Hale v. The Queen, 90 DTC 6481, [1990] 2 CTC 247 (FCTD), aff'd 92 DTC 6473 (FCA)

Rouleau, J. [Translation]:—This is an action brought by a non-resident Canadian, first, to have the Court invalidate pursuant to Article 15 of the Canada-United Kingdom Income Tax Convention a claim by the Department of National Revenue for a sum of money obtained by the realization of certain share purchase option rights; and second, to consider in proportion to the days worked in Canada the taxation of earnings received as a director, in accordance with section 115 of the Income Tax Act. A brief but exhaustive summary of the facts relating to these two points at issue is necessary.

I-Summary of Facts

On August 1, 1983 the plaintiff, then a Canadian resident, left Canada and the employment he held with the Canadian company Alcan Aluminium Ltd. He went to settle in England. We therefore have no choice but to conclude that Mr. Hale was not a Canadian resident in the 1984 taxation year, which is the basis of the case at bar.

In 1981, when he was still employed by Alcan Aluminium Ltd., Mr. Hale concluded an agreement with that company whereby it granted him the privilege of purchasing three stock options, each of which allowed him to buy 7,500 Alcan Aluminium Ltd. shares. This agreement was governed by the Alcan Executive Share Option Plan. The share purchase options were however accompanied by rights known as “Stock Appreciation Rights” (S.A.R.). Accordingly, under the agreement Mr. Hale had the choice of buying the shares corresponding to the options outright or exercising his rights (S.A.R.) and so obtaining, in exchange for unexercised options, an amount equal to the excess of the market value of the shares, on only half of the shares corresponding to each option (3,750 shares per option).

During the 1984 taxation year, and specifically on October 26, 1984, when he was no longer living in Canada but in England, Mr. Hale exercised his share purchase option rights and so obtained the sum of $125,212.50, less a tax deduction of some $35,547.83. It is this tax deduction which is the subject of the first point at issue in the action at bar.

The facts giving rise to the second point at issue also need some clarification. In 1984 Mr. Hale held the position of director with Alcan Aluminium Ltd. and one of its subsidiaries. As such the plaintiff spent about 57 days in Canada during the 1984 taxation year. For his duties as director Mr. Hale received the sum of $25,000 less tax deduction of $3,750. The Department of National Revenue considered that the sum of $12,500 (representing 50 per cent of the amount received in return for performing the duties of director) should be taxable and so included in calculating income for 1984, not the sum of $3,938.44 (representing /366ths of $25,000) as the plaintiff alleged.

Il-Arguments of Each Party

(a) Arguments made by plaintiff Mr. John Hale

On the first point at issue the plaintiff maintained that the Court should apply Article 15 of the Canada-United Kingdom Income Tax Convention instead of section 7 of the Income Tax Act, in order to determine whether the benefits received on realizing his share purchase option rights, which were obtained as a consequence of his employment with Alcan Aluminium Ltd., constituted income taxable in Canada. In this regard the plaintiff made various arguments, which may be summarized as follows: the conditions set forth in Article 15 of the Convention have been met; using section 7 of the Income Tax Act to interpret the language of Article 15 of the Convention means that benefits received on realization of share purchase option rights are “salaries, wages and other similar remuneration” as provided in Article 15 of the Convention; the Convention must be given a broad and liberal interpretation; the Convention must be applied before any domestic legislation to the same effect; and a presumption created by domestic legislation is inconsistent with the provisions of the Convention. Let us look in more detail at the gist of these arguments.

The plaintiff accordingly maintained that Article 15 of the Canada-United Kingdom Income Tax Convention contains the answer to the first point at issue. He thus contended that he met all the conditions stated there. In order to arrive at this conclusion, the plaintiff dissected Article 15 of the Convention and stated that for this to apply to the case at bar the following three conditions must be met:

— salary, wages or other similar remuneration must be at issue;

— it must be received by a resident of England in respect of salaried employment;

— it must however be taxable in England unless the employment is carried on in Canada.

As the wording wages, salaries and other remuneration" is not defined anywhere in the Convention, reference must accordingly be made to the Income Tax Act to determine its meaning as provided in Article 3(2) of the Convention.

The plaintiff thus referred the Court to subsection 248(1) of the Income Tax Act. As the said subsection 248(1) indicates that taxable income from salary or wages is income covered by sections 5 to 7 of the Income Tax Act, the plaintiff argued that as the section relevant to the case at bar is section 7 of the Act, benefits resulting from exercising the share purchase option rights are thus salary or wages received by a resident of England in connection with his employment in Canada, in accordance with Article 15 of the Canada-United Kingdom Income Tax Convention. The plaintiff thus maintained that this amount is not in any way taxable in Canada since he held no employment there in 1984.

However, the latter condition contained in Article 15 of the Convention is directly contrary to section 7 of the Income Tax Act. The legislature has created a presumption in section 7 of the Act that in situations where an employee has ceased working for the company which granted him the share purchase options, he shall be deemed to be still employed by the company for the purposes of giving effect to the Act. The plaintiff accordingly argued that the Convention should prevail over domestic legislation and that a presumption created by such legislation is inoperative to the extent that it is inconsistent with the provisions of the Convention.

The plaintiff thus gave priority to Article 15 of the Canada-United Kingdom Income Tax Convention, and argued that it should be given a broad and liberal interpretation. He also argued that the provisions should be interpreted in light of each other. In this regard the plaintiff analyzed Articles 7 and 15 of the Convention and came to the conclusion that the reason the legislature included a past condition in Article 7 of the Convention was that it intended that only "wages, salaries, and other similar remuneration" received in connection with employment actually held in Canada during the relevant taxation year should be covered by this article.

The second point at issue in the action at bar concerns the sum of $25,000 which the plaintiff received from Alcan Aluminium Ltd. as a consequence of his duties as director for the latter company during the 1984 taxation year. As he in fact spent 57 days in Canada in 1984 in connection with these duties as director, the plaintiff maintained that only the portion representing /366ths of $25,000 is taxable in Canada, in accordance with subparagraph 115(1)(a)(v) and clause (2)(e)(i)(B) of the Income Tax Act.

(b) Arguments made by defendant, the Crown

The Crown submitted various arguments to the Court in support of its claims. The gist of these arguments must be summarized in order to determine the underlying principle.

The Crown's principal argument on the first point at issue is that the amount of money received by the plaintiff when he realized the share purchase option rights is not in any way "remuneration" within the meaning of Article 15 of the Convention, and accordingly the Convention has no application to the case at bar.

The Crown thus argued that Article 15 of the Convention does not refer to the concept of income in its broad sense, only in the limited sense of "remuneration", since the article speaks of “salaries, wages and other similar remuneration". The Crown proceeded to explore Article 15 of the Convention and deduced that even the paragraphs not applicable to the case at bar make no reference to the concept of income, solely to the concept of "remuneration", and this has to be defined.

The Crown then submitted that the term "remuneration" must be interpreted as meaning a sum of money received in return for services rendered. It accordingly considered that the sum of money received by the plaintiff when he realized on the share purchase option rights in Alcan Aluminium Ltd. cannot possibly be remuneration, since the plaintiff provided no services in return for this money.

The Crown argued that this analysis does not in any way conflict with the principle that a treaty or convention must be given broad and liberal interpretation. It maintained that what is to be interpreted in this way must however be specified in the treaty or convention. As Article 15 of the Convention refers only to “remuneration”, and we are dealing with income other than remuneration in the case at bar, it contended, the Convention cannot apply here as a solution to the first point at issue.

The Crown further argued that contrary to what the plaintiff suggested, everything which is presumed in domestic legislation does not become inop- erative when there is a contradiction with a treaty to the same effect. The Crown accordingly submitted to the Court that should it conclude that the benefit received by the plaintiff is "remuneration" within the meaning of the Convention, this might still not apply, since under section 7 of the Income Tax Act the plaintiff is presumed to have held employment in Canada during the 1984 taxation year. The Crown argued that in the event of a contradiction between the Income Tax Act and the Canada-United Kingdom Income Tax Convention, it is unquestionably the Income Tax Act that must be applied in cases of dispute.

The Crown supported this argument with the contention that since the Convention was concluded after the Income Tax Act came into effect and the legislature did not amend the wording relating to the presumption created by section 7 of the Act, it follows that the parties to the Convention were completely aware of the applicable law when they signed the Convention and it came into effect.

On the second point at issue the Crown argued that 50 per cent of the sum of $25,000 received by the plaintiff on account of the position of director held in 1984 should be included in calculating his income, since he did not show the exact nature of the duties performed outside Canada, the fact that he was subject to taxation by another government and the fact that the remuneration received was attributable to duties performed outside Canada. The Crown thus raised subsection 2(3) and section 115 of the Income Tax Act, and in particular paragraphs 115(2)(c), (d) and (e).

Ill-Decision

As a consequence of the employment he held with Alcan Aluminium Ltd., the plaintiff concluded an agreement with the company giving him the right to acquire three options to purchase shares in the company. The agreement in question was the Alcan Executive Share Option Plan. The objectives sought by such an agreement are indicated in paragraph 1:

1. Purposes of the Plan

The purposes of the Alcan Executive Share Option Plan ("Plan") are (i) to grant to key employees of Alcan Aluminium Limited ("Corporation") and its subsidiaries options ("options") to purchase common shares ("shares") of the Corporation thereby encouraging them to obtain an increased proprietary interest in the interest in the enterprise and an additional incentive to further its growth and development and (ii) to assist the corporation in retaining and attracting executives with experience and ability.

This agreement further provided for certain rights associated with these share purchase options that the plaintiff could acquire. If he did not purchase the shares mentioned in the option, he could return the unused options to Alcan Aluminium Ltd. and obtain a certain sum of money for them. We thus have in paragraph 8 of the agreement a statement of the rights associated with these share purchase options (S.A.R.):

8. Stock Appreciation Rights

Each option granted under the Plan shall have connected therewith stock appreciation rights ("SARs") in respect of one-half of the shares covered by the option. Each SAR in respect of a share shall entitle the optionee to surrender to the Corporation unexercised the right to subscribe for such share pursuant to the related option and to receive from the Corporation cash in an amount equal to the excess on the date of exercise of the SAR over the subscription price provided in the related option.

Each SAR shall be subject to the same terms and conditions as the related option and shall be exercisable during the option period of the related option, except that SARs may be exercised only during the periods commencing on the third business day and ending on the twelfth business day following the dates of the release of the quarterly or annual statements of sales and earnings or annual statements of sales and earnings of the Corporation or such other periods as the Committee may determine.

Each exercise of an SAR in respect of a share covered by a related option shall reduce by one the number of shares covered by such option. The exercise of an option under the Plan, however, will not reduce the number of SARs connected with such option until one-half of the shares originally subject to such option shall have been subscribed to pursuant to the exercise of such option. Thereafter, each exercise of an option shall reduce the number of SARs connected therewith by the equivalent of the number of shares subscribed to by reason of such exercise. Unexercised SARs shall terminate when there are no shares remaining which are covered by the related option due to prior exercises of the related option or SARs or to termination of the option period.

On October 26, 1984, when he was no longer resident in Canada but in England, the plaintiff exercised the rights associated with his purchase options and so earned a benefit of $125,212.50, which can be explained as follows:

1st purchase option of 7,500 shares

Value of share at October 26, 1984 $36.50

Price of share when option acquired $31.08

Excess of market value of share $ 5.42

Benefit made on 3,500 shares

(1/2 of option)

$5.42 x 3,750 = $20,325

2nd purchase option of 7,500 shares

Value of share at October 26, 1984 $36.50

Price of share when option acquired $24.54

Excess of market value of share $11.57

Benefit made on 3,500 shares

(1/2 of option) $11.57 x 3,750 $44,887.50

3rd purchase option of 7,500 shares

Value of share at October 26, 1984 $36.50

Price of share when option acquired $20.50

Excess of market value of share $16

Benefit made on 3,500 shares

(1/2 of option) $16 x 3,750 = $60,000

Total benefit on three options:

$125,212.50

When it sent this amount to the plaintiff, Alcan Aluminium Ltd. deducted the sum of $35,547.83 for federal income tax. It is this very tax deduction which is the subject of the first point at issue. The question is as to the exact nature of the sum of money resulting when the plaintiff realized on his share purchase option rights. The plaintiff argued that this amount is "salaries, wages and other similar remuneration" as provided in Article 15 of the Canada-United Kingdom Income Tax Convention; this was denied by the Crown, since it contended that section 7 of the Income Tax Act must inevitably be applied in the case at bar. In order to gain a clear understanding of the scope [of] this problem, it will be necessary to reproduce the relevant legislation. Article 15(1) of the Canada-United Kingdom Income Tax Convention thus reads as follows:

Article 15

Dependent Personal Services

1. Subject to the provisions of Articles 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

The following rules are stated in the applicable subsections of section 7 of the Income Tax Act:

7.(1) Agreement to issue shares to employees. Subject to subsection (1.1), where a corporation has agreed to sell or issue shares of the capital stock of the corporation or of a corporation with which it does not deal at arm's length to an employee of the corporation or of a corporation with which it does not deal at arm's length,

(a) if the employee has acquired shares under the agreement, a benefit equal to the amount by which the value of the shares at the time he acquired them exceeds the amount paid or to be paid to the corporation therefor by him shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he acquired the shares;

(b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the shares to a person with whom he was dealing at arm's length, a benefit equal to the value of the consideration for the disposition shall be deemed to have been received by the employee by virtue of his employment in the taxation year in which he made the disposition;

(4) Application. For greater certainty it is hereby declared that, where a person to whom any provision of subsection (1) would otherwise apply has ceased to be an employee before all things have happened that would make that provision applicable, subsection (1) shall continue to apply as though the person were still an employee and as though the employment were still in existence.

It should however be pointed out that coverage of Canadian non-residents by section 7 of the Income Tax Act is made possible by section 2 of the Act, the relevant subsections of which need to be set out.

2.(1) Tax payable by persons resident in Canada. An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.

(3) Tax payable by non-resident persons. Where a person who is not taxable under subsection (1) for a taxation year

(a) was employed in Canada,

(b) carried on a business in Canada, or

(c) disposed of a taxable Canadian property,

at any time in the year or a previous year, an income tax shall be paid as hereinafter required upon his taxable income earned in Canada for the year determined in accordance with Division D.

The question that must now be answered in connection with the first point at issue is as follows: is the sum of $125,212.50 from the realization of share purchase option rights "salaries, wages and other remuneration" within the meaning of Article 15(1)of the Canada-United Kingdom Income Tax Convention or a benefit within the meaning of paragraph 7(1)(b) of the Income Tax Act?

In Hurd v. The Queen, [1982] 1 F.C. 554; [1981] C.T.C. 209; 81 D.T.C. 5140, the Federal Court of Appeal has already had to rule on the question of money derived also from the realization of rights associated with share purchase options. The facts related in Hurd unquestionably have certain similarities to the case at bar. In that case Mr. Hurd was a Canadian non-resident. While in the employ of a Canadian company, he concluded a purchase option agreement on the company's ordinary shares. In April 1971 Mr. Hurd moved to the U.S. to work for a subsidiary. In September 1973 he exercised the option contained in the purchase option agreement and so bought ordinary shares in the Canadian company. He made a profit at this time of $77,812.

When Mr. Hurd made his tax return for 1973, he included in it not the amount of $77,812 but one of $43,606.13. Mr. Hurd had thus divided the sum of $77,812 by a fraction the numerator in which was the number of days during which he was employed by the Canadian company between the date when the option was granted and that on which it was exercised. The denominator of the fraction was the total number of days between these two dates. Mr. Hurd argued that he had the right to make such a calculation because of the combined effect of subparagraphs 115(1)(a)(v) and (2)(c) and (e)(i) of the Act.

A majority of the Federal Court of Appeal dismissed Mr. Hurd's appeal, pointing out that in view of section 7 of the Act it was subparagraph 115(a)(1)(i) that should be applied. The Court thus held that the appellant had not received remuneration relating to an office or employment in 1973. Accordingly, subparagraphs 115(1)(a)(v) and (2)(c) and (e)(i) could not be applied.

Section 7 of the Act provided in subsection (4) that where a person left his employment in a Canadian company subsection 7(1), on the acquiring of shares, should be applied as though the person were still an employee of the company and as though the employment were still in existence.

Accordingly, when Mr. Hurd exercised the option in 1973 he was deemed to have received a benefit as a consequence of his employment, though he was no longer employed by the Canadian company. The presumption of subsection 7(4) was thus applied to the appellant, which had the effect of bringing him within the purview of subsection 7(1) of the Act.

It appears from Hurd that the benefit resulting from realizing share purchase option rights is in no way remuneration received by virtue of an office or employment, but a benefit associated with such employment. At page 213 (D.T.C. 5143; F.C. 560) of Hurd, Urie, J. thus makes the following comment:

Paragraph 115(2)(c), when read together with subparagraph 115(2)(e)(i), indicates to me that the appellant was not covered thereby because he was not in receipt of remuneration from an office or employment in 1973 as that term is understood given its ordinary meaning. To whomever those subsections have application they do not apply to a person in the position of the appellant. The benefit which he received is not remuneration of the kind envisaged by those paragraphs.

Moreover, the statement of the purposes of the Alcan Executive Share Option Plan indicates that the agreement was not in any way remuneration, but was ”. . . an increased proprietary interest in the enterprise and an additional incentive to further its growth and development and. . .to assist the Corporation in retaining and attracting executives with experience and ability”.

The plaintiff tried to show the Court that the words "salaries, wages and other similar remuneration” in Article 15(1) of the Canada-United Kingdom Income Tax Convention must be interpreted in a broad and liberal manner so as to include the type of benefit resulting from the realization of share purchase option rights.

In McNeill v. M.N.R., [1987] 1 F.C. 119; [1986] 2 C.T.C. 352; 86 D.T.C. 6477, concerning a relocation allowance for social disruption and accommodation differential paid to air traffic controllers transferred out of Quebec, this Court had to rule on the meaning of the words “salary, wages and other remuneration" in subsection 5(1) of the Income Tax Act. It made the following comments at that time (pages 358-59 (D.T.C. 6482)):

"Other Remuneration": Subsection 5(1)

The expression "other remuneration" is not defined in the Act; it is included in section 5 in the phrase “salary, wages and other remuneration, including gratu- ■ties. . . . .". Given its location, I am inclined to give effect to the ejusdem generis rule of interpretation and read "other remuneration” as an amount of the same nature as its antecedents in the sentence, namely "salary and “wages”. They are defined in subsection 248(1) of the Act, but by the express words of that subsection, they have no application to section 5. It therefore becomes necessary to look elsewhere in order to interpret the word "remuneration", for the purposes of section 5. In this respect, I have taken the liberty of quoting from the Shorter Oxford English Dictionary (3rd ed.), Clarendon Press, Oxford, 1973:

remunerate,. . .1. trans. To repay, requite, make some return for (services, etc.).

2. To reward (a person); to pay (a person) for services rendered or work done. . .Hence remuneration, reward, recompense, repayment, payment, pay.

salary,. . .1. Fixed payment made periodically to a person as compensation for regular work; now usu. for non-manual or non-mechanical work (as opp. to wages) 2. [obsolete] Remuneration for services rendered; fee, honorarium. . .

wage,. . .[1. obsolete] 2. A payment to a person for services rendered; now esp. the amount paid periodically for the labour or services of a workman or servant. Freq. pl. . . .

[The square brackets are mine.]

These definitions presume compensation for a service rendered.

It must therefore be concluded that the words "salaries, wages and other remuneration” unavoidably correspond to a sum of money received in return for the provision of services.

I would further add that the wording of Article 15 of the Canada-United Kingdom Income Tax Convention does not conflict with such an interpretation. It should be noted that the legislature has used the word "income" in Article 14 with respect to professional services, and the word "remuneration" for dependent personal services:

Article 14 Professional Services

1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it as is attributable to that fixed base.

2. The term “professional services” includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

Article 15

Dependent Personal Services

1. Subject to the provisions of Articles 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not

exceeding in the aggregate 183 days in the calendar year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in interna- tional traffic may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.

4. In relation to remuneration of a director of a company derived from the company the preceding provisions of this Article shall apply as if the remuneration were remuneration of an employee in respect of employment, and as if references to employer were references to the company.

[Emphasis added.]

We also note that the legislature used the word "income" in respect of the situation of artistes and athletes, covered by Article 16 of the Convention:

Article 16 Artistes and athletes

1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived by entertainers, such as theatre, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.

2. Where income in respect of personal activities as such of an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

3. The provisions of paragraphs 1 and 2 shall not apply:

(a) to income derived from activities performed in a Contracting State by entertainers or athletes if the visit to that Contracting State is wholly or substantially supported by public funds;

(b) to a non-profit making organization no part of the income of which is payable, or is otherwise available for the personal benefit of, any proprietor, member or shareholder thereof; or

(c) to an entertainer or athlete in respect of services provided to an organization referred to in subparagraph (b).

[Emphasis added.]

I therefore conclude that the sum of $125,212.50 is not "remuneration" within the meaning of Article 15(1) of the Canada-United Kingdom Income Tax Convention, but a benefit received by virtue of employment as stated in paragraph 7(1)(b) of the Income Tax Act. Further, under subsection 7(4) of that Act the plaintiff is deemed to be still an employee of Alcan Aluminium Ltd. for the purposes of applying paragraph 7(1)(b). The federal income tax deduction of $35,547.83 is thus declared to be valid and Mr. Hale's action dismissed as to this first point at issue.

On the second point at issue, involving the sum of $25,000 received by the plaintiff on account of his office of director for Alcan Aluminium Ltd. and one of its subsidiaries, I am also unable to allow the plaintiff's claims.

This second point at issue is covered by section 115 of the Income Tax Act. The relevant subsections of that section set out the following rules:

115.(2) Idem. Where, in a taxation year, a non-resident person was

(c) an individual who had, in any previous year, ceased to be resident in Canada and who was, in the taxation year, in receipt of remuneration in respect of an office or employment that was paid to him directly or indirectly by a person resident in Canada, or

the following rules apply:

(d) for the purposes of subsection 2(3) he shall be deemed to have been employed in Canada in the year,

(e) for the purposes of subparagraph (1)(a)(v), the aggregate determined under this paragraph in respect of the non-resident person is the aggregate of

(i) any remuneration in respect of an office or employment that was paid to him directly or indirectly by a person resident in Canada and was received by the non-resident person in the year, except to the extent that such remuneration is attributable to the duties of an office or employment performed by him anywhere outside Canada and

(A) is subject to an income or profits tax imposed by the government of a country other than Canada, or

(B) is paid in connection with the selling of property, the negotiating of contracts or the rendering of services for his employer . . . or any other person with whom his employer does not deal at arm's length, in the ordinary course of a business carried on by his employer, that foreign affiliate or that person . . .

Under these applicable paragraphs of section 15 of the Income Tax Act, and as a non-resident Canadian, the plaintiff had to include in computing his taxable income any remuneration in respect of an office or employment that was paid to him directly or indirectly by Alcan Aluminium Ltd., except to the extent that such remuneration was attributable to the duties of an office or employment performed by him anywhere outside Canada.

Under paragraph 115(2)(d) of the Income Tax Act, the plaintiff is deemed to have performed his duties as director in Canada. In order to avoid paying tax on the Canadian income, therefore, the plaintiff should have told the Court the exact nature of his position as director for Alcan Aluminium Ltd. in England and thus discharged the burden of showing the Court to what extent certain duties associated with this position were in fact performed outside Canada.

In his testimony to this Court Mr. Hale said that he was very busy, since in addition to his position as director for Alcan Aluminium Ltd. he was also a member of various boards of directors of the Pearson group in England. He accordingly stated that he spent over 60 hours a week with the Pearson group. Without in any way wishing to deny the importance of the duties performed by Mr. Hale, the Court is bound to conclude that the amount of time Mr. Hale could actually devote to Alcan Aluminium Ltd. outside Canada cannot be described as enormous.

As it had no documentation relating to the duties performed by the plaintiff outside Canada, the Department of National Revenue assumed that Mr. Hale was subject to an income tax on 50 per cent of the sum of $25,000 in England, and that accordingly only the sum of $12,500 should be included in computing his taxable income in Canada. I can only concur in this approach by the Department of National Revenue and, in view of the circumstances, can only describe it as very generous.

I accordingly conclude that in the absence of persuasive evidence submitted by the plaintiff to determine how much of his time was spent on his position as director for Alcan Aluminium Ltd., the Department of National Revenue's decision to tax the sum of $25,000 received by the plaintiff for those duties at 50 per cent does not seem in any way unjustified. The second federal tax deduction of $3,750 is thus declared valid and Mr. Hale's claim on this second point at issue dismissed.

The action is dismissed with costs.

Action dismissed.