Citation: 2012 TCC 72
Date: 20120308
Docket: 2009-2519(IT)G
BETWEEN:
KHEDIDJA MESSAR-SPLINTER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from
the reassessment made pursuant to the Income Tax Act, R.S.C. (1985) c.1
(5th suppl.), as amended (the Act), by the Minister of National Revenue (the
Minister), dated May 8, 2008, regarding the appellant's 2006 taxation year.
Under this reassessment, the Minister assessed the appellant to include income
earned abroad as a resident of Canada in the calculation of her income.
[2]
The issue is whether,
during 2006, the appellant was deemed resident in Canada pursuant to
subparagraph 250(1)(c)(i) of the Act.
[3]
To set the tax payable
by the appellant for 2006, the Minister invoked the following presumptions of fact,
listed at paragraph 7 of the Reply to the Notice of Appeal:
[translation]
(a) residents of Canada at the time, the appellant and her
husband, Peter Splinter, left Canada for Geneva, Switzerland in August 1994;
(b) Peter Splinter was assigned to the Permanent Mission of
Canada to the Office of the United Nations in Geneva, Switzerland (the Mission)
by his employer, the Government of Canada;
(c) Mr. Splinter began his duties for the Mission in August 1994
as a Canadian public servant;
(d) Mr. Splinter left his position with the Mission on or around
August 17, 1998, and thereby ceased being a Government of Canada employee as a
public servant at that time;
(e) in the meantime, in 1997, the appellant was offered a position
with the Government of Canada as a public servant at the Mission as a member of
the administrative and technical team, which she accepted;
(f) the appellant began to serve the Mission in January 1997 and
was employed there until at least the end of the 2006 taxation year;
(g) the appellant's employment income paid by the Government of Canada
during the 2006 taxation year was exempt from taxes in Switzerland;
(h) at all relevant times, the appellant and Peter Splinter were
spouses; and
(i) the appellant did not sever her residential ties to Canada.
[4]
Ms. Splinter testified
at the hearing. She stated she was born in Tunisia and held Algerian and
Tunisian passports. She has been married to Peter Splinter since 1987 and
they have two children from this marriage. She immigrated to Canada in 1988 where she lived until August 1994, when she left Canada with her husband to go live
in Geneva, Switzerland.
[5]
When they left Canada, the appellant and her husband did not sever their residential ties to Canada because they kept their drivers licences and Canadian passports and their residence
was leased to a third party after their departure.
[6]
The appellant and her
husband left Canada in August 1994 because her husband's employer, the
Department of External Affairs, assigned him to the Mission. Mr. Splinter began
to serve the Mission in August 1994 as consul and first secretary for a
four-year period.
[7]
On January 17, 1997,
the appellant was offered a position with the Mission in an emergency hiring,
as a locally-hired employee. It was a non-permanent indeterminate position. The
appellant accepted the offer and employment conditions and began her employment
on January 17, 1997.
[8]
On November 3, 1997, the
Mission offered the appellant a permanent position as program assistant. This
employment offer stated that, as the spouse of a federal public servant, the
appellant was subject to tax deductions at the source, the Canada Pension Plan
and unemployment insurance. The appellant accepted the offer and conditions of
employment, and she began her employment in November 1997.
[9]
For the 1997 and 1998
taxation years, the appellant filed her tax returns as an individual deemed resident
in Canada pursuant to paragraph 250(1)(e) of the Act, as the spouse of a
person covered under paragraph 250(1)(c) of the Act, a federal public
servant.
[10]
On or around August 17,
1998, Mr. Splinter's assignment with the Mission ended, and he ceased being an
employee of the Government of Canada.
[11]
In 2000, the appellant
and her spouse separated; he left Geneva to return to Canada to live in the couple's residence that had been leased to a third party.
[12]
As of January 1, 2004, the
appellant and her husband were living together again, and had purchased an
apartment in Geneva. From 2000 to 2004, the appellant had remained in Geneva with her two children and she has kept her position with the Mission to today. At
the hearing, the appellant stated that, pursuant to Swiss laws, she could have
asked for a divorce after one year of separation but she did not.
[13]
According to the
appellant's testimony, she became eligible for Swiss citizenship in 2006. She
stated she applied in 2009 and became a Swiss citizen on October 17, 2011.
[14]
The appellant filed her
tax return for the 2006 taxation year as a non-resident and on September 20,
2007, she received a tax refund of $28,605.90 with $464.51 in interest. In that
tax return, the appellant claimed an exemption from income tax on the salary
she earned that year from her employment with the Mission on the ground that
the salary was not taxable in Canada pursuant to article 19 of the Convention
between the Government of Canada and the Swiss Federal Council for the
Avoidance of Double Taxation with respect to Taxes on Income and on Capital.
[15]
The appellant and her
husband also filed a joint tax return with the Swiss tax authorities for 2006.
[16]
For the 1999 to 2005
taxation years, the appellant filed income tax returns as an individual deemed resident
in Canada in view of opinions issued by the Canada Revenue Agency (the CRA).
[17]
Indeed, the appellant
attempted many times to get a determination on her residency from the CRA for
Canadian income tax purposes. The appellant's efforts in this regard, and the
CRA's responses are described as follows at paragraphs 6, 7 8, 10, 11, 12 and
13 of the Notice of Appeal:
[translation]
6.
On March 5, 1999, the appellant wrote to the
International Tax Services Office of the Canada Revenue Agency to obtain a
determination of her residency for Canadian income tax purposes as of August
17, 1998.
7.
In response to the appellant's March 5, 1999,
letter, the International Tax Services Office of the Canada Agency (sic)
issued an opinion by letter dated August 27, 1999, stating that the appellant
did not continue to maintain significant residential
ties with Canada, but considering the purpose of her stay in Switzerland, she
was a deemed resident of Canada.
8.
The international tax program of the Ottawa Tax
Services Office of the Canada Revenue Agency sent a letter to the appellant
dated November 18, 1999, in which the international tax program confirmed the
opinion issued by the International Tax Services Office, and stated that the
appellant was deemed resident in Canada pursuant to sub-paragraph 250(1)(c)(i)
of the Income Tax Act.
10. On January 2, 2006, the appellant again wrote to the International
Tax Services Office of the Canada Revenue Agency to ask for a re-determination
of her residency status for Canadian tax purposes.
11. On March 6, 2007, the appellant again wrote to the
International Tax Services Office to ask to be relieved of the obligation to pay
taxes in Canada because of the provisions of the Convention between the
Government of Canada and the Swiss Federal Council for the Avoidance of Double
Taxation with respect to Taxes on Income and on Capital.
12. On May 3, 2007, the International Tax Services Office advised
the appellant in writing that she was a non-resident of Canada as of August 16,
1994, because she had not continued to maintain significant residential ties
with Canada.
13. On November 1, 2007, the International Tax Services Office
sent a letter to the appellant advising her that she was deemed resident in Canada for Canadian tax purposes, from her arrival in Switzerland until the decisive factors of her
current situation change.
[18]
At the hearing, the
appellant submitted an expert report by counsel Pietro Sansonetti, dated
October 3, 2011, called [translation]
"Legal opinion regarding your tax exemption in Switzerland". The
content of the expert report was admitted in evidence by counsel for the
respondent.
[19]
Counsel for the
appellant described the findings of the expert report as follows, at paragraphs
24 and 25 of the Notice of Appeal:
[translation]
24.
The appellant is eligible for an exemption on
the income tax that is payable in Switzerland, in regard to wages she receives
for her employment with the Mission, pursuant to the Swiss Federal Direct
Tax Law, the Canton of Geneva's Law on the Taxation of Natural Persons,
the Federal Council on permanent missions and their staff members decisions of
March 31, 1941, and May 20, 1958, that apply the Vienna Convention of 18 April
1961 on diplomatic relations, by analogy, to permanent missions and their staff
members, and pursuant to the decisions of the Federal Council on Swiss foreign policies
and the practice of authorities who set up the system of privileges and
immunities.
25.
The decisions of the Federal Council on
permanent missions and their staff members and the Federal Council on Swiss
foreign policies are not agreements or conventions entered into by one or more
foreign countries and do not have the force of law in Canada.
Respondent's position
[20]
The respondent submits
that the appellant, during the 2006 taxation year, was deemed resident in
Canada pursuant to subparagraph 250(1)(c)(i) of the Act because she
resided in Canada immediately prior to her employment with the Mission in
January 1997, in accordance with the applicable version of paragraph 250(1)(e)
of the Act.
Appellant's position
[21]
Since the appellant cut
all her personal, economic and residential ties with Canada when she left Canada in August 1994, she did not reside in Canada immediately prior to starting serving the Mission in January 1997. As a result, paragraph 250(1)(c) of the Act does not apply
and the appellant cannot be deemed to have been resident in Canada during the 2006 taxation year.
Analysis
[22]
Subsection 250(1) of
the Act, in the version that applied during the 2006 taxation year, stated:
Person
deemed resident
250(1) For the purposes of this Act,
a person shall, subject to subsection 250(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;
(b) was, at any time in
the year, a member of the Canadian Forces;
(c) was, at any time in
the year,
(i) an ambassador,
minister, high commissioner, officer or servant of Canada, or,
(ii) an agent-general,
officer or servant of a province,
and was resident in Canada
immediately prior to appointment or employment by Canada or the province or
received representation allowances in respect of the year;
(d) performed services,
at any time in the year, in a country other than Canada under a prescribed
international development assistance program of the Government of Canada and
was resident in Canada at any time in the 3 month period preceding the day on
which those services commenced;
(d.1) was, at any time
in the year, a member of the overseas Canadian Forces school staff who filed
his or her return for the year on the basis that the person was resident in
Canada throughout the period during which the person was such a member;
(e) [Repealed, 1999, c. 22, s. 82(1)]
(f) was at any time in
the year a child of, and dependent for support on, an individual to whom
paragraph (b), (c), (d) or (d.1) applies and the
person’s income for the year did not exceed the amount used under paragraph (c) of the description of B
in subsection 118(1) for the year;
(g) was at any time in
the year, under an agreement or a convention with one or more other countries
that has the force of law in Canada, entitled to an exemption from an income
tax otherwise payable in any of those countries in respect of income from any
source (unless all or substantially all of the person’s income from all sources
was not so exempt), because at that time the person was related to or a member
of the family of an individual (other than a trust) who was resident in Canada.
[23]
Paragraph 250(1)(e)
of the Act stated, in its previous version to February 24, 1998, the date the
paragraph was repealed :
(f) was
resident in Canada in any previous year and was, at any time in the year, the
spouse of a person described in paragraph (b), (c), (d) or
(d.1) living with that person; or;
[24]
Subsections 82(1), (3),
(5) and (7) of the Statutes of Canada 1999, c. 22, the "Income Tax
Amendments Act, 1998" provided as follows:
82(1) Paragraph
250(1)(e) of the Act is repealed.
82(3) Subsection
250(1) of the Act is amended by striking out the word "or" at the end
of paragraph (e), by adding the word "or" at the end of paragraph (f)
and by adding the following after paragraph (f):
(g) was at any time in the year,
under an agreement or a convention with one or more other countries that has
the force of law in Canada, entitled to an exemption from an income tax
otherwise payable in any of those countries in respect of income from any
source (unless all or substantially all of the person's income from all sources
was not so exempt), because at that time the person was related to or a member
of the family of an individual (other than a trust) who was resident in Canada.
82(5) Subsection (1) applies after February 23, 2998, except
that, where:
(a) any person would, except for paragraph
250(1)(e) of the Act,
(i) would have been non-resident at any time
before February 24, 1998, and
(ii) not have become resident in Canada after
that time and before February 24, 2998, and
(b) the person does not elect in writing
filed with the Minister of National Revenue with the person's return of income
under Part I of the Act for the 1998 taxation year to have subsection (1) apply
after February 23, 1998,
subsection (1) does not apply in respect of the person
before the first time after February 23, 1998 that the person would, but for
paragraph 250(1)(e) of the Act, cease to be resident in Canada.
82(7) Subsection (3) applies after February 23, 1998.
[25]
To make it easier to
understand the concepts that apply in the present case, it is useful to
reproduce the explanatory notes from the 1998 budget regarding the repeal of paragraph
250(1)(e) of the Act.
27
October 1998, NE: Subsection 250(1) of the Act deems certain persons to be resident in Canada.
Paragraph 250(1)(e) of the Act
applies to the spouse of a person who is deemed to be resident in Canada by any
of certain other of the rules in the subsection. In such a case, the spouse is
also deemed to be resident in Canada if the spouse lived with the person at any
time in the year and was a resident in Canada in any previous year.
Paragraph 250(1)(e) is repealed, with effect
to persons who cease to be resident in Canada after February 23, 1998. Persons
who, but for the application of paragraph 250(1)(e), would have ceased
to be resident in Canada before February 24, 1998 and would not have
re-established residence in Canada before that date may elect that the repeal
apply to them with effect after February 23, 1998.
Budget,
February 1998, AMVM: Deemed Residence
That paragraph
250(1)(e) of the Act, which deems spouses of government employees and
certain others to be residents of Canada, be repealed for spouses who, but for
that paragraph, would cease to be residents of Canada after February 23, 1998
and for spouses who, but for that paragraph, would have ceased to be residents
of Canada before February 24, 1998 and elect not to be subject to that
paragraph after February 23, 1998.
Budget, February 1998, RS: Deemed Residence
The distinction between residence and
non-residence for tax purposes is an important one. Residents of Canada pay
Canadian tax on their worldwide income; non-residents pay Canadian tax only on
their Canadian-source income.
In most situations, whether or not an
individual is resident in Canada is a question of fact: the answer depends on
the nature of the individual’s ties to Canada and the individual’s intentions.
In some cases, however, the Income Tax Act deems an individual to be
resident in Canada whether or not those factual tests are met.
One of the deeming rules treats members
of the Canadian Forces, certain development workers, Canadian Forces school
staff, and officers and employees of the Government of Canada or a province
(including ambassadors, ministers, high commissioners and others) as residents
of Canada irrespective of where they are posted. In its current form, the rule
also deems the spouses and dependent children of these persons to be Canadian
residents.
The budget proposes to eliminate the
special rule for spouses. In its place, a new rule is proposed which will deem
as residents those individuals who, by virtue of their relationship to a
Canadian resident, are exempt from tax in another country under a tax treaty or
international agreement.
These changes will apply to individuals
who would, but for the current deeming rule, cease to be residents of Canada
after February 23, 1998. Individuals who, but for the current rule, would have
ceased to be resident prior to February 24, 1998 will be permitted to elect
that these changes also apply to them after February 23, 1998. If they make
this election, they will be treated as having ceased to be resident in Canada
on February 24, 1998.
[26]
When the appellant
began serving the Mission on January 17, 1997, she did not reside in Canada immediately preceding her appointment or employment by Canada, even if the appellant
maintained certain ties with Canada after August 1994. The same situation
existed when the appellant was offered a permanent position with the Mission in
November 1997; she resided in Switzerland. As a result, the appellant cannot be
deemed to have resided in Canada under paragraph 250(1)(c) of the Act.
[27]
However, the conditions
of application of paragraph 250(1)(e) of the Act were met because the
appellant resided in Canada during a prior taxation year and, at one point
during the year, was the spouse of a person covered by paragraph 250(1)(c),
with whom she lived. As a result, the appellant is deemed to have resided in
Canada for the entire 1997 taxation year. The same is true for the 1998
taxation year because at some point during the year, the appellant was the
spouse of a person covered by paragraph 250(1)(c) with whom she lived.
[28]
Paragraph 250(1)(e)
was repealed as of February 24, 1998, and this amendment applies to all persons
who ceased to reside in Canada after February 23, 1998, which is certainly not
the appellant's case because she ceased to reside in Canada in 1994.
[29]
However, as the
appellant is a person who, if not for paragraph 250(1)(e) would
have ceased being a resident of Canada before February 24, 1998, and who did
not return to reside in Canada before February 24, 1998, she could have elected
to have the repeal apply to her after February 23, 1998.
[30]
According to the
evidence of record, the appellant did not make this election in her income tax return
pursuant to Part I of the Act for her 1998 taxation year. If she had made this
election, the appellant would have ceased being deemed resident in Canada on February 24, 1998, with the ensuing tax consequences.
[31]
Under the provision
that gave effect to the repeal of paragraph 250(1)(e), subsection 82(5),
Statutes of Canada 1999, c.22, the repeal of paragraph 250(1)(e) does
not apply to the appellant before the first time after February 23, 1998, she
would cease, but for paragraph 250(1)(e) of the Act, to be resident in
Canada. As a result, paragraph 250(1)(e) continued to apply to the
appellant after February 23, 1998. The question is: until when?
[32]
The appellant's husband
ceased being a Canadian public servant on or around August 17, 1998. Since the
appellant was not, at any time during the 1999 taxation year, the spouse of a
person covered by paragraph 250(1)(c), paragraph 250(1)(e) ceased
to apply to the appellant during that taxation year. As a result, the appellant
became a non-resident of Canada during the 1999 taxation year, unless she is
deemed to be resident in Canada pursuant to another provision of subsection
250(1) of the Act.
[33]
The determination of
the appellant's tax status for the 1999 to 2005 taxation years is not at issue
in this case. Only the appellant's 2006 taxation year is in issue in this
appeal.
[34]
Counsel for the
respondent argued that paragraph 250(1)(c) applied to the appellant for
her 2006 taxation year because she was, pursuant to paragraph 250(1)(e),
deemed resident in Canada immediately prior to her employment with the Mission. According to this interpretation, the appellant is deemed to be resident in Canada as long as she keeps her job with the Mission, because immediately following her appointment,
she was deemed to be resident in Canada.
[35]
Despite the able
arguments of counsel for the respondent regarding the effects of a legal
presumption, I do not agree with her interpretation of paragraph 250(1)(c)
because paragraph 250(1)(c) never applied to the appellant.
[36]
There is no doubt that
the appellant did not reside in Canada immediately prior to her appointment to
the Mission and therefore, paragraph 250(1)(c) did not apply to the
appellant. She was deemed to be resident in Canada from 1994 to 1998 under
paragraph 250(1)(e). Moreover, it was specified in her offer of
employment in November 1997, that the appellant would be subject to source
deductions for Canadian tax purposes as the spouse of a Canadian public servant.
[37]
Paragraph 250(1)(e)
was repealed as of February 24, 1998, but continued to apply to the appellant
until the 1999 taxation year.
[38]
For the appellant's
2006 taxation year, counsel for the respondent applied retroactively to the
1997 taxation year the presumption of paragraph 250(1)(e) to paragraph
250(1)(c), which cannot apply to the appellant for the 1997 taxation
year even if paragraph 250(1)(e) was repealed in 2006 and no longer
applied to the appellant as of 1999.
[39]
It seems clear to me
that Parliament's intent was to refer to the commonly used criteria for the
concept of "residence" when, at the end of paragraph 250(1)(c),
it used the phrase, "and was resident in Canada immediately prior to
appointment or employment by Canada". The fact Parliament clarified that
the determination of residence in Canada was at the time "immediately
prior to appointment or employment" confirms, in my opinion, its intention
to refer to the commonly used criteria for "residence" and not a
presumption of residence.
[40]
It seems illogical to
me to apply a double presumption to the 2006 taxation year, those at paragraphs
250(1)(c) and (e) when, for the 1997 taxation year, only the
presumption at paragraph 250(1)(e) was needed to establish the
appellant's residence in Canada.
[41]
For these reasons, the
appeal is allowed with costs and the reassessment is vacated.
Signed at Ottawa, Canada, this 8th day of March 2012.
"Réal Favreau"
Translation
certified true
on this 24th day
of July 2012.
François Brunet,
Revisor
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