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Citation: 2005TCC60
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Date: 20050131
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Docket: 2002-569(IT)G
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BETWEEN:
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THOMAS MULJA,
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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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REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The Appellant was born in
Indonesia.
[2] The Appellant moved to Canada in
1977 to study geology at Dalhousie University. He obtained a
Bachelor of Science degree from Dalhousie University in 1981.
[3] The Appellant obtained a Master of
Science degree in geology from Lakehead University in 1989 and he
obtained a Ph.D. from McGill University in 1995.
[4] The Appellant became a Canadian
citizen in 1986 and he surrendered his Indonesian citizenship at
that time.
[5] The Appellant and his spouse were
married in Montreal in 1992 (following a traditional Southeast
Asian marriage in Indonesia).
[6] The Appellant's spouse
immigrated to Canada from Indonesia in 1992.
[7] The Appellant, his spouse and
their child left Canada for Indonesia on February 1, 1995. The
Appellant was initially employed by Atan Minerals in Indonesia
and later Barrick Indonesia.
[8] From March 1, 1996 to September
30, 1998 the Appellant was employed by PT Minorca Pratama
Indonesia ("Pratama"). The Appellant was the
President/Director of Pratama. The Appellant testified that 99%
of the shares of Pratama were owned by Minorca Resources Inc., a
Canadian company ("Minorca").
[9] A Change of Control Agreement was
signed on February 24, 1997 (see Exhibit A-1) between Minorca
Resources Inc. PT Minorca Pratama Indonesia (the company carrying
out the exploration work). The Agreement provided that if certain
events happened, the Appellant would be entitled to severance
payments equal to three times his annual salary from Pratama.
[10] The Appellant's spouse and their
child returned to Canada on July 27, 1997 and resided in a home
purchased by the Appellant's spouse in July 1997. The house
was located at 3709 Rutherford Crescent in North Vancouver.
[11] In July 1997 the Appellant purchased a
Toyota Camry automobile in Vancouver. The automobile was licenced
in British Columbia and was registered in the Appellant's
name.
[12] After the Appellant's spouse and
their two children were settled in the family home in North
Vancouver the Appellant returned to his employment position in
Indonesia.
[13] When the Appellant was working in
Indonesia he was issued temporary work permits by the Government
of Indonesia.
[14] The Appellant received employment
income ("Employment Income") from Pratama in the amount
of $138,425.00 in respect of the period commencing on January 1,
1998 and ending on September 30, 1998.
[15] On May 29, 1998 the shareholders of
Pratama decided to dissolve Pratama (see Exhibit A-2).
[16] On September 30, 1998 the Appellant
received a lump sum payment as a Retiring Allowance
("Retiring Allowance") in the amount of $480,000.00
pursuant to the terms of a Termination Agreement made between
Minorca Resources Inc., Pratama and the Appellant (Exhibit A-3).
The Retiring Allowance payment was paid to the Appellant in
connection with the Appellant's termination of his employment
with Pratama. The Appellant said that deductions totalling
$144,000.00 were withheld by Minorca from the Retiring Allowance
and remitted to Revenue Canada.
[17] The Appellant testified that when his
position with Pratama was terminated he was obliged to leave
Indonesia within a short period of time. The Appellant returned
to Canada on October 24, 1998.
[18] The Appellant maintains that he paid
$118,193.00 in taxes to the Government of Indonesia for his 1998
taxation year in respect of the Employment Income and the
Retiring Allowance.
[19] Counsel for the Respondent does not
agree that any of the tax payments that were made to Indonesia
were paid in connection with the Retiring Allowance.
[20] The Minister of National Revenue (the
"Minister") issued a Notice of Assessment (the
"Assessment") for the Appellant's 1998 taxation
year on October 4, 1999. The Assessment was issued on the
basis that:
(a) the Appellant was ordinarily
resident in Canada for the 1998 taxation year and therefore was
resident in Canada for purposes of the Income Tax Act
("the Act"), by virtue of subsection 250(3) of
the Act, throughout the 1998 taxation year;
(b) as a person resident in Canada
throughout the 1998 taxation year, the Appellant was liable to
tax on his taxable income as determined according to subsection
2(2) of the Act;
(c) the Appellant was not entitled to
an overseas employment tax credit under section 122.3 of the
Act in respect of the Employment Income or the Lump Sum;
and
(d) the Appellant was not entitled to
a foreign tax credit under section 126 of the Act in
respect of income taxes of $118,193.00 paid to the Government of
Indonesia in respect of the Employment Income and the Retiring
Allowance.
[21] On or about October 20, 1999, the
Appellant filed a Notice of Objection in response to the
Assessment.
[22] On November 9, 2001, the Minister
issued a Notification of Confirmation confirming the
Assessment.
B. ISSUES TO BE
DECIDED:
[23] (a) Was
the Appellant resident in Canada for purposes of the Act
during the period January 1, 1998 to October 24, 1998?
(b) Was the Appellant liable to tax under
the Act in respect of the Employment Income or the
Retiring Allowance or both?
(c) If the Appellant was a resident of
Canada during the period January 1 to October 28, 1998,
is the Appellant entitled to the following:
(i) an overseas employment tax
credit under section 122.3 of the Act; and
(Note - at the hearing of the appeal counsel for the
Appellant agreed that an overseas employment tax credit was not
applicable in this situation.);
(ii) a foreign tax credit under
section 126 of the Act.
(Note: The Minister allowed the Appellant to claim a
foreign tax credit in the amount of $41,525.55. The evidence
indicated that this foreign tax credit was allowed in connection
with the salary received by the Appellant plus some miscellaneous
items. However, no foreign tax credit was allowed by the Minister
with respect to taxes paid on the Retiring Allowance.)
C. ANALYSIS:
[24] Was the Appellant resident in Canada
for the purposes of the Act during the period January 1,
1998 to October 24, 1998?
[25] In determining the question of
residence the following factors should be noted:
(a) the Appellant filed an
income tax return with Revenue Canada for the 1998 taxation year
in which he indicated that he was a resident of Canada. In the
income tax return filed for the 1998 taxation year the Appellant
reported the salary of $138,425.00. While the filing of an income
tax return for a particular taxation year is not conclusive of
residence it is one indication that the Appellant considered
himself to be a resident of Canada for that year;
(b) the Appellant also filed an income
tax return for the 1997 taxation year. In that return the
Appellant indicated that he had returned to Canada in July 1997
and that he was a resident of Canada for the remainder of the
1997 taxation year;
(c) the Appellant and his spouse
purchased a home at 3709 Rutherford Crescent, North Vancouver in
July 1997. While the home was registered in the name of the
Appellant's spouse the Appellant assumed the mortgage on the
home. The Appellant's spouse and their two children resided
in the North Vancouver home continuously from July 1997
throughout the 1998 taxation year. The Appellant and his family
currently live in this home;
(d) the Appellant purchased a Toyota
Camry automobile in Vancouver in July 1997. The automobile was
licenced in British Columbia and was registered in the
Appellant's name. (Note: The Appellant testified that
his spouse was unable to drive an automobile at that time.);
(e) the Appellant obtained a
British Columbia driver's licence in July 1997;
(f) the Appellant travelled from
Indonesia to Canada on 10 occasions in 1997 and seven occasions
in 1998. During some of these trips the Appellant flew to Toronto
and met with business officials in Toronto. The Appellant also
visited with his spouse and family in North Vancouver during some
of these trips;
(g) the Appellant, his spouse and
their two children were insured under the British Columbia
Medical Plan commencing in July 1997;
(h) the Appellant testified that on
July 1, 1998 he and his spouse commenced to operate a consulting
business in British Columbia by the name of Nexus Management
Consultants;
(i) the Appellant maintained a
Visa credit card issued by the Canadian Imperial Bank of Commerce
in Canada during the time that he was working in Indonesia;
(j) the Appellant maintained a
bank account in Canada while he was working in Indonesia;
(k) the Appellant and his spouse
maintained their Registered Retirement Savings Plan in Canada
while the Appellant was working in Indonesia;
(l) the Appellant was working in
Indonesia on a temporary work permit and when his employment came
to an end in September 1998 he was obliged to leave Indonesia
within a short period of time; and
(m) as noted above, the Appellant became a
Canadian citizen in 1986 and he surrendered his Indonesian
citizenship at the same time.
[26] Based upon the many connections to
Canada as outlined above and the temporary connections to
Indonesia, I have concluded that the Appellant was a resident of
Canada throughout the 1998 taxation year. The Appellant was
therefore liable to tax on his taxable income as determined
according to subsection 2(2) of the Act. The Appellant is
therefore required to include the Employment Income and the
Retiring Allowance in determining his income for the 1998
taxation year.
[27] Is the Appellant entitled to claim a
foreign tax credit under section 126 of the Act?
[28] The Appellant testified that he made
the following tax payments to the Government of Indonesia:
Re:
Salary - 380,590,914 Rupiah
(Note: This amount was withheld by his employer and remitted to
the Government of Indonesia)
Re:
Retiring Allowance - 335,376,000 Rupiah
(See
Exhibits A-6 and A-7)
[29] The Appellant further testified that he
made the payment of 335,376,000 Rupiah in connection with
the Retiring Allowance after receiving advice from an Indonesian
consultant by the name of Jayanegara, a consultant by the name of
Sutanto and a tax accountant in Indonesia by the name of
Hakeem.
[30] I agree with the position maintained by
Counsel for the Appellant that the Retiring Allowance should be
considered to have arisen from a source in Indonesia. It
therefore follows that the Appellant is subject to tax in
Indonesia on the Retiring Allowance under the Canada-Indonesia
Treaty.
[31] The Notice of Appeal indicated that the
Appellant paid $118,193.00 in taxes to the Government of
Indonesia for the 1998 year. As is noted above the Minister
allowed the Appellant to claim a foreign tax credit for the 1998
year in the amount of $41,523.55 leaving a difference of
$76,669.45.
[32] I am not convinced from the sometimes
confusing evidence regarding the value of the Rupiah that the
Appellant is entitled to claim a foreign tax credit in the amount
of $76,669.45.
[33] Based on the evidence of the Appellant
and the documents submitted (see Exhibits A-6 and A-7) I have
concluded that the Appellant paid tax of 335,376,000 Rupiah
in Indonesia with respect to the Retiring Allowance. I have
determined that the conversion factor that should be used to
convert to Canadian dollars is $47,910.00 (See letter of Vicki
Duke, the Appellant's accountant dated February 1, 2000 -
Exhibit R-1, Tab 10).
[34] I have concluded that the Appellant is
entitled to claim a foreign tax credit in the amount of
$47,910.00 under section 126 of the Act in connection with
taxes paid to Indonesia on the Retiring Allowance.
[35] Since success is divided I am not
prepared to award costs.
[36] The appeal is allowed, without costs,
and the Appellant is entitled to claim an additional foreign tax
credit in the amount of $47,910.00.
Signed at Vancouver, British Columbia, this 31st day of
January 2005.
Little J.
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