Citation: 2009 TCC 440
Date: 20091007
Docket: 2009-944(IT)I
BETWEEN:
ABDELAZIZ BENSOUILAH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
The appellant is
appealing from reassessments made by the Minister of National Revenue (the Minister)
on July 8, 2008, for the 2001, 2002 and 2003 taxation years, reassessments that
were confirmed on February 27, 2009. The amounts of $45,420, $46,064 and
$41,110 were added to the appellant's income for the 2001, 2002 and 2003
taxation years, respectively, and in respect of which the penalties were
applied under subsection 163(2) of the Income Tax Act (the Act). The Minister
also determined that he was entitled to make reassessments outside the normal
assessment period for the 2001 and 2002 taxation years. The Minister also added
a taxable capital gain of $6,187 for 2001 and other income of $4,221 for 2003.
[2]
In the Notice of Appeal,
the agent for the appellant simply argued, under the heading [Translation] "Reasons for the Appeal,"
that the assessments were not [Translation]
"consistent either in fact or law." In his reply, the respondent raised
the issues of limitation period, penalties and of the refusal of the Minister to
grant the appellant the overseas employment tax credit. The respondent
relied on the grounds raised by the appellant at the objection stage.
[3]
The agent for the
appellant informed counsel for the appellant during a telephone conversation
that took place a few weeks before the hearing that he intended to raise the
fact that the appellant was not a resident of Canada during the years at issue,
and that he would claim new deductions, where applicable. The agent for the appellant
did not however amend his Notice of Appeal prior to the hearing and eventually
the new grounds were raised with the Court's permission.
[4]
The agent for the appellant
also informed the Court that he was abandoning the argument that his client was
entitled to an overseas employment tax credit.
[5]
The audit in the present
case was conducted by Revenu Québec auditors. The appellant's case was chosen as
part of an organizational project aimed at combating tax evasion, namely the
"Indices de richesse" [wealth indicators] project. The audit relied
on the use of the cash flow method to determine undeclared income over the
course of each year audited. According to the auditor's report, this method, like
the net worth method, makes it possible to determine variations in the
taxpayer's net worth as well as his cost of living.
[6]
Up until 2008, the appellant
had filed an income tax return every year since his arrival in Canada in July 1995.
The tax returns for the three years at issue were filed electronically and no
income was reported. In all of his tax returns, the appellant stated that he
was a resident of Canada. In fact, he indicated Quebec as his province of residence
and put down as his address that of his residence in Quebec. The initial
assessment for 2001 is dated March 25, 2002, that of 2002 is dated April 23,
2003, and that of 2003 is dated March 25, 2004.
[7]
The audit made it
possible to establish a significant gap between the income reported and the
cash flow. The taxpayer was therefore contacted and, owing to the information
obtained, the auditor was able to determine the wages the appellant earned in Saudi
Arabia. Following the appellant's objection, the auditor also discovered that
the appellant had not added to his income a capital gain realized during the
2001 taxation year.
[8]
The assessments were
therefore made on the basis of the appellant's failure to report his overseas employment
income during the three years at issue. The appellant settled his file with Revenu
Québec, notwithstanding the fact that even after the overseas employment income
was added, there was still an unexplained discrepancy.
[9]
As already mentioned,
the appellant immigrated to Canada in July 1995; he was accompanied by his wife
and their three children. He was living in an apartment at the time. But, in June
2000, the appellant purchased a home. He obtained his Canadian citizenship in
June 2000. Unable to obtain suitable employment, he returned to Saudi Arabia in
October 2000 to work. Hi salary varied between C$40,000 and C$45,000 per year. His
employer deducted from his salary rent, a health insurance fee, a car payment and
a voluntary contribution to Zakat. The appellant kept some money for himself
and the rest was transferred to his bank account in Canada and was to be used
to support his family. The amounts so transferred were approximately $37,000 in
2001, $38,000 in 2002 and $34,000 in 2003. The bank statements were, in fact, adduced
in evidence.
[10]
During the years at
issue, the appellant was entitled to 30 vacation days per year and he would
come to Canada to spend them with his family. While in Saudi Arabia, he purchased
a car and holds a driver's licence from there. Although he has a Quebec health
card, he claims to have never used it. As for his wife, she does not work and
did not have any income during the three years in issue. The appellant holds a Canadian
passport and a Saudi Arabian passport.
[11]
During the years at
issue, the appellant and his spouse had a joint bank account in Canada. They
also owned a car in Canada for which they made monthly payments of $500 during
the years in question. He also paid $318 per month for his daughter's car. Furthermore,
he repaid a bank loan used to put in a pool at his home in Montréal. In 2004, the
appellant sold his home and purchased another, still in the Montréal area.
[12]
The income tax returns
for the three years at issue were entrusted to H&R Block. The appellant
instructed his wife to have the income tax returns prepared. Regarding the
issue as to whether he was required to report his employment income from Saudi
Arabia, the appellant testified that he did not consider it normal to have to report
that income and that he therefore thought he did not have to report it.
[13]
During and after the audit,
the appellant was represented by an accountant. The accountant negotiated a
settlement with Revenu Québec. On the issue as to whether he was a resident of Canada
or not, the appellant testified having told the accountant that he was not a
Canadian resident. However, there is nothing in any of the documentation that indicates
that this issue was raised, at any time or stage, with Revenu Québec or the
Canada Revenue Agency. Nor was it raised orally, according to the respondent's
witnesses.
[14]
For the taxation years
following those in issue, the appellant stated that his income came from Saudi
Arabia and indicated that he was a resident of the province of Quebec on his
income tax returns. He also applied for the Goods and Services Tax Credit. He
stated that his accountant told him to do so. The appellant himself signed his 2004,
2005 and 2006 tax returns and they were all filed at the same time. As for the
settlement with Revenu Québec, although the appellant agreed to settle
everything, he was under the impression that he would not have to pay more than
$8,000 in taxes—which was
not the case, however. As for the appellant's wife, she admits that she did not
ask their accountant to take up the issue of non-resident status with tax
authorities and stated that the issue was never raised at the objection stage.
[15]
The first issue to be
determined is whether the appellant was a resident of Canada during the three
taxation years at issue. It is provided in subsection 2(1) of the Act that
an income tax shall be paid, as required by the Act,
on the taxable income for each taxation year of every person resident in Canada
at any time in the year. Subsection 250(3) states that a reference to a person resident in Canada includes a
person who was at the relevant time ordinarily resident in Canada.
[16]
The most cited case when
determining a taxpayer's place of residence is Thomson v. Canada, [1946]
C.T.C. 51, rendered by the Supreme Court of Canada. In that decision, at pages
63 and 64, Rand J. held as follows:
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.
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 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.
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".
[17]
This issue has been
dealt with in several decisions of this Court and of the Federal Court of
Appeal. Its resolution is mostly a question of facts. In Gaudreau v. Canada,
[2004] T.C.J. No. 637 (QL), at paragraphs 24 and 25, Lamarre J. provides,
in my opinion, a good summary of some of the factors the Court must consider:
24 Accordingly, as suggested by counsel for
the appellant, the question is to determine where, during the period at issue,
the appellant, in his settled routine of life, regularly, normally or customarily
lived. One must examine the degree to which the appellant in mind and fact
settled into, maintained or centralized his ordinary mode of living, with its
accessories in social relations, interests and conveniences, at or in the place
in question.
25 This is mainly a
question of fact. In The Queen v. Reeder, 75 DTC 5160 (F.C.T.D.),
referred to by the appellant, the court listed some factors considered to be
material in determining the question of fiscal residence, at page 5163:
. . . 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.
[18]
I believe it is also important
to cite other passages from her decision, where she quotes Rip J. from Snow
v. Canada, [2004] T.C.J. No. 267 (QL). The passages are paragraphs 30 and
32:
30 As Rip J. said in his recent decision in Snow
v. Canada, [2004] T.C.J. No. 267 (Q.L.), at paragraph 18:
A person may be resident of more than one country for tax purposes.
The nature of a person's life and the frequency he or she comes to Canada are
important matters to consider in determining one's residence.2 The words
"ordinarily resident" in s.s. 250(3) refer to the place where, in the
person's settled routine of life, the person normally or customarily lives.3
The intention of a taxpayer, while obviously relevant in determining the
"settled routine" of a taxpayer's life, is not determinative.4 A
person's temporary absence from Canada does not necessarily lead to a loss of
Canadian residence if a family household remains in Canada, or possibly even if
close personal and business ties are maintained in Canada.
. . .
32 It is clear from the
employment agreement that the appellant was given an assignment in Egypt for
which he was even paid an expatriation premium for the duration thereof. The
agreement provided for air transportation back and forth between the
appellant's home location and his work location. The appellant kept all his
assets in Canada and before leaving Canada made all the necessary arrangements
to have someone look after those assets. His purpose in accepting the contract
in Egypt was not to give up his ties with Canada but mainly to earn a living.
The appellant agreed to go there on a contractual basis and did not sever his
attachments to, or his links with, Canada. The appellant did not in mind and
fact abandon his general mode of life in Canada. As a matter of fact, the house
in Timmins was available at all times as a place in which he could customarily
live. To use the words of Rand J. in the Thomson case, he and his
wife maintained their ordinary mode of living, with its accessories in social
relations, interests and conveniences, in Canada. If I may distinguish the
present case from the Boston case, the duration of the contract here was
a lot shorter and the appellant did not demonstrate that he became active in
the community in which he lived in Egypt. He was only there to do his work.
Finally, the Boston case was considered but not followed in the McFadyen
case, which was affirmed by the Federal Court of Appeal.
[19]
That said, and as
stated by Sheridan J. in Mullen v. Canada, [2008] T.C.J. No. 224 (QL), we
understand from those decisions that it is not easy to stop being a resident of
Canada. As for the issue in this case, there are certain factors that weigh in the
appellant's favour. He has a Saudi Arabian passport; he has a Saudi Arabian
driver's licence and a car in Saudi Arabia, where he spends eleven months out
of the year; he has medical insurance and permanent employment in that country.
Is that enough to allow me to conclude that the appellant no longer has economic
and personal relations with Canada or that those relations have weakened enough
for him to no longer be a resident of Canada?
[20]
The appellant in this
case immigrated to Canada with his wife and their three children in 1995 to
settle here permanently. Unable to find appropriate employment and having to
provide for his family, the appellant returned to Saudi Arabia in October 2000 to
take up employment. He held that employment during the three years at issue.
[21]
Despite his absence
from Canada, it becomes difficult to believe that the appellant's mode of life did
not continue to be centralized in Canada. Not only did his family stay in Canada
at all times, but the appellant also kept and held a residence in Canada which
he later sold to purchase another. He had a pool put in during the years at
issue after obtaining a loan for that purpose.
[22]
During the years in
issue, the appellant had a joint bank account with his wife in which he deposited
almost all of his employment income from Saudi Arabia which he use to provide
for himself and his family, including reimbursing the loan for the car he had
in Canada, the loan for the pool and the loan for his daughter's car. The appellant
still had a mailing address in Canada and always stated that he was a resident
of Canada in all of his income tax returns. He uses his Canadian passport and
keeps his Quebec health card, even though he has not used it. I believe the appellant
never severed his ties with Canada nor did he ever intend to do so. The reason
for returning to Saudi Arabia was mainly a means to earn a living and provide
for his family. He was only there to work. He therefore did not give up, in
thought or fact, his customary mode of life in Canada. Accordingly, the appellant
ordinarily resided in Canada during the years at issue.
[23]
Are 2001 and 2002 statute-barred
because the assessments made for those years were outside the normal assessment period? The Minister may reassess after the normal reassessment period if he establishes that the taxpayer made a misrepresentation that is
attributable to neglect, carelessness or wilful default; this is provided specifically in subparagraph 152(4)(a)(i)
of the Act.
[24]
The purpose of
subsection 152(4) was summarized by Strayer J. of the Federal Court of Appeal in
Nesbitt v. Canada, [1996] F.C.J. No. 1470 (QL), at paragraph 8:
. . .
It appears to me that one purpose of subsection 152(4) is to promote
careful and accurate completion of income tax returns. Whether or not there is
misrepresentation through neglect or carelessness in the completion of a return
is determinable at the time the return is filed. A misrepresentation has
occurred if there is an incorrect statement on the return form, at least one
that is material to the purposes of the return and to any future reassessment.
It remains a misrepresentation even if the Minister could or does, by a careful
analysis of the supporting material, perceive the error on the return form. It
would undermine the self-reporting nature of the tax system if taxpayers could
be careless in the completion of returns while providing accurate basic data in
working papers, on the chance that the Minister would not find the error but,
if he did within four years, the worst consequence would be a correct
reassessment at that time.
[25]
The appellant has been
in Canada since 1995. He has been filing income tax returns since his arrival. He
is a computer specialist by profession. His wife, to whom he entrusted the task
of having his income tax returns prepared, has a Masters in Linguistics. She
had H&R Block prepare his tax returns for the three years in question. According
to the appellant, he did not consider it normal to report the income he earned
in Saudi Arabia. The evidence does not reveal the source of that opinion nor does
it reveal whether the appellant or his wife consulted a financial advisor prior
to deciding not to report that income. It is certain, according to the evidence,
that the issue of residence was not a factor as the issue was in fact only
raised a few weeks prior to the hearing. Furthermore, the appellant's wife admitted
during cross-examination that she never instructed their representative to
raise the issue of residence at the objection or negotiation stage with Revenu
Québec and Canada Revenue Agency officials.
[26]
There is no doubt that
the taxpayer made a misrepresentation in the 2001 and 2002 income tax returns in
this case and that the misrepresentation
was attributable to neglect or carelessness when the returns were filed. The appellant did not make any inquiries and
simply chose not to report his employment income from Saudi Arabia as he did
not find it normal to have to report that income. A tax return must be prepared
with attention and care so as to respect the "self-reporting" nature of
the tax system. The Minister therefore discharged his onus of proof and that accordingly
justifies the 2001 and 2002 reassessments outside the normal assessment period.
[27]
The Minister also imposed
penalties, under subsection 163(2) of the Act, for failing to report income for
the three years in issue. That subsection reads as follows:
Every person who, knowingly, or under circumstances amounting to
gross negligence, has made or has participated in, assented to or acquiesced in
the making of, a false statement or omission in a return, form, certificate,
statement or answer (in this section referred to as a "return") filed
or made in respect of a taxation year for the purposes of this Act, is liable
to a penalty of the greater of $100 and 50% of the total of
. . .
[28]
The onus therefore shifts
to the Minister to show, on
the balance of probabilities, that
the appellant knowingly, or under circumstances amounting to gross negligence,
has made or has participated in, assented to or acquiesced in the making of, a
false statement or omission in his returns for the three years in issue. According
to Venne v. Canada (M.N.R.), [1984] F.C.J. No. 314 (QL), the Minister
must prove a high degree of
negligence, one that is tantamount to intentional acting or an indifference as
to whether the law is complied with or not.
[29]
What is clear from the
evidence is that, contrary to what the appellant claims, never during the three
years in issue, nor at the objection, negotiation or settlement stage with
Revenu Québec, did the appellant not have to report the employment income from
Saudi Arabia on the ground that he was no longer a resident of Canada. According
to the evidence heard, the appellant did not report that income for the simple
reason that he did not consider it normal to report it. In fact, in all of his
income tax returns from 1995 to 2006, the appellant indicates that he is a resident
of Canada, more specifically Quebec, and provides his address in Montréal. He
could neither believe nor think that it was the non-resident status that justified
the fact that he did not report his income during the three years in issue. To
simply believe that it is not normal to report one's income, as the appellant
stated in this case, is, in my opinion, an indifference as to whether the law is complied with
or not. The Minister discharged
his burden of proof and I am satisfied that the appellant knowingly made a
false statement in his returns for the three years in issue.
[30]
The agent for the appellant
is claiming certain additional deductions as well as tax credits not claimed by
the appellant. He will have to submit the amendments to his tax returns to the
Agency so that they can be processed in normal course.
[31]
The appeals are
dismissed.
Signed at Ottawa, Canada, this 7th day of
October 2009.
"François Angers"
Translation
certified true
on this 30th day
of November 2009.
Daniela Possamai,
Translator
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