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Citation: 2003TCC862
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Date: 20031125
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Docket: 2001-1903(IT)G
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BETWEEN:
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PAUL J. NICHOLSON,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS FOR JUDGMENT
The text of the original Reasons for Judgment
issued on
November 25, 2003 has been amended and the changes
have
been integrated in the body of this document.
Rip, J.
[1] The issue in these appeals by Paul
J. Nicholson is whether he was a resident of Canada from January,
1995 to September, 1996.
[2] In June, 1991 Mr. Nicholson was
recruited by a United States corporation, Newark Electronics
("Newark"), to be trained to head Newark's business
in Canada. At the end of 1991, Mr. Nicholson was named
Newark's director of sales and operations for Canada. Mr.
Nicholson was trained by Mr. Chuck Urho who, upon Mr.
Nicholson's appointment, was relocated to Europe.
[3] Mr. Nicholson explained that
Newark was one of 17 corporations owned by Premier Industrial
Corporation, a publicly-traded American corporation.
Mr. Nicholson stated that, at the time, he was in third
level management reporting to the vice-president of sales
for North America. He described Newark as "internally
driven", a company that promoted from within. He could
continue to run Canadian operations or move up in the
organization. Mr. Nicholson confirmed to his superior that he
wanted a greater opportunity with Newark, in particular since he
was rated "highly promotable". His future was either in
the United States or in Europe.
[4] In 1993 Mr. Nicholson and his wife
separated. Mrs. Nicholson had custody of their two sons. Mr.
Nicholson had access to them each weekend. Mr. Nicholson
moved to his father's home for three months and then rented
an apartment in London, Ontario. Mrs. Nicholson and the children
continued to live in the matrimonial home, which was owned
jointly by Mr. and Mrs. Nicholson.
[5] The matrimonial home in London was
a major family asset. Mr. Nicholson was awarded a $30,000
equalization payment on separation. He remained on title to the
matrimonial home as security for the equalization payment until
2001.
[6] In August, 1994, Mr. Nicholson was
approached by the president and director of sales of Newark to
move to England to take over Newark's business operations in
Europe. He was surprised at the offer. He would be taking over
the European operations from Mr. Urho, his mentor, who had not
been successful. Mr. Urho was the fourth person to head
European operations and the other three persons were promoted to
vice-president in Newark's head office in Chicago.
[7] Mr. Nicholson accepted the
position in Europe at a higher salary than he was paid in Canada.
The company also provided him with rental accommodations in
London and an automobile. He was also provided with funds for his
sons to visit him twice a year, and they did visit him during the
summers of 1995 and 1996. As an employee of Newark,
Mr. Nicholson was also eligible to continue participating in
the Premier stock option plan. Newark also paid for him to obtain
tax advice from an international accounting firm before leaving
Canada.
[8] Newark was able to secure a
36-month work permit in the United Kingdom for Mr.
Nicholson. During this period he was to hire and train a resident
of the United Kingdom to succeed him by the third year. In the
meantime he was to run the European operations. The president of
Newark, Mr. Nicholson testified, told him that their
"vision" was that after three years he would go to
Chicago to run international sales. There would be no position
available for him in Canada once his term in Europe expired.
[9] Newark agreed to continue Mr.
Nicholson's Canadian benefits while he was in Europe: the
company would continue, and did continue, to make Canada Pension
Plan contributions on his behalf and that he would be able to
continue his medical/dental plan in Canada as well as his Ontario
Health Insurance Plan. Mr. Nicholson testified that he had
two children in Canada and an ex-spouse; if he lost
coverage, he declared, so would they. He planned to continue
using his Ontario drivers' licence in the United Kingdom
until it expired. Mr. Nicholson did not apply for residence
status in the United Kingdom but did apply for an insurance
number in the United Kingdom.
[10] Mr. Nicholson entered the United
Kingdom on January 9, 1995. He opened a bank account at
Barcley's Bank to receive a portion of his salary and to
issue cheques.
[11] Mr. Nicholson continued to maintain a
bank account in Canada from which he made monthly payments (by
post-dated cheques) to Mrs. Nicholson. He also had another
bank account in Canada, which he shared with Ms. Sheila Aitken,
who he described as his girlfriend.
[12] According to Mr. Nicholson, the United
Kingdom taxes income brought into the United Kingdom so he
planned that only a minimal amount of his income would be paid in
the United Kingdom; he received Ł500 as a living allowance
and Ł500 as salary. The balance of his salary was allocated
to purchase shares of Premier and to his two Canadian bank
accounts.
[13] Mr. Nicholson's other assets in
Canada included his interest in the matrimonial home, a
registered retirement savings plan, which he
"collapsed" in 1995, and his share of the furniture in
the matrimonial home.
[14] Ms. Aitken visited Mr. Nicholson in
London, England "quite regularly". She was in the
United Kingdom "every couple of months for 10 days or
so". Her first trip was in March, 1995. Mrs. Aitken had
a son living with his father in Saudi Arabia. The child was
dyslexic and she was successful in finding a school in England
that was able to treat him. Ms. Aitken was a flight
attendant with an Air Canada subsidiary and was able to schedule
her work so that she could be in the United Kingdom for two weeks
and work for two weeks. In 1996, she took a leave of absence for
three or four months to be in the United Kingdom.
Mr. Nicholson and Ms. Aitken lived together as husband and
wife in the United Kingdom and were married in 1999.
[15] Mr. Nicholson was successful in Europe.
Business grew in "leaps and bounds". He hired an
English resident who could take over from him in 1996. In
the meantime, Mr. Nicholson continued to run European operations.
Also, Mr. Nicholson visited Spain, the Benelux
countries and other countries of Europe to hire new "country
heads".
[16] During his stay in the United Kingdom,
Mr. Nicholson visited Canada once, during Christmas, 1995.
[17] Sometime in January, 1996, at 7:30 a.m.
Mr. Nicholson received a telephone call from Cleveland, Ohio,
from a Mr. Bill Hamilton, a director of Premier. Mr. Hamilton
informed him that Newark was to be sold to a United Kingdom
competitor, Farnell. Mr. Nicholson was "caught by
surprise". Mr. Hamilton told him to inform other
employees and that a press release would follow at noon, London
time. The president of Newark apparently did not yet know of the
sale.
[18] Farnell had a much larger European
business than did Newark. Mr. Nicholson's job changed
from running the business of Newark to integrating Newark's
business into Farnell's business. Newark was located in
southwest England, Farnell was located in the northeast. Mr.
Nicholson had to wind down the business in the southwest and he
did so, relocating to Leeds where he leased a home for one
year.
[19] Soon Mr. Nicholson realized that
Newark's business in Europe was to disappear. The head of
Newark in the United States was not "a Newark person".
He was offered a position by Farnell to be vice-president,
North American sales. He had no choice, he said, but to
accept. Otherwise he would have no job at all. On or about August
31, 1996 he left the United Kingdom and returned to London,
Ontario, an area that he considered central to the areas where he
would have to travel in the performance of his duties for
Farnell, namely, the eastern United States and Canada.
[20] Before 1995 Mr. Nicholson was resident
in Canada. In January, 1995 he took up residence in the United
Kingdom and, he alleges, he so severed his relationship with
Canada that he ceased to be resident here. Moreover, in
September, 1996 he reacquired his ties to and in Canada.[1]
[21] I am satisfied that when Mr. Nicholson
left Canada in January, 1995 he had no intention to return to
Canada, except for visits to his family. His employment
opportunities were first in Europe and then in the United States.
Respondent's counsel stressed Mr. Nicholson's family ties
to Canada: his two sons, his sister and brother. He also
commented on Mr. Nicholson's bank account in Canada and
continued participation in the Ontario Health Insurance Plan and
his interest in the matrimonial home.
[22] Mr. Nicholson explained the reasons for
the maintenance of the two bank accounts, his participation in
the provincial health program and the matrimonial home. His
explanations are credible. The existence of his family ties in
Canada, as far as I am concerned, does not affect his actual
intent to ordinarily reside out of Canada and the fact that he
did reside out of Canada. It is not unusual these days for
members of a family to live in different countries as a result of
employment opportunities.[2]
[23] The settled nature of Mr.
Nicholson's life from January, 1995 to the time he decided to
leave the United Kingdom in 1996 was in the United Kingdom. He
was "ordinarily resident" in the United Kingdom. His
presence in the United Kingdom was not casual and uncertain,
although he did anticipate an eventual move to the United States.
He and Ms. Aitken lived in the United Kingdom as husband and
wife; her child attended school in the United Kingdom.
Mr. Nicholson's mode of life was in the United Kingdom
during the period in issue.[3] Mr. Nicholson's presence in Canada to visit
his children during Christmas must be balanced by the visits of
his children to visit him in the United Kingdom. The fact of
him visiting Canada does not cast him with the status as a
resident of Canada.
[24] Mr. Nicholson's income tax
assessment for 1996 includes amounts of unreported interest and
taxable capital gains. Respondent's counsel conceded that
there were errors in the amounts assessed. Counsel advised that
Mr. Nicholson failed to report $315 as interest income from a
Government of Canada Treasury Bill and $9,375 as a taxable
capital gain from the deposits of shares of Premier Farnell
in November, 1996. Both counsel have advised that the taxable
gain will be pro-rated to take into account the period of
ownership Mr. Nicholson held the shares as a resident and
non-resident of Canada.
[25] According to the notice of appeal, Mr.
Nicholson was assessed penalties pursuant to subsection 163(2) of
the Act. Since I do not have a copy of the notices of
reassessment, I cannot ascertain if this is so. In her notice of
reply, the respondent did not refer to any penalty nor did she
rely on subsection 163(2). No evidence was called with respect to
the penalty. If penalties were assessed, they will have to be
vacated.
[26] The appeals are allowed with costs. The
reassessment for 1995 will be vacated. The reassessment for 1996
will be referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that
Mr. Nicholson became a resident of Canada on September 1,
1996 and that he is liable for tax on the unreported portion of
shares and interest. Appellant's counsel shall prepare a
draft of the judgment based on these reasons in accordance with
Rule 169 of the Court.
Signed at Ottawa, Canada, this 4th day of December,
2003.
Rip, J.
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