Citation: 2013 TCC 57
Date: 20130221
Docket: 2010-898(IT)G
BETWEEN:
BRUCE ELLIOTT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2010-899(IT)G
AND BETWEEN:
LARRY DYSERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2010-900(IT)G
AND BETWEEN:
TODD PICKETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Boyle J.
[1]
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.
[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.
[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.
I. 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.
II. 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.
[…]
248(1)
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
(a)
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.
[…]
248. (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 :
a) 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
1. 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 […]
2.
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:
(a) 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);
(b) 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;
(c) 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
(d) 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 matière d'impôts sur
le revenu et sur la fortune
Article IV
Résidence
1. 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 […]
2.
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:
a)
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);
b) 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;
c) 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
d) 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.
|
III. 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
(ii) 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.
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
IV. 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:
(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.
[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.
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.
[40]
In the text
“International Taxation in Canada”
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
Service
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:
4. 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.
5. 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.
6. 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.
7. 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.
[…]
9. This
paragraph [2] relates to the case where, under the provisions of paragraph 1,
an individual is a resident of both Contracting States.
10. 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.
11. 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.
12. 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.
13. 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.).
14. 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.
15. 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:
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:
[para8]
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. It can be observed that for each of the
Appellants:
(i) they lived only in the United States before coming to Canada for purposes of fulfilling the Syncrude business contract;
(ii) they left Canada at the conclusion of their Syncrude work;
(iii) 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;
(iv) 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.
V. 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.
Signed at Ottawa, Canada this 21st
day of February 2013.
"Patrick Boyle"
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