Date: 20010907
Docket: 1999-2647-IT-G
BETWEEN:
EMAIN KADRIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1]
These appeals are from assessments for 1992, 1993 and 1994. The
central issue is whether the appellant was a resident of Canada
in those years. The Minister of National Revenue assessed the
appellant for those years on the assumption that he was. He
assessed tax on the appellant's income which he earned in
Kuwait in those years, as well as on an alleged benefit under
section 15 of the Income Tax Act conferred on the
appellant or his spouse resulting from the use of an automobile
owned by a corporate dealership owned by the appellant. In
addition the Minister imposed a penalty for the appellant's
failure to file income tax returns.
[2]
If the appellant was not resident in Canada in the years in
question the Part I tax imposed on him must be deleted. So
far as the section 15 benefit is concerned no alternative
position was advanced that even if the appellant was a
non-resident withholding tax should be imposed under paragraph
214(3)(a) on the value of the benefit. Therefore I shall
not consider the point further.
[3]
If the appellant is successful in his contention that he was a
non-resident in 1992, 1993 and 1994 the penalties must be
deleted. If he is not, Mr. Trussler contends that a penalty
under subsection 162(1) for failure to file a return is
susceptible of a due diligence defence (Consolidated Canadian
Contractors Inc. v. The Queen, [1998]
G.S.T.C. 91).
[4]
Counsel for the respondent agreed with the proposition that a due
diligence defence is available with respect to a penalty for
failure to file a return, but did not concede that due diligence
has been made out.
[5]
For reasons that are set out more fully below I do not think that
the appellant was resident in Canada in the years in question and
accordingly the subsidiary issues need not be considered.
[6]
The appellant did not sojourn in Canada for 183 days or more in
any of the years 1992, 1993 and 1994 and so the statutory
condition in paragraph 250(1)(a) is not met. This does not
of course end the matter because under subsection 250(3) a
reference to a person who is resident in Canada includes a person
who is "ordinarily resident". It was on the basis of
"ordinarily resident" that the case was presented by
both counsel.
[7]
The facts are not substantially in dispute. The most efficient
way of setting out the facts is to reproduce the relevant
portions of the pleadings. Unless it is indicated to the contrary
the allegations or assumptions are admitted by opposing
counsel.
[8]
The essential facts relied on by the appellant are
6. Between 1977 and 1990, the
Appellant lived in Kuwait as a full time permanent resident.
Indeed, the Appellant was married while in Kuwait and his three
children were born and educated in Kuwait during the same 13-year
period.
7. The Appellant worked for the same
employer in Kuwait between 1977 and the time of his resignation
from such employment in December of 1994.
Admitted except respondent says the appellant resigned in
July 1994. The evidence is he resigned in August to take effect
in December 1994.
8. Prior to 1977, the Appellant lived
in Canada.
9. The Appellant and his family were
vacationing in Canada on August 2, 1990. On August 3, 1990, the
Gulf War broke out. Thereupon, the Appellant immediately ceased
his vacation and returned to his employer's headquarters in
New York, New York and in Dubai, Kuwait for the purpose of
providing management assistance throughout the Gulf War crisis.
The Appellant's wife and children remained in Canada during
the Gulf War.
10. In March, 1991, following the
liberation of Kuwait, the Appellant again took up permanent
residence in Kuwait.
Admitted by respondent except for word
"permanent".
11. Following the Gulf War (March
1991), the Appellant attempted to obtain special government
permission for his wife to return to Kuwait. Such approval was
denied because the Appellant's wife was a Jordanian National.
The Appellant was under the impression that the Kuwaiti ban
affecting Jordanian Nationals was temporary and would be lifted,
thereby allowing the Appellant's wife to lawfully return to
Kuwait.
Not admitted by the respondent but established in
evidence.
12. Between March 1991 and June 1995,
the Appellant attempted to gain the assistance of the Canadian
Embassy in Kuwait for the purpose of allowing his wife to return
to Kuwait. The Appellant's efforts and the efforts of the
Canadian Embassy were unsuccessful in this regard.
Not admitted by respondent but established in
evidence.
13. When it became clear to the
Appellant that he was not going to be successful in obtaining a
special dispensation to permit his wife return to Kuwait, he
resigned from his employer on December 16, 1994. The Appellant
then joined his wife and family in Canada.
Not admitted by respondent but established in
evidence.
14. The Appellant lived in Canada as a
permanent resident after 1994.
Admitted by respondent. It was also established in evidence
that the appellant and his family ceased to be residents of
Canada in 1997 and moved to Dubai.
[9]
The assumptions upon which the Minister relied were the
following. They are admitted by the appellant unless it is
indicated otherwise.
a) At all material times,
the Appellant was a Canadian citizen and held a Canadian
passport;
b) The Appellant held a Canadian
drivers license since 1968 and his home address has been 23
Frontenac, London, Ontario;
This is admitted except that 23 Frontenac was his
parents' home.
c) Prior to 1977, the Appellant was a
resident of Canada;
d) In 1977, the Appellant moved to Kuwait
and lived and worked there until 1994;
e) The Appellant lived in an apartment
in Kuwait provided by his employer from 1991 to 1994;
f) The Appellant was employed by the
same Kuwaiti employer until December, 1994;
g) The Appellant submitted his resignation
to his Kuwaiti employer in August, 1994;
h) The Appellant lived in Kuwait
with his wife, a Jordanian national, and three children until
August, 1990;
i) On August 3, 1990, Iraq
invaded Kuwait;
This is admitted except the invasion commenced on August
2.
j) At the time of the Iraqi
invasion, the Appellant and his family were visiting his parents
in London, Ontario;
k) Beginning in September, 1990, the
Appellant maintained a rented home in London, Ontario for his
family;
l) In September, 1990, the
children of the Appellant were enrolled in schools in London,
Ontario and they attended schools in London, Ontario during 1991,
1992, 1993 and 1994;
m) Kuwait was liberated from Iraqi
occupation in March, 1991;
n) During the Iraqi occupation, the
Appellant continued to work for his Kuwaiti employer from their
offices in New York and Dubai, Kuwait;
Admitted by appellant, except that Kuwait should be
deleted. Respondent agrees.
o) After the liberation of Kuwait, the
Appellant returned to work in Kuwait and his wife and children
remained in Canada;
p) The Appellant's wife was unable to
return because of a Kuwaiti law passed after the occupation that
prohibited Jordanian and Palestinian nationals from
returning;
q) Since spring of 1991, the Appellant has
maintained Ontario hospitalization coverage of his family;
r) In 1991, the Appellant's wife
and family applied for and were given landed immigrant
status;
Not admitted with respect to words "and
family".
s) In April, 1991, the Appellant
shipped some of the personal effects of his and his family from
Kuwait to Canada;
t) In June, 1991, the Appellant
financed the purchase of a $457,000.00 home in London, Ontario by
his mother, Jessie Kadrie;
u) The Appellant was the guarantor of the
$377,000.00 mortgage on the house and made the monthly mortgage
payments;
v) The Appellant's wife and children
lived in this house after June, 1991;
w) When the Appellant was in Canada in the
1991 to 1994 years, he lived with his wife and family;
x) Throughout the period 1992 to 1994,
the Appellant provided a vehicle for use by him and his wife
through one of the car dealerships that he was associated;
y) The car dealerships were operated by
corporations in which the Appellant was a shareholder;
z) The use of the vehicle was a
benefit conferred on the Appellant as shareholder of the
corporation;
Not admitted.
aa) The value of the benefit conferred on the
Appellant in the 1992, 1993 and 1994 taxation years was
$4,074.00, $4,812.00 and $2,160.00 respectively;
Not admitted.
bb) Jessie Kadrie is a senior citizen living on a fixed
income;
cc) At all material times, Jessie Kadrie and her
husband maintained their home at 23 Frontenac in London, Ontario
and used this address as their mailing address;
dd) In early fall, 1992, the Appellant commenced
negotiations to purchase a Toyota dealership in London,
Ontario;
ee) In February, 1993 the Appellant purchased a
Toyota dealership in London, Ontario;
(dd) and (ee) are admitted subject to two qualifications
- the negotiations were by a representative and the
purchase was by a corporation owned by the appellant. This was
established in evidence.
ff) In August, 1994, the Appellant purchased
a Toyota dealership in Richmond Hill, Ontario;
Admitted subject to the qualification, which is accepted by
the respondent, that the dealership was bought by a corporation
owned by the appellant.
gg) In September, 1994, the Appellant shipped to Canada
from Kuwait the remaining personal effects of him and his
family;
hh) Prior to 1991, the Appellant, through either direct
ownership or through a holding company, became the controlling
shareholder of 2 Canadian corporations, Canadian Premier
Investments Inc. and Canadian Pioneer Developments Inc.;
ii) Since early 1991, the Appellant
has had a Canadian bank account and a Canadian credit card;
jj) The Appellant did not earn any
Canadian source income before 1995;
kk) The Appellant did not file Canadian tax
returns for the 1992, 1993 and 1994 taxation years;
ll) The Appellant spent an unspecified
amount of time in Canada in 1991, approximately 90 days in each
of 1992 and 1993 and approximately 110 days in 1994;
This is not admitted. The appellant's evidence, which I
accept is that he spent 40 to 42 days in Canada in 1992 and 1993
and about 50 to 67 days in Canada in 1994.
mm) Commencing in 1991, the Appellant's personal and
economic relations (center of vital interest) were closest to
Canada, not Kuwait;
This is not admitted. The expression used in this paragraph
is one used in Canada's numerous income tax conventions based
on the OECD model, but it is not part of the jurisprudence
relating to the term "resident" or "ordinarily
resident".
nn) In 1992, 1993 and 1994, the Appellant was resident in
Canada;
Not admitted.
oo) In the 1992, 1993 and 1994 taxation years, the
Appellant's earned income in Kuwait in the amounts of
$123,291.00, $128,229.00 and $137,685.00 respectively, which
income was taxable in Canada;
The amounts are admitted and the fact they were earned in
Kuwait but otherwise the paragraph is not admitted.
pp) In 1992, 1993 and 1994, the Appellant was not subject to
and paid no tax in Kuwait on income earned in Kuwait.
[10] These
facts can be briefly supplemented by a few other points
established in evidence. The appellant was born in London,
Ontario in 1952. His parents are of Lebanese extraction. He
studied history at Western University and in 1977 went to Baghdad
to perfect his knowledge of Arabic at the University of Baghdad.
He moved to Kuwait in 1978 and got a job with Alghanim
Industries, a company owned by a wealthy Kuwait family. It was a
diversified multinational representing large US and English
multinational corporations.
[11] He met
his wife in Kuwait and married her in March 1979. She had been
born in Damascus and was a Jordanian national but had lived in
Kuwait since she was five. They have three children aged three,
seven and eight. They lived in rented apartments or houses but by
the time of the Gulf war they had started building a house. By
the time the war was on it was 50 to 60% completed.
[12] The
appellant rose in the Alghanim company and became the
highest-ranking executive in the company who was not a family
member. He was Executive V.P. and Chief Operating Officer in
charge of the operating committee with 40 operating divisions and
4,500 employees reporting to him.
[13] When the
Gulf war broke out the appellant and his family were visiting
family in London, Ontario. His wife's family put his and his
wife's furniture in containers and sent it to Jordan and took
his valuables (jewellery, carpets, art work, personal records and
other valuables to their home).
[14] He
returned to Kuwait on February 28, 1991 and moved into a
furnished apartment provided by the company. Prior to that time
he lived in New York where the Alghanim family was staying
- they had two residences in the U.S.
[15] In New
York he headed a crisis management team for the company in which
he dealt with over 50 multinationals through the world with whom
the company had business relations or the numerous employees of
the company.
[16] He also
headed a team whose acronym was KERP set up by the Government of
Kuwait. I did not make a note of what this stands for but its
function was to deal with emergency vehicles - police,
ambulance, fire - after the devastation wrought by the
Iraqui invaders.
[17] During
this time he was constantly trying to get his wife and family
back to Kuwait but the Government of Kuwait had issued an edict
that Jordanian nationals who were not in Kuwait at the end of the
war could not return. The appellant hoped this edict would be
lifted but it never was. By 1994, the house he had started to
build was completed and he intended to move into it with his
family but was unable to bring his wife back. He did not list it
but when approached by a third party he agreed to sell it in
1994.
[18] His
responsibilities after the invasion until he left the company in
1994 involved extensive dealings with employees, most of whom
were attempting to cope with the disruption caused by the war,
handling financial matters and taking care of shipments in
transit.
[19] He had
investments in Canada - three automobile dealerships one of
which he owned through corporations. He assisted his mother to
buy a home and guaranteed a mortgage but he was not present when
this deal closed and did not see the house until after his mother
bought it. This was a necessity because his wife and family were
living in Canada against their will because they could not return
to Kuwait. His wife obtained landed immigrant status to ensure
that she would stay in Canada as long as she could not return to
Kuwait. He always had an Ontario driver's license, OHIP and a
Canadian passport but these he had during the years from 1977 on
when no one suggested he was resident here. His investments in
Canada were purely passive. He had nothing to do with running
them.
[20] None of
these considerations including the bank account and credit cards
he had in Canada - and had to have because his family was living
here - make him ordinarily resident here in 1992, 1993 and
1994.
[21] He did
not in my view become a resident until 1995. His family's
residing here from 1991 on was the result of the Gulf war. He was
unquestionably a non-resident up to 1991 and his status did not
change until 1995 when he left his residence and employment in
Kuwait.
[22] There has
been a great deal of jurisprudence in Canada on what constitutes
"ordinarily resident" in Canada. A person who has a
home in Canada where he or she has always lived but who spends,
say, seven out of 12 months out of the country travelling or
vacationing may still be "ordinarily resident" here.
The appellant had not been ordinarily resident here since 1977
when he left for Baghdad.
[23] In
Fisher v. The Queen, 95 DTC 840, I
reviewed the authorities and it is useful to quote from these
authorities again to show how far the appellant was from being
"ordinarily resident" in Canada in 1992, 1993 and 1994
and how different the appellant's situation was from that of
Mr. Fisher. He was required to keep his family here because his
wife could not return to Kuwait. His visits were brief. He owned
no home here. His total economic focus was in Kuwait, where he
had a residence.
[24] At pages
843 to 845 I set out some of the leading cases.
The leading case on the meaning of "ordinarily
resident" is Thomson v. Minister of National Revenue,
2 DTC 812 (SCC). The different reasons for judgment in the case
illustrate the difficulty of assigning a precise meaning to this
rather fluid and elusive term. Estey, J. said at p. 813:
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 visit 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.
The words of Viscount Summer in Inland Revenue
Commissioners v. Lysaght (1928), A.C. 234, at p. 243, are
indicative:
I think the converse to "ordinarily" is
"extraordinarily" and that part of the regular order of
a man's life, adopted voluntarily and for settled purposes,
is not "extraordinarily".
Lord Buckmaster, with whom Lord Atkinson concurred, in the
same case, at 248:
... if residence be once established ordinarily resident means
in my opinion no more than that the residence is not casual and
uncertain but that the person held to reside does so in the
ordinary course of his life.
The appellant selected the location, built and furnished the
residence for the purpose indicated, and has maintained it as one
in his station of life is in a position to do. In successive
years his residence there was in the regular routine of his life
acting entirely upon his own choice, and when one takes into
consideration these facts, particularly the purpose and object of
his establishing that residence, the conclusion appear to be
unavoidable that within the meaning of this statute he is one who
is ordinarily resident at East Riverside, New Brunswick, and is
therefore liable for income tax under section 9(a).
It is well established that a person may have more than one
residence, and therefore the fact of his residence in Pinehurst
or Belleair does not assist or in any way affect the
determination of this issue.
At p. 815-816 Rand, J. stated:
The graduation 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.
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.
For the purpose 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 anthesis, occasional or casual or deviatory
residence. The latter would seem clearly to be not only temporary
in time and exceptional in circumstances, but also accompanied by
a sense of transitoriness and of return.
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".
Kerwin, J. at p. 817-819 said:
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."
...
The appellant seeks to make himself a sojourner as he
carefully remained in Canada for a period or periods amounting to
less than 183 days during each year. This attempt fails. The
family ties of his wife, if not to himself, the erection of a
substantial house, the retention of the servants, together with
all the surrounding circumstances, make it clear to me that his
occupancy of the house and his activities in Canada comprised
more than a mere temporary stay therein.
Kellock, J. said at p. 819:
"Ordinarily" is defined as "in conformity with
rule or established custom or practice," "as a matter
of regular practice or occurrence," "in the ordinary or
usual course of events," "usually,"
"commonly," "as is normal or usual."
As Cartwright, J. said in Beament v. M.N.R., 52 DTC
1183, each case turns on its own facts. The principles set out in
a number of other cases, in addition to Thomson, are,
however, instructive. In The Queen v. Reeder, 75 DTC 5160,
Mahoney, J. said at p. 5163:
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:
a. past and present habits of life;
b. regularity and length of visits in the jurisdiction
asserting residence;
c. ties within that jurisdiction;
d. ties elsewhere;
e. permanence or otherwise of purposes of stay abroad.
The matter of ties within the jurisdiction asserting residence
and elsewhere runs the gamut of an individual's connections
and commitments: property and investment, employment, family,
business, cultural and social are examples, again not purporting
to be exhaustive. Not all factors will necessarily be material to
every case. They must be considered in the light of the basic
premises that everyone must have a fiscal residence somewhere and
that it is quite possible for an individual to be simultaneously
resident in more than one place for tax purposes.
It is, I believe, apparent from the decision of Schujahn v.
M.N.R., 62 DTC 1225, and the Thomson case that one
should treat with some caution the decisions under the United
Kingdom taxing statutes.
While ultimately the tests that have been developed by the
courts follow a common pattern, it would seem that individual
residency cases fall into three broad categories:
(a) cases where a person who has theretofore been ordinarily
resident in Canada leaves, takes up residence elsewhere and
alleges that he or she has so severed the relationship with
Canada that he or she is no longer resident here;
(b) cases where a person, ordinarily resident in another
country, acquires a residence and other ties in Canada. There the
question is whether that person has become "ordinarily
resident" in Canada;
(c) cases where a Canadian resident leaves Canada and severs
his or her connection with this country so that he or she is not
a Canadian resident, and then reacquires ties here. The question
there is whether that person has resumed residence here.
The tests may ultimately be the same, but the type of evidence
necessary to establish the relinquishment of Canadian residency
would normally be somewhat different from that necessary to
establish that the taxpayer has or has not acquired or resumed
it.
[25] Numerous
other authorities were referred to. No useful purpose would be
served by reviewing them or comparing them to this case. The
appellant clearly severed his residential ties with Canada in
1977 and did not reacquire them until he moved back here in 1995.
Nothing that he did, or had to do in 1992, 1993 and 1994 was
sufficient to justify the conclusion that he had acquired the
status of being ordinarily resident in Canada in those years.
[26] The
appeals are allowed with costs and the assessments of tax,
interest and penalties for 1992, 1993 and 1994 are vacated.
Signed at Ottawa, Canada, this 7th day of September 2001.
"D.G.H. Bowman"
A.C.J.
COURT FILE
NO.:
1999-2647(IT)G
STYLE OF
CAUSE:
Between Emain Kadrie and
Her Majesty The Queen
PLACE OF
HEARING:
London, Ontario
DATE OF
HEARING:
July 26, 2001
REASONS FOR JUDGMENT BY: The
Honourable D.G.H. Bowman
Associate Chief Judge
DATE OF
JUDGMENT:
September 7, 2001
APPEARANCES:
Counsel for the Appellant: Keith M. Trussler, Esq.
Counsel for the
Respondent:
Peter M. Kremer, Q.C.
COUNSEL OF RECORD:
For the
Appellant:
Name:
Keith M. Trussler, Esq.
Firm:
Giffen & Partners
London, Ontario
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-2647(IT)G
BETWEEN:
EMAIN KADRIE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on July 26, 2001, at London,
Ontario, by
The Honourable D.G.H. Bowman
Associate Chief Judge
Appearances
Counsel for the
Appellant: Keith
M. Trussler, Esq.
Counsel for the Respondent: Peter M.
Kremer, Q.C.
JUDGMENT
It is
ordered that the appeals from assessments made under the
Income Tax Act for the 1992, 1993 and 1994 taxation years
be allowed with costs and the assessments of tax, interest and
penalties be vacated.
Signed at Ottawa, Canada, this 7th day of September 2001.
A.C.J.