Date: 20010514
Docket: 2000-4635-IT-I
BETWEEN:
CECILIA WANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
O'Connor, J.T.C.C.
[1]
This appeal was heard at Vancouver, British Columbia on
April 25, 2001 pursuant to the Informal Procedure of
this Court.
ISSUE
[2]
The issue is whether the Appellant in 1998 is exempt from tax in
Canada in respect of an amount of $19,016.78 received by her from
her employer in China by reason of the operation of subparagraph
110(1)(f)(i) of the Income Tax Act
("Act") and the relevant provisions of the
China/Canada Tax Agreement ("Tax Agreement").
FACTS
[3]
The basic facts are as follows. In February, 1998 the Appellant
entered into a contract with Duracell (China) Limited
("Company") entitled "Training and Employment
Contract" ("Contract"), (Exhibit A-1) and at all
material times the Appellant was employed by the Company.
[4]
Prior to entering Canada on April 2, 1998 the Appellant
had applied for and received landed immigrant status in
Canada.
[5]
The $19,016.78 was paid to the Appellant by the Company in 1998
in order for her to attend school in Canada and pay for her
living expenses.
[6]
The Appellant married her husband in China on September 18, 1998
and he moved to Canada on November 23, 1999.
[7]
The Appellant had the following ties to Canada during the 1998
taxation year:
(a) A
furnished room in a townhouse for which she paid rental of
$300.00 per month;
(b)
Clothing and personal property;
(c)
Automobile and Canadian driver's license;
(d)
Bank account; and,
(e)
Eligibility for provincial hospitalization and medical
coverage.
[8]
The Appellant had the following ties to China during the 1998
taxation year:
(a)
She was subject to income tax in China and the Company withheld
from her income and paid her China taxes on her behalf;
(b)
Although the Appellant did not have any relatives in Canada in
1998, she had a significant number of relatives in China
including her immediate family and her husband who continued to
reside in China in 1998;
(c)
The Appellant was provided with Company housing in China, which
would continue to be available for her stay throughout the period
of the Contract. The Appellant also owned an apartment unit in
China, which was also available to her throughout 1998;
(d)
The Appellant had Chinese bank accounts and credit cards;
(e)
In 1998 she had personal belongings in China including clothing,
furniture, appliances and a motorcycle;
She maintained her Chinese driver's license; and
She belonged to the Human Resources Association of Canton.
[9]
Although the Appellant made application on behalf of her future
husband for him to obtain landed immigrant status in Canada, her
intention was not necessarily to stay in Canada permanently. That
decision could only have been made after consideration of her
husband's ability to find employment in Canada.
[10] As of the
date of the hearing of this appeal, the Appellant had not yet
obtained Canadian Citizenship.
[11] One of
the objectives set forth in the Contract was for the Appellant to
obtain Canadian Citizenship and enhance her personal
mobility.
[12] Article 3
of the Contract provides as follows:
3. Program
|
Apr 98 - Apr 99:
|
MBA program at Kingston College, Vancouver, Canada.
Program and course details are attached. Summer or Winter
break will be spend [sic] in the China plant. Project work
will be related to Duracell or Gillette operations in North
America
|
|
May 99 - Aug 99:
|
US based project. Content and objectives to be
specified. ...
Project has to include activities in Bethel and/or
Boston corporate.
|
|
Sep 99 - Mar 00:
|
Duracell China Ltd - department to be defined
|
|
Apr 00 - Apr 01:
|
Return to Canada, either in a follow-up academic
activity, either in Gillette/Duracell operation, either
other geography. Continuation of project work with coverage
of different functional areas.
|
[13] The
Contract also provided that the Company was to pick up Duracell
related taxes in Canada.
[14] Paragraph
8 of the Contract provides as follows:
8. End of Training Contract
8.1
This contract has no defined end; however, the company does not
intend to ask you for another major assignment during your MBA
year. After this year and depending upon your geographical
freedom (number of days allowed out of Canada to preserve your
citizenship application), we will provide you with a number of
developmental cross-functional/divisional
opportunities.
8.2
At the end of this training contract, it is anticipated that one
of the following options will apply:
a.
you will return to Duracell China Ltd.
b.
you will take on another assignment in another part of the
Duracell or Gillette group
c.
you decide to leave the Company or you are terminated for cause,
the Duracell China Employee Handbook stipulations will apply with
respect to service bond after training.
Salary payments during training are excluded in this case.
[15] It was
the testimony of the Appellant that her educational training in
Canada was not for the purpose of employment in Canada but rather
in the United States.
SUBMISSIONS OF THE APPELLANT
[16] The agent
for the Appellant submits that Articles 4 and 19 of the
Tax Agreement apply to the Appellant. Under Article 4 it was
maintained that the centre of vital interests was China and the
fact is that taxes were paid to China on behalf of the Appellant
by the Company.
SUBMISSIONS OF THE RESPONDENT
[17] Counsel
for the Respondent submits that it is Article 19 of the Tax
Agreement that governs and since the Appellant was not
"visiting" Canada but rather by her application for and
obtention of landed immigrant status, she displayed an intention
to reside permanently in Canada. Further, counsel submits that
she was not in Canada solely for the purposes of her training as
she had received other amounts of income from odd jobs.
ANALYSIS AND DECISION
[18]
Subparagraph 110(1)(f)(i) of the Act exempts from
Canadian income tax an amount exempt from income tax in Canada
because of a provision contained in a tax convention or agreement
with another country that has the force of law in Canada.
Articles 4 and 19 of the Tax Agreement provide as follows:
Article 4
Resident
1.
For the purposes of this Agreement, the term "resident of a
Contracting State" means any person who, under the laws of
that Contracting State, is liable to tax therein by reason of his
domicile, residence, place of head office, place of management 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 Contracting States, 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, or if he has not a permanent home
available to him in either Contracting State, 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 Contracting States or in
neither of them, he shall be deemed to be a resident of the
Contracting State of which he is a national;
(d)
if he is a national of both Contracting States or of neither of
them, the competent authorities of the Contracting States shall
settle the question by mutual agreement.
3.
Where by reason of the provisions of paragraph 1 a person other
than an individual is a resident of both Contracting States, the
competent authorities of the Contracting States shall by mutual
agreement endeavour to settle the question and to determine the
mode of application of this Agreement to such person.
...
Article 19
Students
Payments which a student, apprentice or business trainee who
is, or was immediately before visiting a Contracting State, a
resident of the other Contracting State and who is present in the
first-mentioned Contracting State solely for the purpose of his
education or training receives for the purpose of his
maintenance, education or training shall not be taxed in that
Contracting State.
[19] It is
abundantly clear that the main purpose of the Tax Agreement is
the avoidance of double taxation both in China and in Canada and
in my opinion the provisions of the Agreement should be
interpreted in such a manner as to achieve that purpose.
Consequently I believe that I am entitled to examine the effects
of both Articles 4 and 19 of the Tax Agreement.
[20] Under
Article 4, where a person has a permanent home available to him
in both Contracting States he shall be deemed to be a resident of
the Contracting State with which his personal and economic
relations are closer (centre of vital interest). It provides
further that if the centre of vital interest cannot be determined
he shall be deemed to be a resident of the Contracting State in
which he has an habitual abode and further if he has an habitual
abode in both Contacting States, he shall be deemed to be a
resident of the Contracting State of which he is a national.
[21] In my
opinion, the centre of vital interests of the Appellant in 1998
was China. My reasons for this conclusion result from a
comparison of the connecting links with Canada and China referred
to above under the heading "Facts". In any event, even
if one were to conclude that the centre of vital interests could
not be determined, if the person had an habitual abode in both
Contracting States, which was the case, that person is deemed to
be a resident of the Contracting State of which he is a national.
There was no doubt that in 1998 the Appellant was a national only
of China and if that tie-breaker was to come into effect, the
answer would still be that she was a resident of China in
1998.
[22] I have
been referred to certain jurisprudence by counsel for the
Respondent to the effect that only Article 19 should be looked to
in situations such as the present. In my view the authorities
cited to me are either not binding on me, or to the extent they
are, the present case can be distinguished on its facts from
those authorities.
[23] In any
event I believe Article 19 is also available to the Appellant.
The fact of her applying for and obtaining landed immigrant
status does not, in my opinion, automatically lead to the
conclusion that she could not have been visiting in Canada in
1998. The evidence is that she visited China on at least two
occasions in 1998 and although the Contract has one objective for
the Appellant to obtain Canadian Citizenship, that objective must
be read in the context of what happens at the end of the training
contract as provided in paragraph 8 of the Contract. One of those
options was for the Appellant to return to Duracell China Ltd. I
believe one can conclude from the foregoing that the issues of
landed immigrant status and the objective of obtaining Canadian
citizenship cannot be looked at in a vacuum. All of the
surrounding facts as set forth above must be looked at and in my
view, they do not lead to a conclusion that the Appellant
intended to reside permanently in Canada.
[24] For all
of the above reasons the appeal is allowed with costs.
Signed at Ottawa, Canada, this 14th day of May,
2001.
"T. O'Connor"
J.T.C.C.
Email this Content