and the Treaty
analysis will end there.
If their Alberta living
arrangements are found to have also been permanent homes available to them,
then paragraph 2(a) requires the Court to next determine whether their
"centres of vital interest", being the country with which their
"personal and economic relations were closer", can be determined. If
it can be determined they will be deemed to have been residents of that
country, and not the other country, and the Treaty analysis will end
there.
If their centres of
vital interest cannot be determined, the Court must determine whether they had
an "habitual abode" in either or both countries. If they had an
habitual abode in one country and not in the other, they will be deemed to have
been residents of the former country, and not the latter, and the Treaty
analysis will end there.
If they had
"habitual abodes" in both Canada and in the US, or in neither
country, the Appellants will be deemed to have been residents of the US, and
not residents of Canada, for purposes of the Treaty by virtue of their sole US
citizenship and no further inquiry need be made.
D. If the Appellants are determined by the
tie-breaker rules under "C" above to have been residents of Canada
for purposes of the Treaty, after having first been found under "A"
above to have been resident in Canada for purposes of the ITA, the result is they remain properly
taxable as Canadian residents under the ITA and the Appellants are unsuccessful.
E. If the Appellants are determined by the
tie-breaker rules under "C" above to have been residents of the US
for purposes of the Treaty, then subsection 250(5) deems them not to be
resident in Canada for purposes of the ITA and the Appellants are successful.
Analysis
A. Were the Appellants
Factually Resident in Canada under the ITA?
27 The
determination of whether one is or is not resident in Canada, including
ordinarily resident in Canada, is a question of fact highly dependent upon the
person's particular circumstances. Further, the terms resident and ordinarily
resident are not defined in the ITA, either by bright line tests or otherwise. There are a number of
leading and oft-quoted cases dealing with the meaning to be given to the terms
resident and ordinarily resident and some are quoted from, below. In addition
to those which give general definitions of resident and ordinarily resident
and/or identify the relevant factual criteria to be considered, discussed below
are also several cases that apply those legal considerations to the facts of
particular taxpayers wherein there are similarities in the facts of those cases
to those involving the Appellants in this case or in which the Court had to
address similar issues.
28 The
leading Canadian authority on the meaning of ordinarily resident is the Supreme
Court of Canada decision in Thomson v. Minister of
National Revenue, [1946] S.C.R. 209. In Thomson the following paragraphs address the
issue of factual residence:
·
Rand, J.
·
47 The gradation of degrees of
time, object, intention, continuity and other relevant circumstances, shows, I
think, that in common parlance "residing" is not a term of invariable
elements, all of which must be satisfied in each instance. It is quite
impossible to give it a precise and inclusive definition. It is highly
flexible, and its many shades of meaning vary not only in the contexts of
different matters, but also in different aspects of the same matter. In one
case it is satisfied by certain elements, in another by others, some common,
some new.
·
48 The expression
"ordinarily resident" carries a restricted signification, and
although the first impression seems to be that of preponderance in time, the
decisions on the English Act reject that view. It is held to mean residence in
the course of the customary mode of life of the person concerned, and it is
contrasted with special or occasional or casual residence. The general mode of
life is, therefore, relevant to a question of its application.
·
49 For the purposes of income
tax legislation, it must be assumed that every person has at all times a
residence. It is not necessary to this that he should have a home or a
particular place of abode or even a shelter. He may sleep in the open. It is
important only to ascertain the spatial bounds within which he spends his life
or to which his ordered or customary living is related. Ordinary residence can
best be appreciated by considering its antithesis, occasional or casual or
deviatory residence. The latter would seem clearly to be not only temporary in
time and exceptional in circumstance, but also accompanied by a sense of
transitoriness and of return.
·
50 But in the different
situations of so-called "permanent residence", "temporary
residence", "ordinary residence", "principal
residence" and the like, the adjectives do not affect the fact that there
is in all cases residence; and that quality is chiefly a matter of the degree
to which a person in mind and fact settles into or maintains or centralizes his
ordinary mode of living with its accessories in social relations, interests and
conveniences at or in the place in question. It may be limited in time from the
outset, or it may be indefinite, or so far as it is thought of, unlimited. On
the lower level, the expressions involving residence should be distinguished,
as I think they are in ordinary speech, from the field of "stay" or
"visit".
·
Estey, J.
·
71 A reference to the dictionary
and judicial comments upon the meaning of these terms indicates that one is
"ordinarily resident" in the place where in the settled routine of
his life he regularly, normally or customarily lives. One "sojourns"
at a place where he unusually, casually or intermittently visits or stays. In
the former the element of permanence; in the latter that of the temporary
predominates. The difference cannot be stated in precise and definite terms,
but each case must be determined after all of the relevant factors are taken
into consideration, but the foregoing indicates in a general way the essential
difference. It is not the length of the visit or stay that determines the
question. Even in this statute under section 9(b) the time of 183 days does not
determine whether the party sojourns or not but merely determines whether the
tax shall be payable or not by one who sojourns.
·
Kerwin, J.
·
2 There is no definition in the
Act of "resident" or "ordinarily resident" but they should
receive the meaning ascribed to them by common usage. When one is considering a
Revenue Act, it is true to state, I think, as it is put in the Standard
Dictionary, that the words "reside" and "residence" are
somewhat stately and not to be used indiscriminately for "live",
"house" or "home". The Shorter Oxford English Dictionary
gives the meaning of "reside" as being "To dwell permanently or
for a considerable time, to have one's settled or usual abode, to live, in or at
a particular place". By the same authority "ordinarily" means
"1. In conformity with rule; as a matter of regular occurrence. 2. In most
cases, usually, commonly. 3. To the usual extent. 4. As is normal or
usual". On the other hand, the meaning of the word "sojourn" is
given as "to make a temporary stay in a place; to remain or reside for a
time".
29 In
The Queen v. Kenneth F. Reeder,
75 DTC 5160, Mahoney, J. of the Federal Court, Trial Division wrote:
·
13 While the Defendant here is
far removed from the jet set, including any possible imputation of a
preconceived effort to avoid taxation, the factors which have been found in
those cases to be material in determining the pure question of fact of fiscal
residence are as valid in his case as in theirs. While the list does not
purport to be exhaustive, material factors include:
past and present habits
of life;
regularity and length of
visits in the jurisdiction asserting residence;
ties within that
jurisdiction;
ties elsewhere;
permanence or otherwise
of purposes of stay abroad.
30 In
Gaudreau v. The Queen, 2005 DTC
66, Lamarre J. wrote:
·
33 I adopt the reasoning of
Mahoney, J. in the Reeder case,
at page 5163:
·
The Defendant was at a stage in
life when he was highly mobile. He was able, willing, even eager, to travel. In
that, he was not atypical of his contemporaries and the relevant factors must
be considered in that context. It is not contested that he was, before March
29, 1972 and has, since December 1, 1972, been resident in Canada. Throughout,
his ties of whatever description have all been with Canada, save only those
ties, undertaken during the term of his absence, which were necessary to permit
him and his family to enjoy an acceptable and expected lifestyle while in
France. That absence was temporary even though, strictly speaking,
indeterminate in length. The ties in France were temporarily undertaken and
abandoned on his return to Canada.
·
I am satisfied that had the
Defendant been asked, while in France, where he regularly, normally or
customarily lived, Canada must have been the answer. I find that the Defendant
was resident in Canada throughout all of 1972.
·
34 In my view, the same can be
said here. Throughout his sojourn in Egypt, the appellant's ties were all with
Canada, save only those ties, undertaken during the term of his absence, which
were necessary to permit him and his wife to enjoy an acceptable and expected
lifestyle while in Egypt. As a matter of fact, the ties in Egypt were
temporarily undertaken and abandoned on his return to Canada. As Rip, J. stated
in the above cited passage from Snow, supra, a person's temporary absence from Canada does not
necessarily lead to a loss of Canadian residence when close personal and
economic ties are maintained in Canada. I therefore conclude that the appellant
was ordinarily resident in Canada during the years at issue.
Other aspects of the
Gaudreau decision were considered by the Federal Court
of Appeal and upheld at 2005 FCA 388.
31 In
Mahmood v. The Queen, 2009 TCC
89, Hogan, J. wrote, in considering some similar overlapping factual
considerations:
·
[60] The evidence does show that
the Appellant had some ties to Canada in the years in question. His mother
lived in a condominium which he owned. He stayed in the condominium when he
came to Canada. One of his sons also lived there, along with his sister, who
stayed there from time to time. The Appellant used the Canadian financial
system to deposit funds, exchange currency and ultimately pay the foreign
suppliers of his business. He attended the local mosque near the condo that he
owned in Canada. He had a car available to him that was parked at the condo. He
went on camping trips with friends and visited Niagara Falls at least seven
times.
·
[61] In my view, these facts are
not sufficient to make the Appellant a resident of Canada for the purposes of
the Act. The condominium, while
owned by the Appellant, was really his mother's home and not his own. His
mother has lived there the entire time. The Appellant lives at the family home
in Guyana with his wife and his three children.
·
[62] The Appellant's Canadian
activities are similar to the activities of other non-residents carrying on
business in Canada. One can be a non-resident of Canada and own real estate in
Canada at the same time. Section 116 of the Act and Part XIII deal with these cases. The former provision applies
when a non-resident sells property and the latter when a non-resident collects,
among other things, rental income.
·
[63] In the event that I am
wrong and Canada is the Appellant's home in the same way Guyana is, I find that
the tiebreaker rule in paragraph 4(2)(a) of the Convention makes him a resident of Guyana for the purposes
of the Act. The Appellant's
family and economic interests are more closely tied to Guyana than to
Canada.
32 Similarly
relevant are the decisions of Paris, J. involving international work
assignments in McFadyen v. The Queen, 2000 DTC 2473 and in Johnson v. The Queen, 2007 DTC 1022.
33 Based
upon the facts presented as summarized above, and the meanings given to the
terms resident and ordinarily resident, I find that none of the Appellants were
resident or ordinarily resident in Canada in the circumstances. They continued
to have and maintain their extremely deep and extensive family, personal,
business and financial ties to the US. They did not give up any of their ties
to the US, except their physical presence while needed in Edmonton to fulfill
their Syncrude obligations. Further, they virtually only took on such ties to
Canada as were reasonably needed to fulfill the CCG business contract with
Syncrude in an economically reasonable and commonsensical, practical manner
such as (i) rented apartments with early termination provisions (ii) locally
leased cars (iii) modest furnishings most all of which were donated to
neighbourhood charitable thrift shops before leaving Canada; and (iv) single
local chequing account used for local living expenses. They never intended to
remain in Canada beyond the period of the Syncrude contract which, while
renewed once, was intentionally kept to definite terms by the Appellants.
34 A
determination of residence depends upon and requires consideration of the
overall particular facts of the individual involved.4 The fact that,
from all outward appearances, the Appellants might each appear to other
Edmontonians to live there in the same manner as others, is simply not the
test. Similarly, the fact that a middle aged professional may be expected to
have a more settled way of life and very different past habits of life than
young university graduates moving out of their parents' homes and starting one
of their first jobs does not mean I should ignore any such factual differences
where they exist (though different factors may be given different weight in
different cases).
B. Were the Appellants
Deemed to be Resident in Canada under the ITA?
35 Paragraph
250(1)(a) of the ITA provides
that persons will be deemed to be resident in Canada for purposes of the Act if they sojourn in Canada for 183 days or
more in a year. The word sojourn is not defined in the ITA however its meaning for purposes of the ITA has been addressed by Canadian courts as set out below.
36 It
appears clear from the Supreme Court of Canada's comments in Thomson (especially in paragraphs 2, 49 and 71
quoted above) that to sojourn generally means to temporarily stay, visit,
reside or remain, in a place for a time. The nature of sojourning is an unusual
intermittent stay, and is marked by a sense of transitoriness and of return to
one's usual, ordinary residence.
37 In
Dixon v. The Queen, 2001 FCA 216,
the Federal Court of Appeal wrote:
·
6 The Supreme Court of Canada,
many years ago, defined the word sojourn in the case of Thomson
v. Minister of National Revenue (1946) 2 DTC 812 at 813
as follows:
·
A reference to the dictionary
and judicial comments upon the meaning of these terms indicates that one is
"ordinarily resident" in the place where in the settled routine of
his life he regularly, normally or customarily lives. One "sojourns"
at a place where he usually [sic], casually, or intermittently visits or stays.
In the former the element of permanence; in the latter that of the temporary
predominates. The difference cannot be stated in precise and definite terms,
but each case must be determined after all of the relevant factors are taken
into consideration, but the foregoing indicates in a general way the essential
difference. It is not the length of the visit or stay that determines the
question.
·
While this statement may well be
an obiter dictum, this definition
of sojourn has withstood the test of time.
·
7 In their book Principles of Canadian Income Tax Law, 2nd ed.
(Scarborough, Ont.: Carswell, 1997) at 120, Professors Hogg & Magee explain
the word sojourn as follows:
·
The term "sojourn" means
something less than residence. A sojourner is a person who is physically
present in Canada, but on a more transient basis than a resident. A sojourner
lacks the settled home in Canada which would make him or her a resident. A
person who is a resident of another country and who comes to Canada on a
vacation or business trip would be an example of a sojourner. In most cases, of
course, a sojourner would stay in Canada for only a short period of time, but
if the sojourner stays for a period of 183 days, or for several periods
totalling 183 days, then the effect of s. 250(1)(a) is to tax the sojourner as
if he or she were a resident for the whole year. The rationale is no doubt that
a person spending so much time in Canada has a stake in the in the country
which is not markedly different from that of a resident, and which entails a
contribution to the financing of the government. There is also the
administrative convenience that s. 250(1)(a) will eliminate some of the
argumentation over whether a person is a resident or not.
·
Unhappily for Mr. Dixon, he did
not sojourn in Canada upon his return, but began to reside here, taking himself
out of the deeming provision, section 250.
The Federal Court of Appeal upheld the Tax Court of
Canada's decision in Dixon which
had also relied upon the Thomson
definition of sojourn.
38 The
example of a person on a business trip remains in the current edition of
Professor Hogg's book.
39 Professor
Krishna, in his text "Fundamentals of Income Tax Law", refers to the Thomson concepts of unusually, casually or
intermittently visiting or staying and states that this implies a temporary
stay in a place as opposed to ordinary residence.5
40 In
the text "International Taxation in Canada"6 it is written:
"A sojourner is someone who is physically present in Canada, but does not
regard Canada "home" or intend to remain in Canada."
41 In
the Canada Tax Service7 the commentary includes: "A "sojourn" (meaning
"a temporary stay as of a traveller in a foreign land" (Webster), in
Canada, is quite different from a period of "residence" in Canada
...".
42 Counsel
for the Appellants relied upon R&L Food Distributors
Ltd. v. MNR, 77 DTC 411 for the proposition that a US
resident travelling to Canada each day to work in Canada and returning to the
US each night is not sojourning. I accept that and agree that a day trip or a
series of regular day trips is not a sojourn. However, there is a great factual
gulf between a daily border town commuter and living in Edmonton.
43 On
the facts of this case, where the Appellants stayed in Edmonton for several
years for purposes of their work, staying in their own rented apartments kept
available throughout their stay, driving their own cars leased by them to be
available throughout their stay, working, shopping, sleeping and carrying on
like any ordinary Canadian on most days of the year, the Court is satisfied
that the Appellants were sojourning in Canada when they were here. This clearly
meets the intermittent, temporary visit or stay parts of the meaning given to
sojourn set out by the Supreme Court of Canada in Thomson and relied upon by the Federal Court of Appeal in Dixon as the time tested definition of the
term. A business trip is one of the specific examples set out by Professors Hogg
and McGee of sojourning. It is frankly difficult to imagine a more clear
example of the concept of sojourning or a more appropriate result under the ITA.
44 There
is no dispute that the Appellants were living in Canada for 183 days or more
each year on this basis, regardless of how travel days are counted.
45 Each
of the Appellants is deemed to have been resident in Canada for purposes of the
ITA in each of the years in
question.
C. Did the Appellants have
permanent homes available to them in Canada for purposes of the Treaty?
46 Since
the Appellants were residents of both Canada and the US for purposes of the
Treaty, the tie-breaker rules of the Treaty must now be considered and applied.
47 As
described above this requires that the Court in this case first determine
whether the Appellants' living arrangements in Canada constituted permanent
homes available to them. It is conceded and clear that they had permanent homes
available to them in the US for Treaty purposes.
Treaty Interpretation
48 The
Vienna Convention on the Law of Treaties provides that a treaty is to be interpreted in good faith, in
accordance with the ordinary meaning to be given to the terms of the treaty in
their context and in the light of its object and purpose. It also authorizes
regard to subsequent practice in the application of the treaty in certain
circumstances and for certain purposes, as well as the use of other
supplementary means of interpretation when the interpretation of the treaty
otherwise leads to a result which is manifestly absurd or unreasonable.
49 As
noted expressly by the Supreme Court of Canada and the Federal Court of Appeal,
the required approach to the interpretation of tax treaties is significantly
different than that applicable to interpreting tax legislation. (At times it
seems some tax lawyers, accountants and academics choose to overlook or forget
this when it is inconvenient.)
50 In
The Queen v. Crown Forest Industries Limited, et al., 95 DTC 5389, the Supreme Court of Canada had occasion to consider
Article IV of the US Treaty. The Court began from the premise that:
·
29 In interpreting a treaty, the
paramount goal is to find the meaning of the words in question. This process
involves looking to the language used and the intentions of the parties.
...
51 The
Court went on to quote approvingly from Addy, J. in Gladden
Estate v. The Queen, 85 DTC 5188, wherein he wrote at
page 5191:
·
Contrary to an ordinary taxing
statute a tax treaty or convention must be given a liberal interpretation with
a view to implementing the true intentions of the parties. A literal or
legalistic interpretation must be avoided when the basic object of the treaty
might be defeated or frustrated insofar as the particular item under
consideration is concerned.
52 Both
the Vienna Convention and the
Supreme Court of Canada in Crown Forest confirm that "literalism has no role to play in the
interpretation of treaties": Coblentz v. The Queen, 96 DTC 6531 (FCA).
53 In
Crown Forest the Supreme Court of
Canada also held that, in ascertaining the purposes of a treaty article, a
Court may refer to extrinsic materials which form part of the legal context,
including model conventions and official commentaries thereon, without the need
to first find an ambiguity before turning to such materials.
54 The
preamble to the Treaty between Canada and the US sets out its purposes of
reducing or eliminating double taxation of income earned by a resident of one
country from sources in the other country, and of preventing tax avoidance or
evasion. In Crown Forest the
Supreme Court of Canada held that the purposes of the Treaty also included the
promotion of international trade between Canada and the US and the mitigation
of administrative complexities arising from having to comply with two
uncoordinated taxation systems.
55 There
is no evidence or suggestion of any risk of double non-taxation or evasion in
this case on these facts. It is the avoidance of double taxation by allocating
the right to tax between the two countries that is engaged in this case.
56 In
The Queen v. Prévost Car Inc.,
2009 FCA 57, 2009 DTC 5053, the Federal Court of Appeal wrote:
·
10 The worldwide recognition of
the provisions of the [OECD] Model Convention and their incorporation into a
majority of bilateral conventions have made the Commentaries on the provisions
of the OECD Model a widely-accepted guide to the interpretation and application
of the provisions of existing bilateral conventions (see Crown Forest
Industries Ltd. v. Canada, [95 DTC 5389] [1995] 2 S.C.R. 802;
Klaus Vogel, "Klaus Vogel on Double Taxation Conventions" 3rd ed.
(The Hague: Kluwer Law International, 1997) at 43. In the case at bar, Article
10(2) of the Tax Treaty is mirrored on Article 10(2) of the Model
Convention.
·
11 The same may be said with
respect to later commentaries, when they represent a fair interpretation of the
words of the Model Convention and do not conflict with Commentaries in
existence at the time a specific treaty was entered and when, of course,
neither treaty partner has registered an objection to the new Commentaries. For
example, in the introduction to the Income and Capital Model Convention and Commentary
(2003), the OECD invites its members to interpret their bilateral treaties in
accordance with the Commentaries "as modified from time to time"
(par. 3) and "in the spirit of the revised Commentaries" (par. 33).
The Introduction goes on, at par. 35, to note that changes to the Commentaries
are not relevant "where the provisions ... are different in substance from
the amended Articles" and, at par. 36, that "many amendments are
intended to simply clarify, not change, the meaning of the Articles or the
Commentaries".
57 The
United States issued a Technical Explanation of the Treaty, to which Canadian
authorities generally subscribe. The US Technical Explanation does not provide
any relevant comments on the tie-breaker rules.
58 Article
IV of the OECD Model Convention corresponds to Article IV of the Treaty. The
OECD Commentaries to Article IV include:
Conventions for the
avoidance of double taxation do not normally concern themselves with the
domestic laws of the Contracting States laying down the conditions under which
a person is to be treated fiscally as "resident" and, consequently,
is fully liable to tax in that State. They do not lay down standards which the
provisions of the domestic laws on "residence" have to fulfil in
order that claims for full tax liability can be accepted between the
Contracting States. In this respect the States take their stand entirely on the
domestic laws.
This manifests itself
quite clearly in the cases where there is no conflict at all between two residences,
but where the conflict exists only between residence and source or situs. But
the same view applies in conflicts between two residences. The special point in
these cases is only that no solution of the conflict can be arrived at by
reference to the concept of residence adopted in the domestic laws of the
States concerned. In these cases special provisions must be established in the
Convention to determine which of the two concepts of residence is to be given
preference.
An example will elucidate
the case. An individual has his permanent home in State A, where his wife and
children live. He has had a stay of more than six months in State B and
according to the legislation of the latter State he is, in consequence of the
length of the stay, taxed as being a resident of that State. Thus, both States
claim that he is fully liable to tax. This conflict has to be solved by the
Convention.
In this particular case
the Article (under paragraph 2) gives preference to the claim of State A. This
does not, however, imply that the Article lays down special rules on
"residence" and that the domestic laws of State B are ignored because
they are incompatible with such rules. The fact is quite simply that in the
case of such a conflict a choice must necessarily be made between the two
claims, and it is on this point that the Article proposes special rules.
[...]
This paragraph [2]
relates to the case where, under the provisions of paragraph 1, an individual
is a resident of both Contracting States.
To solve this conflict
special rules must be established which give the attachment to one State a
preference over the attachment to the other State. As far as possible, the
preference criterion must be of such a nature that there can be no question but
that the person concerned will satisfy it in one State only, and at the same
time it must reflect such an attachment that it is felt to be natural that the
right to tax devolves upon that particular State. The facts to which the
special rules will apply are those existing during the period when the
residence of the taxpayer affects tax liability, which may be less than an
entire taxable period. For example, in one calendar year an individual is a
resident of State A under that State's tax laws from 1 January to 31 March,
then moves to State B. Because the individual resides in State B for more than
183 days, the individual is treated by the tax laws of State B as a State B
resident for the entire year. Applying the special rules to the period 1
January to 31 March, the individual was a resident of State A. Therefore, both
State A and State B should treat the individual as a State A resident for that
period, and as a State B resident from 1 April to 31 December.
The Article gives
preference to the Contracting State in which the individual has a permanent
home available to him. This criterion will frequently be sufficient to solve
the conflict, e.g. where the individual has a permanent home in one Contracting
State and has only made a stay of some length in the other Contracting
State.
Subparagraph a) means, therefore, that in the application
of the Convention (that is, where there is a conflict between the laws of the
two States) it is considered that the residence is that place where the
individual owns or possesses a home; this home must be permanent, that is to
say, the individual must have arranged and retained it for his permanent use as
opposed to staying at a particular place under such conditions that it is
evident that they stay is intended to be of short duration.
As regards the concept
of home, it should be observed that any form of home may be taken into account
(house or apartment belonging to or rented by the individual, rented furnished
room). But the permanence of the home is essential; this means that the
individual has arranged to have the dwelling available to him at all time
continuously, and not occasionally for the purpose of a stay which, owing to
the reasons for it, is necessarily of short duration (travel for pleasure, business
travel, educational travel, attending a course at a school, etc.).
If the individual has a
permanent home in both Contracting States, paragraph 2 gives preference to the
State with which the personal and economic relations of the individual are closer,
this being understood as the centre of vital interests. In the cases where the
residence cannot be determined by reference to this rule, paragraph 2 provides
as subsidiary criteria, first, habitual abode and then nationality. If the
individual is a national of both States or of neither of them, the question
shall be solved by mutual agreement between the States concerned according to
the procedure laid down in Article 25.
If the individual has a
permanent home in both Contracting States, it is necessary to look at the facts
in order to ascertain with which of the two States his personal and economic
relations are closer. Thus, regard will be had to his family and social relations,
his occupations, his political, cultural or other activities, his place of
business, the place from which he administers his property, etc. The
circumstances must be examined as a whole, but it is nevertheless obvious that
considerations based on the personal acts of the individual must receive
special attention. If a person who has a home in one State sets up a second in
the other State while retaining the first, the fact that he retains the first
in the environment where he has always lived, where he has worked, and where he
has his family and possessions, can, together with other elements, go to
demonstrate that he has retained his centre of vital interests in the first
State.
Permanent Home
59 This
Court had occasion to consider whether a US resident had a permanent home
available to him in Canada for purposes of the Treaty in Wolf v. The Queen, 2000 DTC 2595. In that case
Lamarre, J. found that Mr. Wolf had permanent homes available to him in both
countries in factual circumstances described as follows:
·
[10] The appellant testified
that he rented out his condo in Florida with all his furniture when he came to
Canada in 1990. Thirty days' notice was required to terminate the lease
(Exhibit A-10). He had mandated a rental agent in Florida to make the rental
arrangements. He came in Canada with his clothing, his stereo and his video
equipment. During the years at issue, he rented a room in Dollard-des-Ormeaux
(Quebec) for $375 per month. He did not have a private entrance, nor did he
have a private telephone line. He always kept his American insurance for his
car which was registered in the United States. His health and property
insurance were taken out in the United States. He kept open all his American
bank accounts and opened one in Canada for the direct deposit of his pay
cheques. He wired all his savings to his American bank accounts. He dealt with
a stockbroker in the United States. He never requested the status of landed
immigrant in Canada nor Canadian citizenship. He travelled with his American
passport. He owned a few American credit cards, and one Canadian MasterCard for
his spending here in Canada, and he belonged to clubs and professional
associations in the United States but none in Canada.
60 Lamarre,
J. went on to conclude that Mr. Wolf had permanent homes in both Canada and the
US but was a resident of the US on the basis of his centre of vital interests
being more in the US than in Canada. In the Federal Court of Appeal, Wolf v. The Queen, 2002 FCA 96, her conclusion
on his US residence status was not challenged.
61 Similarly,
I find that the Appellants' Edmonton apartments rented by them for a duration
intended to correspond to the length of their being in Edmonton, continuously
available to them throughout that period, appropriately furnished by them for
that purpose with parking arrangements for their cars, incorporating places to
sleep, cook, relax, entertain and work, clearly constituted permanent homes for
this purpose.
62 This
is very different than the example given in paragraph 6 of the OECD Commentary
as in that case the individual described has a permanent home in one country
where his family lives and he merely stays more than 6 months in the other
country. This is clear from paragraph 11 of the Commentary.
63 The
concept of permanent home is discussed in paragraphs 12 and 13 of the OECD
Commentary. For purposes of the Appellants' situation, the concept of
permanence of the home means having the dwelling available during all times
continuously as opposed to occasionally during the relevant period.
64 This
decision is not inconsistent with the parenthetical reference to business
travel in paragraph 13 of the OECD Commentary. That reference is made in the
context of giving an example of where one might need to occasionally stay where
the reason for it, such as business travel, is necessarily of short duration.
That is simply not the case on these taxpayers' facts.
65 Neither
the jurisprudence nor the OECD Commentary suggest one should not look at a taxpayer's
circumstances in the years in issue in the context of his or her overall
circumstances in the surrounding periods of years. What is expressly described
in the third sentence of paragraph 10 of the OECD Commentary is looking at
shorter periods within the year in issue when the particular circumstances
warrant. (This thought may have been engaged had the Appellants' 2004 years
been reassessed on the basis they were resident in Canada throughout 2004 by
virtue of sojourning after April or May).
66 Each
of the Appellants in this case had permanent homes available to him in each of
Canada and the US throughout the relevant portions.
D. In which Country were
the Appellants' Centres of Vital Interests?
67 Article
IV(2)(a) provides that a person who has a permanent home available to him in
each of Canada and the US will be deemed to be a resident of the country with
which his personal and economic relations are closer. The country with which
the personal and economic relations are closer is defined as the taxpayer's
centre of vital interests. Clearly a taxpayer can not have more than one centre
of vital interests for this purpose (given the use of the word
"closer"), even though on particular facts it may not be
ascertainable. As stated by the Federal Court of Appeal in Trieste v. The Queen:8
·
6 ... The test to be applied
under the Convention is one of fact: in which, if any, state does the
individual have closer personal and economic relations?
There is no other singular determinative test or
way to phrase the question. In this Court in Trieste, the trial judge was unable to determine the country with which the
taxpayer had closer personal and economic relations and therefore carried on to
look at the taxpayer's habitual abode. In that case, the taxpayer was found to
also have a permanent home in Canada. An important distinction from the
taxpayers' facts in this case is that in Trieste, the taxpayer purchased two different homes in Canada, his wife
periodically lived with him in Canada and they acquired the first condominium
jointly. The trial judge in Trieste considered the purchase of the two Canadian condominiums to be
significant in distinguishing the Trieste facts from her decision of first instance in Gaudreau.
68 In
this Court at first instance, the Tax Court Judge in Gaudreau, in considering where the taxpayer's centre of vital interests lay,
considered paragraph 15 of the OECD Commentary and went on to write:
·
38 Thus, if a person who has a
home in one state sets up a second in the other state while retaining the
first, the fact that he retains the first in the environment where he has
always lived, where he has worked, and where he has his family and possessions,
can, together with other elements, go to demonstrate that he has retained his centre
of vital interests in the first state.
·
39 Here, it is true that the
appellant said that he had worked abroad for a number of years during his
career, but it is my understanding that it was in circumstances similar to
those that took him to Egypt. He and his wife always kept their house and all
their possessions in Canada. Their family always lived in Canada. It is my
perception that they never intended to give up their economic and personal
relations with Canada. In fact, the appellant did not really maintain any
economic relations with Egypt apart from those he needed to have in order to
meet his day-to-day living expenses. He rented an apartment there on a yearly
basis, kept a bank account solely for his needs over there, did not purchase a
car, and obtained his driver's licence simply so as to be able to commute to
work in Egypt. That the appellant agreed to work in Egypt on an approximately
four-year contract does not alter the fact that his centre of vital interests
remained in Canada.
·
40 I therefore conclude,
considering all the facts, that the appellant's centre of vital interests was
closer to Canada than Egypt during the years 1996, 1998 and 1999.
Lamarre, J.'s decision in Gaudreau was upheld on her application of the tie-breaker rules by the
Federal Court of Appeal unanimously with brief oral reasons.
69 In
this Court at first instance in Wolf, Lamarre, J. as mentioned above, found that the Appellant had
permanent homes in both countries and continued in paragraph 20:
·
[20] I am of the view that the
appellant had a permanent home available to him in both countries. Indeed, he
had a place to stay in Canada and with only one month's notice he could return
to his condo in Florida. However, I find that the appellant's centre of vital interests
was more in the United States than in Canada. The appellant is not married, but
still, all his family was in the United States. His bank accounts and savings
and his stockbroker were all in the United States. Apart from one bank account
and one credit card which he had here in Canada for his day-to-day living
expenses, the appellant did not maintain any economic relations with Canada. He
obtained his patent in the United States and wired all his savings to the
United States. The United States was the country to which he returned with
frequency and regularity. Although the appellant's place of work was in Canada,
I do not think that this overrides the fact that his centre of vital interests
remained in the United States. He came to Canada to work on a temporary basis
because the job was here. His contract was in fact extended, but this does not
mean however that his personal and economic relations were with Canada. His
source of income was in Canada but there were no other ties to this country. In
fact, the way he acted shows rather that it was never his intention to stay
permanently in Canada or to have an habitual abode here. He never really
settled in Canada. He spent all his free time with his family in the United
States, took out all his insurance in the United States, was not insured here
in Canada, and only kept here a pied-à-terre, a room in Dollard-des-Ormeaux
(Quebec). He never requested landed immigrant status nor Canadian citizenship.
He is an American citizen and has an American passport only. He declared his
world income and paid his income tax in the United States for all the years in
question. This is sufficient for me to be able to say that the appellant is
deemed to be a resident of the United States within the meaning of paragraph 2
of article IV of the Canada-U.S. Income Tax Convention.
70 As
mentioned above, her conclusion on the taxpayer's US resident status was not
challenged in the Federal Court of Appeal.
71 This
Court and the Federal Court of Appeal also had occasion to consider and review
the application of the concept of centre of vital interests in the tie-breaker
rules in the Treaty in Bujnowski v. The Queen, 2005 TCC 90, 2006 FCA 32. The reasons for both Courts are contained
in the following passages from the Federal Court of Appeal's reasons:
·
6 The Tax Court judge set out
the arguments of the parties as to the application and effect of the
Convention, as well as the facts which he considered material to its operation.
He set out his conclusions as para. 8 of his reasons, reproduced below:
·
[8] Notwithstanding the
Appellant's submissions to the contrary, the evidence before the Court leads
clearly to the conclusion that his residential ties to Canada were most
significant. Not only did the Appellant's wife remain in Canada in a residence
which they owned, it is also a fact that she remained in order to find
employment. There is no evidence before the Court to indicate that the
Appellant had at any time contemplated the disposition of the dwelling nor is
there any evidence to support his statement that he had been considering the
purchase of a residence in Michigan. A number of other residential ties with
Canada also tend to lead to a determination that the Appellant was factually
resident in Canada while employed in the US. He retained, as previously
indicated, personal property as well as social and economic ties in Canada such
as a bank account, brokerage accounts and self- directed retirement accounts,
etc. He also retained his Canadian passport and memberships in Canadian
professional organizations. On the evidence before me, I have concluded that
the Appellant was a factual resident of Canada and accordingly, the Minister's
assessment was correct.
·
7 While this paragraph deals
only with the Canadian elements of Mr. Bujnowksi's situation, when it is read
in context it is clear that the judge is here stating his conclusions with
respect to the various elements he considered in determining to which State the
centre of Mr. Bujnowski's vital interests were closer. The judge's use of the
term "factual resident" may suggest that he is applying the domestic
test for residence found in Thomson v. M.N.R. [1944] C.T.C. 63 (Ex. Ct), but he used the same term elsewhere in
his reasons in a context where it could only mean "resident of Canada for
the purposes of the Convention."
·
8 I am satisfied that the judge
recognized Mr. Bujnowski's dual residency in the 2001 tax year and that he
applied the tie-breaker rule found at para. 4(2) of the Convention, as he ought
to have. Despite Mr. Bujnowski's attempt to persuade us that the judge's
conclusions are replete with factual errors, I am satisfied that they are
grounded in the evidence before him and are free of any palpable and overriding
error.
72 It
is clear that closer does not mean more numerous. It is a relative not a
mechanical or arithmetic concept. Closeness requires that serious attention be
focused upon the depth and nature of the personal and economic relations/ties.
This finds express support in paragraph 15 of the OECD Commentary, especially with
the example in the final sentence.
73 In
Hertel v. Minister of National Revenue, 93 DTC 721, Sobier, J. wrote:
·
14 In determining his centre of
vital interests, it is not enough to simply weigh or count the number of
factors or connections on each side. The depth of the roots of one's centre of
vital interests is more important than their number.
This passage was cited with approval by O'Connor,
J. of this Court in Yoon v. The Queen, 2005 TCC 366.
74 It
is clear that, on the facts of these cases, each of the Appellants' personal
and economic relations were closer to the US than to Canada.9 It can be observed that for each of the Appellants:
they lived only in the
United States before coming to Canada for purposes of fulfilling the Syncrude
business contract;
they left Canada at the
conclusion of their Syncrude work;
they maintained all of
their pre-existing ties to the United States throughout the relevant period
that they were working on the Syncrude project in Canada. It was only their
physical presence of being in Canada that was no longer entirely focused in the
US;
the only ties they
established to Canada were those necessary for, or reasonably incidental to,
the requirement that they physically be in Canada for the period they were
working on the Syncrude project.
75 Having
decided that, on the facts before the Court, their centres of vital interests
were in the US by virtue of each of their personal and economic relations being
closer to the US for the years in question, these Appellants are deemed to be
residents of the US and not residents of Canada for purposes of the Treaty.
76 By
virtue of the application of subsection 250(5) of the ITA, the factual finding that they were residents of the US for purposes
of Canada's treaty with the US, deems them to not be resident in Canada in the
years in question for ITA
purposes. Subsection 250(5) applies notwithstanding any other provision of the ITA, including paragraph 250(1)(a) dealing
with sojourners (or subsection 250(3) dealing with factual residents). The
Appellants are therefore entitled to succeed in their appeals. They were not
properly subject to tax assessed under Part I of the ITA which is imposed on persons who are resident in Canada.
E. Habitual Abodes
77 Only
if I had been unable to determine with which country the taxpayers' personal
and economical relations were closer, as was the trial judge in Trieste, would I have had to carry on to
consider whether the Appellants had habitual abodes in Canada or in the US or
in both to complete the application of the tie-breaker rules.
Conclusion
78 The
Appellants are initially deemed by paragraph 250(1)(a) of the ITA to have been resident in Canada in 2005
and 2006 by virtue of having sojourned in Canada for 183 days or more. However,
subsection 250(5) deems them not to have been resident in Canada nonetheless,
by virtue of having been found to be residents of the US for the purposes of
the Treaty.
79 The
taxpayers' appeals are allowed, with costs.
BOYLE T.C.J.
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